The Kyrgyz Republic Data Collection Survey on Agricultural Mechanization Final Report the Kyrgyz Republic

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THE KYRGYZ REPUBLIC DATA COLLECTION SURVEY ON AGRICULTURAL MECHANIZATION FINAL REPORT THE KYRGYZ REPUBLIC

THE KYRGYZ REPUBLIC

DATA COLLECTION SURVEY ON AGRICULTURAL MECHANIZATION

FINAL REPORT

March 2014 March 2014

JAPAN INTERNATIONAL COOPERATION AGENCY

(JICA) TASK CO., LTD. KG KATAHIRA & ENGINEERS INTERNATIONAL JR 13-008

英文 087295.2003.26.3.6 作業；清田

Maps of Study Areas

Photos

Plow (3-row) Plow (4-row) Osh province, Karasuu district, Talas province, Talas district, private farmer Tashirova Machine Station

Disc harrow Chisel plow and tooth harrow Chui province, Alamedin district, Adogine Machine Station

Tooth harrow Seeder (24-row) Talas province, Karabura district, private farmer Osh province, Karasuu district, Tashirova Machine Station

Seeder (4-row for beans) Seeder (6-row) Talas province, Bakayata district, private farmer Osh province, Nookat district, Machine Station

Cultivator Boom sprayer Osh province, Karasuu district, Talas province, Bakayata district, private farmer Tashirova Machine Station

Cultivator Broadcaster Osh province, Nookat district, farm

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Bean thresher Combine harvester, 1999 (by 2KR) Made in Turkey, Production year is unknown Osh province, Karasuu district, Talas province, Bakayata district, private farmer Tashirova Machine Station

Combine harvester, Ukraine 1989 Seed sorter (for wheat, barley) Osh province, Uzgen district, Tameka Machine Station Chui province, ZhAiyl district, Reimbek Machine Station

Oil squeezer (electric) Forage harvester Talas province, Bakayata district, Osh province, Nookat district, farm private farmer

Mower, made in Germany, year unknown, purchased 20 years ago Osh province, Uzgen district, Tameka Machine Station

Rake Mower (reciprocating type) Chui province, Alamedin district, Adogine Machine Station

Baler, Production year is unknown Talas province, Talas district, private farmer

Trailer Mobile workshop Osh province, Nookat district, Farmers cooperative Talas province, Talas district, Machine Station

Educational and scientific organization for mechanization

Disassembling tractor engines in practical room Training workshop Vocational school in Talas (Used textbooks from the Soviet period; most are not updated)

Incised tractor model (the Soviet model) Parts of agricultural machinery, classroom with diagrams Tokmok technical college (The agricultural mechanization course at this school closed two years ago due to declining enrollments and government budget cuts.)

CONTENTS Maps of Study Areas Photos Contents List of Figures and Tables Abbreviations / Units of Measurement Summary……………………………………………………………………………………………….S1 Pages 1. Collecting Information and Study Summary ...... 1 1.1 Background of the Study ...... 1 1.2 Purpose of the Study ...... 3 1.3 Research Methodology...... 3 1.4 The Team Members and Study Schedule ...... 5

2. Overview of the Agricultural Sector in the Kyrgyz Republic ...... 6 2.1 Ecological Conditions ...... 6 2.2 Orientation of Agricultural Sector ...... 7 2.2.1 Trend in the Agricultural Sector ...... 7 2.2.2 Trend in Agricultural Production ...... 9 2.3 National Policy of the Agricultural Sector ...... 13 2.4 Structure and Role of Agrarian Sector ...... 14

3. Present Agricultural Mechanization and Problems ...... 17 3.1 Utilization of Agricultural Machinery ...... 17 3.1.1 The Number of Agricultural Machinery ...... 17 3.1.2 Agricultural Machinery Services ...... 19 3.2 Agricultural Machinery Market ...... 21 3.2.1 Import and Export of Agricultural Machinery, and the Domestic Market ...... 21 3.2.2 Spare-Parts Supply ...... 32 3.2.3 Import Procedure and Standards ...... 33 3.2.4 Agricultural Machinery Market in Kazakhstan ...... 34 3.3 Maintenance of Agricultural machinery ...... 38 3.3.1 Maintenance Situation of Agricultural Machinery Before Independence ...... 38 3.3.2 The Present Maintenance Situation of Agricultural Machinery ...... 39 3.3.3 Persons In-Charge of Maintenance and Training ...... 43 3.4 Financing System for Agricultural Mechanization ...... 44 3.4.1 Government Finance Institutions ...... 45 3.4.2 Other Finance Institutions...... 54

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3.5 Customs Union ...... 57 3.5.1 Background and Summary of the Customs Union ...... 57 3.5.2 Impact on Agriculture and Agricultural Mechanization...... 61

4. Analysis of Obstacle Factors to Agricultural Mechanization ...... 63 4.1 Problems of Each Stakeholder ...... 63 4.1.1 Ministry of Agriculture and Land Reclamation (MA & LR), Department of Agricultural Mechanization and Electrical Supply ...... 63 4.1.2 Kyrgyz National Agrarian University, Faculty of Engineering and Technology ...... 63 4.1.3 Technical Colleges and Vocation Schools (agricultural machinery courses) ...... 63 4.1.4 Agricultural Machinery Suppliers ...... 64 4.1.5 Repair Engineers for Agricultural Machinery ...... 65 4.1.6 Aiyl Bank ...... 66 4.1.7 Farmers ...... 69 4.1.8 Agricultural Machinery Service Agencies ...... 71 4.2 Problems of the Agricultural Machinery Market ...... 71 4.3 Problems of Maintenance of Agricultural Machinery ...... 72 4.4 Problems of Financing for Agricultural Mechanization ...... 73 4.5 Causal Relationship of Subjects Concerning All of Agricultural Mechanization ...... 75

Current Status of the Government and Donors Against the Issues of Agricultural Mechanization ...... 78 Investigation of the Kyrgyz Government and Donors ...... 78 Kyrgyz Government ...... 78 Major Donors ...... 78 Other donors (Turkey, China, Eurasian Development Bank) ...... 80 Intervention of the Japanese Government ...... 82 Non-Project Type Grant Aid and Grant Assistance for Underprivileged Farmers (2KR) .. 82 JICA Training ...... 83

Consideration of Directions and Fields for Support Programs for Agricultural Mechanization ... 85 Approach for Promotion of Agriculture Mechanization ...... 85 Fields and Direction of Japanese Government Support on Agriculture Mechanization ...... 88 Possibility of Business Expansion of Japanese Agricultural Machinery Manufacturers ...... 90

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Attachment Attachment 1: List of Interviewees Attachment 2: Number of Tractors and Combine Harvesters in Each Province Attachment 3: Brochure of Manufacturers Attachment 4: Financial Status of Aiyl Bank Attachment 5: Results of Questionnaire Survey Attachment 6: Crop Calendar of Main Crop Attachment 7: Analysis of the Farmhouses that Procured Tractors

List of Figures and Tables

Figure 1-1 The Work Flow of the Research ...... 3 Figure 2-1 Proportion of Each Industry in GDP ...... 8 Figure 2-2 The Organizational Structure of the Ministry of Agriculture ...... 15 Figure 2-3 Departments of Agricultural Mechanization and Electrical Supply ...... 16 Figure 3-1 Number of Tractors and Combine Harvesters In Operation in Kyrgyz ...... 19 Figure 3-2 Aiyl Bank Leasing Procedure ...... 53 Figure 4-1 Issues Relevant to Agricultural Producers ...... 69 Figure 4-2 Index of Retail Prices for Fuel, Flour, Lamb ...... 70 Figure 4-3 Conditions for Selection for Agricultural Machinery Purchases ...... 71 Figure 4-4 Schematic Analysis of the Problems on Agricultural Mechanization (1) ...... 76 Figure 4-5 Schematic Analysis of the Problems on Agricultural Mechanization (2) ...... 77 Figure 6-1 Direction of Promotion of Agriculture Machinery and the Assistance of Japan .... 90

Table 2-1 Land Use by Province ...... 7 Table 2-2 GNI Per Capita and Comparison with Other Neighboring Countries ...... 8 Table 2-3 Percentage of Employment by Industry ...... 9 Table 2-4 Export and Import of Agricultural Products and Foodstuffs...... 10 Table 2-5 Comparison of Fundamental Indicators by Province ...... 12 Table 2-6 Information on the Production of the Main Types of Farming by Region ...... 12 Table 3-1 Number of Agricultural Machinery and the Deficient Number for 2013 ...... 17 Table 3-2 Number of Agricultural Machinery and Implements by Province in 2013 ...... 17 Table 3-3 Number of Combine Harvesters per 1,000 ha of Cereals Planted Area ...... 18 Table 3-4 Tariff of Agricultural Machinery Services by Region ...... 20 Table 3-5 Main Suppliers of Imported Agricultural Machinery ...... 25 Table 3-6 The Number of Tractors and Combine Harvesters in Kyrgyz in 2013 ...... 28 Table 3-7 Retail Prices of Agricultural Machinery (1)...... 29 Table 3-8 Retail Prices of Agricultural Machinery (2)...... 30 Table 3-9 Annual Planted Area and the Number of Agricultural Machinery in Kyrgyz and Kazakhstan ...... 35

Table 3-10 The Number of Tractors Sold in Kazakhstan in 2013 ...... 36 Table 3-11 The Number of Combine harvesters Sold in Kazakhstan in 2013 ...... 37 Table 3-12 Disbursement of Counterpart Fund Accumulated from Non-project Grant and 2KR ...... 45 Table 3-13 List of Loan Products for Supporting Agriculture ...... 47 Table 3-14 List of Leasing Products for Supporting Agricultural Mechanization ...... 48 Table 3-15 Amount of Aiyl Bank Leasing by Agricultural Machinery ...... 50 Table 3-16 Amount of Aiyl Bank Leasing by Year ...... 50 Table 3-17 Amount of Aiyl Bank Leasing by Province ...... 51 Table 3-18 Agricultural Financing Products available in Private Banks ...... 54 Table 3-19 Leasing Performance of Private Banks in 2013 ...... 55 Table 3-20 Overview of Customs Union Member Countries and the Kyrgyz ...... 58 Table 3-21 Possible Effects of Kyrgyz Accession to the Customs Union ...... 58 Table 3-22 Trade Between Kyrgyz and CU Countries, and % of Total Kyrgyz Exports and Imports with each CU Member ...... 60 Table 3-23 Main Trade Between Kyrgyz and CU Members by Category ...... 60 Table 3-24 Changes in Duties Due on Adoption of Common External Tariffs, non CIS Imports ...... 61 Table 4-1 Assets of Aiyl Bank ...... 66 Table 5-1 Results of Non-project type Grant Aid and 2KR ...... 84 Table 6-1 Problems and Countermeasures for Agricultural Mechanization in Kyrgyzstan ..... 93

Abbreviations

Abbreviations Official titles ADB Asian Development Bank CIS Commonwealth of Independent States EBRD European Bank for Reconstruction and Development EU European Union FAO Food and Agriculture Organization FOB Free On Board GDP Gross Domestic Product GNI Gross national Income GOST State Standards of the Soviet Union GOST-R State Standards of the Russia ISO/IEC International Organization for Standardization / International Electrotechnical Commission JICA Japan International Cooperation Agency KICB Kyrgyz Investment and Credit Bank MA & LR Ministry of Agriculture and Land Reclamation MTZ Open Joint Stock Company “Minsk Tractor Works” NGO Non-Governmental Organization ODA Official Development Assistance PPP Public-Private Partnership UNDP United Nations Development Programme USAID The United States Agency for International Development VAT Value Added Tax WTO World Trade Organization WB World Bank 2KR Second Kennedy Round: Grant Assistance for Underprivileged Farmers (Former Grant Aid for the Increase of Food Production)

Units of Measurement

Units Title Description ＜Area＞ ha hectare 1 ha=100 m2 m2 square meter 1 m2=0.01 ha ＜Power＞ hp Horse power kWt kilowatt 1 kWt = 1.34102 hp ＜Currency＞ USD U.S. Dollar 1 USD=50 som=102 Yen (Feb. 2014) Som Kyrgyz som 1 som = 2 Yen (Feb. 2014)

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Summary

1. Background and Objectives of the Study The agricultural sector occupies the largest part of the economy in the Kyrgyz Republic (hereinafter Kyrgyz). In Kyrgyz, 66% of the total population lives in rural areas, and half of the labor force in the country is engaged in agriculture. Agriculture plays an important role in the sustainable development of the economy. As most of the agricultural machinery in Kyrgyz has been used for more than 20 years, it seems as if the available machines will decline over the years because they are decrepit. Inasmuch as deficit agricultural machinery causes the loss of opportunities to harvest crops during harvest season, installation of new agricultural machines is significant as a measure to increase agricultural profit. The Ministry of Agriculture and Land Reclamation (hereinafter MA & LR) decided on a agricultural mechanization policy as one of the main agricultural development strategies, and established an agricultural loan program to purchase agricultural machinery for farmers at low interest rates through state commercial banks in recent years. Therefore, the promotion of agricultural mechanization is expected to be income generating for farmers by increasing agricultural production, and thereby stimulate the economy through the encouragement of agricultural exports. Regarding the situation described above, this study will investigate to reveal the state of the agricultural mechanization policy and its current status and problems, the situation of farmers’ access to agricultural machinery (in particular, the financial system such as loans for agricultural machinery to farmers by government agencies), and the present condition of the agricultural machinery market and maintenance. It will also analyze the possibility of Japanese agricultural machinery manufacturers to expand business in Kyrgyz and its challenges. Throughout this investigation, this study aims to collect basic information to analyze the challenges of implementing policies and systems aimed at the development of agricultural mechanization, and to contribute to define a direction for JICA’s cooperation strategy with Kyrgyz.

2. Brief Description of Research Results The following describes the challenges and problems in each field:  During the research in Kyrgyz, a general policy to increase the level of mechanization of

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agriculture had not been determined. Since January 2014, the new minister of agriculture has acceded, and at the present day, preparatory work for the new mechanization policy has been executed. Only in a description of agricultural sector strategy, is the promotion of machinery leasing explicitly stated in national development strategy as a strategy of agricultural development.  For over 20 years after independence in 1991, the number of agricultural machinery has been decreasing. In particular, the number of tractors declined from 30 thousand to 20 thousand units.  Agricultural machines are purchased in cash, by leasing and loans. Popular machines among farmers are Belarusian tractors (80 hp, price approx. 1 million Kyrgyz soms) and Chinese tractors (90 hp, price approx. 1.1 million Kyrgyz soms), which are selected by price, performance, availability of parts and ease of operation. Also, in small numbers, large-scale farmers acquire European and American tractors (220 hp, price approx. 8 million Kyrgyz soms) which have high power for large farmlands.  Due to a lag in agricultural machinery renewal and the low level of machines’ liquidity, supplies for secondary markets are not sufficient and the price of them remains high.  Individual farmers who have limited land area do not have enough information on agricultural machines for rice, for example.  Since 2011, the state bank "Aiyl Bank" started to provide low-interest leases to farmers for the purchase of agricultural machinery, and since then the sales of machines has been increasing. However as of January 2014, due to the lack of financial resources of the bank, approximately 150 farmers who passed leasing probation have been waiting and still cannot obtain the machines in a timely manner.  Despite the high combine harvester price, which is 4 times more expensive than the tractor, their leasing conditions are the same as the tractor. This severe condition leads to a low level of combine leasing.  In recent years, some large-scale farmers who are able to purchase machines in cash are emerging.  Regarding the procedure for the leasing probation, the bank paid much more attention to farmers’ existing capital and financial situation rather than to future capacity of income generation by installation of agricultural machinery, such as additional income growth of agricultural machine services and the decrease of harvest losses due to appropriate harvesting.

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 Suppliers of agricultural machinery in Bishkek provide repair services to customers across the country by using mobile workshops and spare parts inventory.  Farmers can purchase Belarusian and Chinese tractors’ spare parts not only of the regular dealer brand, but also from outside normal channels such as spare parts shops at the bazaar where farmers can buy genuine parts and cheap imitation parts.  Most farmers are engaged in repair, maintenance and dismantling of agricultural machinery by themselves. This led to causing the possibility of down-skilling by inappropriate operation.  Farmers do not have sufficient knowledge, skills and experience in agricultural machines, farm management and cultivation techniques.  Because 30 percent of harvested crops are lost by using obsolete harvesting machines, already-low yield by low-productivity became much lower.  Due to the lack of equipment for postharvest treatment, processing and crop warehouse, there is no opportunity to increase value-added products.  There are some farmers who cannot access agricultural machinery services due to its high service fees and the decrease in the total number of machines.  In regional vocational schools and colleges, there are cases of student shortages and the closing of courses on agriculture, because of obsolete training equipment and outdated facilities for students.  Irrigation infrastructures were built during the Soviet era, therefore many of them are not working well due to their decrepit state. As a result of this situation, farmers’ income became more unstable because farmers have to depend on unpredictable rainfall for their cultivation.

3. Directions of Agricultural Mechanization Based on the above challenges, the direction of development of agricultural mechanization in Kyrgyz can be defined as follows, "Improving the quality of agricultural machinery (performance), and increasing agricultural productivity by increasing the number of machines". In other words, "An increase in agricultural productivity by renewal of the outdated agricultural machinery, as well as to accelerate the process of installation of new machines to cover the lack of mechanized operations". By achieving the direction of agricultural mechanization, the reduction tendency of the machinery numbers will be stopped, and furthermore, appropriate timing cultivation, reduction of harvesting losses and expansion of cultivated land areas will be

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improved. These transfigurations can contribute to the final sector targets, “Increasing agricultural production”; “Improvement of productive efficiency”; and “Settlement of social issues of small-scale farmers”. Currently, a leasing program is one of the main sources of agricultural machinery renewal and new purchases except for large scale-farmers, and this significant role of the program is expected to continue. However, since the current scale of the program is not sufficient to supply enough machines, the program needed to be scaled up. In addition, there are some challenges not only in the leasing program itself, but also with MA & LR, farmers and financial agencies. The following describes some of the tasks and countermeasures according to the degree of priority and importance.

Strengthening Structures and Systems to Enhance Agricultural Mechanization No description about priority measures and policies for improving the situation of agricultural mechanization had been clearly mentioned in a policy paper when the study team investigated in the country except for the promotion of a leasing program and public-private partnerships: PPPs. From now on, basic policy making is a prerequisite to promote agricultural mechanization by providing notification of the procedure of the mechanization strategy: determine to whom, when and how to act, towards other government agencies, private sectors, international donors, NGOs and others stakeholders, in order to promote their cooperation. Additionally, the government also has to develop an organizational structure, in particular, strengthening human resources development. Agricultural machinery and equipment are just one part of agricultural inputs, therefore it is also necessary to pay attention to the availability of other inputs such as seeds, fertilizers and pesticides, the interaction between other departments of the Ministry, i.e. about the diffusion of new cultivation techniques and improvement of agricultural management, and the development of cooperation with other agencies for training.

Strengthening the Leasing Program Since the leasing program that aims to purchase agricultural machinery has begun by the state agricultural bank, Aiyl Bank in 2011, renewal of agricultural machinery has been proceeding steadily. But there are some obstacles to the development of leasing activity, such as a lack of underlying assets, lack of human resources, strict leasing conditions and procedures for leasing probation. As of January 2014, approximately 150 farmers who finished and passed leasing probation are still waiting to receive new machines because the bank does not have enough

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underlying assets for new machines. At present, most of the leasing machines are tractors which are cheaper than combine harvesters, but still only a limited number of farmers can afford to buy these machines. Hence, it is necessary to rethink the condition for leasing and procedure for leasing probation in order to expand targeted beneficiaries, without decreasing the collection rate. In the future, the demand for agricultural machinery is expected to shift from tractors to combine harvesters. There are still difficulties in increasing the numbers of combine leasing due to its strict leasing condition which is the same as the tractor, even though combines are much more expensive than tractors. Thus, the leasing conditions of combine harvesters also need to be reconsidered for further development of the leasing program. Moreover, the government needs to regard the creation of accessibility to machinery services for small-scale farmers by providing incentives such as tax benefits, especially in a small density farmland area like the southern part of the country. In Kyrgyz, there is approximately a demand for 25,000 tractors for renewal or additional purchase which counts in the total deficient numbers and more than 20 year old tractors. 2,500 tractors leased per a year will be needed to fulfill these demands within the decade, but only about 650 tractors (totaling 13 million USD) were leased by Aiyl Bank in 2013. In order to introduce 2,500 units a year just through leasing by Aiyl Bank, the bank will need to increase funding and the number of staff needs to be quadrupled. Although private banks have also engaged in leasing programs, annual interest rates are about 15 percent higher than the Aiyl Bank’s one. So users of other commercial banks’ loan are quite limited currently. In order to expand the leasing programs of private banks to leverage funds and human resources of private commercial banks, the government should also consider at least setting equal leasing conditions by interest subsidy. Fostering human resources that are related to leasing probation for state banks and private commercial banks and increasing capital with low interest rates from donors are necessary for development. Additionally, banks should reconsider criteria for leasing probation which is currently neglected in the management plan after investment, such as cost reduction by installation of agricultural machinery, decrease in opportunity cost by appropriate timing cultivation, and income generation by machinery service. As a result of this transformation of leasing probation, more farmers can afford the leasing programs. From other aspects, the banks should support farmers through development and the provision of agricultural insurance as a financial product for farmers who rely on unstable rain-fed cultivation.

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Increasing the Capacity of Farmers As for leasing from Aiyl Bank, the last 3 financial years should result in profitable operations. And if farmers pay 30% of the total machinery costs in advance, farmers are not required to provide collateral for leasing services. Although a certain number of farmers cannot meet the current terms of the lease like the above conditions, there are possibilities for a favorable financial status for leasing, by improving cultivation technology, the selection of cultivated crops, and improving management practices. It is necessary to introduce cultivation technology and improve farm management skills of these farmers to increase the number of leasing users. In most cases, farmers who have agricultural machines purchase spare parts, conduct repair and maintenance themselves, sometimes including engine overhaul. Without having enough knowledge, skills, experience and the appropriate tools, there is the likelihood that the operation will lead to deterioration in functioning. Therefore, farmers should be trained to correct their operations, the manner of repair and the methods of maintenance. If so, farmers can continue to use their agricultural machines more efficiently by maintaining existing performance levels. Although there is no public agricultural extension service in Kyrgyz, there are many vocational training schools of agriculture and technical colleges around the country. At these schools and colleges, students can study about cultivation techniques, agricultural machinery operation, repair and maintenance by using actual machines. It is significant to the encourage capacity building of these organizations. The government should consider establishing short term courses for farmers during agricultural off-season to improve cultivation technologies, repair and maintenance techniques of agricultural machinery, and agricultural management skills.

Improving Infrastructure to Ensure Stable Production The decrepit state of irrigation facilities leads to a decline in the function and efficiency of them, thus farmers have tended to choose rain-fed cultivation in recent years. To ensure agricultural income generation and the improvement of income stability, it is imperative that there is proper maintenance and rehabilitation of decrepit infrastructures.

3.1 Directions of Japanese ODA Basically, Japanese cooperation should be conducted with the above described development directions. Despite the existing problems about resources in the host country, the following describes the scope of possible cooperation: (1) Technical cooperation for the development of agricultural mechanization strategies and institutions (experts and trainings)

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(2) Increase in leasing capital and advice for the leasing institution (loan, experts and trainings) (3) Provision of 2KR agricultural machinery for the leasing program (4) Supports for agricultural finance and agricultural insurance institutions except for leasing (experts and trainings) (5) Supports for improvement of farming practice (agricultural technologies, management skills) (technical cooperation project) (6) Renewal of training equipment (agricultural machinery, tools, textbooks, repair facilities) in vocational training schools and technical colleges (grant assistance for grassroots projects) (7) Supports for the provision of maintenance equipment of irrigation infrastructures, or rehabilitation of irrigation facilities (loan and grant)

Schematic Description of Japan's Cooperation for the Promotion of Agricultural Mechanization

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Description of Japanese Cooperation

Scope of cooperation Method Contents Consultations on Dispatch of  Consultation on formulation of agricultural policy, agricultural policy experts including measures for agricultural mechanization  Promoting a greater understanding for Japanese development assistance  Analysis and consultation on the proposals for cooperation with Japan  PR activities of Japanese cooperation in the agricultural sector Improvement of Technical  Investigation of cultivation methods, method of cultivation cooperation, treatment after harvesting and storage technologies technologies and farm Dispatch of (identifying issues and consideration of measures) management experts,  Research methods of management and the financial Trainings conditions of farmers (identifying issues and consideration of measures)  Investigation of the agricultural market (by region, province, city and country)  Instruction in writing business plans and setting of business objectives against farmers (target markets, product selection (crops), sales methods, required equipment, investment analysis, etc.)  Instruction of various records (cultivation record, account book, etc.)  Instruction of cultivation technologies and farming management Consultations on Dispatch of  Consultation for agricultural machinery leasing financial policy experts, which suits the actual situation of farming Trainings management (appropriate leasing conditions, contents of preferential treatment for machinery services, contents and standards of leasing probation)  Installation consulting leasing conditions in accordance with the state of the farm, the priority measures to increase services technology, standards and content expertise Consulting and Dispatch of  Development and improvement of agricultural development of experts, insurance and agricultural loan agricultural financial Trainings services Provision and Grassroots  Provision and upgrading of training equipment in upgrading of training projects vocational technical schools (hand and specialty equipment in tools, measuring instruments, welder and other vocational technical primary repair and maintenance equipment) schools Equipment provision Grant projects  Provision of equipment including construction for the maintenance machines for maintenance and operation of and management of irrigation facilities irrigation facilities  Rehabilitation of decrepit irrigation facilities Rehabilitation of Loan and grant  Rehabilitation of decrepit irrigation facilities irrigation facilities projects

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3.2 Possibilities of Japanese Manufacturers to Expand Business in Kyrgyz Regardless of the types of agricultural machinery and equipment supplied to the Kyrgyz market, the market size of Kyrgyz is quite limited due to its population. Therefore it is difficult to expect the sufficient return on investment (marketing costs, formulation of dealer channels, spare parts provisioning, after-sales service, etc.). The Kyrgyz market should be considered in the complex neighboring countries such as Kazakhstan and others. In order to verify and demonstrate machinery performance (accuracy and efficiency of operations, fuel consumption, and so on), the manufacturer should try to examine their machines under the on-site farming condition by using opportunities to test their machines in Kyrgyz, like participating in agricultural machinery exhibitions. The government of Japan can partially support these types of efforts by the private sector of Japanese manufacturers by offering an incentive for expanding business into Kyrgyz.

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1. Collecting Information and Study Summary

1.1 Background of the Study

The agricultural sector occupies the largest part of the economy in the Kyrgyz Republic (hereinafter Kyrgyz). The sector accounts for 22.1% of the total gross domestic product and approximately 14 % (213 million U.S. dollars) of the total export value in 2011. In Kyrgyz, 66% of the total population lives in rural areas, and half of the labor force in the country is engaged in agriculture. Agriculture plays an important role in the sustainable development of the economy. Despite this situation, the income of farmers remains at a low level, which is approximately 35 % to 50 % compared with other industries. As a result, most of the rural population lives in conditions below the poverty line level. Therefore, the reduction of poverty in rural areas is considered one of the most important tasks. In Kyrgyz, after the collapse of the Soviet Union in 1991, collective farms (kolkhoz) and state farms (sovkhoz) were dismantled, and land was distributed to individual farmers who own land as small segmentalized farms, depending on the number of persons in a household. This agrarian reform caused some negative effects such as the loss of efficient market access due to the elimination of the national buyback program, high-cost structures, loss of financial access, and the decline of agricultural inputs. As a result of this transformation, inefficient small-scale farming became mainstream in agriculture in Kyrgyz. According to the statistical data of the Ministry of Agriculture and Land Reclamation (hereinafter MA & LR) in 2013, 87% of agricultural machinery in Kyrgyz is over 20 years old. In Kyrgyz, there are approximately 20,000 units of tractors. Of these, 17,000 tractors are over 20 years old, and others are comparatively new including 842 units supplied by Japanese non-project grants and Japan Second Kennedy Round (hereinafter 2KR) grant aid programs, and also supplied by approximately 2,500 units by Chinese grant aid which matters. According to the FAO’s survey data, 30% of harvested crops are lost due to shortages in agricultural machinery and this caused opportunities lost to the timely harvest of crops. Hence, expansion of agricultural machinery is significant as a way to increase agricultural production. According to the MA & LR, the total number of agricultural machinery supplied from 1995 to 2009, was 5,252 units (including implements), of these 2,870 tractors. Financial assistance for agricultural machinery from international donors are: first place, Chinese grants and second place, Japan; others are the World Bank, the USA, and Turkey. Most of the machinery supplied are Belarusian and Polish products, but in recent years German and American machinery is

increasing through the USAID program. The machinery from these countries represents approximately 10 % of the required number of tractors. Although the majority of currently used machines are from the former Soviet Union, it is assumed that the number of machinery in working condition will be reduced from year to year as a result of further their decrepit condition. In the field of agricultural development of Kyrgyz, JICA has been working on the following projects, “The study on effective management of agriculture and the processing industry in the Kyrgyz Republic” (2004-2007), “The Project for The Support for The Dissemination of Biogas Technologies” (2007-2011), Regional Training “Agricultural Mechanization for Central Asia and Caucasus” (2009-2013), “Project for promotion of exportable vegetable seed production” (2013-present), “Dissemination of organic farming in Kyrgyzstan” (Grass-roots cooperation project) (2013 - present). Japanese assistance totals approximately 10 billion Japanese yen for the provision of agricultural machinery, fuels and fertilizers through “Non-Project Grant Aid for Structural Adjustment Support” from 1994 to 2002, and “Grant Assistance for Underprivileged Farmers (former Food Aid)” from 1996 to 2005. However, currently these programs have stopped due to a low execution rate of counterpart funds in Kyrgyz. The MA & LR decided on an agricultural mechanization policy which was supported by FAO as one of the main agricultural development strategies, and established an agricultural loan program which was operated by MA & LR previously, to purchase agricultural machinery for farmers at low interest rates through state the commercial bank, Aiyl bank, in recent years. (Japanese 2KR’s counterpart fund also was utilized for this program.) Under these circumstances, the promotion of agricultural mechanization in Kyrgyz is expected to generate income growth for farmers by increasing agricultural production, and thereby stimulate the economy through the encouragement of agricultural exports. This future expectation matches JICA’s direction of Kyrgyz assistance (promotion of agriculture and business for fostering exporting industry which targeted mainly agriculture and related industries). In addition, by collecting basic information such as the government’s policies which relates to agricultural mechanization, the overall policy direction, institutional validity of agricultural machinery’s provision and leasing, and the current situation of rural areas, and analyzing them, it can be expected to encourage the consideration of future cooperation approaches more efficiently.

1.2 Purpose of the Study A main purpose of this study is basic data collection for the mechanization of agriculture in Kyrgyz. In order to conduct data collection and the development of directions, it is necessary to consider the contents of the previous chapter, “1.1 Background of the study”. It is also necessary to clarify the situation of farmers’ accessibility to agricultural machinery (especially in the accessibility of financial institutions such as the loan or leasing system to purchase agricultural machines by the government), agricultural machinery markets and the current situation of the maintenance of machines, and the possibility of the Japanese agricultural machinery manufacturer (hereinafter “Japanese manufacturer”) to expand business into Kyrgyz and its challenges. This study aims to analyze issues of obstacle factors for policies, institutions and implementations to promote agricultural mechanization in Kyrgyz, and basic data collection for the development of the JICA’s cooperation directions. 1.3 Research Methodology The below figure is the work flow of the research. This research used a combination of several approaches based on the below work flow. First, the team investigated the current situation in Kyrgyz. Second, it analyzed identified issues, and examined countermeasures by considering the current situation of the government, donors and private sectors. Lastly, the team investigated the direction of agricultural mechanization development on the basis of Kyrgyz agricultural development strategies.

Confirmation of current situation Circumstances of agriculture and mechanization (statistics, reports, interviews, questionnaires)

Identify issues and analysis

Situation of the government, donors, private sectors against the issues

Consideration of countermeasures

Agricultural development strategies of the government

Directions of development

Figure 1-1 The Work Flow of the Research

(1) Literature research, basic information and existing data analysis The JICA study team visited the MA & LR, the Ministry of Finance, the Ministry of Education and Science, the Ministry of Work, Migration and Youth, the Kyrgyz National Agrarian University, other donor agencies, banks, agricultural machinery dealers, and spare parts shops. By visiting these places, the team collected various types of reports, plans, regulations, statistical data, price information and so on. After that, the team reviewed and analyzed this information and other literature and data.

(2) Field research In addition to reviewing and analyzing the above literature and data, the JICA team conducted interviews in order to understand the actual situation of agricultural mechanization. During the field research, the team visited the Department of Agricultural Development, corporate farms and agricultural cooperatives in Talas province, Chui province and Osh province. Interview contents focused on the situation of cultivation, information about holding machines, the usage situation of machines, the situation of maintenance, the circumstances of machinery services to other farmers and the availability of spare parts and so on.

(3) Field questionnaire research by local consultants Local consultants researched a total of 72 units of farmers in 7 provinces (10 to 12 units in each province), including the areas that the JICA team could not visit to collect the information, about the situation of cultivation, the information about holding machines, the usage situation of machines, the situation of maintenance, the circumstances of machinery services to other farmers, the availability of spare parts and the possibility of future machinery purchase by the questionnaire. From among the range of middle and small-scale farmers in those areas, interview objects were selected by farmers who have agricultural machinery, recipient farmers of machinery services and farmers who cultivate without machines with the cooperation of stakeholders in the districts and villages. Regarding large-scale farmers, the JICA team conducted interviews during the field research.

(4) Data arrangement and analysis Collected basic information and the research results based on the above methodologies were analyzed in three sub-sectors: the market, maintenance and finance, and also analyzed according to each stakeholder who relates to mechanization, and then identified issues of mechanization. Afterwards, the JICA team considered suitable countermeasures for each challenge in

accordance with Kyrgyz government’s directions of agricultural development. As a result of this procedure, the team coordinated the direction of Japanese cooperation and assistance.

1.4 The Team Members and Study Schedule

The JICA team was organized by 6 members. The following are the study team members and their assigned areas.

Mr. Yasunobu Kudo (TASK Co., Ltd.) Leader/Agricultural Policy

Mr. Kiyohito Kobayashi (Katahira & Engineers International) Market research of Agricultural machinery

Mr. Koji Yamaguchi (TASK Co., Ltd.) Maintenance of Agricultural machinery

Ms. Masako Suzuki (Katahira & Engineers International) Financial institution

Mr. Mamoru Hatano (TASK Co., Ltd.) Social research in rural areas/Project coordinator

Mr. Rasul Abdukadirov (Katahira & Engineers International) Translator (Russian)

The field research was scheduled for 50 days, from January 9, 2014 to February 27, in Bishkek, Chui province, Talas province, Osh province for field research (farms, farmers’ cooperatives, agricultural machinery dealers, banks, etc.), and field questionnaire research by local consultants in all 7 provinces (10 to 12 units in each province). Additionally, the team visited the capital city of a neighboring country, Almaty in Kazakhstan to collect related information from agricultural machinery dealers and Japanese trading companies.

2. Overview of the Agricultural Sector in the Kyrgyz Republic

2.1 Ecological Conditions

Kyrgyz lies in the northern latitude, 39 degrees and 44 degrees, and to the eastern longitude, 69 degrees and 81 degrees. Kyrgyz is a landlocked country which is surrounded by China (east), Kazakhstan (north), Uzbekistan (west), and Tajikistan (south-west). It has a total area of 199,000 square kilometers (approximately half the size of the Japanese land area). Kyrgyz is a mountain country where 94% of the total land area is at an altitude over 1,000 meters, and 40% is at an altitude over 3,000 meters. Only one-sixth of the land area is at an altitude below 1,500 meters and these areas are mainly the outskirts of the northern mountain area, a moisture-laden windy area, and the southwest Fergana Basin peripheral area. In Kyrgyz, forest areas are just only 3% of the land area.

Climate of Kyrgyz The country’s climate is wholly a continental arid climate, with low precipitation, annual and daily temperature ranges are wide. Due to climate conditions, it will have high temperatures during the summer season and have harsh cold winters. Below altitudes of 2,000 meters are semi-desert or steppe, and above altitudes, a subalpine zone. Moreover, above 3,000 meters is the vegetation zone, alpine meadow. As mentioned before, most of the land areas in Kyrgyz are at an altitude over 1,000 meters, and there are Pamir mountains and Altai mountains. Therefore, the temperature difference is extreme by area too. Although the country’s annual average precipitation is 553 mm, real differences are significant, like in temperature. The differences vary from approximately 150 mm in the Fergana Basin area to 1,000 mm in the mountainous areas. From a perspective of the differences by province, in Chui province, Talas province and Osh province, rainfall mainly occurs during the spring season from February to May, and summer season is generally dry season. Meanwhile, in Yssyk-kul province and Naryn province, mainly mountainous areas, rainy reason is generally from spring to summer, and dry season is from November to February, during winter season. This kind of reverse phenomenon is one of the main characteristics of an alpine climate, and by utilizing this characteristic it is popular for livestock pasturing in the highland areas during summer season, which is generally cool and rainy. In terms of agriculture in Kyrgyz, rainfall is limited to certain terms in each province, so there are severe limitations for rain-fed cultivation.

Land Use in Kyrgyz The current situation of land use in Kyrgyz is shown in Table 2-1. The total land area is 199,900 square kilometers (19,990,000ha) and of this arable land area, including fallow land and uncultivated land, is 1,276,800 ha, which accounts for 6.4% of the total land mass. Regarding land area and sown land area by province, since most of the land areas in Naryn province and Yssyk-kul province are mountainous areas, there is limited arable land in the province. Therefore the provinces have lower proportions of sown areas against a high proportion of land areas, than other provinces. On the other hand, Chui province has just 10% of the total land area, but sown area is more than 30% of the nation. As shown by these numbers, Chui province has a larger scale of sown area per capita compared to the southern area and mountain area, and comparatively large-scale land use. However, as mentioned above, most land in Kyrgyz is mountainous area, hence there are limited flatlands for large-scale cultivation. Table 2-1 Land Use by Province (2013)

Landarea Sown area Planted area Fallow land Perennial grass land Abandoned farmland

% of the % of the % of the % of the % of the % of the (1000ha) (1000ha) (1000ha) (1000ha) (1000ha) (1000ha) nation nation nation nation nation nation

The Kyrg yz Republic 19,990 1,276.8 1,170.4 4.4 2.8 100.4 Chui 2,020 10.1% 419.4 32.8% 406.2 34.7% 1.2 27.5% 2.0 71.4% 10.1 10.1% Talas 1,140 5.7% 117.5 9.2% 103.4 8.8% 0.0 0.2% 0.4 14.3% 14.0 13.9% Yssyk-kul 4,310 21.6% 191.3 15.0% 176.3 15.1% 0.5 11.4% 0.04 1.4% 14.5 14.4% Naryn 4,520 22.6% 121.0 9.5% 102.4 8.7% - - 0.1 3.6% 18.5 18.4% Osh 2,900 14.5% 188.5 14.8% 175.1 15.0% 2.0 45.5% 0.2 5.4% 9.6 9.6% Jalal-abad 3,370 16.9% 165.5 13.0% 146.3 12.5% - - 0.04 1.4% 19.5 19.4% Batken 1,700 8.5% 73.6 5.8% 60.7 5.2% 0.7 15.9% 0.03 1.1% 14.3 14.2% Source: MA & LR

2.2 Orientation of Agricultural Sector

2.2.1 Trend in the Agricultural Sector

Gross National Income (GNI) per capita in the country is 2,230 USD (2012) and has increased steadily in recent years. However, compared to other Central Asian countries, the figures are still the second lowest after Tajikistan (See Table 2-2). The United Nations indicated Kyrgyz as a Landlocked Developing Country (LLDC), disconnected from the ocean, so the country is geologically unfavorable from a perspective of transportation, and has special needs for development. In 2011, 5.0 % of the total population in Kyrgyz lived under the poverty line (1.25 USD per day constitutes the poverty line), and 21.6 % of the population lives with less than 2 USD a day. Although the current figures are dramatically improving compared to 22.9 %

(below 1.25 USD a day) and 45.8 % (below 2 USD a day) in 1995, almost one-fifth of the population still lives in poverty. Especially, in the rural areas, 40.4 % of people live under the rural poverty line (percentage of the rural population living below the national rural poverty line), which means that poverty in Kyrgyz is not equally distributed around the country, but concentrated in the rural areas. 1 Table 2-2 GNI Per Capita and Comparison with Other Neighboring Countries (Unit: USD) Country 2004 2005 2006 2007 2008 2009 2010 2011 2012

Kyrgyz 1,610 1,660 1,780 1,970 2,110 2,150 2,070 2,180 2,230

Kazakhstan 7,240 7,850 8,690 9,510 9,650 10,010 10,440 11,070 11,780

Uzbekistan 1,830 2,000 2,170 2,520 2,810 2,930 3,120 3,390 3,670

Tajikistan 1,270 1,370 1,480 1,630 1,770 1,800 1,890 2,040 2,180

Turkmenistan 4,060 4,430 5,230 5,890 6,630 6,940 7,390 8,260 9,070

Source: World Bank, “World Development Indicator”

As shown in Figure 2-1, the proportion of the agricultural sector contributing to the GDP has tended to decrease recently from 30 % in 1990 and 40 % in 1995 to 19 % in 2010. However, from a perspective of the labor population, 34 % of the population is still engaged in the agricultural sector (Table 2-3). As the sector has high employment capacity, the agricultural sector is still a basic country industry.

100% 90% 80% Service 70% Industry 60% Agriculture 50% 40% 30% 20% 10% 0% 1990 1995 2000 2005 2010

Source: World Bank, “World Development Indicator” Figure 2-1 Proportion of Each Industry in GDP (%)

1 World Bank, “World Development Indicator”

Table 2-3 Percentage of Employment by Industry (%) 1990 1995 2000 2005 2008 Agriculture 32.7 47.2 53.1 38.5 34.0 Industry 27.9 16.7 10.5 17.6 20.6 Service 39.4 36.1 36.5 43.9 45.3

Source: World Bank, “World Development Indicator”

2.2.2 Trend in Agricultural Production

Since most of Kyrgyz land areas are mountainous and steppe, Kyrgyz has a long history with livestock pasturing. After the independence from the former Soviet Union, the government has encouraged wheat production at lower altitude areas in order to encourage the ratio of national food self-sufficiency and to prevent destruction of the environment through overgrazing. After the production drop due to disruption resulting from independence in early 1990s, food production has shown the tendency to steadily increase. However in the latter 1990s, agricultural production gradually decreased due to structural issues caused by land reform and the structural transformation from large-scale farming to small peasant farming. Along with the increase in wheat production, shifting from wheat production to more profitable crops, such as barley and maize, increased gradually. Also in the cultivation area for cash crops such as cotton, beat and tobacco, crop changes from cash crops to vegetables and fruits have been encouraged due to a decrease in purchase price and an increase in agricultural inputs prices, including fertilizer, in recent years. Since 2002, agricultural production in Kyrgyz has stagnated, and the proportion of the agricultural sector contributing to the GDP has decreased from 34% in 2000 to below 20% in 2010 (Table 2-1). While agriculture is the basic industry in Kyrgyz, supply of agricultural products by domestic production is not sufficient to fulfill national demands for agricultural products. Most agricultural product consumption exceeds its national production. Therefore, national consumption depends on imports from other countries (Table 2-4). Food imports are increasing and along with the rise in food demand, Kyrgyz imports wheat and its flour from Kazakhstan, fruits from China and milk and dairy products from Russia. Grain production, which occupies more than 60% of the arable land area, has been decreasing by 18% in production since 2004, due to the inflow of cheap wheat to Kyrgyz, mainly from

Kazakhstan, and their quantities are increasing in recent years2. Regarding the current tendency of agricultural exports, vegetables and fruits from Russia, and milk and dairy products from Kazakhstan are increasing. In the former Soviet Union, cotton cultivation was encouraged in the Fergana Basin peripheral area and cotton was the main agricultural export product until 2003, but recently it has shown a dramatic decline. Although beef cattle and poultry were also former major export products of Russia and Kazakhstan, export quantities were considerably diminished because of the establishment of sanitation requirements for Kyrgyz’s products in these countries. However, there is a generous amount of border trade that occurs with China and Kazakhstan, invisible in statistical data; these restricted items also are distributed and it is expected to increase several fold the agricultural products and food trading scale, as shown in Table 2-4. Table 2-4 Export and Import of Agricultural Products and Foodstuffs （100 million USD） 2007 2008 2009 2010 Exports 201.2 218.6 188.2 165.1 Imports 376.5 538.7 506.6 426.2 Balance -175.3 -320.1 -318.4 -261.1

Source: FAO, 2011, “The Kyrgyz Republic opportunities and challenges to agricultural growth”

Trend in agricultural production by province Kyrgyz consists of seven provinces and two municipalities. The following is an overview of agricultural production by province (see Table 2-5, 2-6). Chui province is the most popular area of agricultural production in Kyrgyz, using the border plain field area near Kazakhstan. Production volume of wheat, barley, maize and vegetables are the biggest in the country, and yields of main agricultural products are at a higher level than other provinces. Although the sown area accounts for 32% of the nation, farm households are just 17% of the total number in Chui province. This means that farmland per one farm household is comparatively larger than other provinces, and larger scale farming is implemented in this province. Also, livestock farming, especially beef cattle and yak are popular in this area against a background of demand for dairy products in Bishkek city and Kazakhstan. In Talas province, wheat, beet, potato, vegetable, tobacco and pasturage are main products. In recent years, especially, the cultivation of white haricot beans is growing and many farmers

2 FAO, 2009, “The Kyrgyz Republic, farm mechanization and agricultural productivity”

have a willingness to cultivate the crop due to higher cash income compared to staple food like wheat. Additionally, potato production is the second largest in the country and its yield is also at a high level. In Yssyk-kul province, wheat, potato, beet, vegetable and apple are the major crops of this area. This province has a relatively high altitude area like Naryn province, hence the agricultural style tends to be wheat, barley and potato production and stockbreeding, suitable for the highland area. In particular, potato cultivation occurs in an overwhelming majority of the nation, which is the top production and on sown land, in addition to producing a high yield level. In Naryn province, farmers generally cultivate wheat, potato and vegetable. Since this province is located in the highland area, there are climate and farmland limitations. Due to the limitation of arable land, livestock, including horses, sheep and goats are popular here. Therefore wool and meat are signature agricultural products in this province. Besides barley cultivation, feedings stuffs are also comparatively popular in this province. In the south provinces, cultivation items vary from the northern areas and include wheat, cotton, tobacco, vegetable, fruits (apple, berries) and rice. Maize, which is not appropriate for the highland area, is third in production and cultivation in this area of the country, and yield is relatively higher than other provinces. While this province includes the highly populated Osh city, and market accessibility is favorable, agricultural machinery holding numbers are the second highest after Chui province. Wheat, cotton, tobacco, potato, vegetable, grape, and oilseed are cultivated in Jalal-abad province and livestock (especially sheep, goat, cattle) are also popular here. The province is located in Fergana Basin and the peripheral area; vegetables and fruits have been cultivated here in recent years against a background of a warm climate. Although the cultivated area accounts for just 13% of the nation, the number of farm households constitutes 25% of the country. Farmland per person is relatively smaller than other provinces, and small-scale farmers are a majority in this province. In Batken province, tobacco, cotton, maize, rice, grape, apricot and wheat are cultivated. In particular, fruit production is the highest in the country. This province has the smallest farmland per capita, although, some specific crops, such as fruit, are popular by utilizing the limited farmland space and the favorable climate in this province.

Table 2-5 Comparison of Fundamental Indicators by Province

2013 2013 2013 2012 Number of farm Total landarea Poverty Population Cultivation area Province Area household rate (Number (people) （％）（％） (1000ha) （％） (1000ha) （％） of houses) （％） The Kyrgyz Republic 5,663,100 100% 357,127 100% 19,995 100.0% 1,170.4 100.0% 37% Chui Northmiddle 1,733,000 30.6% 58,824 16% 2,030 10.2% 406.2 34.7% 17% Talas Northwest 239,500 4.2% 21,620 6% 1,140 5.7% 103.4 8.8% 40% Yssyk-kul Eas t 453,400 8.0% 31,796 9% 4,310 21.6% 176.3 15.1% 28% Naryn Southwest 268,000 4.7% 38,391 11% 4,520 22.6% 102.4 8.7% 40% Osh Southeast 1,434,500 25.3% 82,146 23% 2,920 14.6% 175.1 15.0% 51% Jalal-abad Middlewest 1,076,700 19.0% 89,430 25% 3,370 16.9% 146.3 12.5% 51% Batken Southwest 458,000 8.1% 34,960 10% 1,700 8.5% 60.7 5.2% 34% Note: The data of Chui includes the data of Chui city and the data of Osh includes the data of Bishkek city. Source: National Statistics Committee, MA & LR

Table 2-6 Information on the Production of the Main Types of Farming by Region (production, crop area, yield)

Wheat Barley Maize Potato Province Production Planted area Yield Production Planted area Yield Production Planted area Yield Production Planted area Yield (ton) (ha) (Mt/ha) (ton) (ha) (Mt/ha) (ton) (ha) (Mt/ha) (ton) (ha) (Mt/ha)

The Kyrgyz Republic 799,800 377,424 2.119 233,800 123,287 1.896 446,400 74,451 5.996 1,379,200 84,880 16.249

Chui 366,800 150,867 2.431 154,700 71,633 2.160 139,100 22,555 6.167 34,400 2,526 13.618

Talas 25,600 12,064 2.122 2,400 1,556 1.542 34,500 5,675 6.079 102,500 7,314 14.014

Yssyk-kul 136,900 71,595 1.912 38,700 22,559 1.716 －－－552,800 32,416 17.053

Naryn 36,200 17,978 2.014 19,600 10,131 1.935 500 94 5.319 80,900 5,762 14.040

Osh 139,100 67,463 2.062 9,800 6,876 1.425 108,400 16,239 6.675 164,100 10,788 15.211

Jalal-abad 62,000 34,755 1.784 2,700 2,896 0.932 125,900 23,234 5.419 267,600 15,673 17.074

Batken 33,100 22,702 1.458 5,900 7,636 0.773 38,000 6,654 5.711 176,900 10,401 17.008

Vegetable Beef cattle Dairy cattle Swine Sheep,Goat Horse Livestock Province Production Planted area Yield (head) (head) (head) (head) (head) (head) (ton) (ha) (Mt/ha)

The Kyrgyz Republic 820,900 42,793 19.183 1,032,472 534,740 10,130 4,260,446 318,014 2,921,587

Chui 338,600 18,038 18.771 249,939 120,227 48,536 563,647 47,923 1,709,179

Talas 76,800 3,798 20.221 65,353 33,107 789 487,388 23,513 271,319

Yssyk-kul 44,800 2,690 16.654 184,907 93,667 9,015 771,457 81,096 790,532

Naryn 5,700 491 11.609 133,518 70,925 0 916,046 93,232 171,800

Osh 116,500 6,572 17.727 317,534 161,392 329 988,525 82,862 795,740

Jalal-abad 203,300 9,136 22.253 266,614 142,686 374 1,090,140 53,857 848,268 Batken 35,200 2,068 17.021 119,800 61,690 37 473,993 6,257 256,793 Note: The data of Chui includes the data of Chui city and the data of Osh includes the data of Bishkek city. Source: National Statistics Committee, MA & LR

2.3 National Policy of the Agricultural Sector

During the Kyrgyz research, a general policy to increase the level of mechanization of agriculture had not yet been determined. According to the “National Sustainable Development Strategy 2013-2017” the National Committee formulated as a development strategy principle for the national level and “The Government’s Program and Plan on Transition of Kyrgyz Republic to Sustainable Development 2013-2017” also formulated by the government, the four targets for the agricultural sectors, which are below:

- Increase the output of the agricultural complex, improve the product quality and ensure food security in the country - Improve the efficiency of agricultural production and the competitiveness of products for the entire agricultural complex - Improve the fiscal return on the agricultural complex - Solve the social issues of peasants Furthermore, in the “National Sustainable Development Strategy 2013-2017”, there are eight specific objectives describing these four goals. Regarding agricultural mechanization, in the section of second objectives, “improve the quality of servicing and technical services for agriculture, creating conditions for technical and technological modernization of agricultural production”, the strategy describes policy measures such as “increase the availability of agricultural equipment through the expansion of networks and improve the quality of services of major agricultural equipment providers, created under principles of public-private partnership with the subsequent transfer of the state to the private sector”. Also, in “The Government’s Program and Plan on Transition of the Kyrgyz Republic to Sustainable Development 2013-2017”, “provision of services and market infrastructure for agricultural production” is indicated as a field target. In this field, “establishment of loan institutions for purchase of agricultural machinery and machine stations, and encourage agricultural management by public private partnership” is described as a specific measure, as well as being in common with previous strategy. According to the plan for agricultural investment projects, twenty four projects are planned for 2013 to 2017. Of these two projects, are aims for agricultural mechanization, such as “funding for financial leasing of agricultural equipment” and 2.5 million USD are calculated for the budget of 2013 to 2014, as an estimated cost. There are no specific descriptions of government strategies about the agricultural

mechanization except for the above plans. Although MA & LR designed development policy about agricultural sector by cooperating with FAO in 2012, the government did not approve of the policy plan due to the lack of concreteness of the investment plan. Currently, MA & LR is working on preparing agricultural development policy-making, including agricultural mechanization policy again under the supervision of the new Farm ministry who was assigned in January 2014, but the specific planning calendar for approval has not been decided yet.

2.4 Structure and Role of Agrarian Sector

Figure 2-2 and 2-3 are the organizational structures of the Ministry of Agriculture and the Departments of Agricultural Mechanization and Electrical supply (hereinafter Mechanization Department). The total numbers of MA & LR staffs are 70. Of this total, the Mechanization Department has only four staff members in the central office. Furthermore, 24 members also belong to the Mechanization Department who are dispatched to local offices, and they cover all seven provinces, including 40 districts. The Mechanization Department originally worked on registration and inspection of agricultural machinery as its main function. The department changed as a Mechanization Department after the organizational change in 2012. Its current work functions are below: • Implementation of agricultural mechanization policies, policy-making in related fields • Research the current situation of agricultural machinery and demands • Project planning by issue and apply for assistance from donor agencies • Education and training for agricultural machinery experts (cooperate with university and colleges to foster mechanics and operations) • Electrification in rural areas (provide small electricity stations: water power, solar power, wind power, biogas) • Apply for assistance from donor agencies in terms of agricultural mechanization, adjustment of assistance from donors • Provision of agricultural machinery information to dealers and farmers • Inspection of new agricultural machinery, cooperate with suppliers (manufacturer, dealer) The work functions of the Mechanization Department vary as described above, but there are limitations regarding the staff and the budgets. Therefore, the above work functions are not sufficiently implemented. When the organizational change occurred in 2012, registration work for agricultural

machinery was transferred to the State Registry Agency, which was placed under the Interior Ministry with some staff members from the Mechanization Department. Since there is no facility for machinery inspection, MA & LR is not working on it. Currently, MA & LR is mainly working on the promotion of the agricultural machinery leasing project as an implementation policy (monitoring, publication to farmers), survey for types and numbers of national machinery demands, statistical data collecting and assistance requests to donors, including assistance for underlying assets (preparing the requests for South Korea and Poland) and assistance for equipment (preparing the requests for Japan 2KR). In addition, they are also providing information of agricultural machinery to farmers and dealers based on agricultural manufacturers’ information about their products.

Source: MA & LR Figure 2-2 The Organizational Structure of the Ministry of Agriculture

Source: MA & LR Figure 2-3 Departments of Agricultural Mechanization and Electrical Supply

3. Present Agricultural Mechanization and Problems

3.1 Utilization of Agricultural Machinery

3.1.1 The Number of Agricultural Machinery

Table 3-1 shows the number of major agricultural machinery and the number it is deficient, in Kyrgyz. About 90% of agricultural machinery used at present has been in use for more than 20 years, since before independence. Since a substantial number of obsolete agricultural machinery is included in Table 3-1, the actual deficient number is larger than the number included in the table. Table 3-1 Number of Agricultural Machinery and the Deficient Number for 2013 Age: Age: Machinery Total Required Deficient ≧20years ＜20years Tractor 20,369 17,722 2,647 27,953 7,584 Combine harvester 2,359 1,882 477 4,830 2,471 Corn harvester 99 99 - 510 411 Forage harvester 454 454 - 1,463 1,009 Seeder 2,530 2,430 100 4,123 1,593 Tooth harrow 1,770 1,770 - 78,274 76,504 Cultivator 2,272 2,272 - 7,739 5,467 Plow 7,239 5,646 1,593 5,479 - Disk harrow 191 191 - 2,124 -1,933 Trailer 8,736 8,561 175 16,773 -8,037 Mower 1,882 1,882 - 2,294 -412 Rake 617 617 - 1,293 -676 Baler 1,054 1,054 - 1,147 -93 Total 49,572 44,579 4,992 154,002 106,190 Source: MA & LR (the Department of Mechanization estimates the required number)

Table 3-2 shows the number of major agricultural machinery and implements by province. They are distributed according to the cultivated area of each province. Almost all of the agricultural machinery was distributed to the provinces when Kolkhoz and Sovkhoz were dissolved before independence, and have been used in the same areas for more than 20 years.

Table 3-2 Number of Agricultural Machinery and Implements by Province in 2013 Kyrgyz Issyk Jalal- Chui Talas Naryn Osh Batken (Total) -Kul abad Cultivated area 1170.4 406.2 103.4 176.3 102.4 175.1 146.3 60.7 (1,000ha) Tractor 20,369 6,099 1,574 3,477 1,692 3,498 2,914 1,124 Less than 100 hp 5,379 2,796 3,034 1,662 3,212

More than 100 hp 754 118 443 30 277 Tooth harrow 17,700 6,675 317 1,376 1,405 3,900 3,668 59 Plow 7,239 1,947 656 1,592 704 868 1,072 400

Kyrgyz Issyk Jalal- Chui Talas Naryn Osh Batken (Total) -Kul abad Seeder 2,530 1,058 153 431 224 376 241 47 Cultivator 2,272 579 291 275 - 473 570 84 Broadcaster 286 154 32 38 20 - 27 15 Sprayer 429 240 39 96 14 14 26 - Trans-planter 510 301 39 105 - 31 15 19 Rake 617 219 48 106 126 81 37 - Baler 1,054 515 34 170 123 72 48 Forage harvester 454 396 23 33 - - - Trailer 8,736 2,966 647 1,358 910 1,286 515 Combine harvester 2,359 889 149 553 269 206 54 Potato digger 403 43 31 310 8 - 3 Seed cleaner 462 19 119 43 29 12 Source: MA & LR

Table 3-3 shows the number of combine harvesters and the planted area of wheat and barley. The cultivated area may be the target area of combine harvesters. In case the harvesting performance of the combine harvester is set for 250ha/month/unit and the harvesting time is set for only 1 month, the required number of combine harvesters will be 4 unit/1,000ha. Considering the required number, Osh province has a slight shortage of combine harvesters and the deficit number in Batken province is more than 50%, while other provinces have a sufficient number. However, the JICA Study Team assumes that the number of actual working combine harvesters is less than the number in Table 3-33, according to its interview surveys of farmers and concerned people in the agricultural sector, and the questionnaire survey in the provinces.

Table 3-3 Number of Combine Harvesters per 1,000 ha of Cereals Planted Area Issyk Jalal- Chui Talas Naryn Osh Batken -Kul abad Wheat area (1,000ha) 151 12 72 18 68 35 23 Barley area (1,000ha) 72 2 23 10 7 3 8 Total area (1,000ha) 223 14 94 28 74 38 30 The number (unit/1000ha) 4.00 10.88 5.87 9.57 3.22 5.46 1.78 Source: The JICA Study Team, based on data provided by MA & LR

Figure 3-1 shows the number of tractors and combines harvesters in use in 1999 – 2013. After 2011, the number has been reduced every year. This is because MA & LR has urged owners to deregister obsolete machinery since 2011, in order to know the actual number of machinery that is in working condition. Before that, most obsolete machinery used to be

3 A farmer in Osh province said that only 2 out of 8 combine harvesters are in working condition in his area.

registered. The registration campaign is still in progress. Although the number of registered machinery is getting closer to the actual number of working machinery in the last 3 years, the number gap is still wide. The number of farmers procuring agricultural machinery by lease has been increasing due to the progress of the Aiyl Bank leasing scheme which began in 2011. Statistical data shows that about a thousand units of machinery were leased in 2013. It is, therefore, believed that the number of actual obsolete machinery might be larger than the number reported in the statistics. Since independence in 1991, the number of tractors, according to the statistics, has reduced by about 30%, from about 30 thousand units to about 20 thousand units; the actual situation is assumed to be worse. Kyrgyz agriculture is confronted with a critical situation.

35000 Tractor 30000 Combine 25000

20000

15000

10000

5000

0 92 93 94 95 96 97 98 99 01 02 03 04 05 06 07 08 09 10 11 12 13

1991 2000 Source: MA & LR Figure 3-1 Number of Tractors and Combine Harvesters In Operation in Kyrgyz (1991 - 2013)

3.1.2 Agricultural Machinery Services

Field work services by agricultural machinery (agricultural machinery services) are provided across the country to farmers who do not have their own machinery. Major service-providers are individual farmers, corporate farms and agricultural cooperatives, while a few company or cooperatives specializing in services also provide services. The services include various types of works, such as plowing, harrowing, leveling, seeding, inter-cultivation, fertilizer application, pesticide spraying, harvesting, forage harvesting and packing, bean threshing, etc. Since farmers do not have every type of machinery, the farmers exchange possible services with one another.

Table 3-4 shows the tariff of agricultural machinery services by region. While the information in the table is collected from a limited number of reliable respondents in the study’s questionnaire survey, the statistical reliability of the data is inadequate. However, it may represent a rough trend in the service charges in Kyrgyz. Table 3-4 shows that the service charges in the southern region (Jalala-bad, Osh and Batken provinces) are generally higher than in the northern region (Chi, Talace, Issyk-Kul and Naryn provinces). While the charges are settled by cash for tractor services, some farmers pay in-kind for harvested crops per ha for combine harvester services. There are 2 types of service charges: included fuel or excluded fuel. Even the charge of included fuel is determined in accordance with the current fuel price. On the other hand, human power is still mainly used for weeding (beets, maize, white haricot beans, potatoes and vegetables), harvesting (rice, beans, cotton, potatoes, sunflower and cereals) and water management in the field. Although there are several works that can be done by machinery among the above works, the mechanization is not well advanced, because most farmland is too small to operate machinery efficiently or many farmers do not have access to the services due to lack of service providers nearby.

Table 3-4 Tariff of Agricultural Machinery Services by Region (included Fuel) （Kyrgyz som/ha） Number of Work Region Minimum Maximum Average Fuel (L) data Plowing Northern Region 1,000 3,200 1,742 25 16 Southern Region 600 3,280 2,074 25 24 Total 600 3,280 1,875 25 40 Harrowing Northern Region 700 1,200 1,000 10 6 Southern Region 1,500 1,500 1,500 10 1 Total 700 1,500 1,021 10 7 Seeding Northern Region 650 4,000 1,411 10-15 14 Southern Region 700 3,000 1,650 10-15 4 Total 650 4,000 1,464 10-15 18 Harvesting Northern Region 800 5,500 2,244 25 18 Southern Region 1,500 3,000 2,400 25 5 Total 800 5,500 2,150 25 23 Hay Northern Region 1,000 3,000 1,564 30 11 harvesting Southern Region 2,000 2,000 2,000 30 1 Total 1,000 3,000 1,600 30 12 Note: Fuel price is 40 Kyrgyz som/L (as of January 2014)

Source: The JICA Study Team’s questionnaire survey

3.2 Agricultural Machinery Market

3.2.1 Import and Export of Agricultural Machinery, and the Domestic Market

(1) Tractors and combine harvesters Kyrgyz Avtomash Radiator Company（Kyrgyzavtomash）in Bishkek city had assembled tractors under an agreement with the Belarusian manufacturer (MTZ：Minsk Tractor Works）in 2008-2009. Kyrgyzavtomash, however, has suspended the assembly since 2010 because MTZ tractors imported directly from Belarus became cheaper than the assembled tractors by the company. Thereafter, Kyrgyzavtomash became the sole sales agent of MTZ in Kyrgyz. Presently, there is no manufacturer producing agricultural tractors and combine harvesters in Kyrgyz. Agricultural machinery importers in Kyrgyz are based in Bishkek or the suburbs of Bishkek. They usually have a machinery parking area and spare-parts storage attached to their sales shops. Tractors and combine harvesters which were imported from Belarus before independence in 1991 are still widely used among individual farmers. Since farmers have been using them since the Soviet era and their basic design has not changed in a long time, the farmers themselves usually undertake the machinery maintenance and repair work. The basic design of MTZ machinery exported to Kyrgyz has not changed much since the Soviet era4. The old-fashioned design results in poor fuel efficiency of MTZ machinery that may be 10-20% less efficient than other manufacturers’ products. Several farmers also complain that the actual output power of MTZ machinery is less than what is nominal, indicated in specifications. Kyrgyzavtomash has started to provide operational training and maintenance services to its customers as the sales agent of MTZ since 2010. 1,200 units of small Chinese tractors granted by the Chinese Government in 2006 were leased to farmers through the Kyrgyz Aiyl Service. The tractors were not utilized well due to the following reasons, and the lease project failed since many farmers could not pay off their lease5. • The size of the tractors did not meet the requirements of many farmers who took the lease • It was difficult to find spare-parts to fix tractor mechanical problems In 2011, 267 units of Chinese tractors（YTO-904）procured by China’s official assistance

4 MTZ exports newly designed machinery which fulfills the EU emission regulations in European countries 5 Reference: Farm mechanization and agricultural productivity in the Kyrgyz Republic, FAO (2009).

were again leased to farmers through Aiyl Bank. Thereafter and at present, YTO tractors are also sold by YTO Trade Expo, which is an overseas outlet of YTO6 and other sales agents. In recent years, Chinese tractors have a good reputation because of their improved quality and organized after-service and spare-parts supply system of the YTO Trade Expo. Moreover, Chinese made non-genuine spare-parts are more accessible to customers in various markets in Kyrgyz. The number of farmers, who appreciate the performance of YTO tractors more than MTZ tractors, is increasing in Kyrgyz. The Eurasia Group KG who is an importer and seller of John Deere tractors started its business since 2007. John Deere tractors have become popular among large-scale corporate farms since then. Some large-scale farms that manage more than 100 ha have started to introduce large-sized and high-efficiency tractors, i.e. John Deere tractors or other tractors made by Europe and United States manufacturers, because they are very concerned with working quality and efficiency and fuel consumption when they choose tractors. German tractors and combine harvesters and Russian combine harvesters are also sold in Kyrgyz, although the unit sales are still not very high.

(2) Implements While old implements introduced during the Soviet era used to be replaced by Russian or Belarusian implements, European products have been popular since the late 2000s. Initially, the European products were imported and sold mainly by small traders who did not have a proper after-sales system. Since 2010, traders who can provide a full-scale after-sales system, such as repairing services and storing spare-parts, have entered Implements from Turkish Manufacturers the sales business. In recent years, many traders have Plow, Seeder, Potato-planter, etc. started to sell Turkish products. They have a similar performance as the European products, even though the prices are cheaper and have a wider variety of products. The Chinese products, mainly the plow and seeder, are usually sold together with YTO tractors.

(3) The market in the northern region (Chui and Talas Provinces) Agricultural machinery dealers in Bishkek pay the most serious attention to the market in the

6 YTO Group Corporation

northern region. The number of corporate farms in Chui province is larger than the number in other provinces, and the management size of the corporate farms is also relatively large. Since 2010, the corporate farms have started to introduce John Deere tractors and combine harvesters since the corporate farms are very concerned with the higher performance (working quality and efficiency) of these machinery. Major crops John Deere corn harvester working in a corporate farm in Chui Province grown on the farms are wheat, barley, maize and potatoes. The percentage of corporate farms and individual farmers that have combine harvesters is high, if their management size is large. They also provide agricultural machinery hire services along with tractors and combine harvesters. Surrounding farmers who do not have the machinery are able to enjoy the services by bearing the necessary costs. MTZ or YTO tractors have been popular among individual farmers since 2011. They have been leased by the Aiyl Bank leasing scheme. While many farmers grow white haricot for exporting to Turkey and Bulgaria in Talas Province, high profitability of the crop contributes to higher income for farmers. The number of farmers who buy agricultural machinery by their own funds instead of from the Aiyl Bank leasing scheme has increased in recent years, because of the high profitability. White haricot is harvested manually, and shelled by a Home-built Bean Thresher owned by an bean thresher after drying. Many of the threshers are individual farmer in Talas Province home-built and have become old. This situation causes low quality products, such as broken beans, after threshing. White haricot is often grown by crop rotation combined with alfalfa.

(4) The market in the southern region (Osh Province) The management size of farmers in the southern region is smaller than the size in the northern region. Since the number of agricultural machinery per farmer is insufficient, the hiring service schedule is jointly arranged by district (rion) and village (aiylokmotu) administrations in order to use the existing tractors efficiently.

Even though there are corporate farms and individual farmers who provide the agricultural machinery hiring services, a small number of service providers cannot fulfill the demand from the large number of farmers in the region. This situation may cause a late sowing or harvesting, and eventually a low crop productivity. While a combine harvester service from Uzbekistan used to be available before Tractor (YTO904, 80hp) owned by the closure of the border with Uzbekistan in 2010, the individual farmer in Osh Province service has been beyond the reach of farmers since then. High demand for small-sized (4-rows) combine harvesters, instead of the 6-rows which are popular in Kyrgyz, is confirmed in the region, since many farmers manage less than 1 ha of farmland. The total number of combine harvesters is too small to fulfill the actual demand of farmers. In the Uzgen area, paddy rice is widely grown. There may be a demand for the rice combine harvester since farmers manually harvest the rice presently. When a trial operation with the Chinese combine harvester was carried out, many stones in the paddy field disturbed the smooth operation. The combine harvester has not been used after the trial. Osh province is a center of cotton production as the TTZ 3-wheel tractors made in Uzbekistan, developed for cotton production during the Soviet era, are still used in Osh province. They have become old since they were produced more than 30 years ago. The southern region borders China, and YTO tractors are more popular among farmers than in the northern region. The YTO tractors, brand-new and used, are A 3-wheel tractor developed for cotton imported not only by the authorized dealers in Bishkek, production during the Soviet era but also by unauthorized dealers or individuals.

(5) Main suppliers of imported agricultural machinery The main suppliers of imported agricultural machinery in Kyrgyz are shown in Table 3-5

Table 3-5 Main Suppliers of Imported Agricultural Machinery Agricultural Machinery Sold Suppliers Machinery Manufacturer Country of Origin Tractor MTZ Belarus Kyrgyz Avtomash Radiator Combine harvester GOMSELMASH Belarus (Kyrgyzavtomash) * Europe (German, Italy, Poland, etc.), Turkey, Russia, Implements etc. USA (200hp or more) Tractor German (80－199hp) Eurasia Group KG JOHN DEERE China (Up to 79hp) (Head office in Combine harvester USA Switzerland) JOHN DEERE USA Implements KUHN France Tractor YTO Trade Expo YTO China Implements Tractor Atalyk Group Combine harvester ROSTSELMASH Russia Implements

SAME German (Medium and Large) Tractor DEUTZ-FAHR Italy (Medium) Kyrgyz Agro Market Turkey (Small and Medium) BOZKURT AGRO Implements KFT Turkey SAME German (Medium and Large) Tractor Italy (Medium) Farmani Company DEUTZ-FAHR Turkey (Small and Medium) (having affiliation with the “Kyrgyz Agro Combine harvester KRONE German Market”) AMAZONE German Implements KRONE German and others USA and UK (Large) Central Asia Machinery Tractor Turkey and China (Medium) (Head office in NEW HOLLAND Uzbekistan (Standard) Kazakhstan, Combine harvester Poland Turkuazmachinery) Implements various Turkey Tractor CLASS K.O. Standart Agroservice Combine harvester German Implements LEMKEN Note: *Operated by the tractor’s power for plowing, seeding, fertilizer application, harvesting, hay pressing, etc. Source: The JICA Study Team

Kyrgyz Avtomash Radiator (Kyrgyzavtomash) Kyrgyzavtomash is the biggest agricultural machinery supplier in Kyrgyz. While it was a state agricultural machinery factory during the Soviet era, it was

Tractor-park attached to a dealer’s office 25 MTZ82.1（80hp）

privatized after independence. The present owner acquired it in 2007. Kyrgyzavtomash mainly produced radiators for trucks and tractors, and air-conditioners when it was acquired. Although Kyrgyzavtomash started to assemble MTZ tractors in 2008, it has changed its business model from assembling to importing MTZ tractors and combine harvesters since 2010. As for radiators, Kyrgyzavtomash still produces them for exporting to MTZ and GOSELMASH in Belarus and a truck manufacturer in Russia. Its importing business continued to expand after 2011, and the sales of the importing business and the radiator production was almost equal (about 25million USD each) to 2013. While Kyrgyzavtomash has increased its sales items of tractor implements since 2013, Turkish made items have increased their share due to a reasonable balance between price and quality and performance. Among the sales of imported agricultural machinery in 2013, sales through the Aiyl Bank leasing scheme made up about 40 % of the total sales, while the % through the other private banks’ leasing scheme was about 5% and the % of general sales, but the owned supply-chain was about 55% of the total sales. Kyrgyzavtomash has its own favorable leasing scheme like the Aiyl Bank scheme, targeting good customers. Among agricultural machinery suppliers in Kyrgyz, only Kyrgyzavtomash maintains preferable treatment for good customers. The lease conditions vary according to the customers as follows:  Interest rate: 0 – 7 % per year  Repayment term: 1 – 5 years Since Kyrgyzavtomash is the exclusive distributor of MTZ in Kyrgyz, it can set prices of MTZ machinery at its own discretion. Actually, it usually pays close attention to the prices in Kazakhstan. Kyrgyzavtomash has a workshop and 16 mechanics attached to its head office. It has also 2 mobile workshop vehicles. The vehicles can reach to any place in Kyrgyz within 1 day, 2 – 3 days during the peak season, after receiving an offer. An additional workshop vehicle may be deployed in 2014. Kyrgyzavtomash has 2 branch offices in Osh Province with 1 staff and at the Talas office (2 staff). Sales promotion, spare-parts supply and after-sales Pre-shipment inspection and adjustment of a combine–harvester (MTZ 82.1) by services are their main business activities. A stock of Kyrgyzavtomash mechanics spare-parts imported from Belarus equivalent to 700 thousand USD in its warehouse allows Kyrgyzavtomash to quickly response to costumer’s request for spare-parts.

Eurasia Group KG Eurasia Group KG, has a head office in Switzerland, established in 2009 as a branch office in Kyrgyz. It has 9 staff, including 3 mechanics, and sells John Deere tractors and combine harvesters, and KUHN implements. While Eurasia Group KG sells agricultural machinery mainly in the northern region (Chui, Talas and Naryn Provinces), it has a plan to establish a sales office in Osh Province in 2014 as a business base in the southern region. The sales John Deere tractor（220hp）owned by the Chui State Agricultural Corporation through the Aiyl Bank leasing scheme makes up about only 10 % of the total sales, while the % of general sales by its supply-chain in cash or by loan is about 90%. Eurasia Group KG has 2 mobile workshop vehicles, and keeps a stock of about 3,000 items, of spare-parts, equivalent to 1 million US$. The stock is managed by a database system, and supplementary parts are ordered by the company’s branch offices in Kazakhstan and Europe. Eurasia Group KG runs a farming business on its own farm. The planted area was about 120 ha in 2013. The company also carries out adaptability tests of agricultural machinery for farming conditions in Kyrgyz, i.e. weather, soil and crops, as well as demonstrations for local farmers on the farm. It has a plan to start the same business activity in the southern region.

YTO Trade Expo YTO Trade Expo was established in 2006 as an overseas outlet of YTO, when 1,200 units of YTO tractors were distributed by a Chinese cooperation scheme. It has 3 staff, including 1 mechanic, and sells YTO tractors and implements. It covers all parts of the country, although it does not do much business in the southern region7. While the tractor itself is sold only in US$, it is possible to buy spare-parts in Kyrgyz som. The YTO Trade Expo has a Tractor garage attached to the sales office warehouse to stock spare-parts and consumables, such as YTO904 (90hp) on the right hand side and YTO954 (95hp) on the left hand side V-belt, filters, tire, etc.

7 Many YTO tractors are directly imported by local dealers or individuals in Osh Province in the southern region.

Atalyk Group Atalyk Group is a dealer of Rostselmash tractors, combine harvesters and implements. It is actually a corporate farm privatized in 1994 after the dissolution of kolkhoz, and manages 3,000 ha of farms and dairy farms. It received agricultural machinery, such as tractors, roll-balers, etc. from USAID for supporting dairy farming in 2013. It also brews wine and beer. Sales of agricultural Machinery Park attached to the office machinery are still minimal at present. Combine-harvester (NIVA) Rostselmash tractors compete directly with John Deere tractors because their horsepower is almost similar each other. Due to this, Atalyk Group is not diligent in the tractor business. As for combine-harvesters, Rostselmash products have an advantage over the engine quality, which is less-trouble at the initial stage, compared to products in Belarus, although the former is 10 – 20 % more expensive than the latter. Atalyk Group has a business plan to promote the sales of implements in 2014. Table 3-6 shows the number of tractors and combine-harvesters sold in Kyrgyz in 2013 by major suppliers.

Table 3-6 The Number of Tractors and Combine Harvesters in Kyrgyz in 2013 Number Dealerships Machinery Manufacturer Remarks (unit) Including 691 units of Kyrgyz Avtomash Radiator Tractor MTZ 860 (Kyrgyzavtomash) MTZ82.1(81hp) Combine-harvester GOMSELMASH 40 Eurasia Group KG Tractor －※1 No data available. JOHN DEERE Total sales amount is －※2 Combine harvester 250 million USD YTO Trade Expo Mainly YTO904 Tractor YTO 120※3 (90hp) and YTO954 (95hp) Atalyk Group Tractor 1 280hp (for own use) ROSTSELMASH Combine harvester 14 Farmani Company Tractor DEUTZ-FAHR 5 150hp Central Asia Machinery Tractor 7 130-210hp NEW HOLLAND Combine harvester 3 Tractor 993 Total Combine harvester 57 ※1：Estimated, about 8 units based on the sales amount (not counted) ※2：Estimated, about 3 units based on the sales amount (not counted) ※3：It does not count the imported YTO tractors by local dealers or individuals in Osh and other provinces Source：The JICA Study Team

Table 3-7 and 3-8 show the retail prices of agricultural machinery sold in Kyrgyz.

Table 3-7 Retail Prices of Agricultural Machinery (1)

Power Price Machinery Manufacturer Model （hp）（1 USD = 50 som） 320.4 33.5 672,000 som 82.1 81 1,020,000 som MTZ 892 89 1,175,000 som 1523 150 2,736,000 som 6150 150 110,000 USD JOHN DEERE 7930 220 160,000 USD 8345RT 330 240,000 USD 250 25 6,500 USD 450 45 10,600 USD YTO 904 90 22,000 USD 954 95 24,000 USD Tractor ROSTSELMASH 280 280 129,000 USD 55 55 34,000 USD 65 65 42,000 USD 75 75 50,000 USD DEUTZ-FAHR 85 85 60,000 USD 120 118 90,000 USD 150 148 112,000 USD T6.160 131 105,000 USD NEW HOLLAND T7.200 155 125,000 USD T7.260 215 175,000 USD CLAAS 530 140 86,000 USD NIVA 155 85,000 USD ROSTSELMASH VECTOR410 207 168,000 USD GOMSELMASH GS812 210 4,000,000 som Combine harvester JOHN DEERE 9770STS 360 385,000 USD NEW HOLLAND TC5050 170 120,000 USD CLAAS 150 158 123,000 USD KRONE BIGX500 500 408,000 USD Note: the prices were collected in February 2014. The prices vary according to the options and the exchange rate Source：The JICA Study Team

Table 3-8 Retail Prices of Agricultural Machinery (2)

Price Manufacturer Implements Spec. （1 USD = 50 som） Plow 3line 1,800 USD TD ALMAZ (Russia） Plow 4line 2,500 USD Plow 5line 3,500 USD UMANFERMMASH(Ukraine) Disk harrow 3m 5,800 USD Seeder with fertilizer 28line 13,500 USD Chisel plow 4.2m 7,500 USD 12-18m Agrichemical sprayer 1,000litter 3,500 USD 8-18m Agrichemical sprayer 2,000litter 5,000 USD KOMPOZIT-GROUP (Ukraine) Rotary mower 125cm 2,500 USD Rotary mower 190cm 3,600 USD Wheel-finger side rake 4m 1,300 USD Wheel-finger side rake 4m 4,100 USD Potato digger － 5,500 USD Disk mineral fertilizer PLOTSK PLANT (Belarus) broadcaster 0.7ton 5,200 USD SAZHATEL KARTOFELYA (Ukraine) Potato planter 2line 2,400 USD Pull-type forage harvesting combine 2.6m 34,000 USD Pull-type mower-crusher 4.2 14,500 USD GOMSELMASH (Belarus) Mower chopper 1.5 7,000 USD Package baler 5-8ton/h 14,500 USD Potato harvester 0.84-1ha/h 72,000 USD Corn harvester － 37,000 USD Hopper Cap. PHM (Turkey) Beet harvester 2,000kg 28,000 USD KOSTKA (Poland) Package baler 5-8ton/h 14,500 USD SIPMA (Poland) Package baler 5-8ton/h 12,000 USD YTO (China) Plow 3line 1,500 USD Seeder 24line 12,500 USD Seeder 26line 13,500 USD Pneumatic Seeder with fertilizer 4line 12,500 USD Corn harvester － 6,750 USD 10m Agrichemical sprayer 2,400 USD BOZKURT AGRO KFT 600litter (Turkey) Potato planter 2line 6,750 USD Potato planter 1line 4,750 USD Rotor rake － 3,700 USD Rake 5line 1,000 USD Rotor mower 125cm 2,750 USD Rotor mower 185cm 3,000 USD

Price Manufacturer Implements Spec. （1 USD = 50 som） Rotor mower 250cm 4,500 USD Tooth harrow 70tooth 4,000 USD Disk harrow 28line 5,400 USD BOZKURT AGRO KFT (Turkey) Fertilizer spreader 500litter 1,500 USD Standard plow 4line 4,000 USD Beet harvester － 31,000 USD Corn harvester － 6,750 USD

Forage and discharge 3 Wagon 95m 70,000 USD KRONE (Germany) Disk mower 4m 10,500 USD Roll baler － 24,700 USD AMAZONE (Germany) Seeder with rotary harrow 3m 50,700 USD Note）The prices were collected in February 2014. The prices vary according to the options and the exchange rate Source：The JICA Study Team

Used agricultural machinery market There is no sales shop exclusively for used agricultural machinery in Kyrgyz. A big bazaar for used agricultural machinery sales (Kudaibergen Bazaar) is, however, open every week from Friday to Sunday in a suburb of Bishkek city, and individual owners bring their used agricultural machinery to be sold. Tractors are mainly sold at the bazaar. A weekly paper for used cars (Avtogid) published An article in a weekly paper (Avtogid) on Jan. 22, 2014 every Wednesday provides information about used advertises that a MTZ-80（produced in 1989）is 6,500 agricultural machinery sold. While the retail price of the latest model of Belarus tractor, MTZ-82.1 (80hp), which is the most popular tractor in Kyrgyz is about 1.1 million Kyrgyz som for a brand-new tractor, the price of a used MTZ-82 produced in 1990, the equivalent model to MTZ-82.1, is about 450 thousand Kyrgyz som and the price of a used MTZ-80 produced in 1986, also the equivalent model to MTZ-82.1, is about 330 thousand som. These prices suggest that a 24 year old tractor still maintains about 40 % of the original value, and even a 28 year old tractor still maintains about 30 % of the original value. It implies that tractors, even the used tractors, are in very short supply in Kyrgyz. In general, all machinery loses its original performance ability, and requires additional maintenance as it get older. It is, therefore, necessary to evaluate the residual economic value of machinery based on its performance and necessary maintenance costs. As for

tractors, the performance loss over the years is smaller than that of combine harvesters and other agricultural machinery, and the maintenance costs are relatively small due to availability of cheaper spare-parts and easy maintenance usually done by the owner. This allows tractors to be used that have a light economic burden even after 20 years of age, although their working efficiency decreases. The short supply of tractors and the above conditions must be major reasons for the high price of used tractors on the Kyrgyz market.

3.2.2 Spare-Parts Supply

Most agricultural machinery suppliers in Kyrgyz have a stock of spare-parts, mainly consumable parts. They can also supply un-stocked spare-parts within several days to 1 week after an order. Also many shops in bazaars sell spare-parts of agricultural machinery made in Belarus, Russia and China. While Bishkek and major local cities have an auto-parts bazaar in their suburb areas, the shops that sell spare-parts of agricultural machinery are usually adjacent to the auto-parts bazaar. Almost all spare-parts sold in such shops are non-genuine parts produced in China. Although the quality is inferior to genuine-parts, many individual farmers A shop selling spare-parts of agricultural machinery in a suburb of Bishkek city and corporate farms who repair their own machinery themselves buy the non-genuine parts because of their cheaper price. The shops also sell some disassembled parts of old machinery produced during the Soviet era. Some simple and consumable spare-parts like the cutting edge of a plow and a cutting knife of a combine harvester are produced in Kyrgyz. If spare-parts are not available in the local market, farmers go to Bishkek bazaar to find the required spare-parts. In bazaars, there are specialized shops to repair alternator and fuel pumps that cannot be fixed by farmers themselves. The shops are further specialized by origin countries of the products, such as Belarus, Russia, Europe, etc. Almost all spare-parts for agricultural machinery presently used in Kyrgyz are available in domestic markets. In other words, only agricultural machinery that has a smooth spare-parts supply system can survive, since such a supply system is a fundamental condition for the efficient operation at a lower cost.

3.2.3 Import Procedure and Standards

(1) Import procedure The State Custom Service8 is responsible for custom clearance. It has 10 custom posts under 6 custom offices covering the entire country. Customs inspection for almost all imported agricultural machinery are done by the Bishkek custom post, while some mainly from China through Osh Province are inspected by the Osh custom post. The inspection consists of a documentary examination and a visual examination. All custom procedures are completed within 1 – 2 days after arrival, and then a consignee picks up the imported commodity. The consignee should bear the custom fee, 0.15% of the commodity value, while all agricultural machinery and the spare-parts are exempted from customs duty. Individual farmers or corporate farms who import agricultural machinery for their own use are also exempt from VAT, although the suppliers should bear the VAT, 12% of the commodity value. Some suppliers like Kyrgyzavtomash and Eurasia Group KG have a bonded warehouse. If a customer of the suppliers directly takes the imported machinery from the bonded warehouse, the customer can be exempted from VAT. In this case, the custom procedures are taken one commodity at a time. It takes a long time, more than 3 days for the procedures to be completed, if many customers rush to the bonded warehouse at the same time. Currently, the Kyrgyz Government has declared accession to the Customs Union (hereinafter the CU). Agricultural machinery imported from non-member countries of the Customs Union shall be liable to a customs duty, 15% of the value for machinery with power more than 18kW (about 24 hp) and 5% of the value for machinery with power less than 18kW after the accession.

(2) Technical standards During the Soviet era, newly developed agricultural machinery used to be tested in 33 agricultural mechanization research stations, covering all the Soviet Union in order to confirm the adaptability to various crops and growing conditions. In Kyrgyz, the research station in Kant carried out the adaptability test. The research station has stopped its research activity since it was transformed to a corporate farm after independence. Officially, Kyrgyz standards have replaced the old Soviet standards, the GOST standards, although some modification in accordance to the local conditions is allowed. In the case of tractors, the technical specifications such as, minimum height, maximum operational speed, fuel

8 The State Custom Service website：http://www.customs.kg/index.php?lang=ru

tank capacity, guarantee period, etc. are stipulated in GOST 19677-8. However, the standards system actually loses substance. The Kyrgyz Government established the Center for Standardization and Metrology under the Ministry of Economy, and the Center carries out the transition from the GOST standards to the new standards compatible to ISO/IEC in accordance with WTO TBT (Technical Barriers to Trade). Upon the accession to the CU, all equipment and machinery had to be issued a certificate or a conformity declaration which proves conformity with the technical regulations stipulated in No.823 TR CU 010/2011 of the Resolution of the Committee of the Customs Union. An additional certificate may be required according to the type of equipment or machinery. While the procedures are complicated, Japanese exporters can contact a private certification body in Japan for the proxy application9.

3.2.4 Agricultural Machinery Market in Kazakhstan (1) Agriculture The JICA Study Team conducted a brief study in Kazakhstan in order to the understand the agricultural machinery market in a neighboring country. Out of 1.6 million ha of cereals in the cropped area in Kazakhstan, wheat is grown in 1.3 million ha. Wheat is mainly grown in Akmola, Kostanai and North Kazakhstan Provinces. Those 3 provinces are the wheat production centers of the country and produce about 80% of the national production. Agricultural producers are divided into the following 3 categories.  Farms owned by a stock company (large-scale management by corporation)  Farms owned by a limited company (medium-scale management by individual)  Individual farmers (small-scale) The Kazakhstan Government has started an agricultural development loan scheme to support private producers since 2000. Since the borrowers of the loan are concentrating on large-scale producers, the loan consequently promoted the centralization of farmland. While the number of the borrowers is about 200 in total, only the top 10 – 20 borrowers occupy about 60 % of national farmland. The Kazakhstan Government has launched the Program for the Development of Agriculture in the Republic of Kazakhstan for the years 2013 – 2020, “Agribusiness 2020” in 2013. According to the program, the Government intends to reduce the wheat area and to promote

9 JETRO website：https://www.jetro.go.jp/world/russia_cis/ru/qa/01/04J-110101

crop diversification, especially by promoting oil seeds. A bumper harvest of wheat in 2011/12 might be a major factor causing the crop diversification policy. The Government spent considerable amount of subsidy on wheat transportation during the year in order to address the shortage of storage facilities in the country. While Kazakhstan exports its wheat surplus mainly to neighboring countries in Central Asia, their market size is not very big. Export to Europe or other Asian countries is, however, not feasible due to high transportation costs. The Government aims to establish a subsidy-free agri-business structure by promoting crop diversification instead of wheat production with a heavy subsidy10. (2) Agricultural machinery market Renewal of agricultural machinery is an urgent issue in Kazakhstan, since the age of 80 % of tractors and combine harvesters exceed the durable years, 13 – 14 years in general. The Government promotes an agricultural machinery leasing program in order to accelerate the renewal. Table 3-9 shows the annual planted area, and the number of tractors and combine harvesters in Kyrgyz and Kazakhstan.

Table 3-9 Annual Planted Area and the Number of Agricultural Machinery in Kyrgyz and Kazakhstan Kyrgyz 2010 2011 2012 2013 Planted Area (thousand ha) 1,146 1,159 1,166 1,170 unit 23,835 22,662 21,104 20,369 Tractor unit/thousand ha 20.8 22.9 18.1 17.4 Combine unit 2,979 2,694 2,636 2,359 Harvester unit/thousand ha 2.6 2.5 2.3 2.0

Kazakhstan 2009 2010 2011 Planted Area (thousand ha) 21,425 21,439 21,083 unit 156,037 156,656 155,580 Tractor unit/thousand ha 7.3 7.3 7.4 Combine unit 48,032 49,503 46,997 Harvester unit/thousand ha 2.2 2.3 2.2 Source: The JICA Study Team based on information from official statistics in Kyrgyz and Kazakhstan

10 Present Situation and Prospects of Agriculture in the Republic of Kazakhstan, Report on Food Balance in Foreign Countries, October 2013, the Ministry of Agriculture, Forestry and Fisheries, Japan.

The total annual planted area in Kazakhstan is about 18 times of that of Kyrgyz. Out of the area, cereals are grown in about 1.6 million ha. Since the top 20 large-scale farms occupy about 60 % of the total farmland, the average size of cereals planted area on the large farms might be 48,000 ha with a simple calculation. The figure implies that a concentration of farmland limited to producers has progressed a lot compared to the situation in Kyrgyz. As for the number of tractors per unit area in 2011, there is only 7.4 units/thousand ha in Kazakhstan, while there are 22.9 units/thousand ha in Kyrgyz. These figures suggest that the working efficiency of tractors in Kazakhstan is 3 times better than the efficiency in Kyrgyz. However, the number of combine harvesters per unit area is almost the same in both countries, 2.2 units/thousand ha in Kazakhstan and 2.5 units/thousand ha in Kyrgyz. It is estimated that the working efficiency of combine harvesters in Kazakhstan is also higher than that of Kyrgyz, the same as the tractors, considering the inefficient operation on small farmland and the time loss of frequent transportation to other farmland in Kyrgyz. Such inefficient operation may cause an actual shortage of combine harvesters in Kyrgyz, and raise the problem of a late-harvest. While agricultural machinery made in CIS countries, such as Russia, Belarus, Ukraine, is popular in Kazakhstan, the machinery made in USA or Europe is expanding the market share in recent years. Table 3-10, 3-11 show the number of tractors and combine harvesters sold in Kazakhstan in 2013. Table 3-10 The Number of Tractors Sold in Kazakhstan in 2013 Manufacturer Origin Country Model Number (unit) Sub-total Total 80,82,920,952 1,300 MTZ Belarus 1,550 1221,1025,2121 250 VERSATILE Canada －－ 89 JOHN DEERE USA, EU, Asia －－ 68 150K-09 22 17221 27 XTZ Ukraine 54 150,220-10 4 200 1 KIROVETS Russia K-700、K-744P － 30 CASE Italy －－ 21 FOTON China －－ 16 CLAAS Germany －－ 11 NEW HOLLAND USA, UK, Turkey －－ 7 CHALLENGER USA, EU, Brazil －－ 6 Others －－－ 5 Total －－－ 1,857 Source: The JICA Study Team

The number of tractors sold in 2013 in Kazakhstan is 1,857 in total. While the number of Belarus MTZ tractors with 80 – 90 hp is 1,300; the number is about 70 % of the total number. The number of USA and Europe tractors with more than 200 hp is 202, which is equivalent to only about 11%. Since an agricultural development loan program has been provided mainly to large-scale corporate farms after 2000 in Kazakhstan, the demand for big sized tractors has almost saturated the market in recent years. It is estimated that the present demand for the tractors is coming from relatively small-scale individual farmers. The number of sold tractors in 2013 is only 1.2 % of the total number in Kazakhstan. The % is even smaller than the % in Kyrgyz, 3.8%. An insufficient number of tractors are renewed in Kazakhstan, the same as in Kyrgyz11.

Table 3-11 The Number of Combine harvesters Sold in Kazakhstan in 2013 Number (unit) Manufacturer Origin Country Model Sub-total Total VECTOR 273 AKROS 92 ROSSELMASH Russia 401 CK-5A 36 NIVA,NIVA-Effect AGROMASHHOLDING Kazakhstan ESSIL GOMSELMASH PALESSE － 320 Belarus LIDAGROPROMMASH LIDA CLAAS Germany －－ 103 JOHN DEERE USA, EU －－ 102 YENISEI-1200 87 AGROMASH Russia YENISEI-1200PM 7 98 YENISEI-950Ruslan 4 CASE Italy －－ 15 NEW HOLLAND USA －－ 11 CHALLENGER USA －－ 9 SAMPO Finland －－ 1 Total －－－ 1,060 Source: The JICA Study Team

The number of combine harvesters in 2013 in Kazakhstan is 1,060 in total. Out of the total, there are 819 units of combine harvesters, equivalent to 77 % of the total, made in Russia and Belarus. All the remaining combine harvesters are products made in Europe and the USA. While the number of sold combine harvesters in 2013 is only 2.3 % of the total number in

11 6.7% of the total number of tractors should be renewed annually, if all the existing tractors are renewed at 15 years of age, which may be a reasonable number of durable years for tractors.

Kazakhstan, the % is almost similar to Kyrgyz, 1.9 %. As with the tractors, an insufficient number of combine harvesters has been renewed in Kazakhstan. As for the implements, Turkish, European and USA products are becoming popular in addition to products in Russia, Belarus and Ukraine, just like the market in Kyrgyz.

3.3 Maintenance of Agricultural machinery

3.3.1 Maintenance Situation of Agricultural Machinery Before Independence

The agricultural policy of the former Soviet Union Government increased food production based on the Kolkhoz and the Sovkhoz farming system. The utilization of agricultural machinery played an important role in conducting farming practices effectively. As such, both the farming systems had a good plan for the maintenance and repair services of agricultural machinery use, in order to avoid the machinery breakdown that occurred chiefly during a busy farming season. At that time, the Government supplied spare parts and materials needed for agricultural machinery to implement maintenance and repair services smoothly in accordance with the proper plans, and agricultural machinery was periodically renewed around every ten years. Moreover, the Government constructed the following three facilities to implement maintenance and repair of agricultural machinery.

(1) A large-scale facility that has machine tools for the overhaul of agricultural machinery and production farm implements and spare parts. (2) A medium-scale facility that has machine tools to implement maintenance of agricultural machinery and the production farm implements and spare parts. (3) A small-scale facility that has basic machine tools to implement maintenance and repair of agricultural machinery.

The three facilities mentioned above were established in the strategic farm areas of (1) Provinces, (2) Districts and (3) Villages. Currently, these facilities are generally called a ‘Machine Station’ and/or ‘Machine Center’ since the purpose of the facilities is to implement the maintenance and repair services of agricultural machinery. In this report, these facilities are called machine stations. The machine stations of (1) and (2) have machine tools such as a lathe machine, milling machine, arc welding, drilling machine, hydraulic press, chain block (electric/manual), forging equipment, fuel injection and nozzle testers and other measuring instruments, hand tools, and storage facilities for spare parts and iron materials for agricultural machinery. Moreover, both machine stations have a

mobile workshop to implement maintenance and repair, chiefly during a busy farming season in the field. In the case of the machine station (3), the farming areas are relatively small and a small number have agricultural machinery; the station has an arc welding, grinding machine, and drilling machine etc. to conduct daily maintenance services. At the time, agricultural machinery were introduced at machine stations, as well as engineers were posted to operate the stations’ activities adequately. It was imposed on the workers to study the operation and maintenance of agricultural machinery at a special educational institute, to work in these stations, and workers after graduating from the institute, had learned on-the-job training methods from skilled engineers at the stations. In addition, experts of agricultural machinery were dispatched from Russia and other countries to the machine stations to further train workers on the use of high level technology. There was agricultural machinery maintenance before independence. It can be said that Personnel Training education for operators and engineers was implemented sufficiently at the time. After independence, engineers who had been working at the stations, were indispensable to currently implement the operation, maintenance and repair of agricultural machinery in Kyrgyz.

3.3.2 The Present Maintenance Situation of Agricultural Machinery

After independence, large-scale farmland was divided into individual farmland depending on the number of family members, and the agricultural machinery, equipment and buildings of machine stations controlled by the Government were sold, according to the privatization policy. Therefore, presently there are no public maintenance and repair services of agricultural machinery. In this study, it was confirmed that many agricultural machinery introduced in the former Soviet Union period are still utilized, but this does not mean they work efficiency. Some decrepit machines are used by assembling parts collected from several agricultural machines. Such repair methods are seen in many developing countries. In the case of the MTZ tractors made in Belarus, which were introduced to Kyrgyz before independence, these tractors have compatible parts to tractors that are presently produced and sold on the market, and repair and maintenance are relatively easy to do since the machinery mechanism is very simple. Currently, several agricultural machinery parts, introduced before independence, are still available in markets. According to an agricultural machinery parts supplier, the Chinese are selling parts that are produced in their country for Kyrgyz due to high demand for agricultural machinery. It can be said that there are certain levels of techniques for repair and maintenance of agricultural machinery, since the old-model of agricultural machinery is still being utilized.

(1) The situation of machine stations Machine stations have already been privatized and incorporated as private companies since independence. As mentioned above, machine stations have enough equipment and machine tools for maintenance, repair services, fabrication of spare parts and steel-metal marking of agricultural machinery. However, the facilities and machine tools at machine stations are old since they have been utilized since the Soviet Union period. Therefore, proper maintenance continuance and/or renewal of facilities and machine tools are issues that will resolve future problems. In addition, the skilled-engineers have been working at the stations since the Soviet Union period. Since it has been 23 years, most of them are an aging population. Currently, skilled-engineers are teaching their agricultural machinery techniques and know-how of maintenance to the younger generations.

Repair of the transmission Forging equipment (An electric blower and an anvil. The tractor was introduced in 1970’s There is a grinding machine at the center) Kara-suu District, Osh Province: Tashirova machine station (founded in 1995)

Maintenance of a tractor, Purchased for 700,000som in Cultivator (the cutting edges of the ridger were made of 2013, YTO904 Made in China recycled car leaf spring) The machine station in Nookat District, Osh Province

Left: Fuel injection tester Lathe machine: Made in Russia Right: Fuel nozzle tester The manufacturing year is unknown.

Alamedin District, Chui Province: Adygene machine station (funded in 2006)

(2) The situation of individual farmers Farmers are operating and repairing agricultural machinery themselves. Most of them have hand tools, and some of them have machine tools, such as arc welding machines, grinding machines, drilling machines and so on, for the maintenance of agricultural machinery. On the farms, although they do not have measuring tools such as a torque-wrench, a cylinder gauge and so on, they do repair machinery engines as overhaul work. Such farmers have learned repair techniques not only during the Soviet Union period, but also when they studied the techniques themselves and/or when they studied at vocational training schools. However, machinery repaired by farmers are not performing properly for farm work. It may be that these agricultural machines have a lower power output and breakdown frequently since repair is conducted without proper measuring tools in outside dusty conditions. This farmer’s work is one issue that needs to be improved for proper repair and maintenance of agricultural machinery.

Repairing spear parts of a combine harvester. The Maintenance of a 1970s model year tractor. cylinder-head is put directly on the ground. The farmer worked as an engineer at a machine station. A farmer in Talas District, Talas Province. In Talas District, Talas Province.

Spare parts at a farmer’s house basement storage in Maintenance of a tractor (oil change etc.) Uzgen district, Osh province. A farmer in Kara-suu district, Osh Province Farmers seldom have spare parts.

(3) The situation of the private sector In this study, there were no private sector repair shops, chiefly for agricultural machinery. Some of the suppliers have their own workshops. Regarding the situation of the private sector, private repair engineers who do not have their own workshops, visit a farmer’s house directly and/or farming fields to implement repair and maintenance of agricultural machinery. Most of the repair engineers had worked at machinery stations. They engage in contract overhaul work, mostly of Belarus made tractors. The necessary parts should be basically bought by the farmers. The repair engineer provides advice as consulting services for the selection of necessary parts. The price of overhauling a tractor is about 10,000som. There are repair engineers in several areas of the country. In the case of repair and to test fuel injection pumps and injection nozzles, farmers ask private workshops. In the markets of Bishkek city, there are workshops for repairs. Farmers should also buy the necessary parts. The repair charge is about 2,500 to 3,000som, except the cost of necessary parts. The surveyors visited a workshop adjacent to a spear shop for agricultural machinery in the market of Bishkek city. The workshop had two fuel injection pump testers. One of the two was a used tester made in Russia and the other was new, made in China.

A fuel injection pump tester, made in China A fuel nozzle tester, made in Russia (second hand) A repair shop adjacent to spear shops of agricultural machinery in Bishkek city

3.3.3 Persons In-Charge of Maintenance and Training The old agricultural machinery introduced during the Soviet Union period are presently being utilized in Kyrgyz. Engineers who have been working at the machine stations have a very important role in maintenance. However, 23 years have passed since independence. Even though engineers have skilled techniques and knowledge of maintenance work, this knowledge is outdated. As such, engineers are teaching their skilled know-how to the younger generations. For training personnel in the field of agricultural mechanization, there are two training courses that are being conducted by the Ministry of Education and Science, and the Ministry of Labor, Migration and Youth. Students can enroll in the training courses after a 9-year compulsory education and they can obtain a high-school certificate after the completion of the training courses. The training courses have problems, such as educational budget issues, old text-books and practical materials, and so on, that do not meet the demands of students. Therefore, the number of students has been decreasing. The outline of the training courses is as follows.

3-year agricultural machinery course at the technical colleges under the Ministry of Education and Science There are 9 colleges in the country and there are several training courses, such as economic science, electrical engineering, environment conservation, agrarian economy and so on. There are only two colleges that have an agricultural machinery course in the cities of Osh and Bishkek. There was an agricultural machinery course in Tokmok of Chui province but the course was closed two years ago due to the lack of a budget and the decreasing number of enrolled students. In the first and second years of study, the students have a general education and study agricultural machinery. In the third year, they specifically study agricultural

machinery. Upon the completion of the 3-year curriculum, they obtain jobs as assistant teachers of the college and vocational school (as mentioned below) and farms (corporation and/or as a successor), and some of them go on to universities.

3-year agricultural course at the vocational schools under the Ministry of Labor, Migration and Youth There are 65 vocation schools in the country and there are several training courses, such as an electrical engineering, information-communication, industrial technology, service industry, agriculture course and so on. Agricultural machinery is one of the subjects of the agricultural training course. In the first and second years of study, the students have general education subjects, the same as the technical college. There are many agricultural course subjects, such as horticulture, livestock, orchard, veterinary and so on. On the subject of agricultural machinery, students study the basic structure of machinery, the operation of a tractor with implements, and maintenance of machinery. The students obtain a tractor’s driving license after completing the course. The vocational schools conduct a 6-month course in agricultural machinery as short-term training. The training schedule is arranged accordingly. The course subjects are not only for studying the mechanism of machines and operation techniques, but also so students can obtain a tractor’s driving license. Therefore, there are many students taking the short-term training course for the purpose of obtaining the license. (The categories of the license have changed into three since last year. A: less than 40hp, B: 40 to 70hp, C: more than 70hp.) Upon the completion of the 3-year curriculum, students obtain jobs as successors to farms, corporate farms, agro-processing industries, and some go on to attend university. The following two projects have been implemented at the vocational schools.

 ‘Dissemination of Organic Farming’ is an on-going project at the 43rd vocational school, implemented by grant assistance for the grass-roots project of JICA.  ADB assisted the vocational schools for the improvement of educational materials from 2009 to 2013. In this program, 10 tractors made in China (FORTON) were introduced at the schools.

3.4 Financing System for Agricultural Mechanization

Agricultural finance is a monetary method to support farmers and agribusiness. The financing system includes various types of loan schemes provided by the government and private institutions, as well as small-scale financial services, such as microfinance targeting low-income

and needy people. Agricultural insurance is a component of the system. Agricultural finance services are provided by the Government institutions, as well as by the private institutions including microfinance institutions in Kyrgyz. Both the Government sector and the private sector do not have an agricultural insurance product.

3.4.1 Government Finance Institutions

(1) The State Fund for Economic Development The State Fund for Economic Development was established under the Ministry of Finance. It is engaged in financing social and economic development projects by managing the Government and international-donor funds, and in managing repayment of donor loans. Although it is not a financing institute exclusively for agriculture, a part of the fund is disbursed to agricultural supporting projects. While China is the biggest donor to Kyrgyz at present, the share is 50 % of the fund managed by The State Fund for Economic Development. The other donors to Kyrgyz are the World Bank, ADB, Russia, Japan (counterpart-funds of Non-project Grant and 2KR), Sweden, the Islamic Development Bank, and Netherlands and Pakistan, even in small monetary amounts. The State Fund employees 172 staff, and it has a nationwide branch network covering 40 districts and 7 provincial capitals. While the Kyrgyz Government used to procure agricultural machinery by a Japanese Non-project Grant and 2KR, agricultural machinery was sold to farmers with an interest-free loan. Since 2000, the Government has started to recover the counterpart-funds of both Japanese grants, and the State Fund for Economic Development has been engaged in managing the funds. The accumulated money was disbursed 4 times as shown in Table 3-12. While it has started financing Aiyl Bank for supporting the agricultural machinery loans and the agricultural machinery leasing scheme since 2010, 115 million Kyrgyz som (equivalent to 23 million Japanese yen) was released for the leasing scheme from the 2KR counterpart fund in 2012.

Table 3-12 Disbursement of Counterpart Fund Accumulated from Non-project Grant and 2KR Amount Exchange Year Disbursement Item Unit (thousand som) (UAD) Rate 2002 Tractor（MTZ） 63 36,430 790,326 46.0949 Combine harvester 3,508,034 2007 70 124,531 35.4988 （Niva） Tractor（LTZ60A） 306 168,844 4,283,413 2008 Plow 306 11,047 280,252 39.4181 Trailer 102 20,109 510,146

Amount Exchange Year Disbursement Item Unit (thousand som) (UAD) Rate Aiyl Bank Leasing 2,426,099 2012 -115,000 47.4012 Scheme Total 847 475,961 11,798,270 Source: The State Fund for Economic Development

(2) Aiyl Bank Aiyl Bank is a state bank, established in December 2006, aimed at the development of agriculture. The precursor of the bank is Kyrgyz Agricultural Financial Corporation (KAFC) which was established by the Kyrgyz Government in 1997 with cooperation from the World Bank. The bank has 29 branches, 19 regional offices, 48 village stations, 46 deposit counters and 9 mobile cash desks across the country. It is engaged in almost all financial-support projects for agricultural development supported by the Government and international donors. The major donors are the World Bank, ADB, EBRD, Reiffeisen Fun and UNDP. The total financed amount of Aiyl Bank is 3,264.32million Kyrgyz som as of the end of 2012. Out of the total, 2,467.1 million Kyrgyz som, about 76% of the total, is financed for the agricultural sector. The Aiyl Bank’s finance scheme is mainly divided into two components. One is a loan scheme and the other is a leasing scheme.

1) Loan scheme Various types of loan products for supporting crop production, livestock, horticulture, inland fish cultivation, forestry, agribusiness, etc. are provided by Aiyl Bank. While the major target clients are corporate farms and individual farmers, some loan products are channeled to women and poverty groups. Most loan products are supported by Government subsidies or international donor funds. The interest rate is 10 – 25 % a year and the maximum repayment term is 10 years. Among the loan products in Table 3-13, “plant growing” is available for procurement of spare-parts of agricultural machinery and the “Raifizen Foundation for cooperative development in Kyrgyzstan”, the “procurement of agricultural machinery, construction and reconstruction of production facilities” and the “agro business and marketing” available for procurement of agricultural machinery, including used machinery.

Table 3-13 List of Loan Products for Supporting Agriculture For corporate farms12 AGRICULTURAL LOANS Repayment Name of Loan Product Currency Annual Interest Term Plant growing Som 10% 2 ~ 10 years Raifizen Foundation for cooperative Som 18% ~ 19% 2 ~ 10 years development in Kyrgyzstan Rural finance project – 2 (financed by Som 10% International Development Association (IDA) Max. 7 years USD 10% through MoF) Som 10% Mal Charba Nasyyasa Max. 7years USD 10% Procurement of agricultural machinery, Som 18% construction and reconstruction of production Max. 7 years USD 16% facilities Promoting agricultural productivity Som 10% 2~5 years SPECIAL AGRO LOANS Repayment Name of Loan Product Currency Annual Interest Term Som 10% ADB loan product Max. 10 years USD 10% Financing cooperatives - members of the Union Som The Bank’s Rate Max. 3 years of Cooperatives in Kyrgyzstan SOCIAL AGRO LOANS Repayment Name of Loan Product Currency Annual Interest Term Kumtor Ton Som 12% Max. 3 years UNDP Summary Som 12% Max. 5 years Talas Loans (financed by Public Fund Social Som 12% Max. 2 years Development in Talas Oblast) New Zealand – Naryn (financed by Kyrgyzstan Som 12% Max. 2years New Zealand Rural Trust Fund) BUSINESS LOANS Repayment Name of Loan Product Currency Annual Interest Term Support and development business women Som 20% 2~4 years (ADB) USD 18% Agro Business and marketing (financed by Som 10%-21% International Development Association (IDA) 2~10 years through MoF) USD 16%-19% Support of small and medium business Som 18% development – production and processing – Max. 5 years Ondurush nasyyasay USD 16% Support of small and medium business Som 21%-25% development – livestock breeding and sale, Max. 3years agricultural purchase – Kamdoo nasyyasy USD 20%-22% For individual farmers13

12 Aiyl Bank official website : http://www.ab.kg/ru/bankovskie-uslugi-uridicheskim-licam/krediti 13 Aiyl Bank official website : http://www.ab.kg/ru/bankovskie-uslugi-chastnim-lisam/krediti

AGRO LOANS Repayment Name of Loan Product Currency Annual Interest Term Kumtor-Chakan Loan Som 20% Max. 2 years Som 10% Group loans Max. 2 years USD 10% Source: Aiyl Bank

2) Leasing scheme The Kyrgyz Government has a policy to promote leasing of agricultural machinery in order to accelerate the renewal of machinery. In recent years, the leasing schemes are becoming popular as a financial tool for supporting agricultural mechanization. Aiyl Bank has been engaged in the government leasing scheme for agricultural machinery since 2011. The amount of the lease from Aiyl Bank in 2012 occupied 99 % of the total lease amount including the amount from other financial institutions. While Table-3-14 shows lease products for agricultural mechanization, the major target customers are individual farmers, agricultural cooperatives and corporate farms.

Table 3-14 List of Leasing Products for Supporting Agricultural Mechanization

Name of Annual Interest Repayment Currency Target Machinery Financial Source Product (down payment) Term Phase-1 ： Chinese Phase-1 ： Chinese tractor (YTO904) grant (30 milion Phase-2： CNY = 4.66 6% (30%) Agricultural million USD） Max. 7 State lease-1 Som 7% (20-29%) Machinery Phase-2 ： years 9% (10~19%) (exclusively for Counterpart fund of combine harvester Phase-1 from 2013) Decree No.382, July 11, 2011 Counterpart funds of Japanese Non-project grant and 2KR: 115 million Kyrgyz som Counterpart fund of State lease-2 Chinese grant: 80 8% (30%) million Kyrgyz som 9% (20~29.9%) Max. 7 Agricultural Som om 11% years Machinery Total ： 3.9 million (10~19.9%) USD Decree No.487, July 13, 2012 Turkish grant (about 5million USD) State lease-3 Decree No.88, Feb. 19, 2013

Name of Annual Interest Repayment Currency Target Machinery Financial Source Product (down payment) Term Leasing of Agricultural Loan from the China State 15% (30%) Machinery Development Bank Max 5 Development USD 16% (20~29%) (exclusively for 3 million USD years Bank of 17% (10~19%) YTO models) China 18% (30%) Agricultural The World Bank 19% Machinery, Storage (This project is Agro Som (20~29.9%) Facility, Agricultural closed-out) business and 20% Structure, etc. ・Granted 30% of the marketing (10~19.9%) 2.5~5 total price (Up to 50 Program of 12% (30%) years thousand USD） support of 13% ・Max. lease amount: agricultural USD (20~29.9%) 0.5million USD cooperatives 14% (10~19.9%) Source：The JICA Study Team, conducted based on the Aiyl Bank official website14, Financial Statement 2012 and concerned government decrees

a. General conditions of the lease (not applied to the World Bank program) Down-payment: Not less than 10%, depending on the total value Mortgage: Not necessary, in case the down-payment is more than 30% of the total value. Necessary, in case the down-payment is less than 30% of the total value (should be real estate like houses; however land is excluded) Repayment term: Original principal: 2 times/year, Interest: quarterly payment Grace period: Original principal: 9 months, Interest: 3 - 6 months (depending on cropping/production season by target commodity) Insurance: All clients have been liable for insurance at the expense of the clients since Jan. 2013. The clients must choose an insurance company from 3 affiliated companies of the Aiyl Bank. 2.4% of the total value for covering the damage of machinery. Single payment at the time of contract. Mechanization “State leasing 3” targets mechanization service providers, such as Machine services Technical Stations. Clients of the lease are obliged to provide a certificate from the relevant Aiylokmotu (village) to confirm that the client is providing mechanization services in the area. VAT & Sales tax: Exempted if the amount of the lease is more than 0.2 million Kyrgyz som.

14 Aiyl Bank official website : http://www.ab.kg/ru/bankovskie-uslugi-chastnim-lisam/krediti

Booklet about the leasing Consulting room in a branch office The Leasing Department at of Aiyl Bank the headquarters of Aiyl Bank

b. Actual performance of the leasing Table 3-15 – 3-17 show the actual performance of the leasing by agricultural machinery, by year and by provinces. The average unit amount of the lease is about 0.92 million Kyrgyz som (18 thousand USD) for tractors, about 3.93 million Kyrgyz som (78.6 thousand USD) for combine harvesters and about 0.31 million Kyrgyz som (6.2 thousand USD) for implements.

Table 3-15 Amount of Aiyl Bank Leasing by Agricultural Machinery

Chine Development Bank Program State lease-1 State lease-2 State lease-3 WB lease Total (1USD = 50som) Equipment No. Sum (som) No. Sum (som) No. Sum (som) No. Sum (som) No. Sum (som) No. Sum (som)

MTZ 94 96,007,372 236 235,963,624 284 287,228,716 25 25,199,152 0 0 639 644,398,864

YTO 284 212,218,067 5 1,571,613 0 5 2,984,652 149 125,773,250 443 342,547,582 Tractors Others 2 4,378,588 0 0 0 1 9,899,150 0 3 14,277,738

Combines 9 35,347,538 14 51,114,227 0 5 23,515,500 0 28 109,977,265

Attachments 53 13,169,561 38 16,255,874 0 6 694,089 0 97 30,119,524 Total 442 361,121,126 293 304,905,338 284 287,228,716 42 62,292,543 149 125,773,250 1,210 1,141,320,973 Source: Aiyl Bank

Table 3-16 Amount of Aiyl Bank Leasing by Year

Year 2011 2012 2013 Total

Equipment No. Sum (som) No. Sum (som) No. Sum (som) No. Sum (som)

МТZ 17 16,660,000198 201,141,264 424 426,597,600 639 644,398,864

YTO 263 196,440,749 94 75,196,583 86 70,910,250 443 342,547,582 Tractors Tractors Others 0 0 1 9,899,150 2 4,378,588 3 14,277,738

Combines 2 6,480,000 9 40,941,820 17 62,555,445 28 109,977,265

Attachments 2 216,000 44 9,056,657 51 20,846,867 97 30,119,524

Total 284 219,796,749346 336,235,474 580 585,288,750 1,210 1,141,320,973 Source: Aiyl Bank

Table 3-17 Amount of Aiyl Bank Leasing by Province

Year 2011 2012 2013 Total

Province No. Sum (som) No. Sum (som) No. Sum (som) No. Sum (som)

Chui 76 62,572,149 74 92,286,569 120 139,779,496 270 294,638,214

Talas 31 23,620,767 35 41,414,548 82 76,904,104 148 141,939,419

Issyk-Kul 37 27,636,151 18 17,758,151 58 54,151,347 113 99,545,649

Naryn 18 13,444,614 18 16,206,922 32 30,824,633 68 60,476,169

Osh 54 41,499,227 83 77,858,608 108 102,026,098 245 221,383,933

Jalal-Abad 48 36,085,381 81 63,516,076 112 107,877,703 241 207,479,160

Batken 20 14,938,460 37 27,194,600 68 73,725,369 125 115,858,429

Total 284 219,796,749 346 336,235,474 580 585,288,750 1,210 1,141,320,973 Source: Aiyl Bank

c. Leasing procedure Farmers wishing to obtain a lease should visit Aiyl Bank for the first consultation after the selection of agricultural machinery for leasing. During the first consultation, the visited farmers can obtain a detailed explanation about the leasing conditions from the bank. If farmers can accept the conditions, the next procedure is taken for the qualification examination by the bank. For the qualification examination, a person in charge of Aiyl Bank makes a visit to the farmer’s house and farmland to check his/her financial condition and property. Only if both the farmer and bank have confirmed the farmer’s reliability of repayment, is an official application made for the farmer. It is, therefore, unusual that the application be refused in the final analysis conducted by the headquarters of Aiyl Bank. It is impossible to confirm the % of farmers who could get the lease, for farmers who had the first consultation, since Aiyl Bank does not have data on the number of farmers. According to the information from a branch office of the bank, only 1 farmer can obtain a lease out of 3 – 4 applicants in a month; even the number varies season to season. The qualified farmer for the lease is a farmer who makes a consistent profit, more than the expected amount of repayment. It is, however, difficult to standardize the qualification examination, since different farmers have a different farm management status, such as land property, farmland area, growing crops, land use, agricultural mechanization, etc. Aiyl Bank staff suggests that more than 90 % of the lease beneficiaries have more than 20 ha of farmland, including rented land, and they have a certain income from agricultural mechanization services provided by using existing machinery.

Procedure Remarks

1 Selection of  The farmers intending to lease machinery are given a free hand to machinery choose the machinery except for when the lease is applied to machinery provided by aid. Only brand-new machinery is applicable.

 A machinery list by Aiyl Bank is made considering agricultural condition by region

 The number of allocated machinery to each branch office is determined by actual demand, cultivated area, leasing performance, etc.

2 The first  Farmers who intend to apply for the lease make a request to the consultation branch office in the area

 There are 4 - 5 staff handling the leasing in the case of medium-scale branches

 The staff explain the lease conditions to participated farmers

 Qualification Examination: Financial status is the most important checking point. Property, income (including non-agricultural income and pension), expenditure (family expenses, school expenses, etc.), etc. are analyzed by interviews and by a site visit survey.

 Repayment capacity of a farmer is evaluated not only by the property of farmland, but also other income generation items, such as the rented farmland area and performance of mechanization services, etc.

 If a farmer is disqualified by the qualification examination, the farmer cannot apply for the lease

 Contents of the consultation and the request from branches or provincial offices are reported to the headquarters

3 Application  Qualified farmers of the qualification examination can make an application for the lease

 Required documents (individual farmers); Application form, passport, marriage certificate, letter of consent from spouse, registration for farming, property certificate (car, house, livestock, etc.) and others if necessary

 More than 90% of the applicants are individual farmers. Corporate farms should prepare additional application documents, and contents of the documents vary according to the type of cooperative farms

4 Qualification  Indispensable conditions are 3 consecutive-years of surplus at Examination by financial closing and not tax-delinquent for individual farmers, as well the headquarters as for corporate farms

 Influence of other debt is evaluated by the result of cash flow analysis 5 Approval It is unusual that the application is refused by the headquarters of Aiyl Bank at this stage. 6 Leasing Leasing contract is concluded at the branch offices concerned. contract

Procedure Remarks 7 Down payment As most customers make a down payment of more than 30% of the machinery value, a mortgage is not applicable in most cases

8 Sales contract  All orders are made from the headquarters on a daily basis.

between the  Suppliers: bank and Kyrgyz Avtomash Radiator, YTO, Atalyk Group, John Deere, suppliers Standard Agroservice, Kyrgyz Agro Market, Central Asia Machinery, etc. 9 Payment to In case of a leasing scheme supported by the China Development Bank, suppliers the bank directly makes a payment to YTO.

10 Machine  Customers pick up machinery from suppliers

delivery  It takes 2 – 3 months, sometimes about 6 months, from the application to the delivery Source: The JICA Study Team

② Consultation ③ Application ③ Application Ministry of Ayil Bank Ayil Bank ⑤ Утверждение ⑥ Contract Leasee Finance Fundings Head Office Regional Office ④ Evaluation ⑦ Prepayment ⑦ Prepayment

Machinary Suppliers

Source: The JICA Study Team Figure 3-2 Aiyl Bank Leasing Procedure

Under the leasing schemes, the payment for agricultural machinery is made by Aiyl Bank. The bank maintains ownership of the machinery even after the machinery is delivered to the customers. Re-leasing is not allowed. The ownership is transferred to the customers when they pay off the lease obligation. Almost all clients pay their lease obligation without delay, and presently the recovery rate is almost 100%. Aiyl Bank visits all customers 2 times in a year for the monitoring. The bank staff makes a comment that the customers are increasing their understanding of the leasing system through consultation with the bank during the monitoring. According to farmers who leased agricultural machinery from Aiyl Bank, they do not experience a big problem with preparing necessary documents and in the leasing procedure. Since Aiyl Bank treats many customers for the leasing, it has established a systematic and smooth procedure compared to other financing institutions.

3.4.2 Other Finance Institutions

(1) Agricultural financing services of private banks Table 3-18 shows private banks that provide agricultural loans or leases, and their financial products. They impose the following terms and conditions on the products in general. ・ Interest rate: about 20% a year ・ Repayment term: Max. about 5 years ・ Repayment schedule: monthly (harvesting time is considered in some cases) ・ Interest rate: about 16 – 24 % a year ・ Repayment term: Max. 5 years ・ Down payment: 30 % of the value ・ Repayment schedule: monthly (harvesting time is considered in some cases)

Table 3-18 Agricultural Financing Products available in Private Banks Agricultural loan Annual Repayment Bank Objective CurrencyAmount Interest Term Bai Tushum Bank Livestock, Dairy Som 10,000 Som 20% 3~60 (The name before Jan. products, Seeds, Crops USD som or USD 17% months 2014 was “Bai more Tushum and Partners”) Kyrgyz Investment Agriculture Som 0.2~5 Som 12~24 and Credit Bank USD million 18~26% months (KICB) USD USD 16~25% Commercial Bank Agribusiness Som 2.5~ Som 3~36 Kyrgyzstan USD 20 som 21~32% months EUR 50~500 USD thousand 17~27% USD/EU EUR R 13~21% Project “Support to Som More Som 12~24 improve agricultural USD than 50 16~18%、 months productivity” financed thousand USD by the Ministry of som or 10~12% Finance 1,000 (Crops, Livestock, USD Agro-processing) BTA Bank Expenses for purchasing Som Up to 1 Depends on 3 years (5 livestock, seeds, and USD million repayment years in equipment, labor wages, USD schedule some etc. and the cases) market rate

Agricultural loan Annual Repayment Bank Objective CurrencyAmount Interest Term IDA project Som Up to 18~20% Max. 5 “Agribusiness and USD 250 (Floating years Marketing” thousand interest) (Equipment for the USD production, processing and storing) Optima Bank Livestock, Agricultural Som More More than 3~60 inputs, Agricultural USD than 50 14% months machinery, etc. USD Leasing Repayment Annual Term & Bank Objective Currency Amount Interest Down Payment Bai Tushum Bank Equipment for Som 0.15 ~ Som 24% 5 years agricultural cooperatives USD 15 USD 20% Min. 30% or corporate farms million of the value som Kyrgyz Investment Vehicles, Agricultural Som 5 ~ 100 Som 18% 6 months and Credit Bank machinery, Sewing USD Thousan USD 16% ~5 years (KICB) machines, etc. d USD Min. 40% of the value Commercial Bank Vehicles, Agricultural Som Depends Som 1~7 years Kyrgyzstan machinery, etc. USD (no 21~22% 30% of the EUR limit) USD value 17~18% EUR 14~15% Other Repayment Repayment Bank Objective Currency Amount Amount Term Eco Islamic Bank Livestock, Forage, Som More 1.4 times of 1~36 (No interest is allowed Agricultural machinery, than the original months because of Islamic etc. 50,000 amount financing. It actually som after 3 years provides sales financing) Source: The JICA Study Team, conducted based on the Banks’ websites or the interview survey.

Table 3-19 Leasing Performance of Private Banks in 2013 Bank Number Machinery Bai-tushum Bank 62 Tractor:12 units, Implements: 50 sets KICB 1 Rice combine harvester (Chinese made, 20 thousand USD） Eco Islamik Bank 17 Tractor: 3 units, Implements: 14 sets Total 80 Source: The JICA Study Team, conducted based on the interview survey for the MA & LR and the concerned banks.

Due to the change in the tax system in 2012, VAT and interest tax have not been applicable to leasing. After the change, a favorable environment to promote leasing services is created in Kyrgyz because even a private bank has been able to reduce the interest rate. Some banks intend to expand their leasing services. However, they may have the disadvantage of high interest rates compared to Aiyl Bank, if they run the leasing machinery leasing service. They differentiate their leasing services to the non-agricultural sector, such as construction, industry and the medical sector.

(2) Microfinance The microfinance system in Kyrgyz has been developed since 1994 with cooperation from the World Bank, UNDP, ADB and international NGOs. As a result, laws and regulations concerning the microfinance institutions have been enacted, and the financing system is controlled under the jurisdiction of the central bank in order to promote a proper and organized operation. According to the Association of Microfinance Institutions (AMFI), there are 249 microfinance institutions across the country as of September, 2013, and 32 institutions are members of AMFI. The institutions spread into nearly every rural side in the country. The total financed amount is 23,862.4 million Kyrgyz som (484.55 million USD) covering 459,572 debtors in 2013. The average financed amount is 51,923 Kyrgyz som (1,054 USD)/debtor. The average annual interest rate is 30.47%, while the average repayment team is 15 months. Quarterly reports of AMFI suggest that 49 – 67 % of the total financed amount went to the agricultural sector. Many benefited farmers bought livestock, while some of them bought seeds, fertilizers, fuel, etc., according to the interview survey. Since the amount of microfinance is not much and the interest rate is high, financing is not useful to procure agricultural machinery. Considering the number of microfinance debtors, 8 % of the population or every 12.5 individuals could reach for financing in 2013. It is believed that microfinance provides good financial access to local people and impoverished groups, and plays a significant role in improving the farming of small-scale farmers.

3.5 Customs Union15

3.5.1 Background and Summary of the Customs Union

In the 1990s, Kyrgyz GDP declined approximately 20-25% due to the division of economic cooperatives from former Soviet Union countries, as a result of the country collapse. Russia tried to encourage economic integration with Commonwealth of Independent States: CIS countries in order to form one united economic block. However, this attempt did not achieve the desired progress due to conflicts between the CIS countries, caused by the discrepancy in political principles and taxation policies. Hence, Russia intended to frame the economic block with attractive countries for economic integration, and to implement a non-tariff policy by signing a bilateral free-trade agreement with Belarus, Kazakhstan, Kyrgyz and Tajikistan. Furthermore, Russia concluded the CU with Belarus and Kazakhstan, to encourage economic unification. In 2010, the actual enforcement treaty of the CU between three countries was launched, and in December of this year, Kyrgyz expressed a sense of accession to the CU. The next year, in October 2011, at the meeting of the Eurasian Economic Community, the summit approved that Kyrgyz accede to the CU, and agreed to implement specific procedures for the accession. The main purpose of the CU is to eliminate customs between the member countries, and to liberalize intraregional transfers of goods (free trade). On the other hand, from a perspective of external measures, unite member countries’ custom rates externally in order to create one economic block. The main functions of the economic zone are the abolition of tariffs for trading between member countries, the elimination of inspections related to customs, foreign goods, animal and plant quarantine and hygiene, the installation of common standards, and the unionization of common external tariffs. If Kyrgyz joins the CU, the country needs to adopt these functions in the future. Table 3-20 shows a comparison of the economic overview of Kyrgyz and the CU member countries. As shown in the table, economic scale of Kyrgyz is significantly smaller than the

15References: Eurasian Development Bank Eurasian Integration Yearbook 2012, “Assessing the economic effect of Kyrgyzstan’s accession to the Customs Union” Japan Association for Trade with Russia & NIS, 2012, “Research for the Customs Union: Russia, Belarus, Kazakhstan” USAID, 2008, “Economic Consequences of the Customs Union for the Kyrgyz Republic”

other countries. There is a huge gap of GDP per capita between Kyrgyz and the CU countries. Kyrgyz reveals a high degree of dependence on foreign trade, and high population growth. As demonstrated in the table, Russian economic scale is extremely large among these countries. Since the superiority of Russia is obvious, Russia will assume a leading role in the future as well. This situation indicates that the establishment of a Russian centered framework for the CU may have negative effects on Kyrgyz due to differences of economic scale and the situation.

Table 3-20 Overview of Customs Union Member Countries and the Kyrgyz

2008 Kyrgyz Belarus Kazakhstan Russia GDP(10 billion USD) 5.0 60.3 135.6 1676.6 Agriculture (%) 26% 9% 6% 6% Industry (%) 17% 39% 42% 39% Service (%) 57% 53% 52% 54% GDP growth (%) 7.6% 10.0% 3.3% 5.6% GDP per capita (thousand USD) 0.95 6.23 8.72 11.81 Export, % of GDP 61% 54% 61% 28% Import, % of GDP 95% 65% 40% 17% Population (million) 51016 142 Population growth (%) 1.1% -0.2% 0.1% -0.1%

Source: USAID, 2008, “Economic Consequences of the Customs Union for the Kyrgyz Republic”

Although the importance of Belarus is comparatively low in a trading partner role, Russia and Kazakhstan are the significant markets of Kyrgyz for exports, and at the same time, the countries are also major exporters of fuels for Kyrgyz. Besides, Russia is not only a source country of energy, but also a host-nation of Kyrgyz labor forces, and a massive loan supply country. For all these reasons, Kyrgyz accession to the CU is strongly influenced by the intention of Russia (see Table 3-21).

Table 3-21 Possible Effects of Kyrgyz Accession to the Customs Union Positive aspects

 Promotion of economic activities with the CU member countries (non-tariff trading, access to the CU members’ markets)  Increase of participating countries in the CU (expansion of economic block)  Promotion of development

 Encourage the development of the domestic textile industry (through high rates of external tariff rates imposed on imported products from China)  Limited impact on agricultural sector (the import of agricultural inputs such as seed, fertilizer, fuel, machines and export of agricultural products are mainly traded with member countries)  Expansion of trading with the CU member countries, Kazakhstan (current obstacle factors of trading between Kazakhstan and Kyrgyz, including strict standards such as common external tariffs, customs and sanitary inspections will be eliminated)  Increase of Russian assistance and grants  Possibilities to offer more open or smooth entry to Kirgiz labor immigrants in Russia (ease barriers against member countries)

Negative aspects

 Decline in trading with external countries (tariff rate for external countries will rise, the average will approximately double by the implementation of CET: Common External Tariff)  Decrease the government tax revenues (VAT, import duties)

 Decrease in decision power in terms of trading policies (concern about the possibilities that are favorable policies for Russia)  Decrease in intermediate trading from China (intermediate trading which shows that large

proportions may decrease by a rise in the customs duty)  Installation of uniform standards in terms of quality, animal and plant quarantine, sanitation (more strict standards than the current standards)

 Increase in consumer commodity prices by the installation of common external tariffs (although there are no changes regarding the commodities imported from member countries, imports from external countries will increase)

 Difficulties regarding political negotiations (Kyrgyz is a WTO member country, so if tariff rates imposed on external countries increase by accession to the CU, the conflict with the WTO treaty will result.)

Source: The JICA Study Team based on the references16

Kazakhstan has already joined the CU. The customs tariff rate between member countries became zero percent. Regarding agricultural machinery imports from external countries, the machines and implements that compete with member countries’ products are established at high tariff rates between 0-15%, and a competitive rate was not set for low tariff rates.

Table 3-22 Trade Between Kyrgyz and CU Countries (Million USD), and % of Total Kyrgyz Exports and Imports with each CU Member (Million USD) 2005 2006 2007 2008 Trade turnover with CU countries 812 1188 1755 2417 Export 252 317 440 506 Russia (%) 7.2 5.4 5.7 5.2 Kazakhstan (%) 6.2 5.8 5.0 3.1 Belarus (%) 0.1 0.1 0.1 0.6 Import 560 871 1315 1911 Russia (%) 20.3 23.1 23.7 25.1 Kazakhstan (%) 9.4 7.1 8.6 6.1 Belarus (%) 0.4 0.6 0.6 0.7 Balance of exports and imports -308 -523 -875 -1405 Source: USAID, 2008, “Economic Consequences of the Customs Union for the Kyrgyz Republic”

Table 3-23 Main Trade Between Kyrgyz and CU Members by Category Import 2008 Export 2008 Minerals 57% Minerals 28% Wood, articles thereof, wood charcoal, cork, and 3% Textiles and articles of textiles 27% articles Vegetable products 12% Machinery, equipment and mechanisms: 3% Articles of stone, gypsum, cement, asbestos, and electrical equipment 8% mica Transport vehicles (road, air and water) 3% Electric machinery, equipment and appliances; Food products, alcoholic, and non-alcoholic 6% 8% electric technical equipment beverages Food products, alcoholic, and non-alcoholic 4% Vegetable products 7% beverages Chemicals and articles of base metals 6% Natural or cultured pearls, precious or 4% Base metals and articles of base metals 5% semi-precious stones Animal or vegetable fats and oils 2% Other 8% Miscellaneous 9% Source: USAID, 2008, “Economic Consequences of the Customs Union for the Kyrgyz Republic”

There are some export commodities, shown in the Table 3-23, that were originally imports from China. Currently, Kyrgyz imports goods cheaply from China and about 75% of them are re-exported to other Central Asian countries and Russia for the acquisition of foreign currency. However, if Kyrgyz accedes to the CU, China will become an extra-regional country, and tariff rates for outside regions will be adopted. As a result of this change, most items will have an increase in tariff rates compared to the current rates, and this intermediate trade business style will not work out. Actual trade quantities between China and Kyrgyz are significantly greater than the statistical data. Therefore, if intermediary trade significantly decreases, this will have a tremendous negative impact on Kyrgyz economy.

3.5.2 Impact on Agriculture and Agricultural Mechanization

In Kyrgyz, approximately 34% of the labor population is engaged in agriculture (including food processing), but most of the population is small-scale farmers, and there are difficulties in sufficiently acquiring agricultural inputs and spare parts for machines. In 2008, the agricultural sector consisted of 26% of the GDP and 12% of total exports. Table 3-24 illustrates the assumption of changes in duties when Kyrgyz accedes to the CU.

Table 3-24 Changes in Duties Due on Adoption of Common External Tariffs, non CIS Imports

Kyrgyz Import Value, Import Value, Diffe re nce in Chapter Title CU Tariffs Diffe re nce Tariffs KG Tariff CU Tariff Tariff Due Total 5.1 10.6 5.5 1885.5 1986 100.5 Agriculture 7.9 10.8 2.9 121.4 127.3 5.9 Live animals and animal produce 7.5 15.9 8.4 38.9 42.2 3.3 Vegetable products 6.7 8.2 1.5 35.6 36.1 0.5 Animal or vegetable fats and oils 9.5 5.9 -3.6 5.5 5.3 -0.2 Foodstuffs, alcoholic and non-alcoholic 7.7 13.3 5.6 41.4 43.7 2.3 beverages, vinegar and tobacco Industry 4.3 10.8 6.5 1764.1 1858.7 94.6 Foodstuffs, alcoholic and non-alcoholic 7.1 9.2 2.1 44.8 45.7 0.9 beverages, vinegar and tobacco Minerals 4.1 4.6 0.5 22.5 22.6 0.1 Machinery, equipment and appliances 2.7 5.9 3.2 383.4 395.7 12.3 Source: USAID, 2008, “Economic Consequences of the Customs Union for the Kyrgyz Republic”

Significant agricultural inputs (fuel, seed, fertilizer, agricultural machinery) are imported from CU member countries, and main agricultural products for export (fruits, vegetables, dairy products) are mainly exported to CU member countries. Therefore, the impact of Kyrgyz accession seems to be limited in terms of the agricultural sector. Note, however, that there are invisible border trades with China, including agricultural products and food stuffs. The accession may influence the negative effect against the smooth implementation of trade, and there is concern that inflation of food commodity prices is a possibility.

In Kyrgyz, most of the agricultural machines currently used were made during the former Soviet Union era and are more than 20 years old. In recent years, renewal of these agricultural machinery, especially tractors, are gradually prevailing from the assistance of international donors and leasing programs with a central focus on Aiyl Bank. Recent renewed tractors tend to be Belarusian machines due to its ease in spare parts procurement and mechanism similarities to the former Soviet Union. But Chinese tractors are also easy to procure due to geographical conditions and the Chinese government boost through grant aid of Chinese tractors. As such, the number of Chinese tractors in Kyrgyz has become increasingly steady in recent years. However, if Kyrgyz accedes to the CU, the tariff rate imposed on general machinery imports

from outside countries, including China will shift from 2.7% to 5.9%, a 3.2% increase from the current situation. Regarding agricultural machinery, it will be expected to rise from 0% to 15%16, so incentives for imports from Europe, China and the USA will decrease, and imports of agricultural machinery seems to be concentrated on Belarus agricultural machinery. Other potential problems are the procurement of spare parts from China. Most farmers purchase their machine’s spare parts at bazaar shops. Most of these parts are manufactured in China not only for Chinese agricultural machines, but also for Belarusian and Russian machines. In short, Chinese spare parts are propping-up the former Soviet Union’s old agricultural machinery by the provision of parts. Thus, if trading between China and Kyrgyz becomes less smooth by the implementation of strict standards or price inflation, the accession will be influential on agricultural mechanization from a perspective of parts procurement. Although there are concerns about the accession to the CU, mentioned above, the official timing of the accession is not obvious at this point, and changes in tariff rates are just an estimation. Also, it is expected to establish a transition term for the tariff rate change of around 3 to 5 years when Kyrgyz joins the CU. Therefore some machine dealers have optimistic expectations about the influence of agricultural machinery renewal.

16 In the case of Kazakhstan, tariff rates are different depending on the agricultural machinery. Especially, it is possible for there to be a high tariff rate for competitive machines imposed on member countries.

4. Analysis of Obstacle Factors to Agricultural Mechanization

4.1 Problems of Each Stakeholder

4.1.1 Ministry of Agriculture and Land Reclamation (MA & LR), Department of Agricultural Mechanization and Electrical Supply

As mentioned in the above chapter, operations of the Department of Agricultural Mechanization and Electrical Supply vary, however there are only four workers at the head office. Under the current institutions, it is hard to cover all operations of the department. In addition, there was one office staff for each district around the country before the organizational change in 2012. Due to the organizational reform, the operations partly shifted from one department to another department and 11 office staff were transferred to the Agency of National Registration, which falls under the Interior Ministry. As a result of this transfer, 29 staff members are covering 40 districts, and this situation poses problems for the sufficient operation of the department. Data collection, which required time in the survey, was not sufficiently implemented, such as the number of agricultural machinery, the situation of usage and problems of agricultural mechanization at the field level, and information sharing, including agricultural mechanization policies for stakeholders and institutional change. Since it is difficult to implement effective policy making without collecting accurate information, the government needs to take measures for institutional improvement.

4.1.2 Kyrgyz National Agrarian University, Faculty of Engineering and Technology

Kyrgyz National Agrarian University is the only agrarian university in Kyrgyz, and faculty of engineering and technology conduct research in agricultural machinery. Currently the faculty is using decrepit machines of the former Soviet Union for research works, lectures and practical trainings without enough of a budget allocated, hence there are difficulties in launching new research activities and the development of human resources using new machines and equipment.

4.1.3 Technical Colleges and Vocation Schools (agricultural machinery courses)

Both schools, founded during the Soviet Union period, had a very important role in implementing agricultural machinery courses to train personnel, such as engineers at the Kolkhoz and Sovkhoz farms. Presently, the teaching materials introduced during that time have

been not renewed. They are outdated. Many students are not interested in the coursework of these schools. Therefore, both schools are faced with a decrease in students and educational budget. Moreover both schools are not well-coordinated with the Ministry of Agriculture, which has an important role in the country’s agricultural mechanization. As a result, the educational program courses have run smoothly. The following points are problems that need to be addressed to train personnel on agricultural mechanization.  Decrease the number of students specializing in agricultural machinery  Reduce the educational budget for courses  Since most teaching materials were introduced during the Soviet Union period, the training courses do not engage the student’s study interest  The teaching materials shortage and its contents do not meet the needs of the present farming system, and the school facilities are old  There is no proper coordination for training agricultural machinery specialists of the Ministry of Agriculture, although specialists implement vocational school trainings

4.1.4 Agricultural Machinery Suppliers

Since the latter half of 2000s, agricultural machinery suppliers, who provide full-scale service, have launched business operations in Kyrgyz. While there were a limited number of suppliers and available manufacturers in the beginning, various types and models of agricultural machinery from different manufacturers are presently sold. The suppliers listed in Table 3-5 are official distributors of agricultural machinery in Kyrgyz. All of them operate their business in Bishkek or its suburbs. In addition to the official distributors, there are several retail shops that sell machinery of YTO, a Chinese manufacturer. Since many suppliers have established an after-sales service system to provide repair, spare-parts supply and quality guarantee, customers have gradually appreciated the improved service compared to the previous situation. The following issues may remain to improve customers’ convenience for buying agricultural machinery. The suppliers concentrate on Bishkek city because domestic demand for agricultural machinery in the Kyrgyz is relatively small compared to Kazakhstan and other countries. Farmers living out of Bishkek have to make frequent visits to Bishkek to arrange for the purchase and receiving of agricultural machinery. The farmers especially in the southern region, i.e. Osh, Jalal-abad and Batken provinces, are burdened with frequents visit due to the poor accessibility of Bishkek city. The MTZ tractor, a Belarus manufacturer, has been very popular

across the country since before independence. Farmers, therefore, have easy access to information about MTZ tractors, such as working performance, fuel consumption, etc. even though there is not a MTZ supplier nearby. However, they do not have enough information about agricultural machinery produced by the other manufacturers. It is recommended that a manufacturer, except for YTO, whose tractors are popularly sold in the southern region by small retailers or individuals, who wants to promote the sales in Kyrgyz, should expand its supply network in Osh, which is the central city in the southern region. Eurasia Group, which sells John Deere agricultural machinery in Kyrgyz, makes unique sales promotion efforts, such as demonstrations on its own farm. Such a sales technique may be useful in order to generate brand awareness of agricultural machinery which is not popular among Kyrgyz farmers. Eurasia Group has a plan to expand its supply network to Osh city, as well as to open a demonstration farm in the southern region. Demonstration of John Deere tractor While there is no limitation of manufacturers on Aiyl Bank’s agricultural machinery leasing scheme, most of the machinery leased by the scheme are Belarus made. The reason is that farmers have limited access to information about agricultural machinery other than Belarus made machinery because a machinery list and machinery pamphlets provided by Aiyl Bank mainly consist of Belarus machinery. It is necessary for suppliers selling agricultural machinery other than Belarus made to prepare a machinery list and pamphlets of their machinery for Aiyl Bank and other private banks in order to enhance their sales and marketing. A company loan arranged by only Avtomash is processed for limited corporate farms that are in good financial condition. Many of them actually have the ability to buy agricultural machinery in cash. Although the loan is a good sales promotion tool, the volume of the market for the loan is limited to about 10% of the total sales of Avtomash.

4.1.5 Repair Engineers for Agricultural Machinery

As mentioned above, in this study, it was confirmed that there are private repair engineers for agricultural machinery, but they do not have their own workshops. Most of them worked as engineers during the Soviet Union period and presently they are rapidly increasing in an aging population. Therefore, training the young generation is one issue to be addressed so that the

maintenance and repair work can be properly implemented in the future. Machine stations and car service shops widely exist in the country. As such, this is one of the ways these facilities can be fully utilized for maintenance and repair of agricultural machinery. Moreover it is also necessary to obtain investment funds to introduce specialized facilities and machine tools in order to improve the maintenance and repair services of agricultural machinery.

4.1.6 Aiyl Bank

(1) Lack of Working Capital for Leasing The number of lease subscriptions is increasing every year since 2011 when Aiyl Bank started its leasing scheme for agricultural machinery. While demand for the lease is high, the number of possible subscriptions depends on the volume of working capital. Since the working capital of Aiyl Bank is insufficient, the lease does not presently meet the demand. According to the interview survey, about 150 farmers have obtained approval for the lease throughout Kyrgyz. They are presently awaiting the delivery of agricultural machinery. Although the potential demand is larger than the actual demand, a lot of potential applicants do not make an application due to the prolonged process from application to delivery. Resource money for the lease has been accumulated with the cooperation from China (grant & loan), Japan (counterpart funds of non-project grant aid and 2KR) and Turkey (grant). In addition, the Eurasia Development Bank (EDB) has committed to disburse 20 million USD for supporting the lease, and other donors, i.e. Poland, Korea, ADB and Islamic Development Bank, are considering similar support. Nevertheless, there is still a great financial demand for the lease considering the insufficient number and aging agricultural machinery.

Table 4-1 Assets of Aiyl Bank (million som) Year 2009 2010 2011 2012 2013 Amount 2,550 2,960 4,041 4,330 7,381

Source: Aiyl Bank Financial Statement

(2) Lease Conditions The past record shows that 90% of the leasing amount is paid for tractors. Although demand for combine harvesters is also high, the following difficult conditions allow quite a limited number of farmers to access the lease of combine harvesters.

 High price of combine harvesters

 Conditions of the down payment and repayment term are the same as the conditions for tractors, although the price is much higher While the minimum amount of the down payment is 10% of the total value, collateral is required if the debtor makes a down payment only less than 30% of the total value. Although real estate may be mortgaged, land is not applicable. It is very difficult for many farmers to secure an amount enough for the mortgage from their houses due to their low value. In the rural area, the hypothetical value of houses is only 40 – 50% of the assessed value. The 30% of down payment for tractors, which are even cheaper than combine harvesters, is a difficult condition for general farmers to meet. Many potential applicants for the leasing give up the application due to the hard down payment condition. It is recommended that the conditions should be relaxed in order to promote leasing. For example, a decreased down payment condition for collateral-free leasing to 20% and a prolonged repayment term of up to 10 years.

(Example) Combine In a case: Harvester Price: about 400 million Kyrgyz som, Down payment: 30% of the value, Interest rate: 8% a year, Repayment term: 7 years Down payment: 1.2 million Kyrgyz som (24 thousand USD)

Annual payment: about 0.6 million Kyrgyz som (12 thousand USD） Tractor In a case: Price: about 100 million Kyrgyz som, Down payment: 30% of the value, Interest rate: 8% a year, Repayment term: 7 years Down payment: 0.3 million Kyrgyz som (6 thousand USD)

Annual payment: about 150 thousand Kyrgyz som (3 thousand USD） (Reference) The average monthly income of a farmer in 2012: 5,309 Kyrgyz som The average monthly expenditure of a farmer in 2012: 4,341.15 Kyrgyz som 17 The monthly balance: 967.85 Kyrgyz som

(3) Qualification Examination Ability While the size of the Aiyl Bank branch offices vary, the number of staff in charge of loans and leasing is about 5 in the case of a middle sized branch. 300 customers who are interested in loans or leasing visit the branch offices; the number depends on the season and the offices. There are only 15 -20 customers out of 300 who intend to apply for the leasing scheme for agricultural machinery. The bank’s human resources do not meet the required number to carry out a proper qualification examination which is made at the applicant’s farm or house prior to the lease approval. The lease repayment rate is almost 100% at present. The high rate is caused by a conservative selection of solvent farmers for the leasing. It is reasonable that Aiyl Bank pay serious attention

17 “Kyrgyzstan in Figures 2013”, the National Statistics Committee

to the safety of financing, and avoid troubling unreliable people regarding repayment of heavy debt. However, it is expected that the bank conduct a more comprehensive qualification examination by assessing not only the present assets and financial conditions, but also the potential and possibilities of the applicant farmers, such as the farming plan and earnings after the leasing of agricultural machinery, for accelerating the agricultural mechanization and agricultural development. Aiyl Bank should improve the staff’s ability to conduct the qualification examination in order to respond to expectations. Furthermore, the staff needs to improve their knowledge about agricultural machinery and facilities for diversification of the leased machinery.

(4) Loans for used machinery The Aiyl Bank leasing scheme is available only for brand-new agricultural machinery. While an agricultural loan scheme is applicable for buying used machinery, the annual interest rate is 18%. The high interest rate hinders many farmers from applying for the loan. Establishment of an agricultural leasing scheme for used machinery is actually not realistic considering required quality assessment and the guarantee system of the machinery. A loan scheme with a low interest rate may contribute to the sales promotion of used machinery in Kyrgyz.

(5) Diversification of leased machinery A properly balanced agricultural mechanization not only for tractors and combine harvesters, but also with other agricultural machinery and facilities covering all agricultural aspects, such as marketing and processing machinery, storage facilities, irrigation facility construction machinery, etc. should be promoted for agricultural development. The Aiyl Bank leasing scheme actually covers only tractors, combine harvesters and implements. It is recommended that Aiyl Bank should diversify its leasing commodities. According to the collected information, Aiyl Bank is planning to commence a leasing of agricultural processing machinery. While growing crops vary with the region, Aiyl Bank prepares a list of machinery applicable for its leasing scheme, considering the local agricultural condition. However, it is initially difficult to purchase several types of machinery, i.e. rice combine harvesters, cotton tractors and forage harvesting machinery, in Kyrgyz. Although any agricultural machinery, even those not included in the list can be leased, many farmers do not have enough information and knowledge for choosing unfamiliar machinery for the lease. Public relations activity and information service through an exhibition, a demonstration run and a promotion meeting of agricultural machinery may contribute to stimulate leasing.

4.1.7 Farmers

Figure 4-1 illustrates farmers’ problems based on the questionnaire (multiple answers from agricultural machinery holders, users of machinery service, no machine holders and no service users). The most common problem was “limited sales channel”. This is because a limited number of customers understand the principle of market mechanism (competition principle). The second largest number of farmers answered the problem as “accessibility of machinery services”. The agricultural machinery holder also pointed out this problem because there are a certain number of cases in which their agricultural works are not only covered by their own machines, but also depend on external services. This answer is the most common among the farmers who use external machinery services. There are also different cases in which farmers are using external machinery service, although, farmers cannot implement appropriate seasonal work because machines in the area do not cover all demands of the area. Also, even though among the farmers who are categorized as no service users, some farmers desire to use machinery services. But there are problems regarding accessibility of services, such as deficit machinery service agencies around the area and the service cost is too expensive. In Osh province, during harvesting season, deficit combines are substituted by rental machines from Uzbekistan. However, since 2010, because of the border closure between Kyrgyz and Uzbekistan, farmers in Osh province cannot use these machines, and the deficit machines used during harvesting season are in a critical situation. Reflecting the situation, the price of machinery services are increasing in some areas.

Limited sales channel Accessibility to machinery services Accessibility to irrigation Transportation Price of fertilizer Access to high quality seedes Cheap farm gate price Access to fertilizer Quality of fertilizer Price of fuel Cultivation technologies Agricultural machinery holder Deficit funds User of machinery service Distribution of spare parts Maintenance No machine holder and no service user Storage facilities 0 5 10 15 20 25

Source: The JICA Study Team (based on questionnaire) Figure 4-1 Issues Relevant to Agricultural Producers

On a related note, problems about the quality of agricultural inputs including fertilizer and seeds, prices of inputs, supply quantity, cultivation technologies, necessary funds for agricultural production, spare parts of machines and maintenance, and storage facilities of agricultural products are also noted to be problematic. Additionally, the price of fuel also was indicated as a key issue of agricultural machinery in the interview. As shown in Figure 4-2, the fuel price tripled since the last decade. The prices of lamb and flour are not farm gate prices but retail prices, so the inflation rate of their farm gate prices might be lower than retail prices.

300 Gasoline, 280 1Liter 260 Flour, 1kg 240 220 Lamb, 1kg 200 180 160 140 120 100 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: The JICA Study Team (based on the information of Kyrgyz Central Bank and National Statistics Committee) Figure 4-2 Index of Retail Prices for Fuel, Flour, Lamb (in USD, 2003 as the base)

Regarding the purchase of agricultural machinery, of course among the farmers who do not have machines, there are farmers who prefer to purchase machines. Machine preference and the manner of purchasing varies, such as leasing for new machine purchases and loan for second-hand machine purchases, but many farmers desire to set the lease or loan conditions as a, “lower interest rate and longer term redemption period”. According to the results from farmers who already have machines (Figure 4-3), the most common answer was “machinery performance” (power output of the machine which suit their needs) as a point when they purchase additional machines. In the second place, four issues: country of origin, price, robustness/durability, price and accessibility of spare parts had the same number of answers. There were a limited numbers of answers, but ease of maintenance and compatibility of implements were also noted.

Machinery performance Country of origin Price Robustness, Durability Accessibility of spare parts Easiness of maintenance Compatibility of implements Design

0 5 10 15 20

Source: The JICA Study Team (based on questionnaire) Figure 4-3 Conditions for Selection for Agricultural Machinery Purchases

Work Efficiency of Decrepit Harvester Combines Operation capabilities of decrepit combines harvest at a low rate, and this results in harvesting losses, which results in a 30% decrease in production at times. This harvesting loss data is referred to in various documents. According to MA & LR, this harvesting loss data is calculated from the demonstrated results of farmers who provide machinery harvesting services and for combine dealers for sales promotion.

Stones on the farmland On farmland, there were large numbers of round shaped fist-sized, or bigger, stones. During the field research, the research team discovered that the bigger sized stones accumulated next to farmlands. Farmers seem to carry these stones away from their farms, but it seems that they cannot remove all the stones. There is the possibility of breaking the stones by using agricultural machinery on farmland.

4.1.8 Agricultural Machinery Service Agencies

The machinery service agencies in Kyrgyz are quite limited, and most of them are individual farmers and agricultural corporations who have agricultural machinery. The issues surrounding them, which are shown in the Figure 4-2, are the same as other farmers to a varying degree.

4.2 Problems of the Agricultural Machinery Market

The agricultural market in Kyrgyz has developed rapidly in the last 5 years with the financial support of the Government and a quick expansion of machinery distributors. It is important that

the market be developed from now on, so that farmers will be able to choose the machinery themselves, in accordance with quality and the cost performance. A proper information service about agricultural machinery should be provided by the Governments, financial institutions offering the lease, manufacturers and dealers in order to realize the market. A milestone approach was taken by the Government. The Ministry of Economy hosted the “International Agricultural Exhibition” “Aiyl-Agro 2013” in May 2013 in Bishkek city. This is an international exhibition of agricultural and livestock machinery, and food processing machinery, and there are about 6,000 visitors in total. Various kinds of machinery produced in CIS “Aiyl-Agro 2013” in Bishkek countries, Europe, USA, Turkey, China, etc. were displayed at the exhibition. The exhibition was very useful not only for farmers and concerned personnel to collect interested information, but also for manufacturers and suppliers to sense responses and requests from potential customers. The Governments of European countries and the USA intensively provided necessary support and information to participating manufacturers from their own countries in the exhibition. Such support from the Government was very helpful to manufacturers who intend to start their business in Kyrgyz. While the Government has a plan to host the exhibition again in May 2014, it is desirable to organize the same exhibition in Osh city, targeting farmers in the southern region. Manufacturers and suppliers usually focus their business on popular and profitable agricultural machinery for increasing profit. Therefore, small-powered combine harvesters applicable to Osh province, occupied by small-scale farmers or rice combine harvesters desired by farmers in the Uzgen district, are not available in the Kyrgyz market. The MA & LR should collect information about actual demand of such machinery and strong demand, but from limited farmers. Then, the MA & LR should develop a support system for machinery procurement by implementing a pilot operation and a subsidy system for reducing the financial burden of leases.

4.3 Problems of Maintenance of Agricultural Machinery

Regarding supply of spare parts, some tractors introduced by the donor countries, have issues

regarding high price and long delivery periods, since tractors are not generally utilized in the country. Other machinery that is made in Belarus and Russia, have supply-and-demand issues in some regions, but basically machinery spare parts are presently available. Recently the number of Chinese made machinery has increased, and the supply of the spare parts system is gradually improving as well. Farm implements, chiefly for plowing, harrowing and leveling work, repair the old model implements and are still widely being utilized. As mentioned in 3.3.2, farmers and private repair engineers are repairing agricultural machinery themselves. However, they do not use the measuring tools, and they cannot properly judge repair work conducted. This is one of issues to be improved for their proper repair. To improve this for such works, it is recommended that technical colleges and vocational schools be fully utilized. The following countermeasures are to be considered.  Based on the agricultural development policy, teaching materials and curriculum should be carefully reviewed, together with the ministries concerned.  The government should gradually renew the outdated training equipment like facilities, machines, educational materials etc.  Re-education for the farmers, short-term training courses like cultivation technology, operation and machinery services, farm management etc. should be conducted during off-season farming.  Personnel training, mentioned above, should be considered as a agricultural mechanization policy.

4.4 Problems of Financing for Agricultural Mechanization

The following problems of agricultural financing are recognized by the JICA Study.

(1) Less understanding of the lease The leasing system is not well understood by benefited farmers. They have limited knowledge about the system. Dissemination measures should be taken with due attention to the following matters:

 Differences between a loan and a lease

 Different taxation imposed on a loan and a lease

 Customs duty

 Advantages and disadvantages of loans and leases

 Information sources of the leasing system

 Procedures and documents necessary for the lease The Union of Kyrgyz Banks participated in workshops to train business women organized by ADB as a consultant, and explained the available leasing system to the participants. The Union also has a plan to organize a forum on the leasing system in “Aiyl-Agro 2014” expected in May, 2014. It is recommended to organize a similar workshop or forum in the provinces.

(2) The increase in financial institutions providing the lease The number of leases provided by other banks other than Aiyl Bank is increasing with reform of the taxation system. However, banks have no choice but to provide a lease with higher interest rates than Aiyl Bank, as they do not qualify for the Government subsidy or donor’s fund to support their leasing schemes. The number of financial institutions providing the lease and their staff concerned should be increased in order to secure smooth provisions for the lease. It is necessary to increase the number of institutions that can provide leases with the same conditions as Aiyl Bank.

(3) Taxation regarding the lease The leasing business in Kyrgyz started in 2002 when the Law on Finance leases (leasing) of the Kyrgyz Republic was enacted. However, the number of leases grew at a sluggish pace at the beginning because of the heavier burden of taxes than the loan. As to taxes for the lease, 10% of income tax, 10% of interest tax, 2-3% of transaction tax and VAT were imposed. Consequently, the accumulated tax was 24%. In order to stimulate the lease by addressing the above taxation issue, the Government has taken the following measures:

 Reform in customs duties in 2011

 Revision of tax regulations in 2012

 VAT exemption of agricultural machinery for leasing

 Privilege of tax exemption (income tax, interest tax and transaction tax) to the leasing business (to be reviewed whether or not the tax exemption will be continued in 2017) Although the taxation issue has been mostly resolved by the above measures, a problem still arises during the customs clearance. Due to the different interpretation of the relevant regulations, the VAT exemption measure of agricultural machinery for leasing is not well understood by some customs officers. Smooth customs clearance of machinery is sometimes prevented due to different interpretations. The Union of Kyrgyz Banks which was involved in taxation reform has a plan to address the different interpretations by issuance of a handbook concerning the tax system. According to legal staff of the Union, there may be a discrepancy

between the tax regulations and other relevant laws. Presently, reform of other relevant laws is gradually under way.

(4) Multiple debts Among farmers interviewed, there are some farmers who cannot access an agricultural loan of Aiyl Bank after getting a lease from the bank. According to the farmers, they are applying for microcredit to procure seeds, fuel and chemical fertilizers while they utilized the Aiyl Bank loan. After clarification of the situation with the bank, it has become clear that they cannot apply for the loan only because of their solvency, as the bank does not have regulations prohibiting the duplication of loans or leases. The bank has evaluated that the farmers may not have enough solvency to take a new agricultural loan. However, their financial burden becomes heavy, if they apply for microcredit instead of the agricultural loan, since the interest rate of the microcredit is higher than that of the agricultural loan. A more flexible operation of the loan conditions should be considered by financial institutions. On the other hand, it is necessary for debtor farmers to improve their management ability, so that they will be able to make a reasonable financial plan and to refrain from making easy and multiple loans.

(5) Agricultural insurance An interview survey of farmers revealed that some farmers gave up having a consultation with a financial institution due to anxiety about the failure of repayment, although they are interested in leasing or buying agricultural machinery. Even farmers who have already leased agricultural machinery after an appraisal of their assets, such as houses and livestock, may have difficulty in repaying the debt during the 7-year repayment term due to a natural disaster, like a drought and a sharp fall in the prices of agricultural products. Agricultural insurance may ease farmers’ concerns over the default, and contribute to accelerating the purchase of agricultural machinery by a loan or lease.

4.5 Causal Relationship of Subjects Concerning All of Agricultural Mechanization

In order to organize the subjects concerning agricultural mechanization, a problem tree diagram is summarized (Figure 4-4 and 4-5). Although the subjects concern agricultural mechanization, the problems concerned have achieved not only agricultural machines, but also all the agricultural production field.

Agricultural The governmental policy about There is no policy for agricultural There is no policy for mechanization does not agricultural mechanization is not sector. agricultural mechanization. progress. fixed.

The funding ability of farmhouses Since the production costs are Services by agricultural Fuel costs are high. is insufficient. high, profit does not occur. machines are expensive.

Since the border with Uzbekistan Service costs by agricultural The number of the agricultural was closed in the southern area, machines are maintained at high machines in the area are not combine harvesters cannot be level. sufficient. rented.

Since the combine harvester is Fuel cost is high. expensive, there are few farmhouses that can purchase it.

Fertilizer costs are high.

Agricultural chemical costs are high.

Seed cost is high.

For farmhouses, there are no Farmhouses are maintaining and The working efficiency of old Appropriate machine maintenance opportunities to learn appropriate repairing agricultural machines agricultural machines is low. and repairing are not conducted. maintenance and repairing without appropriate knowledge. technologies.

Genuine parts are not used.

The aged deterioration of the agricultural machine is progressing.

Transportation costs of Farmhouses do not own tractors agricultural products are high. or trailers.

During the harvest season, it is difficult to access agricultural machinery services.

Fuel cost is high.

Large percentage of rain-fed Irrigation facilities become older The harvest yield is low. products are cultivated. and cannot be used.

High quality seeds cannot be obtained.

Seeds are not renewed. High quality seeds are expensive.

The necessity for renewal of seeds is not understood.

High quality fertilizer can not be obtained.

Since the fertilizer is Low interest loans for agriculture expensive, it is difficult to are not available. suficiently provide it.

Agricultural machine service Agricultural production work It is difficult to access to the providers prioritize working on can not be done at the agricultural machinery services at their own farmland over other optimal time. the optimal time. farmhouses.

Quantity of agricultural machine service providers is not enough.

Large harvest loss occurs Renewal of combine harvesters is Combine harvesters are when old combine harvesters delayed. expensive. are used.

Cultivation techniques are not The spread system of agricultural understood well. technology is underdeveloped.

Production losses are caused, Quantity of agricultural because agricultural production machine service providers is work can not be done at the not enough. optimal time.

Since there are no Price of agricultural products is warehouses, all agricultural low. products should be sold at the time of harvesting.

Necessity of the sorting and Quality of the agricultural Sorting and classification of classification of agricultural products are not uniform. agricultural products are not done. products are not understood by farmhouses.

Lack of adequate equipment for sorting and classification.

Since the buyer of the products is fixed, there is no competition in aspects of price and/or quality. Figure 4-4 Schematic Analysis of the Problems on Agricultural Mechanization (1)

Processing for giving added value Investment for agricultural There are no processing to agricultural products is not processing sector does not facilities in the area. established. progress.

Market demand for agricultural processed products is not researched.

There is no information about processing facilities (in aspects of specifications and prices etc.)

There are not enough financial instruments for investment.

Banks do not have enough knowledge about the financing of a processing plant.

There are no agricultural There is no institution to realize Small farmhouses (less than 1 ha) machine services that can agricultural machine service, at have difficulty accessing accept small farmhouses the focused area where small agricultural machine services. requirements. farmhouses are centered.

Government supports only by There are some farmhouses that There is not enough in the bank Finencing from the using counter part funds of grant cannot make leasing contracts, for seed funds leasing. government is insufficient. aids by the Government of Japan even if they pass probation. and China.

Funds from the donors are This is not a priority sector for There is no policy for agricultural not sufficient. donors. mechanization.

The results or necessity for the leasing system are not understood well by the persons concerned.

Other banks do not get low Only Aiyl Bank is performing low- interest state funds for agricultural interest rate leasing. machine leasing.

Number of bank employees Shortage of manpower in banks. conducting expertise of leasing contracts is not enough.

Leasing conditions for high priced Since leasing condition is combine harvesters and low Leasing conditions of banks are based on the government priced tractors are the same. severe. ordinance, there is no (Initial payment, interest and terms institutional pliability. of repayment)

Since leasing condition is Even the leasing of tractor with based on the government comparatively low price is difficult ordinance, there is no to lease for small farmhouses. institutional pliability.

The financial health of the If there are arrears in the After independence, men who did association was bad and cooperative social insurance not know about farm management profits did not occur. And, premiums, leasing contracts were engaged in cooperative social insurance premiums cannot occur. management. were defaulted on.

There is no agricultural machine Type of agricultural machines which suited the cultivation which are available by the leasing environment. system are limited.

Agricultural machines for crops with small quantity production, such as rice, are not introduced.

Since cheap spare parts for old agricultural machines are widely There are few machines which Secondhand agricultural machines Old agricultural machines are distributed and used, old appear on the secondhand market are expensive. used continuously. machines are used continuously, of agricultural machines. although their operational efficiency is low.

Maintenance costs can be maintained at low level, because replacement of parts and repairmen of agricultural machines are done by farmers.

Highly motivated farmhouses that obtained new agricultural machines, also using old machines simultaneously, widening the cultivation area.

Loan conditions for secondhand agricultural machines are severe. (Annual interest is 18% and the loan limit is a maximum 10 years) Figure 4-5 Schematic Analysis of the Problems on Agricultural Mechanization (2)

Current Status of the Government and Donors Against the Issues of Agricultural Mechanization

Investigation of the Kyrgyz Government and Donors

Kyrgyz Government

After independence, the government’s approach towards agricultural mechanization has been limited to grant aid (including counterpart funds), low interest loans and leasing through the state bank or funds related to loan aid. There is no direct assistance in terms of technologies and funds to farmers, dealers and private enterprises. Besides, currently the government has not designed any policies pertaining to agricultural mechanization, so it is ambiguous regarding what kind of assistance the government can provide in the future. The Ministry of Education and Science and the Ministry of Work, Migration and Youth foster agricultural machinery operators and mechanics at vocational training schools and technical colleges across the country.

Major Donors

Food and Agriculture Organization (FAO) FAO is mainly assists in the field of agricultural policy making and food security information. Regarding agricultural policy, FAO published the research report, “Kyrgyz Republic Farm Mechanization and Agricultural Productivity” in 2009, but FAO has not provided any tangible assistance. According to FAO, the animal husbandry sector will be a significant field of assistance in the country, and longitudinal assistance for this sector, such as human resource development, upgrading production equipment and facilities, disease control, and research programs will be needed in the future.

United States Agency for International Development (USAID) The current USAID project that is related to the agricultural sector in Kyrgyz is the Kyrgyz Agro-Input Enterprise Development Project (KAED) and the project assists with the following fields. USAID commissioned this project to the International Fertilizer Development Center (IFDC), and this organization is currently working on the project.

< Assistance Strategy of the KAED >  Cooperation in the field of animal husbandry, with the help of technical and technological

assistance for the introduction of modern management practices and improvement of productivity  Capacity building of the seed production sector for high quality seed production and distribution  Assistance for the improvement of food security (production of wheat)  Assistance of PPP promotion as a strategy to attract investment to the agricultural sector

Under the project, the following are the KAED 3 programs:

Program of the Economic Development Fund (EDF) Phase I: 2011, Distribution of high quality seeds (4.1 million USD) Phase II: 2012, Capacity building of seed production (7.4 million DM) Phase III: 2012, Cooperation in the field of animal husbandry (8.5 million USD)

The Economic Development Fund which is under the Ministry of Finance, leased agricultural machinery to farmers by using USAID grants. Regarding the collected money, the Ministry of Agriculture, the Cabinet Office and Economic Development Funds agreed to reuse the collected money for each sectors’ assistance in order to secure sustainability. Under the program of capacity building for seed production, American and European manufacturers’ tractors and combines are leased to farmers. The leasing conditions are at a 2% annual interest rate, 10 year redemption period, and ownership shifts after the leasing term. Regarding the collected money, this project will not take part in this component. And, this project will finish in September 2014, but the further development of the decision has not yet occurred. According to the person in charge of USAID, since current leasing conditions (the initial payment, interest rate, payment term) are too strict, even middle-scale farmers may not apply for the leasing program.

The program of farmland rehabilitation In the period 2011-2012, this program was involved in the rehabilitation of irrigation facilities totaling 2,000ha abandonment cultivation areas in 5 locations of southern parts of Kyrgyz, and the diffusion of cultivation technology.

The program of Public Private Partnership: PPP In this program, KAED provides grant funds to the government, not directly to private firms, for investment in agricultural machinery and facilities. And then, through the Economic Development Fund which is under the control of the Ministry of Finance, whose funds are used

in leasing transactions. KAED also assists with trainings on the use of the purchased equipment, and cultivation technologies for farmers. The details of the PPP program are described below.

Eurasia Group, LCC In 2009, the private company Eurasia Group (headquartered in Switzerland) was established as an agricultural firm that started machinery services for farmers. Eurasia Group established a local corporation in Kyrgyz with the cooperation of international agricultural firms such as John Deere, Pioneer, DuPont and Monsanto and has begun agricultural machinery services. Cooperative companies sell seeds (wheat, sunflower), fertilizer and pesticides to farmers intending to promote the improvement of quality and production as a synergistic effect. Eurasia Group is an authorized John Deere dealer in Kyrgyz.

Oasis Agro, LCC In 2011, KAED committed to work with Oasis Agro in order to promote investments for poultry, production of chicken eggs and high quality foodstuff and soybeans. KAED established a partnering relationship with soybean farmers and assisted in cultivation technologies in order to produce high quality chicken eggs and edible oils.

Kumtor Gold Company, CJSC In 2013, Kumtor Gold donated 200,000 USD to the rehabilitation (farmlands, irrigation facilities) project of cultivation of abandoned areas, where south Issyk-kul lakeside villages are controlled, as a CSR: Corporate Social Responsibility program. Also, the KAED and local farmers input 170,000 USD (including labor force) for this program. About 1250 ha of the targeted areas were invested in (rehabilitation and maintenance of farmland and irrigation facilities), and leased to farmers through bidding in October 2013. The KAED also assists in cultivation technologies for the targeted farmers.

Other donors (Turkey, China, Eurasian Development Bank)

China In 2006, 1,200 units of Chinese tractors (100 million Chinese yuan) were granted, and Chinese assistance to Kyrgyz has started at that time. Tractors were transferred from the Kyrgyz Government to the state leasing company “Kyrgyz Aiyl Service” on a 10 year loan at a 16% annual interest rate. The state company used leased tractors for its own agricultural production or partially transferred to farmers in the lease (10 year term lease, without interest). But due to the lack of after-sales service, it was difficult to obtain spare parts of Chinese tractors at that

time. Although the Aiyl Service leased their machinery to farmers without an interest rate, the company had to pay an interest rate to the government. Due to the inability to obtain spare parts and the unbalanced situation regarding the interest rate between farmers, the company and the Government, this scheme could not continue. 18 In 2011, China donated 267 units of Chinese tractors (YTO904) and its spare parts (30 million Chinese yuan = 4.66 million USD). These tractors were transferred from Kyrgyz government to the Aiyl Bank, and then leased to farmers (State Leasing-1). The counterpart funds were utilized for re-leasing as a State-Leasing phase 2. In this scheme, leasing machinery is not limited to Chinese machines, therefore the Belarusan tractor MTZ and other attachments are also leased. Since the State Leasing-1 is low interest rate leasing, the target machines for leasing are limited to high price machinery, such as combines.

Moreover, Aiyl Bank has concluded an agreement with the Chinese government, and a credit line was set at 3 million USD to purchase tractors for leasing from Chinese dealers. Loan conditions are a six month interest Libor plus 6.5%, and the period of redemption will be June 2017. The machinery leasing conditions of this scheme are a maximum leasing term of 5 years, annual interest rate of 15 to 17 %, dollar-denominated leasing, Chinese tractors (YTO) only. Bills for the tractors are directly paid by the Chinese Development Bank to the manufacturer.

Turkey In June 2012, the Turkish government committed to providing 106 million USD to Kyrgyz for social economic development. Of this amount, 100 million USD is loan assistance (interest rate: 0.1%, redemption period: 20 years) and 6 million USD is grant aid. Kyrgyz Government utilized this assistance for the leasing program of Aiyl Bank. In February 2013, the government prorated 225 units of Belarusan tractors which was determined by bidding (232,831,500 som = approximately 5 million USD). These became the underlying assets of “state leasing” 3 of Aiyl Bank, and the counterpart fund of these assets are utilized for re-leasing.

Eurasian Development Bank: EDB The Eurasian Development Bank was established by Russia and Kazakhstan in 2006. This international financial institution aims to assists member countries’ economic growth, promote trading and economic cooperation among the members, and assist with integration in the Eurasian area. Current member countries are Armenia, Tajikistan, Belarus, Kyrgyz, Russia and

18 FAO 2009, “Mechanization and agricultural productivity of the Kyrgyz Republic”

Kazakhstan. According to MA & LR, Kyrgyz Government approved EDB’s loan (20 million USD) in December 2012. This loan will be prorated for the agricultural machinery leasing of Aiyl Bank in 2014.

Intervention of the Japanese Government

Non-Project Type Grant Aid and Grant Assistance for Underprivileged Farmers (2KR)

From 1995-2005, the Japanese Government provided 842 tractors and 304 combine harvesters to Kyrgyz through Non-project type grant aid and 2KR. After independence in 1992, public farmland was segmentalized and distributed to each household surrounding Kolkhoz and Sovkhoz. Consequently, a large number of farm households began cultivation. Agriculture machinery and equipment was distributed to a limited number of agriculture cooperatives and individual farmers, and renewal of agriculture machinery was stopped by a disruption of the Soviet Union since independence. As such, farmers had to buy agriculture machinery on the market, but there were neither dealers nor agents of manufacturers in Kyrgyz. Furthermore, there were no financial products available at commercial banks for purchasing machinery. Farmers who could access agriculture machinery were very limited at this time. Agriculture machinery provided by the Japanese Government at this period, was leased mainly to agriculture cooperatives and machinery service companies to provide machinery services to farmers who cannot access it. Repayment of this leasing has continued to be undertaken by the State Fund for Economic Development (the Ministry of Finance). Manufacturing countries of procured machinery of the above grant aid project were varied, such as Russia, Belarus, Finland, Germany, and Poland. Agents of manufacturers of the machinery no longer run their business in Kyrgyz, and never supply spare parts and any after-sales services. However, genuine spare parts for the Belarus tractor, which have been used during the Soviet Union era, namely MTZ, are available at a new agent in Bishkek and at nationwide bazaars. Especially regarding machinery, which has been used since Soviet the Union era, Chinese made imitation spare parts are also available in bazaars. Machinery owners can buy spare parts for other manufacturers through dealers in Bishkek, but delivery time is as long as approximately 3 weeks, and the price is 3 to 5 times higher than that of MTZ. In the case of 2KR in Kyrgyz, as previously mentioned, procured machinery is leased to cooperatives and service companies. Repayment of machinery is collected and reserved in the 2KR Counterpart Fund for economic development. Due to a short repayment period, the counterpart fund has not been reserved as scheduled. Leasing conditions for the 2KR program

were the following:  Machinery expense is the FOB price at country of origin,  Necessary collateral is 20% of the machinery expense,  0% interest rate, and  Repayment (leasing) period varied from 3 to 6 years after signing the Exchange of Note (E/N) Since it took at least one year to receive the requested machinery at the recipient country after E/N signed, the repayment period was actually a maximum of 5 years. The 2KR report said that, at this time, lessees and the Government of Kyrgyz requested that the Japanese Government extend the repayment (leasing) period up to 10 years19. The 2KR counterpart fund was utilized for procurement of an additional 417 tractors and 70 combine harvesters, and a seed distribution project.

JICA Training

From 2008-2013, the Kyrgyz Government sent thirteen participants to the JICA training course “Agricultural Mechanization for Central Asia and Caucasus” being held at Tsukuba International Training Center in Japan. Of which, nine participants came from the University of Agriculture, two came from the Technical Inspection Bureau of the Ministry of Agriculture, and two came from agricultural enterprises. A goal of the training course is that participants complete a technical proposal for their country on research and development, extension, and operation and maintenance of agriculture machinery through industry-academia-government collaboration, which they learned from Japan’s experience. One participant from the University of Agriculture, who drew up an action plan for operation and maintenance of agriculture machinery during the training, has tried to acquire a budget to implement the action plan. Another proposed the concept of cost reduction and timeliness of farm work for human intensive rice production in the southern area. Some participants extended their knowledge and experience learned in Japan to other lecturers and students, or proposed research work on agriculture machinery services. However, it was very difficult for them to materialize their plans due to a limited budget at the university. In general, since independence government agencies have been facing a budget shortage, and collaboration with the private sector has not worked enough.

19 Grant Aid for the Increase of Food Production (2KR) in Kyrgyz Republic, 2004, JICA

Table 5-1 Results of Non-project type Grant Aid and 2KR FOB Unit Fiscal Model/ Manufacturer Type Year EN amounts Goods Numbers (Country of Origin) Specifications prices (yen) MTZ 82.0 (Belarus) MTZ(80hp) 1 billion yen Tractor 206 T30A-80 (Hungary) T30A-80(30hp) (0.526 billion yen Combine harvester 25 1995 for agriculture Seed drill 40 machinery) Seed cleaner 15 Spare parts 1 Tractor 296 Belarus82.0 (Belarus) 1 billion yen Potato harvester Combine harvester 46 ROSTSELMASH NIVA (Russia) 1996 (0.53 billion yen Non-project for agriculture Sprayer type Grant machinery) 3-wheel tractor 10 Aid Crawler tractor 50 1 billion yen Tractor 18 1997 (0.458 billion yen Plow 18 for agriculture machinery) Combine harvester 38 84 1999 0.1 billion yen No agriculture machinery

0.3 billion yen Refrigerated track 2 MAZ-975850 Tractor 121 Belarus82.0 (Belarus) 80hp 2002 (0.225 billion yen for agriculture Seed drill 50 SPU-4DC machinery) Tractor MAZ-642208 Sub total 3.4 billion yen (1.739 billion yen for agriculture machinery) Tractor 56 MTZ 82.1 (Belarus) 80hp 2,544,950 1996 0.3 billion yen Combine harvester 19 ROSTSELMASH NIVA (Russia) 155hp 6,832,380 1997 0.3 billion yen Combine harvester 28 Massey Ferguson23 (Finland) 115hp, width 4.2m 7,730,000 1998 0.3 billion yen Combine harvester 26 CLASS Dominator88VX (Germany) 159hp 9,000,000 2KR 4WD tractor 70 ZPC URSUS SA 1614 (Poland) 155hp 2,532,158 1999 0.27 billion yen Plow 70 UNIA TUR 120 B40.4+1/U-138/2/" 16inches, 5 rows 178,565 2000 0.33 billion yen Combine harvester 44 SAMPO ROSENLEW 2065 (Finland) 200hp 2002 0.3 billion yen Combine harvester 43 SAMPO ROSENLEW 2065 (Finland) 200hp 5,831,000 2005 0.2 billion yen Combine harvester 35 ROSTSELMASH NIVA (Russia) 155hp 4,600,960 Sub total 2 billion yen Total 5.4 billion yen (3.739 billion yen for agriculture machinery) Source: Developed by the JICA Study Team referring to documents from the Embassy of Japan in Kyrgyz For the FOB unit price, the annual average exchange rate of Mitsubishi UFJ Financial and Consulting (http://murc-kawasesouba.jp/fx/past_3month.php) was used.

Consideration of Directions and Fields for Support Programs for Agricultural Mechanization Approach for Promotion of Agriculture Mechanization

Countermeasures for problems analyzed in sub-chapter 4.5 were considered and listed in Table 6-1. The Implementation agency and target period (short, medium and long) for each countermeasure is shown in the table. The main issue to be tackled for agriculture mechanization in Kyrgyz is the improvement of quality and quantity of agriculture machinery. In other words, to increase agriculture productivity by promoting renewal of machines that have low working efficiency, and the acceleration of new tractor introductions to potential tractor owners to decrease machinery shortage. This i) stems a decrease in the number of machines, ii) increases productivity by in-time work and reducing harvest loss, and iii) increases the production area. As a result, it can contribute to the achievement of “improvement of production and productivity” as a sector development goal. Furthermore, it can improve access to machinery service for small-scale farmers by increasing the number of machinery in the area where small plots are dominant. The key program for renewal of agriculture machinery is the leasing program, and its important role will continue in the future. However, in order to accelerate the renewal of machinery with the leasing program, some issues in both public and private sector still remain. The following are urgent and important issues and countermeasures.

Institutional and Administrative Capacity Development of Agriculture Mechanization At the time of this study, there were two policies on agriculture mechanization available in the agriculture strategy in Kyrgyz. One was agriculture mechanization through public-private partnership, and the other was the promotion of the leasing program. Neither policy had any detailed actions or measures. In order to promote agriculture mechanization, the government should show clear and detailed actions to the public: when and who will do what regarding agriculture mechanization in Kyrgyz. Therefore, the establishment of an agriculture mechanization plan, as a basis for various actions is necessary. Furthermore, organizational and administrative capacity development to implement the plan is necessary to improve the Ministry of Agriculture. In particular, appropriate manpower and human resource development are urgent issues. Machinery and facilities are one of the inputs for agriculture production. The balanced use of other inputs, such as seeds, fertilizers, and chemicals, and appropriate cultivation techniques, and farm management are important. In this regard, it is recommended to collaborate with the private sector, other departments of the ministry, and other ministries concerning human resource development.

Strengthening the Leasing Program Since the initiation of the leasing program at Aiyl Bank, the national agriculture bank, in 2011, renewal of agriculture machinery has accelerated. However, the number of tractors in the country is still two-thirds or less than during the level of the Soviet Union era. At the time of this study, 150 farmers finished a qualification examination in 2013, but they were waiting to receive new tractors, because of the shortage of funds for leasing. On the other hand, the leasing program is currently utilized mainly for tractors, but a limited number of farmers can access this program because of strict qualification examination conditions. Expansion of beneficiaries by maintaining the present repayment rate should be taken into consideration through a review of qualification examination conditions and the improvement of screening practices. In the future, demand for machinery will shift from the tractor to the combine harvester for both renewal and newly introduced machinery, but with the same leasing conditions, as tractors are not easy for farmers to lease who want to lease a much more expensive combine harvester20. This case requires a review of the leasing conditions as well. Furthermore, it is necessary to pay attention to small-scale farmers to access machinery services, especially in the southern region. Special measures, such as a preferential tax system, could be applied to service providers in such region or area. The number of tractors, that past more than 20 years of installation and the shortage number has reached about 25,000. If this tractor number could be supplied to the market within 10 years, 2,500 per year of leasing contracts should have to be completed. 650 tractors (1.3 million USD), including the number on the waiting list were contracted by Aiyl Bank in 2013. This contract number is the maximum performance for Aiyl Bank in its capacity of both financial and manpower. Private commercial banks also provide leasing services for agriculture machinery, but few farmers utilize their services, as the interest rate is 15% higher than it is for Aiyl Bank. In order to expand the leasing program, the utilization of funds and the manpower of private commercial banks has to be taken into consideration. For example, the government could support interests, if private banks could provide leasing services with the same leasing conditions as Aiyl Bank. An increase of funds for leasing programs and human resource development for qualification examinations are necessary as well. For qualification examinations, the financial status of farm households in the past years was mainly examined, but cost reduction by efficient work, the decrease of opportunities lost by machinery use, the increase in service fees from machinery service as well as the cost increase for machinery after machinery is introduced is not considered. The number of beneficiaries of the leasing program could be expanded by examining both the financial status and future

20 Amount of payment will be 154,000 som/year for one tractor (MTZ) and 616,000 som/year for a combine harvester (NIVA)

business plan. Matching service of service providers and receivers can also help for business planning on the provider side and farm management at the receiver side. Banks and local governments should work together on sharing and providing information. Especially in rain fed cultivation areas, in order for farmers to easily access the leasing program, development of a financial product like agriculture insurance which guarantees a part of the harvest, should be considered.

Capacity Development of Farmers In order to accelerate the number of leases and promote new-tractor sales, more farmers have to be able to afford to buy agriculture machines by improving their farming management, cultivation techniques, and market access. In addition, most farmers maintain and repair their machines themselves by watching other people. Overhaul of a tractor engine, without specialized tools, is not uncommon in Kyrgyz. However, maintenance and repair without appropriate knowledge and technique often worsens the performance of machines. In order to maintain the original performance of machinery for a certain machine’s age, it is necessary to train farmers on the operation and maintenance of agriculture machine and equipment with proper maintenance tools.

Improvement of facility and equipment of human resource development organization at a regional level Kyrgyz has no public extension service. It is difficult for farmers to access technical information on cultivation, and operation and maintenance of machines and equipment. On the other hand, various vocational schools and technical colleges exist countrywide, and some schools and colleges have agriculture and agriculture machinery courses. These schools and colleges could be utilized for the re-education of farmers on cultivation techniques. Since most schools were established in the Soviet Union era, teaching facilities and equipment are old-fashioned and do not meet the needs of farmers. Improvement of teaching facilities and equipment for capacity development of farmers should be considered.

Improvement of infrastructure for stable agriculture production Due to the malfunction of the irrigation facility due to age, farmland that relies on rain-fed agriculture is increased, and causes low productivity and unstable production. The improvement of the irrigation facility and proper maintenance of the existing facility is taken into consideration.

Fields and Direction of Japanese Government Support on Agriculture Mechanization

The assistance of the Japanese Government should basically go along with the development direction of Kyrgyz. The following are possible opportunities of assistance to Kyrgyz for agriculture mechanization. Figure 6-1 shows the agriculture mechanization of Kyrgyz and possible assistance by the Japanese Government.

(1) Technical Cooperation on Institutional Capacity Development of Agriculture Mechanization (Expert dispatch, training program)

Grasping the present number of agriculture machinery in the country is important to establish an agriculture mechanization plan. However, deletion registration of defunct machinery started just 2 years ago, and it is still ongoing. In order to obtain accurate figures, it is necessary to accelerate deletion registration work in cooperation with the local government office. An expert would be able to advise on the planning of agriculture mechanization and its process as well as the institutional development of the Ministry of Agriculture.

(2) Increase funds for leasing and advice for the leasing program (Loan, Dispatch of expert, Training)

The present amount of the fund could not meet the demand for leasing. The capital increment of the fund can be considered as loan assistance. Advice on the appropriate leasing system / program (the review of the interest rate, repayment term, and qualification examination conditions, improvement of farmer’s financial literacy), and the capacity building of the bank staff are considered technical assistance.

(3) Utilize agriculture machinery and equipment procured by 2KR for the leasing program (Grant aid)

Providing agriculture machinery and equipment procured by 2KR for the leasing program has the same effect as the increment of capital. However, conditions of reserve for the counterpart fund have to be consistent with the existing leasing condition. The manufacturer and model of machinery has to meet the needs of farmers in terms of availability of spare parts and ease of operation and maintenance.

(4) Technical Assistance of Agriculture Credit and Insurance System (Dispatch of expert, Training)

Advise on the development and improvement of financial products other than the leasing program, such as loans for agriculture inputs, livestock, and second-hand machinery, and insurance products.

(5) Capacity building of farmers on cultivation techniques and farm management (Technical cooperation project, Grass-root grant aid)

In order to enhance the paying capacity and stability of the farmer in the leasing program, farm management, and cultivation techniques of major crops, including the utilization of agriculture machines and equipment should be improved.

(6) Improvement of Teaching Facilities and Equipment in Educational Institutions (Grass-root grant aid)

The technical extension system for farmers is not well organized in Kyrgyz. By installing or renewing teaching facilities and equipment at vocational schools, these schools can be utilized for farmers to learn cultivation techniques, and machinery operation and maintenance techniques. Simple and basic tools and equipment, such as hand tools, special tools, measuring equipment, and welding equipment, can be considered for re-education training equipment.

(7) Improvement of Maintenance Equipment for Irrigation Systems, or Improvement of Irrigation Systems (Loan or Grant aid)

In order to increase productivity and stability of production, dredging equipment (excavator, power shovel, bulldozer) for maintenance of irrigation canals should be installed. Improvement of dysfunctional irrigation systems is also necessary.

Figure 6-1 Direction of Promotion of Agriculture Machinery and the Assistance of Japan

Possibility of Business Expansion of Japanese Agricultural Machinery Manufacturers

For any machinery manufacturer, Kyrgyz cannot be a single target market in this area, because the scale of the farming population and the cultivation area is not big enough to recover investment, such as the cost for the establishment of sales networks, spare parts supply networks, and after-sales service networks, staff training, and sales promotion. Therefore, other neighboring countries have to be considered as a target market. A simple market analysis by machinery is shown below. The market scale here is Kyrgyz domestic market.

Small-Medium-sized Tractors More or less, 80hp-tractors are preferred in Kyrgyz. The market scale of this capacity tractor is relatively big, and currently used countrywide. This means that in order to sell this capacity

tractor, the spare parts supply and after-sales service network has to be available countrywide as well. For newcomers, they have to invest in the establishment of a sales network, a spare parts supply network, and after-sales service network, staff training, and sales promotion. Meanwhile, in this capacity, the Belarus tractor has been dominant in the market and the Chinese tractor begun to gain a foothold in Kyrgyz. As such, newcomers have to show advantages over the Belarus and Chinese made tractors in regards to price, capacity, quality, and after-sales services. The price of a Japanese made tractor is 4 times more expensive than Belarus and Chinese made tractors.

 Market segment setting: Selling small-medium sized tractors to small-medium scale farmers

 Market size: Relatively big

 Necessity of countrywide network of spare parts supply and after-sales services

 Competition with Belarus and Chinese tractors exists.

Large-sized Tractor There is little demand for large-sized (more than 100hp) tractors in Kyrgyz. The northern region in which the relatively large cultivation size farmer exists has a small demand. According to interviews with dealers in Bishkek, only 13 large-sized tractors were sold in 2013. The market size is small in Kyrgyz and it is necessary to consider the market in neighboring countries. The spare parts supply and after-sales service can be covered in a limited area where demand exists. Competitors of this size in Kyrgyz are manufacturers in Europe and the USA. The price of a Japanese made tractor this size is 1.5 times more expensive than European and American brand tractors.

 Market segment setting: Selling a large sized tractor to large-scale farmers

 Market size: Very small

 Network of spare parts supply and after-sales services can be covered in a limited area.

 Competition with Europe and USA manufacturers.

Machinery and Equipment for Rice Production The cultivated area of the paddy is only 3,000ha in Kyrgyz, and production is concentrated in the southern region. The market size is very small. If the spare parts supply and after-sales service network for other machinery is available in the southern region, machinery and equipment for rice production can be sold utilizing the present network. There is concern regarding broken down machines due to many stones in the field during land preparation,

puddling, and transplanting.

 Market segment setting: Selling small-sized rice production machines and equipment to small-scale farmers in the southern region.

 Market size: Very small

 Network of spare parts supply and after-sales services can be covered in a limited area in the southern region.

 Chinese manufacturers once tried to sell small-sized combine harvesters, but they have not continued. The reasons are unknown.

 Many stones in the field are a concern.

Implements attached to Tractors The market size of an implement is varied, except implements that are used for common work, like land preparation. Demand for implements for vegetables, root crops and forage exists in the northern region. Turkish made implements are well balanced in price and quality, and they recently began a sales promotion in Kyrgyz. It is necessary to show the working performance to farmers through demonstrations to convince them.

 Market segment setting: Depending on the kind of work.

 Market size: Depending on the producers, but not very big

 Network of spare parts supply and after-sales service is necessary.

 Need to compete with Turkish products which are price-and-quality balanced.

As done by manufacturers in other countries, in order to test and demonstrate the performance of machines and implements (working accuracy, efficiency, fuel consumption, etc.), Japanese manufacturers should bring their machines and equipment to agriculture machinery exhibitions that are held once a year in Bishkek. The results could then be utilized for further research and development. The Japanese Government might be able to provide support for information distribution of the exhibition to the Japanese side, test machines and equipment for agriculture related projects.

Table 6-1 Problems and Countermeasures for Agricultural Mechanization in Kyrgyzstan Implementation Target Type of Field Problems Countermeasures agency Period Assistance Policy  The policy on agriculture  To grasp accurate numbers of each machine.  Ministry of Medium Technical mechanization is yet to be  To establish an agriculture mechanization plan, and Agriculture cooperation available. show priority policy and area.  There are no detailed actions other  To strengthen institutional capacity of Department of than the leasing program in the Agricultural Mechanization, which implements sector policy, and stakeholders do various measures for mechanization. not know the priority subject and area of agriculture mechanization. Finance  Fund amount for leasing program  To increase capital of funds for leasing program  Concerned Short Loan and does not meet the demand. utilizing donor assistance. government agency grant aid  To utilize capital and human resources of private 93 commercial banks for expansion of leasing program by subsidized interest rates.  Leasing condition (advance  To expand the number of lease by reviewing leasing  Concerned Medium − payment, interest rate, repayment conditions, such as collateral, advance payment, government agency term) interest rate, and repayment period.  Financial institution  To ease leasing conditions of a combine harvester, Medium − which has the same conditions as a tractor.

 Qualification examination is  To find potential leasing users by reviewing the  Financial institution Short Technical concentrated on collateral and contents of qualification examination (not only recent  Ministry of cooperation profitability of present production. years financial status, but also future financial status Agriculture and business plan)

Implementation Target Type of Field Problems Countermeasures agency Period Assistance  To promote matching of machinery service providers Short − and receivers by grasping local demand of machinery services.

Interest rate of second hand  To review and ease loan conditions for second hand  Financial institution Medium − machines is very high. agriculture machinery.  Farmer does not understand well  To disseminate information on agriculture financial  Financial institution Medium − merits, risks, and use of leasing product through various media and opportunities.  Ministry of program. Agriculture  Flexibility of leasing system is low.  To establish a flexible system for change of leasing  Concerned Medium − conditions, custom clearance of leasing equipment, government agency and long and utilization of donor funds. 94

 Some farmers hesitate to apply for  To develop an agriculture disaster insurance product.  Concerned Medium Technical a leasing program, because of  To establish a public agriculture disaster government agency and long cooperation volatility of harvest due to weather compensation program.  Financial institution conditions. Agriculture  Fee for agriculture machinery  To expand the number of lease by reviewing leasing  Concerned Short production service is high. conditions, such as collateral, advance payment, government agency − interest rate, and repayment period.  Financial institution  Transportation cost for agriculture  To expand the number of leasing tractors by  Concerned Short product is high, because of the reviewing leasing conditions, such as collateral, government agency − shortage of tractors and trailers. advance payment, interest rate, and repayment  Financial institution period.  Productivity is low and harvest loss  To ease leasing conditions of a combine harvester,  Concerned Short is high. which has the same conditions as a tractor. government agency −  Financial institution

Implementation Target Type of Field Problems Countermeasures agency Period Assistance  Farm operation in the proper time  To expand the number of leasing tractors by  Concerned Short cannot be conducted, due to the reviewing leasing conditions, such as collateral, government agency − number of machines being advance payment, interest rate, and repayment  Ministry of insufficient. period. Agriculture  To increase leasing program users by improving  Financial institution Short productivity and financial status through capacity − building of farm management.  To apply a preferential tax system for machinery Short − service providers.  Quality and quantity of agriculture  To promote group buying.  Ministry of Medium Technical inputs (seed, fertilizer, chemical)  To implement periodical quality checks of agriculture Agriculture and long cooperation are insufficient. Prices are high. inputs by the authority. 95 Market  Machines suitable for the present  To make more opportunity to disseminate machinery  Ministry of Medium cultivation environment are not information, including machines for small plot and Agriculture − available. minor crops to farmers through the local government.  Machinery dealer  To hold agriculture exhibitions in regional centers.  Financial institution  The number of agriculture  To apply a preferential tax system for machinery  Concerned Medium machinery service providers is service providers. government agency insufficient.  To establish specialized agriculture machinery  Ministry of service providers by Public-Private Partnership (PPP) Agriculture − in the area where farmers cannot access machinery services. Public sector provide facility and equipment, and consign management to the private sector.

Implementation Target Type of Field Problems Countermeasures agency Period Assistance Human  Profitability is not good because of  To develop human resources to advise on cultivation  Ministry of Medium Technical resource a lack of knowledge and techniques and farm management. Agriculture and long cooperation experience of farm management  To establish a special business short course at the  Ministry of Education development and cultivation techniques. Japan Center, local vocational school and college for  Ministry of Labor farmers, bank staff, and agriculture related staff at the local government.  Farmer has to sell most produce in  To confirm market needs (quality, quantity, price) of  Ministry of Medium Technical harvest season with low price, processed product. Agriculture and long cooperation because they do not have enough  To train local government staff, bank staff and farmer  Financial institution storage and processing facility. on processing technique and management.  To introduce processing facility and equipment by loan and leasing program. 96  Farmer do maintenance and repair  To establish a short training course in agriculture  Ministry of Medium Technical work by themselves, but improper off-season on maintenance and repair of existing Agriculture and long cooperation work may worsen the performance machine.  Ministry of Education of machines.  To train user on maintenance and repair when new  Ministry of Labor model and rare model are entered. Infrastructure  Profitability is low and unstable in  Improvement of defunct irrigation system and  Ministry of Long Loan and rain fed. improvement of maintenance equipment for existing Agriculture grant aid system.

Attachment

Attachment 1: List of Interviewees

Attachment 2: Number of Tractor and Combine Harvester in Each Province

Attachment 3: Brochure of Manufacturers

Attachment 4: Financial Status of Aiyl Bank

Attachment 5: Result of Questionnaire Survey

Attachment 6: Crop Calendar of Main Crop

Attachment 7: Analysis of the Farmhouses that Procured Tractors

Attachment 1: List of Interviewees Attachment −1

List of Interviewees

Organization Name, position The Ministry of Agriculture and Land Duysheev Nurlan Reclamation of the Kyrgyz Republic State Secretary The Ministry of Agriculture and Land Sydykov Taalaibek Reclamation of the Kyrgyz Republic Head of Division Foreign Relations Division The Ministry of Agriculture and Land Kojogulov Nurlan Jamalidinovich Reclamation of the Kyrgyz Republic Director Department of Agricultural Mechanization and Rasulov Farruh Electrical Supply Chief specialist on Talas Oblsat Niyazaliev Kadanbek Esenbekovich Chief specialist on Alamedin Region, Chui Oblast Halmatov Abdurashid Chief specialist on Osh Oblsat Tokoev Salijan Chief specialist on Uzgen Region, Osh Oblast Mamashev Kurmanbek Chief specialist on Nookat Region, Osh Oblast Alamedin district Department of Agricultural Isaev Aftandil Konurbaevich Development, Chui Oblast Head of Department Karasuu district Department of Agricultural Mamedov Kubanychbek Development, Osh Oblast Head of Department Uzgen district Department of Agricultural Kamchibek Moldosh Development, Osh Oblast Head of Department Nookat district Department of Agricultural Turduev Mukamet Development, Osh Oblast Head of Department Ministry of Finance of the Kyrgyz Republic Israilov Bakyt Rasulovich State Fund for Economic Development Head of Credit Monitoring Department State Agency of Professional and Technical Mamadaliev Abdrahim Education, Deputy Director Ministry of work, migration and youth Jumanbekov Alseit Head of Education Curriculum Inspection Department Department of Vocational Education Turdaliev Toolos Ministry of Education and Science Head of Department Tokmok Agro-industrial college UsubalievaAinurOmushevna Deputy Director of Academic Affairs AbdurasulovBaktybek Moldoshevich Head of Department Union of Kyrgyz Banks Abdraev Anvar President Sarybaev Rustam Project manager Satkaeva Cholpon Lawer Kyrgyz Investment and Credit Bank Tashpolotova Zharkynai Head of Leasing Department

A1-1 Attachment −1

Organization Name, position Aiyl Bank, OJSC IbraevMirlan Idinkulovich Head of Lease department, Head office, Bishkek Estebesov Amanjol Chief specialist of credit department, Alamedin Branch Moldoshev Almazbek Manager of Talas Branch Joroev Ibraim Manager of Osh Branch Osmonov Ulan Manager of Karasuu Branch Jenmuratov Altynbek Manager of Uzgen Branch Abdykadyrov Aibek Manager of Nookat Branch Kyrgyz National Agrarian University, Faculty of TemirbekovJeenbekTemirbekovich Engineering and Technology Dean of Faculty of Engineering and Technology, Ph.D, docent JusupovUrmatToktomambetovich OsmonkanovTaalaibek Orozbekovich Head of the Chair “Agriculture mechanization” AmatovSharibidin Bazarbaevich Deputy Dean of Faculty of Engineering and Technology Melisuulu Danielan Lecturer BolotovErkinbai Almambetovich Lecturer NuralievBakyt Saparovich Senior Lecturer Djumasheva Elmira Bekkulatovna Lecturer Murzaliev Mansur Lecturer Kyrgyz Republic National Academy of Sciences Kasymbekov Ryskul Technopark of National Academy of Sciences Candidate of technical science, Assistant professor (the senior lecturer) Head of Department “Management, marketing and intellectual property” Seed Association of Kyrgyzstan (SAK) AidaralievTaalaibek President, Doctor of Agriculture Science IslamovAbduhakim Executive director Farid Faridov Engineer Agriculture Cooperative “KOSS” BarkoAleksandr Chairman Rural agro-company “Raimbek” Kadyrov Robert The Head

A1-2 Attachment −1

Organization Name, position Association of joint stock companies “Machine- UrahunovKerim Station” Chief Engineer Agriculture cooperative Adygine Bugaichenko Anatoliy Vasil’evich Alamedin region, Chui Oblast Farmer KyrgyzAgroMarket, Osmonaliev Jyldyzbek Agro-equipment supplier in Bishkek Director Avtomash-Radiator Co.Ltd., Konin Vladimir Belarus agro-equipment supplier in Bishkek General Director Gomayunov Andrei Head of Sales and Marketing Department ITOCHU Corporation, Almaty Yamaguchi Kanji Head of Almaty office, Kazakhstan Toyota Tsusho Corporation, Almaty Sakurai Masanori Representative in Almaty, Kazakhstan Trading House MTZ ElAZ LLC, Almaty Gudko Andrei Director, Almaty city, Kazakhstan FAO, Kyrgyz Dr. Dorji Kin Lai Representative Kyrgyz Agro-Input Enterprise Development Kasymov Alisher Project, USAID General Manager IG Consult, Consulting Agency BakirovaAigula Apasovna General Director

A1-3

Attachment 2: Number of Tractor and Combine Harvester in Each Province Attachment −2

Number of Tractor and Combine Harvester in Each Province Source: Ministry of Agriculture and Land Reclamation 30,000 8,000 Country Chui Tractor 7,000 25,000 Tractor Combine 6,000 20,000 Combine 5,000

15,000 4,000

3,000 10,000 2,000 5,000 1,000

0 0 2004050607080910111213 2004050607080910111213

5,000 5,000 Talas Issyk-Kul Tractor Tractor 4,000 4,000 Combine Combine

3,000 3,000

2,000 2,000

1,000 1,000

0 0 2004050607080910111213 2004050607080910111213

5,000 5,000 Naryn Jalal-Abad Tractor Tractor 4,000 4,000 Combine Combine

3,000 3,000

2,000 2,000

1,000 1,000

0 0 2004050607080910111213 2004050607080910111213

5,000 2,000 Osh Batken Tractor Tractor 4,000 Combine Combine 1,500

3,000 1,000 2,000

500 1,000

0 0 2004050607080910111213 2004050607080910111213

A2-1

Attachment 3: Brochure of Manufacturers Attachment－3

A3-1 Attachment－3

A3-2 Attachment－3

A3-3 Attachment－3

A3-4 Attachment－3

A3-5 Attachment－3

A3-6 Attachment－3

A3-7 Attachment－3

A3-8 Attachment－3

A3-9 Attachment－3

A3-10 Attachment－3

A3-11 Attachment－3

A3-12 Attachment－3

A3-13 Attachment－3

A3-14

Attachment 4: Financial Status of Aiyl Bank Attachment－4

Amount Total y m Amount Amount Qt Total y y State Development Bank China of Rate 1USD=50so Total WB Leasing 2 4,378,588 State Development Bank China of Rate 1USD=50som m Amount Amount Qty Amount Qt Amount Qty Amount Amount Qty Amount Qt Total WB Leasing 1 9,899,150 1 9,899,150 00 State leasing-3 State y y y y 86 70,910,250 86 70,910,250 State Development Bank China of Rate 1USD=50so WB Leasing WB Leasing 2 6,480,000 2 6,480,000 State leasing-2 State State leasing-2 State Amount Qty Amount Qt Amount Qty Amount Qt Amount Qty Amount Qt Amount Qty Amount Qt Aiyl Bank Leasing Record by Type of Machinery Type Aiyl Bank Leasing Record by State leasing-3 State y y y y Total of State leasing-1 Total of State leasing-1 Total of State leasing-1 2 6,569,585 2 6,569,585 4 17,336,735 3 17,035,500 9 40,941,820 260026002216,000 2216,0002216,000 State leasing-2 State 79 81,307,372 7931 81,307,372 96 5,828,367 31 96,594,740 23 5,828,367 23,239,152 7 2,534,201 6 694,089 198 201,141,264 44 9,056,657 15 14,700,000 15 14,700,000 2 1,960,000 17 16,660,000 140 139,368,884 284 287,228,716 424 426,597,600 State leasing-1 (Phase-2) leasing-1 State (Phase-2) leasing-1 State (Phase-2) leasing-1 State 1 746,923 201 15,030,395 746,923 21 132 15,777,318 108,735,719 133 5 109,482,642 112 1,571,613 118,037,289 5 38 2,984,652 53,852,543 63 63 54,863,000 54,863,000 94 346 336,235,474 75,196,583 27 4,378,588 28,777,953 10 33,777,492 17 62,555,445 0000 0 94 0 0 96,007,372 2 0 94 9 53 4,378,588 96,007,372 35,347,538 236 13,169,561 2 9 53 235,963,624 284 4,378,588 35,347,538 13,169,561 287,228,716 14 0 38 25 51,114,227 16,255,874 25,199,152 0 0 0 0 0 0 0 0 5 6 639 0 644,398,864 23,515,500 1 694,089 0 0 9,899,150 0 0 0 28 97 109,977,265 0 30,119,524 3 14,277,738 2029 7,125,194 40,281,735 31 181 186,868,049 13,721,673 284 287,228,716 0 0 86 70,910,250 580 585,288,750 51 20,846,867 263 196,440,749 17 14,916,000 280 211,356,749 4 8,440,000 284 219,796,749 263 196,440,749 263 196,440,749 263 196,440,749 264 197,187,672 20264 15,030,395 284 197,187,672 178 212,218,067 163,933,454 5 442 361,121,126 1,571,613 293 0 304,905,338 284 287,228,716 42 0 62,292,543 5 149 125,773,250 2,984,652 1,210 149 1,141,320,973 125,773,250 443 342,547,582 Qty Amount Qty Amount Qt Qty Amount Qty Amount Qt Qty Amount Qty Amount Qt Qty Amount Qty Amount Qt State leasing-1 (Phase-1) State leasing-1 (Phase-1) State leasing-1 (Phase-2) State leasing-1 (Phase-1) 2012 2013 2011 Total Type of Type of Type of Type of Machinery Machinery Machinery 31.12.2013 Machinery Others Combain Attachment Total Total MTZ YTO Total MTZ YTO Others Combain Attachment Total MTZ MTZ YTO Others Combain Attachment YTO Others Combain Attachment

A4-1 Attachment－4

Aiyl Bank Leasing Record by Province

03.02.2014 2011 State leasing-1 State leasing-1 Total of State leasing-1 WB Leasing Total Oblast Qty Amount Qty Amount Qty Amount Qty Amount Qty Amount Chui 63 47,056,149 9 7,076,000 72 54,132,149 4 8,440,000 76 62,572,149 Issyk-kul 37 27,636,151 37 27,636,151 37 27,636,151 Osh 49 36,599,227 5 4,900,000 54 41,499,227 54 41,499,227 Jalal-Abad 47 35,105,381 1 980,000 48 36,085,381 48 36,085,381 Talas 29 21,660,767 2 1,960,000 31 23,620,767 31 23,620,767 Naryn 18 13,444,614 18 13,444,614 18 13,444,614 Batken 20 14,938,460 20 14,938,460 20 14,938,460 Total 263 196,440,749 17 14,916,000 280 211,356,749 4 8,440,000 284 219,796,749

2012 Rate 1USD=50som State leasing-1 State leasing-1 Total of State leasing-1 State leasing-2 WB Leasing State Development Bank of China Total Oblast Qty Amount Qty Amount Qty Amount Qty Amount Qty Amount Qty Amount Qty Amount Chui 21 24,075,435 21 24,075,435 39 41,515,834 9 22,366,050 5 4,329,250 74 92,286,569 Issyk-kul 8 7,840,000 8 7,840,000 8 7,840,000 2 2,078,150 18 17,758,150 Osh 32 21,606,546 32 21,606,546 25 32,412,005 10 8,949,807 16 14,890,250 83 77,858,608 Jalal-Abad 37 26,212,030 37 26,212,030 12 11,931,952 8 3,947,094 24 21,425,000 81 63,516,076 Talas 15 12,635,704 15 12,635,704 11 11,143,944 6 14,997,650 3 2,637,250 35 41,414,548 Naryn 1 746,923 11 10,082,743 12 10,829,666 3 2,596,006 3 2,781,250 18 16,206,922 Batken 8 6,283,260 8 6,283,260 14 10,597,548 3 1,513,792 12 8,800,000 37 27,194,600 Total 1 746,923 132 108,735,718 133 109,482,641 112 118,037,289 38 53,852,543 63 54,863,000 346 336,235,473

2013 Rate 1USD=50som State leasing-1 State leasing-2 State leasing-3 State Development Bank of China Total Oblast Qty Amount Qty Amount Qty Amount Qty Amount Qty Amount Chui 16 20,518,625 32 43,894,060 68 71,898,811 4 3,468,000 120 139779496 Issyk-kul 23 20,006,867 35 34,144,480 58 54,151,347 Osh 4 4,196,685 22 20,121,377 55 54,225,286 27 23,482,750 108 102,026,098 Jalal-Abad 2 153,872 41 40,806,250 50 50,672,331 19 16,245,250 112 107,877,703 Talas 1 76,936 30 28,624,655 33 33,032,013 18 15,170,500 82 76,904,104 Naryn 1 38,625 10 8,541,698 18 19,158,810 3 3,085,500 32 30,824,633 Batken 5 15,296,992 23 24,873,142 25 24,096,985 15 9,458,250 68 73,725,369 Total 29 40,281,735 181 186,868,049 284 287,228,716 86 70,910,250 580 585,288,750

2014 Rate 1USD=50som State leasing-1 State leasing-2 State leasing-3 State Development Bank of China Total Oblast Qty Amount Qty Amount Qty Amount Qty Amount Qty Amount Chui 3 3,135,000 1 980,000 1 1,113,750 5 5,228,750 Issyk-kul 3 2,704,930 4 3,920,000 7 6,624,930 Osh 1 531,500 1 531,500 Jalal-Abad 3 2,940,000 3 2,940,000 Talas 2 2,155,000 6 5,880,000 6 5,203,750 14 13,238,750 Naryn 1 980,000 1 1,113,750 2 2,093,750 Batken 2 1,960,000 1 531,500 3 2,491,500 Total 0 0 9 8,974,930 16 15,680,000 10 8,494,250 35 33,149,180

Total Rate 1USD=50som State leasing-1 State leasing-1 Total of State leasing-1 State leasing-2 State leasing-3 WB Leasing State Development Bank of China Total Oblast Qty Amount Qty Amount Qty Amount Qty Amount Qty Amount Qty Amount Qty Amount Qty Amount Chui 63 47,056,149 46 51,670,060 109 98,726,209 74 88,544,894 69 72,878,811 13 30,806,050 10 8,911,000 275 299,866,964 Issyk-kul 37 27,636,151 8 7,840,000 45 35,476,151 34 30,551,797 39 38,064,480 2 2,078,150 0 0 120 106,170,578 Osh 49 36,599,227 41 30,703,231 90 67,302,458 47 52,533,382 55 54,225,286 10 8,949,807 44 38,904,500 246 221,915,433 Jalal-Abad 47 35,105,381 40 27,345,902 87 62,451,283 53 52,738,202 53 53,612,331 8 3,947,094 43 37,670,250 244 210,419,160 Talas 29 21,660,767 18 14,672,640 47 36,333,407 43 41,923,599 39 38,912,013 6 14,997,650 27 23,011,500 162 155,178,169 Naryn 19 14,191,537 12 10,121,368 31 24,312,905 14 12,117,704 18 19,158,810 0 0 7 6,980,500 70 62,569,919 Batken 20 14,938,460 13 21,580,252 33 36,518,712 37 35,470,690 27 26,056,985 3 1,513,792 28 18,789,750 128 118,349,929 Total 264 197,187,672 178 163,933,453 442 361,121,125 302 313,880,268 300 302,908,716 42 62,292,543 159 134,267,500 1,245 1,174,470,152

A4-2 Attachment－4

Statement of Comprehensive Income for the year ended 31 December 2013 (in 1000SOM )

31-Dec-13 31-Dec-12 Interest income 699,987 577,157 Interest expense (204,201) (174,303)

Net interest income before establishing RFCPL for interest 495,786 402,854

Establishing RFCPL for interset (43,524) 25,674 Net interest income 452,262 428,528 Net foreign exchange income 70,733 62,783 Fee and commission income 157,721 90,842 Fee and commission expense (36,550) (26,779) Other imcome 12,304 9,102 Net non-interset income 204,208 135,948 Operating income 656,470 564,476 Operating expense (473,456) (405,221) Establishing RFCPL for other activities (3,098) (5,789) Profit before income tax 179,916 153,466 Income tax (17,028) (17,686) Profit and total comprehensive income for the year 162,888 135,780 Base profit for one stock share, in SOM 2,715 2,263

*RFCPL= Reserve Fund to Cover Potential Loss

A4-3 Attachment－4

Statement of Financial Position as of 31 December 2013 (in 1000SOM )

ASSETS 31-Dec-13 31-Dec-12 Cash and cash equivalents 540,966 546,172 Corresponding account in National Bank 197,385 137,693 Acoounts and loans in other banks and financial institutions 536,376 139,497 Loans to customers 4,824,628 3,264,316 Reserve to cover the loss of value (132,625) (88,886) Loans to customers after the loss of value 4,692,003 3,175,430 Securities 1,102,451 7,206 Property and equipment 229,541 195,364 Intangible assets 6,870 7,212 Current tax asset - - Other assets 75,409 121,135 Total assets 7,381,001 4,329,709 LIABILITIES and EQUITY LIABILITIES Accounts and deposits from banks 2,394 - Accounts and deposits from customers 3,445,568 1,389,263 Amounts owed to Ministry of Finance 1,230,598 1,236,600 Amounts owed to National Bank 122,100 216,189 Government grant 88,567 96,619 Long term liabilities 808,191 - Other attrackted funds 156,885 91,639 Current tax liabilities 2,723 914 Other liabilities 192,595 47,778 Total liabilities 6,058,616 3,087,017 EQUITY Share capital 600,000 600,000 Additional paid-in capital 55,246 47,468 General banking reserve 504,251 459,444 Retained earning 162,888 135,780 Total equity 1,322,385 1,242,692 Total liabilities and equity 7,381,001 4,329,709

A4-4 Attachment－4

Statement of Changes in Equity for the year ended 31 December 2013 (in 1000SOM )

Re se rve for future Share Capital Added Capital Retained Profit Total Capital expenses

Balance as at 1 January 2012 600,000 41,210 414,612 112,079 1,167,901 Profit and total comprehensive - - - 135,780 135,780 income for the year Transfer funds - - 44,832 (44,832) 0

Contribution by the Government - 6,258 - - 6,258

Dividends declared - - - (67,247) (67,247)

Balance as at 31 December 2012 600,000 47,468 459,444 135,780 1,242,692

Balance as at 1 January 2013 600,000 47,468 459,444 135,780 1,242,692

Profit and total comprehensive - - - 162,888 162,888 income for the year Transfer funds - - 44,807 (44,807) 0

Contribution by the Government - 7,778 - - 7,778

Dividends declared - - - (90,973) (90,973)

Balance as at 31 December 2013 600,000 55,246 504,251 162,888 1,322,385

A4-5

Attachment 5: Result of Questionnaire Survey Attachment −5

Results of Questionnaire Survey

Table 1. Cultivated area of interviewees by type of machinery possession (ha) Type No. of sample Mini. Max. Ave. Median A 23 3.5 200 44.1 30.0 B 30 1 100 11.6 4.0 C 19 0.04 6 1.1 0.7 All 72 0.04 200 19.2 4.5 Type A: Machinery owner Type B: No machinery owned and machinery service receiver Type C: Cultivator without both machines and machinery service

Table 2. Cultivated area of interviewees by region (ha) Region No. of sample Mini. Max. Ave. Median North 4 provinces 41 0.2 200 26.5 7.0 Southern 3 provinces 31 0.04 70.4 9.6 3.0 All 72 0.04 200 19.2 4.5

0 5 10 15 20 25

Sales channel Access to machinery Irrigation water Transportation Price of fertilizer Quality seed Price of product Quantity of fertilizer Quality of Fertilizer Fuel price Production technique Lack of finance Notern 4 provinces Availability of spare part Storage Southern 3 provinces Repair Figure 1 Constraints of farmers by region

Table 3. Work efficiency of machines (Plowing) Province Crop Area Working Fuel Machines Work (ha) time (hr) consumption efficiency (L/ha) (Ha/hr) Chui Barley 12 20 17 MTZ80, 3row 0.60 Chui Alfalfa 13 20 18 MTZ80, 3row 0.65 Chui Beet 2 5 17 MTZ80, 3row 0.40 Chui Corn 5 8 17 MTZ80, 3row 0.63 Issyk-Kul Wheat 15 60 35 MTZ80, 3row 0.25 Issyk-Kul Barley 8 30 35 MTZ80, 3row 0.27 Issyk-Kul Potato 1.5 10 35 MTZ80, 3row 0.15 Issyk-Kul Sainfoin 16 60 35 MTZ80, 3row 0.27

A5-1 Attachment −5

Issyk-Kul Cabbage 0.15 2 25 MTZ80, 3row 0.08 Issyk-Kul Carrot 0.15 2 25 MTZ80, 3row 0.08 Issyk-Kul Red Beet 0.2 2 25 MTZ80, 3row 0.10 Naryn Barley 66 104 40 MTZ80, 3row 0.63 Naryn Forage 85 104 40 MTZ80, 3row 0.82 Jalal-Abad Wheat 12 24 50 MTZ80, 3row 0.50 Jalal-Abad Rice 2 24 50 MTZ80, 3row 0.08 Jalal-Abad Sunflower 3 2 50 MTZ80, 3row 1.50 Osh Cotton 3 16 30 MTZ80, 3row 0.19 Osh Corn 2 16 30 MTZ80, 3row 0.13 Osh Wheat 2 16 30 MTZ80, 3row 0.13 Osh Barley 2.6 16 30 MTZ80, 3row 0.16 Osh Alfalfa 2.5 16 30 MTZ80, 3row 0.16

Table 4. Work efficiency of machines (Plowing) Province Crop Area Working Fuel Machines Work (ha) time (hr) consumption efficiency (L/ha) (Ha/hr) Chui Barley 25 63 25 YTO904 0.40 Talas Barley 30 48 30 YTO904 0.63 Chui Clover 21 8 25 YTO904 2.63 Jalal-Abad Clover 3 4 25 YTO, 3row 0.75 Jalal-Abad Corn 10 24 25 YTO, 3row 0.42 Jalal-Abad Cotton 10 42 25 YTO, 3row 0.24 Jalal-Abad Sunflower 10 24 50 YTO, 3row 0.42 Chui Wheat 25 63 25 YTO904 0.40 Talas Wheat 100 80 30 YTO904 1.25

Table 5. Work efficiency of machines (Harvesting) Province Crop Area Working Fuel Machines Work (ha) time (hr) consumption efficiency (L/ha) (Ha/hr) Talas Wheat 37 24 25 Finland, 2m 1.54 Talas Summer 30 48 10 Finland, 2m 0.63 grains Talas Haricot 29 16 10 Finland, 2m 1.81 Talas Summer 30 48 10 Finland, 2m 0.63 grains Naryn Wheat 12 8 20 German PPL-1.6 1.50 Naryn Barley 6 4 20 German PPL-1.6 1.50 Naryn Sunflower 5 2 20 German PPL-1.6 2.50 Naryn Wheat 12 8 20 German PPL-1.6 1.50 Naryn Barley 6 4 20 German PPL-1.6 1.50 Chui Barley 12 10 25 NIVA 1.20 Issyk-Kul Wheat 20 24 25 NIVA 0.83 Issyk-Kul Wheat 15 24 14 NIVA 0.63 Issyk-Kul Barley 8 12 14 NIVA 0.67 Jalal-Abad Wheat 25 48 30 NIVA80 0.52 Jalal-Abad Oats 10 16 30 NIVA80 0.63 Naryn Wheat 20 20 20 Russia D260(110hp) 1.00 Naryn Barley 10 20 20 Russia D260(110hp) 0.50 Naryn Wheat 20 56 20 Russia(110hp) 0.36 Issyk-Kul Potato 1.5 20 14 Russian, 2row 0.08 Issyk-Kul Potato 0.5 3 10 T28, digger 0.17 Chui Wheat 25 63 25 Ukraine, 3row 0.40 Chui Barley 25 63 25 Ukraine, 3row 0.40

A5-2 Attachment −5

Table 6. Labor cost for farming work (som/ha) Crop Work Min. Max. Wheat Harvesting 1,000 1,500 Haricot bean Weeding 2,500 3,300 Haricot bean Harvesting 2,300 2,700 Potato Planting 2,400 2,400 Potato Weeding 3,000 3,000 Potato Harvesting 4,500 4,500 Beet Weeding 15,000 20,000 Corn Weeding 1,000 5,000 Cotton Harvesting 1,800 1,800 Sainfoin Harvesting 1,600 2,000 All crops Water management 1,000 2,500 Since number of samples for each crop and work are very few 1 to 3, these figures are just for reference.

Table 7. Person of machinery operation Owner himself/family Outsourcing Employee 17 9 0

Table 8. Means of operation skill acquisition Learnt from dealer School/collage Self-study 0 6 15

Table 9. Educational qualification of machinery owner ATC STE VC 3 7 1 ATC: Agricultural Technical College (Ministry of labor, migration and youth) STE: Secondary Technical Education (Ditto) VC: Vocational School (Ditto)

Regarding to accident during machinery operation, no accident was reported from interviewees of questionnaire survey, but from interview by the study team, it was reported that 2 persons died by overturned accident of a combine harvester in Osh province in 2006.

Table 10. Frequency of maintenance during cultivation period Daily basis Other 23 0

Table 11. Person/ place for maintenance (multiple answer) Owner himself/family Outsourcing Employee 21 3 0

A5-3 Attachment −5

Table 12. Means of maintenance technique acquisition (multiple answer) Learnt from dealer School/collage Self-study 0 3 14

Table 13.Person/ place for repair (multiple answer) Operator Dealer Repair shop Others 22 0 2 1

Table 13. Person who purchase spare parts for repair (multiple answer) Owner Dealer Repair shop Other 23 0 2 0

Table 14. Purchasing place of spare parts (multiple answer) Bazar Dealer Repair shop Other 20 1 4 0

Table 15. Spare part supply Item Yes No Acceptability of delivery time 12 10 Stock of spare parts 9 14 Stability of spare part price 3 20 Use of genuine parts 7 18

Table 16. Country of origin of spare part China Russia Belarus Italy 16 7 1 1

Table 17. Problems of available spare part Cannot find suitable Low quality Expensive No problem one 5 4 3 1

Table 18. Spare parts to be repair, adjustment and replacement Item Number Tire 12 Fuel system related parts 9 Oil hydraulic system related 7 Transmission related parts, engine related parts, bearing 4 Injection nozzle and piston 3 Repair cost is varied from 0 to 280,000 som/year, average cost is 86,000 som/year.

Table 19. Tools and machines for maintenance and repair Welding Drilling Lathe Forging Jack Compressor Grinder Hand equipment machine machine machine tools 18 21 4 1 1 3 1 23 A5-4

Attachment 6: Crop Calendar of Main Crop Attachment −6

Crop Calendar of Main Crop

A6-1 Attachment −6

A6-2

Attachment 7: Analysis of the Farmhouses that Procured Tractors Attachment−7

Analysis of the Farmhouses that Procured Tractors

The trial calculation was made in order to investigate the relation between the cultivation area and the income (net earnings) in wheat production. The preconditions of the trial calculation are as follows.

 Maximum cultivation capacity of the tractor is 50 ha/month. Other than the farmer’s production area (including leased land), a tractor is used for cultivation services by other farmers.

 Cultivation services period for each work (plowing, harrowing, sowing, fertilizing and transportation) should be one month. I.e. maximum period for each work should be completed within one month.

 Leasing system should be utilized only for the renewal of the tractor. Implement machines (such as plow or harrow etc.) owned previously will be used continuously and not be renewed.

The unit prices for each work by tractor were set up as follows, from the interview results and questionnaire investigation.

(a) Own land (including rental)

Plowing 20 liters/ha only fuel cost (40 som/liter) Harrowing 20 liters/ha only fuel cost (40 som/liter) Sowing 15 liters/ha only fuel cost (40 som/liter) Purchase seeds 1,000 som/ha 20som/kg, 200kg/ha. Updates every 4 years. Fertilizer 15 liters/ha only fuel cost (40 som/liter) Purchase of fertilizers 6,000 som/ha 20som/kg, 300kg/ha Chemical treatment 15 liters/ha Chemicals are not used. Purchase chemicals 0 Chemicals are not used. Water management 2,000 som/ha Labor cost. Harvesting 2,800 som/ha Cost for harvesting machine services (b) Net income by machine service Net income by machine 4,000 som/ha Sum of plowing, harrowing and fertilizing work service (not including the cost of operation, fuel and machine maintenance)

A7-1 Attachment−7

450,000

400,000 農業生産からの純利益Net income by agricultural production

350,000 機械サービスからの純利益Net income by machine service

300,000 (som) 250,000 純利益

Net income (som) 200,000

150,000

100,000

50,000

0 0 5 10 15 20 25 30 35 40 45 50 Cultivation area including leased area (ha) 借地を含む耕作面積 (ha) Figure: Net income from agricultural production and machine service

Based on the above mentioned conditions, the trial calculation of total net income was derived from net income by the agricultural machine service and net income by agricultural production, and by the difference in the cultivation area. Results of the trial calculation are shown in the above figure. When one half of the income is appropriated for the payment of the annual leasing fee (first year 154,000som), the profits income of the annual 308,000som (154,000x2) are needed. In order to attain this, from the above figure, when only wheat is cultivated, at least agricultural production in 25ha and agricultural machine service in 25ha should be performed simultaneously.

It is assumed that the average cultivation area of each farmhouse’s own 25ha and one tractor, and the required number of tractors calculated by the Ministry of Agriculture is 28,000. In this case the quantity of farmhouses that own a tractor should be 28,000. The following table shows the breakdown of the farmhouses that own tractors and the farmhouses that receive services without owning a tractor. When 28,000 tractors provide a cultivation service for 25ha of farmland, a total of 470,000 ha of farmland will receive the cultivation service, owned by farmhouses they do not have tractors.

A7-2 Attachment−7

Table Number of farmhouses and the cultivation area by tractor ownership form Farmhouses that Average cultivation 25 According to the above trial calculation own tractors area (ha) Number of farmhouses 28,000 Required number of tractors calculated by the Ministry of Agriculture is 28,000. Number of farmhouses that own tractors should be 28,000. Ratio of all the 7.8 (Number of farmhouses that own tractors) ÷ farmhouses (%) (Total number of farmhouses) Cultivation area (ha) 700,000 (Average cultivation area) × (Required number of tractors) Farmhouses that Average cultivation 1.43 (Total cultivation area of farmhouses that do do not own area (ha) not own tractors) ÷ (Number of farmhouses tractors that do not own tractors) Number of farmhouses 329,127 (Total number of farmhouses)−(Number of farmhouses that own tractors) Ratio of all the 92.2 (Number of farmhouses that do not own farmhouses (%) tractors) ÷ (Total number of farmhouses) Cultivation area (ha) 470,000 (Total cultivation area)−( Total cultivation area of farmhouses that own tractors) Total Total number of 357,127 Statistical data (3013) farmhouses Total cultivation area 1,170,00 Statistical data (2013) (ha) 0 Average cultivation 3.3 (Total cultivation area) ÷ (Total number of area (ha) farmhouses) Source: JICA Study Team

In this trial calculation, the following articles are not considered.  Influence of the production of cash crops other than wheat.  Influence of other income such as sales of livestock or income by money transfer etc.  Influence of the number in the family at the farmhouse.  Tax and social insurance premium

For reference, the repayment plan when the Belarus tractor is leased, is shown below. Table: Repayment plan when the Belarus tractor is leased (for reference)

Model MTZ82.1 Price 1,000,000 som Down payment 300,000 som Leasing price 700,000 som Annual interest rate 8.00 % Term of leasing 7 years

A7-3 Attachment−7

Leasing Quarter Leasing Balanced Remarks Annual year payment principal repayment 1 1st quarter 14,000 700,000 Interest repayment 2nd quarter 64,000 650,000 Interest and principal repayment 3rd Quarter 13,000 650,000 Interest repayment 4th Quarter 63,000 600,000 Interest and principal repayment 154,000 2 1st quarter 12,000 600,000 Interest repayment 2nd quarter 62,000 550,000 Interest and principal repayment 3rd Quarter 11,000 550,000 Interest repayment 4th Quarter 61,000 500,000 Interest and principal repayment 146,000 3 1st quarter 10,000 500,000 Interest repayment 2nd quarter 60,000 450,000 Interest and principal repayment 3rd Quarter 9,000 450,000 Interest repayment 4th Quarter 59,000 400,000 Interest and principal repayment 138,000 4 1st quarter 8,000 400,000 Interest repayment 2nd quarter 58,000 350,000 Interest and principal repayment 3rd Quarter 7,000 350,000 Interest repayment 4th Quarter 57,000 300,000 Interest and principal repayment 130,000 5 1st quarter 6,000 300,000 Interest repayment 2nd quarter 56,000 250,000 Interest and principal repayment 3rd Quarter 5,000 250,000 Interest repayment 4th Quarter 55,000 200,000 Interest and principal repayment 122,000 6 1st quarter 4,000 200,000 Interest repayment 2nd quarter 54,000 150,000 Interest and principal repayment 3rd Quarter 3,000 150,000 Interest repayment 4th Quarter 53,000 100,000 Interest and principal repayment 114,000 7 1st quarter 2,000 100,000 Interest repayment 2nd quarter 52,000 50,000 Interest and principal repayment 3rd Quarter 1,000 50,000 Interest repayment 4th Quarter 51,000 0 Interest and principal repayment 106,000

A7-4