Agricultural efficiency under resources scarcity in : A Data Envelopment Analysis | BEH, January 2011

Peer-reviewed and Open access journal BEH - Business and Economic Horizons ISSN: 1804-1205 | www.pieb.cz Volume 4 | Issue 1 | January 2011 |pp. 81-87

Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis

Shavkat Hasanov 1, Ahmed Mirza Nomman 2 1Agricultural economics and management department, Samarkand Agricultural Institute 2Agricultural Policy and Market Research Institute, Justus Liebig University of Giessen, Giessen, Germany. e-mails: [email protected]; [email protected]

Water scarcity and land degradation increases led to a sharp rise in input resource’s costs. These developments make it increasingly difficult for agricultural farms to produce according to the demand for food and other commodities, especially owing a rapid population growth. The present study aims to focus on scarce resource use in the agricultural production of the valley by means of the efficiency analysis. A DEA model is estimated to investigate the farm level efficiency levels with respect to the use of the limited resources available to the farmers. By the application of linear programming methods a ‘best practice frontier is estimated’, classifying farms on the frontier as efficient and others as inefficient with respect to different scales. Technical and allocative efficiencies are calculated relative to the frontier. Results shows input resources are not used efficiently and a great majority of farms could effectively reduce considerable amounts of input use by still producing the same output. JEL Classifications: C81, D24, Q12

Keywords: Efficiency, Zaravshan valley, household survey, scarce resources, DEA model.

Introduction

Agriculture is an important sector for the economy of Uzbekistan. The country has some distinctive economic features, such as about 17.0 million or 60 percent of the population of the country living in rural areas, with 34 percent of them involved in the agricultural production (MAWR, 2008; Djalalov, 2006). Therefore, agriculture remains the principal income source for the rural people. Since its independence in 1991, Uzbekistan’s agriculture is having gradual structural changes. The main challenges the country regarding agricultural reforms include the transformation of the state and collective farms in cooperative and private farms. Production share and land occupation of cooperatives ( shirkats ) in agriculture has decreased gradually, making them almost disappear. Instead, private farms ( farmer ) and household ( dehqon ) farms have considerably increased number. The main crops that have Horizons Economic and Business state order procurement prices are cotton and wheat, almost entirely produced by private farms. Other high value cash crops are vegetables, potatoes and fruits, produced by household farms. The state allocates cotton and wheat areas to private farms, where cotton is the main export crop, and contributing around 25 percent of foreign exchange revenues, as well as a significant source of tax revenues (Guadagni, et al., 2005; Ahrorov, 2010). Wheat is considered as a crop to provide food selfsufficiency and it also offers an easy rotation with cotton. Households play a significant role to produce cash crops of which they are producing 84% of potato, 67% vegetables, 52% of fruits which is almost equal to the whole share of meat and milk in the country (SCS Uz., 2009). Agricultural production in the country is increasingly becoming a field for concern, especially with regard to the efficient use of input resources, such as land, water, labor and capital. Due to economical and ecological unsustainable agricultural systems, water scarcity and land degradation, the costs of these resources in the past years have rapidly increased and are expected to rise furthermore in the near future. These developments make it increasingly difficult for agricultural agents to produce according to the demand for food and other commodities, especially owing to a fast population growth. © 2011 Prague Development Center www.pieb.cz - 81 - Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis | BEH, January 2011 The present study aims at focussing on scarce resources use in the agricultural production of the Zaravshan valley of Uzbekistan. Additionally, issues related to the agricultural enterprises’ profit maximisation shall be addressed. Secondary data is hardly available in the postsoviet countries. To this effect, the initial methodological approach was to collect primary data and employ it according to research tasks, for this purpose a questionnaire covering nearly all aspects of agricultural production has been developed. This study is the first part of an ongoing research carried out in the framework of the Climate Change Network for Central Asia (CliNCA).

Study site - Primary data survey and methods

The Zaravshan valley is one of the biggest intermountain areas of Central Asia and is situated between the mountain ridges of Turkistan and Zeravshan. Historically, irrigated agriculture has well developed nearby the Zaravshan River. Nowadays, Uzbekistan’s part of the valley occupies mainly 3 regions Samarkand, and Bukhara and partly the southern areas of Jizzakh and the northern areas of Kashkadarya, which are main agricultural producers of fruit, vegetables, cotton, grain and other agricultural commodities for the country. The valley occupies around 1/5 of the country’s irrigated land and produces 1/3 of the total agricultural commodities of Uzbekistan. A key role of the Zaravshan valley’s agriculture is playing Samarkand region, which has land for conducting agricultural activity is exceeds 402.9 thousand hectares or about 10% of the irrigated land of the country. Agricultural sector is prevail in the region, which share is 51.8% of total GRP, and 41% of the region’s agricultural land occupied by grains, 38% vegetables, 13% cotton, and 8% others. Navoi region’s 10 million ha of land used as pasture lands, irrigation areas only 91.6 thousand ha or 0.9% of the total area and share of agriculture at GRP is 14.3%. Bukhara region is the last region of the valley and agricultural products share at GRP consists 8.7%, which used lands for agriculture occupies 8% of the region’s territory (SCS Uz., 2009). In early 2010 a survey was carried out among private (farmer) and household (dehqon) farms mainly of the Samarkand and partly of the ’s counties. The survey was conducted in the framework of the German foreign ministry funded project CliNCA (Climate Change Network for Central Asia) through the Giessen University (JLU) and the Samarkand Agricultural Institute (SAI) in Uzbekistan. The survey covered 102 farms and households, random selection was insured. The main questions included the types and modes of input resources use, offfarm income sources, questions related to farm management and other socioeconomic questions. The efficiency of recourse use in different organizational farm types is evaluated and an economic assessment of yields from main agricultural crops on different land and farm types is conducted. The average farm size in the area surveyed amounted to 49 ha for the 76 private farms and on average 0.45 ha for the 26 household farms. The survey area can be divided into 4 zones, based on weather, water sufficiency and land use conditions. First zone includes 3 upstream counties (Urgut, Bulungur and Taylak), characterized by mountains and semimountains and having sufficient water and non cotton cropped areas. The total respondent for this zone were 19 farmers, 2 of them being females, with an average farm size of 12.7 ha. The crop areas are smaller in comparison with other zones, but have the advantage of growing high value crops. The main crops of this zone are wheat, tomato, potato, tobacco and fruits. The second zone includes 3 counties (Akdarya, Jambay and Payarik) with good provision of surface and ground water, plain land areas, located north and northeast of Samarkand city. 22 farmers are surveyed from this zone, with an average farm size of 57.6 ha and the main crops cotton, wheat and tomato. The third zone is characterized by larger farm sizes and severe issues of land salinity resulting from dreadful drainage systems. The total farm respondents were 28 with an average farm size of 59.4 ha. The main focus in the third zone primarily lies on cotton and wheat cultivation. A lot of farmers are using pump irrigation systems, with maintenance of these pumps being a key concern. The fourth zone of the surveyed area is

- 82 - © 2011 Prague Development Center www.pieb.cz Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis | BEH, January 2011 located in the Navoiy region (Karmana and Hatrichi), located downstream the Zaravshan river. The main crops grown are wheat and cotton, whereas in the upland areas of the Hatirchi County grapes and safflower also cultivated. 7 farms from this zone were surveyed, with an average farm size of 75.8 ha. The study aims at finding answers for the following questions: What is status quo in the agriculture of Zaravshan valley? How do agricultural enterprises perform in a situation of input resource shortages and price increases? The study evaluates the efficiency of recourse use in different organizational farm types; an economic assessment of yields from main agricultural crops on different land and farm types is carried out to develop a profit maximisation function. Data Envelopment Analyse (DEA) approach is used to investigate trends in the agrarian sector, including the maximisation of economic value of agricultural production within the framework of scarce resources use. The nonparametric DEA model builds a linear piece wise function from empirical observation of inputs and outputs. By the application of linear programming methods “best practice frontier is estimated”, classifying farms on the frontier as efficient and others as inefficient with respect to different scales. The first for CRS (constant returns to scale) conditions input oriented model proposed by Charnes, Cooper, and Rhodes (1978), which we used in this paper to calculate technical efficiencies relative to the frontier. To introduce DEA a ratio form of survey data are used that suggested by Coelli et al. (2005): ′ ′ max u,v (u yi /v xi ), St: u′y /v′x ≤ ,1 j ≡ ...,2,1 N i i u, v ≥ 0 One output and 6 inputs are used in the model. Output is represented by gross yield of for each crop in a sample. Input resources variables are contributed as follows: - Land, area of each crop; - Water: water payment and cleaning interfarm channels fee; - Seed cost; - tractor and machinery cost; - Fertilizers (includes, fertilizer, organic manure, pesticides and herbicides use) cost; - Labor cost: fixed salary of farm workers, seasonal and parttime workers wages, family members work calculated as shadow price.

Based to this data and by using the duality in linear programming, it is intended to solve Horizons Economic and Business the following envelopment problem (Coelli et all 2005):

min θ λ θ , − +λ ≥ St: yi Y 0 θx − Xλ ≥ 0 i λ ≥ 0

where θ is a scalar and λ is N*1 vector of constant. The value θ taken at the results is efficiency score of each farm. It will satisfy the condition θ≤1, with a value of 1 indicating a point on the frontier and hence a technically efficient farm (Farrell, 1957) definition. A number of software exists for solve the efficiency problem, like DEA Solver (SAITECH, 2003), EMS (Scheel, 2000), DEAP 2.1 (Coelli, 1996) and so on. In this study we used DEAP 2.1, which is a freeware program and calculates projected values of inputs.

© 2011 Prague Development Center www.pieb.cz - 83 - Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis | BEH, January 2011 Efficient use of scarce resources - Results and discussion

The analysis of farm performance is carried out using the net crop revenue as an indicator. The findings clearly indicate that input resources are not used efficiently, es pecially in the case of cotton growing farms, where the farm performance is clearly negative.

FIGURE 1. PRODUCTION SHARES IN TOTAL AREA SURVEYED , 2009

Tomato Watermel 3.5% on Potato 11.6% 1.6% Grapes Wheat 2.6% 45.6% Onions 0.2% Fruits Cotton 0.04% 35,0%

Source: own illustration based on Household survey, 2010

FIGURE 2. AVERAGE YIELD OF CROP S IN SELECTED SURVEY AREA , 2009

35 29.61 30 26.00 25

20 16.67 17.00

tons/ha 15 9.10 10 8.12 4.69 5 2.63

0 Cotton Wheat Tomato Watermelon Potato Grapes Onions Fruits

Source: Own illustration based on Household survey, 2010.

The analysis as a novelty also addresses the use of voluntary assistance labor (hashar) based on a shadowprice framework and also incorporates household or family labor. In terms of technology use, a trend towards demechanisation could be seen, which is found

- 84 - © 2011 Prague Development Center www.pieb.cz Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis | BEH, January 2011 to be driven by unemployment outside the agricultural sector. Two crops, namely cotton and wheat are leading the agriculture of the country, the same being the case for the area at study. Wheat has the largest share in the cropped area, which mainly is grown under the food self sufficiency scheme of the country. Cotton is the main export crop, strengthening the state budget with foreign currency. Other commodity shares remain rather small in total, but are considerably higher in terms of yield (see Figure 2). In terms of yield per hectare, tomato, potato, onion and fruits are the major cash crops to the rural dwellers.

FIGURE 3. AVERAGE REVENUE OF CROPS IN SELECTED SURVEY AREA , 2009

9000 7 821.0 8000

7000

6000

5000 4 631.1 4 051.6 USD 4000 2 752.2 3000 2 544.8 2 193.5 2000 817.5 1000 678.5

0 Cotton Wheat Tomato Watermelon Potato Grapes Onions Fruits

Source: Own illustration based on Household survey, 2010.

TABLE 1. TECHNICAL EFFICIENCY OF COTTON IN RAYON LEVEL IN SURVEYED AREAS (2009)

Rayon θ TE Possible Input Reduction(same

output level) in % Horizons Economic and Business Akdarya 0.917 8.3 Ishtihon 0.879 12.1 Pastdargom 0.877 12.3 Jambay 0.915 8.5 Payarik 0.912 8.8 Karmana 0.971 2.9 Source: own illustration base on Household survey, 2010.

Average revenue per hectare in the survey area is higher for potato, grapes and tomato, which makes them a first choice for farmers. In the surveyed area the average revenue of wheat is rather low, owing to the fact that farmers are getting high quality wheat seeds for high prices and that during the harvesting time they have to hire combines and machinery from MTP (MachineryTractor Stations), which is rather cost intensive. Therefore, although the wheat yields in the surveyed area high, wheat production remains a costly undergoing. Farmers with big and medium size farms mostly have their own tractor or farm machinery, nevertheless they have reported having hired additional machinery during

© 2011 Prague Development Center www.pieb.cz - 85 - Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis | BEH, January 2011 the harvesting season. Machinery overuse in some cases has been observed, clearly indicating the inexperience of farmers in certain areas. High profit crops for the Zaravshan Valley are potato, watermelon and onion. However, the state order forces farmers to grow cotton and wheat, leaving them with no choice. This leads to huge losses for the farmers and for the government, as the losses of the farmers at times have to be compensated for by the state. Compensation is provided by the state in form subsides. Subsidies can be indirect, i.e. tax reductions and credits at lower interest rates.

TABLE 2. TECHNICAL EFFICIENCY RESULTS OF FARMS BY CROPS IN SURVEYED AREAS (2010)

Farm ID Cotton TE Grain TE Veget. TE Farm ID Cotton TE Grain TE Veget. TE FR1 1.000 1.000 FR37 1.00 0 0.884 FR2 0.742 0.576 FR38 1.000 0.863 FR3 0.886 0.704 FR39 1.000 1.000 0.643 FR4 0.901 1.000 FR40 0.831 0.538 FR5 0.964 1.000 FR41 0.917 0.494 FR6 0.886 0.667 FR42 0.715 0.566 FR7 0.870 1.000 FR43 1.000 0.546 FR8 0.900 1.000 FR44 0.6 39 0.567 FR9 0.736 0.550 FR45 0.860 0.681 FR10 1.000 1.000 0.958 FR46 0.667 0.550 FR11 1.000 1.000 FR47 0.688 0.536 FR12 0.794 0.912 0.831 FR48 0.730 0.554 FR13 0.950 0.952 1.000 FR49 0.706 0.540 FR14 0.818 0.956 0.926 FR50 0.728 0.566 FR15 0.839 0.956 0.859 FR51 0.636 0.576 FR16 1.000 0.957 FR52 1.000 0.778 FR17 0.799 0.956 FR53 1.000 0.697 0.761 FR18 0.947 1.000 1.000 FR54 0.874 0.530 0.328 FR19 1.000 1.000 0.758 FR55 0.767 0.543 1.000 FR20 1.000 FR56 0.870 0.742 1.000 FR21 1.0 00 1.000 1.000 FR57 0.772 FR22 1.000 1.000 FR58 1.000 FR23 1.000 1.000 FR59 0.537 FR24 1.000 0.927 1.000 FR60 0.677 FR25 1.000 0.971 0.616 FR61 1.000 FR26 1.000 0.965 1.000 FR62 0.856 0.491 FR27 0.740 0.328 1.000 FR63 0.795 0.435 FR28 1.000 1.000 FR64 0.876 0.346 FR29 0.989 0.697 FR65 0.839 0.474 FR30 0.802 0.989 FR66 0.831 0.731 FR31 0.554 0.890 FR67 0.986 0.772 FR32 0.677 0.064 FR68 0.946 0.754 FR33 0.594 FR69 0.868 0.659 FR34 0.507 0.467 FR70 0.985 0.803 FR35 0.248 FR71 0.688 0.680 FR36 0.758 0.699 0.965 FR72 1.000 0.881 0.745 Source: own illustration base of Household survey, 2010

Conclusions and outlook

In the surveyed area, the input resources are not used efficiently. The inexperience of newcomers to the agricultural sector makes it an extremely challenging task to be efficient and use the agricultural input resources in a sustainable manner, in soviet times the

- 86 - © 2011 Prague Development Center www.pieb.cz Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis | BEH, January 2011 “kolkhoz” (large state farms) used to take care of all matters related to the farm, thus making the farmer a mere executer of orders. Today the farmer has to manage his farm on his own, making it increasingly difficult for the farmer to be economically and ecologically efficient at the same time. Furthermore, the incentives for being efficient are not provided by the state, as control of land property remains in state hands. The analysis as a novelty also addressed the use of voluntary assistance labor (hashar) based on a shadowprice framework and also tried to incorporate household labor. The use of voluntary assistance for some crops is found to be not economically viable. In terms of technology use, a trend towards demechanisation could be seen, which is found to be driven by unemployment inside and outside of the agricultural sector. Climate change, which drives water scarcity, aggravates issues of land degradation will be another key aspect to deal with efficiency in the long run. In a next step the idea is to extend the survey to other parts of Uzbekistan and Central Asia to develop adaptive strategies for a new challenging era of farming in Uzbekistan.

References

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New England, Armilade, No8/96. Coelli, T., Prasada Rao, D., O’Donnnel, Ch., Battese, G., 2005. An Introduction to efficiency and productivity analysis, 2nd ed., NY USA, Springer. Djalalov, S., Gemma, M., 2006. Impact of policy reforms on farm production in Uzbekistan, Policy reforms and agriculture development in Central Asia, London, Springer. Farrell, M., 1957. “The measurement of Productive Efficiency,” Journal of Royal Statistical Society, Series A, Vol.120, pp.25390. Guadagni, M., Raiser, M., CroleRees, A., Khidirov, D., 2005. “Cotton taxation in Uzbekistan. Opportunities for reform,” ECSSD Working Paper, No.41, Washington, USA: The World Bank. MAWR, 2008, 2009. Ministry of Agriculture and Water Resources of the Republic of Uzbekistan, www.agro.uz SAITECH, Inc., 2003. Introduction to DEASolverPro Professional Version 7.1, SAITECH, Inc., Hazlet, New Jersey. Scheel, H., 2000. EMS: Efficiency measurement system users manual, Version 1.3, Universität Dortmund, Dortmund, Germany. Horizons Economic and Business SCS Uz, 2009. The State Committee of the Republic of Uzbekistan on Statistics.

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