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Agricultural Sector Review and Planning

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Agricultural Sector Review and Planning Technical Assistance Consultant’s Report Project Number: 37148 March 2005 Republic of Uzbekistan: Agricultural Sector Review and Planning Prepared by Martin Herman For Ministry of Economy This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design. Agriculture Sector Review and Planning VOLUME I: MAIN REPORT Current Status and Outlook for the Agricultural Sector Prepared for the Asian Development Bank and the Ministry for Economy of the Republic of Uzbekistan (TAR: UZB 37148) March 12, 2005 Agriculture Sector Review and Planning CURRENCY EQUIVALENT Currency unit - Soum 1 Soum = $ 0,00095 1 USD = 1,071 Soums ABBREVIATIONS ADB Asian Development Bank WB World Bank EBRD European Bank for Reconstruction and Development USAID United States Agency for International Development TACIS Technical Assistance for CIS countries GDP Gross Domestic Product IMF International Monetary Fund MAWR Ministry of Agriculture and Water Resources MF Ministry of Finance NBU National Bank of Uzbekistan VAT Value Added Tax MTR Material and Technical Resources MTP Machine and Tractor Park DRC Domestic Resource Cost WUA Water Users’ Association Agriculture Sector Review and Planning Acknowledgement The technical assistance team would like to thank Mr. A. Salimov, Deputy Minister, Ministry of Economy, who headed a Working Group consisting of Messrs. A. Djurayev, Deputy Minister, Ministry of Agriculture and Water Resources; M. Abdurakhmanov, Deputy Minister, Ministry of Finance; I. Sharipov, Deputy Chairman “Gallabank; and S. Kabilov, Chairman, Association of Dekhan and Farms. The team was assisted by a number of local experts including: Messrs. B. Muradov, R. Shadiev, T. Mirzaev, N. Gaipnazarov, I. Kholmirzaev, M. Kasimov, K.Bababekov, B. Shermatov, C. Rizayev, S. Baybaev, I. Rafikov, Ms. F. Nazarova, S. Djalalov, T. Shadibaev, K. Ishanov, A. Tuychiev, and K. Jalilov. They all contributed to the Main Report, and their individual contributions are included in Volume II. The technical assistance team consisted of Messrs. R. Laitos, R. Khusanov, B. I. Gorshkov, with office management support from A. Djuraev. The team leader was Mr. M. Herman. Agriculture Sector Review and Planning CONTENTS Executive Summary.............................................................................................i I. INTRODUCTION ..........................................................................................1 II. RECENT REFORMS IN AGRICULTURE.....................................................1 A. Principal Direction of Agricultural Reforms................................................2 B. Strong Agriculture Vital to Economic Prosperity .......................................3 C. Disappointing Performance Indicators........................................................4 D. Farm Restructuring Continues.....................................................................7 1. Consolidating Shirkats...............................................................................7 2. Expanding Family Farms...........................................................................9 3. Dekhan Farms Vital for Survival of Farm Workers ..................................11 4. Poor Financial Performance of Farms.....................................................12 III. COMMAND AND CONTROL FARMING....................................................12 A. Precedence of Unwritten Laws...................................................................12 1. Securing Private Property Rights ............................................................13 2. Selecting Future Farmers ........................................................................13 3. Experimenting with Tax Reform ..............................................................15 B. Repressive Agricultural Price and Trade Policy.......................................17 1. Cotton and Wheat Procurement ..............................................................17 2. Estimates of Implicit Taxation..................................................................18 3. Restrictive Foreign Trade Regime...........................................................19 4. Estimates of Comparative Advantage .....................................................20 C. Deteriorating Irrigation Service..................................................................20 1. Assessment of Physical Infrastructure ....................................................21 2. Cost and Cost Recovery for Irrigation Services.......................................22 3. Experimenting with Water User Associations..........................................24 4. Ability to Pay for Irrigation Service...........................................................24 D. Limited Access to Farm Inputs and Services ...........................................25 1. Rationing of Inputs According to Government Norms .............................25 2. Limited Access to Farm Machinery .........................................................27 E. Monopolized Farm Output Markets............................................................28 1. Restricted Output Marketing....................................................................28 2. Lack of Progress in Privatization .............................................................29 3. Assessment of Private Sector Development ...........................................31 F. Directed Credit Dominates Commercial Lending .....................................31 1. Directed Credit for Cotton and Wheat .....................................................31 2. Little Commercial Lending .......................................................................32 Agriculture Sector Review and Planning G. Deteriorating Rural Living Standards.......................................................33 1. Spreading Rural Poverty .........................................................................33 2. Women in Agriculture ..............................................................................34 3. Environmental Issues ..............................................................................35 IV. PRIORITIES FOR SUSTAINABLE RURAL DEVELOPMENT ...................36 A. International Consensus on Agriculture Policy........................................36 B. Reforming Taxes in Agriculture .................................................................37 C. Creating Incentives for Agricultural Producers........................................39 D. Completing Farm Restructuring.................................................................40 E. Promoting Private Business in Inputs and Outputs.................................40 F. Promoting Private Business in Rural Areas .............................................41 G. Improving Access to Commercial Credit ..................................................41 H. Revitalizing Irrigation and Drainage Infrastructure ..................................42 V. UNCERTAIN PROSPECTS FOR REFORM...............................................43 A. Development Scenario: Business as Usual ..............................................43 B. Development Scenario: Reform Through Crisis.......................................44 C. Agricultural Sector Roadmap.....................................................................45 D. Financial Support of Reform ......................................................................47 1. Strong Reform Commitment Drives Strong Financial Support ................47 2. Limited Commitment to Reform Limits Financial Support .......................48 E. Performance Monitoring and Evaluation...................................................50 1. Accounting for Performance in a Green Report ......................................50 2. New Reliable System of Agricultural Statistics Needed ..........................50 Annex 1: Sector Roadmap - Problems, Causes, and Solutions Matrix Bibliography VOLUME II: POLICY NOTES AND COMMENTS* A. Policy Notes 1. Results of Agricultural Development Since Independence 2. Selecting Future Farmers 3. Agricultural Tax System 4. High Implicit Taxes Destroy Producer Incentives 5. Estimates of Implicit Taxation in Agriculture 6. Agricultural Prices and Trade 7. Estimates of Comparative Advantage for Uzbek Farm Products 8. Status of Irrigation and Drainage Infrastructure and Its Sustainability 9. Status and Prospects for Water User Associations * Volumes II & III are available on a compact disk. Agriculture Sector Review and Planning 10. Assessment of Ability to Pay for Irrigation Services 11. Supply of Inputs and Farm Chemicals 12. Farm Equipment and Machinery Services 13. Slow Progress in Privatization of Agroprocessing Industries 14. Agricultural Credit 15. Commercial Credit in Agriculture 16. Role of Women in Agriculture 17. Review of Policy on Rural Environment B. Recent Article on Agriculture: Duty and Responsibility "Narodnoe Slovo” Newspaper, February 15, 2005 C. Comments on Interim Report VOLUME III: INSTITUTIONAL ASSESSMENT AND PARTICIPATORY PROCESS PART ONE: INSTITUTIONAL ASSESSMENT REPORT I. INTRODUCTION II. IMPORTANCE OF AGRICULTURAL INSTITUTIONS III. ASSESSMENT OF AGRICULTURAL DEVELOPMENT INSTITUTIONS A. Legal Institutions - Agricultural Policies, Laws, Decrees, Resolutions, and Contracts B. Land Tenure and Land Taxes C. Banking and Financial Institutions
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