Tajikistan Farm debt Resolution Strategy Situation report

1
Tajikistan Farm debt Resolution Strategy -
Situation report

• Presentation by
• Hans Woldring
• May 18th 2006

2
Background

• cotton is a key component of the Tajik
  agricultural sector, and important on a national
  basis
• Each year 260,000 290,000 ha of crop is grown,
  occupying 60 70 of the irrigated land area
• Cotton proceeds account for around 20 of export
  revenues, 11 of GDP and 35 of fiscal receipts
• cotton production supports over 75 of farm
  households
• Cotton is the main source of income for 75 of
  poor and extremely poor households

3
Background continued

• post civil conflict, TAJ govt used a system of
  foreign lender capital, channeled through local
  banks and then local counterparts, known as
  investors, to finance the Tajik cotton crop
• as a result of various issues and problems,
  cotton investors claimed that many farmers were
  not fully repaying their seasonal loans.
• many debts accumulated at the State Kholhoz
  level, which upon later reorganization, were
  subsequently distributed to dekhan (private)
  farmers
• Investors claim they are presently owed 322 M
  (interest component not known)
• Farmers dispute the amount owed

4
Background continued

• To address the problem, the President signed the
  Farm Debt Resolution Strategy (FDRS) on March 9th
  2005 donors made considerable input into the
  strategy
• At a retreat in June 2005, a work plan for the
  strategy was developed, and signed by the Prime
  Minister in early September 2005
• An Independent Commission for Debt Resolution was
  formed, Chaired by Mr Davlatov, State Adviser to
  the President of the RoT, for Economic Policy,
  with Mr Alimardonov, Chairman of National Bank of
  Tajikistan, as Deputy Chairman.
• Donors are providing support to the IC to deliver
  on the work plan, however more assistance is
  required

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Donor Engagement Status on IC work plan

• donor support for farm by farm debt analysis is
  underway (WB, ADB, DFID). More assistance may be
  required.
• support for the Information and Communications
  Strategy is hopefully forthcoming
• Agricultural reforms to create a more competitive
  sector - in some areas there is good donor
  support, in other areas there are gaps

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Agricultural Reform Areas Where Donor Support
is Active
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Land Reform Issues Use of Land use
certificates as collateral (3.4 and 3.7)

• Katerine Kelm to address

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Regulations to improve Agricultural Financing
oversight (2.8)

• A lack of regulatory oversight of investor
  lending to agriculture has been a factor in
  existing farm debt problems.
• Analysis of Farmer / investor legal contracts
  (3.1)
• Current investor contracts do not place equal
  responsibilities / obligations between the lender
  and borrower parties.

9
Introduction of Universal Cotton Grade Standards
and other Market reforms (3.6)

• resolution passed by government
• this is underway with primary support from ADB.
  Additional funding for immediate support is being
  organized.
• WB has provided valuable incentive triggers in
  the PDPC program
• Opportunities for controller companies

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Introduction of Universal Cotton Grade Standards
and other Market reforms (3.6) (cond)

• reforms to methodica underway Further reforms
  planned
• Bonded warehousing to be introduced
• Will allow for more open trading environment for
  international buyers

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Strengthen capacity of the Courts (3.8)

• As a result of legislative issues, concern exists
  about the capacity of the court system to deal
  with bankruptcy cases
• DFID is providing regulatory reform of bankruptcy
  legislation.
• Commercial Law project?

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Agricultural Reform ADDITIONAL DONOR ENGAGEMENT
IS REQUIRED FOR THE FOLLOWING
13
Freedom to Farm (3.3)

• This is regarded as a high priority issue
• the government should work to create a profitable
  business environment for agriculture, however
  leave farm level decisions to farmers
• farmers will increase cotton production
  automatically when it is profitable for them to
  do so.

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Freedom to Farm (3.3) (cond)

• The experience of donors is that unless farmers
  freedom to farm is fully respected, then farmer
  education programs suffer reduced effectiveness.
• Farmer education programs
• Assess Hukumat performance by parameters other
  than cotton production
• ?

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Alternative financing sources (2.8)

• In order to attract further new sources of
  finance, it is essential to
• resolve issues with old debts - this process is
  underway.
• allow the use of land use certificates as
  collateral
• improve sector profitability / competitiveness so
  that farmers can repay their seasonal loans, as
  well as be profitable enough to service
  restructured loans.

16
Tax Reform (3.5)

• The tax system for the cotton sector is
  complicated and I believe the total tax burden
  (taxes paid) is excessive.
• a review of tax revenues is required to identify
  how to make adjustments to the tax base and
  collection rates so as to reduce the burden on
  the agricultural sector.
• Reminder cotton sector is 11 of GDP and 35 of
  tax base!

17
Farmer demonstration and Education programs (4.3
and 5.1)

• The system of cotton production and land
  management used in Tajikistan was modern in the
  60s and 70s.
• Very substantial progress has been made to crop
  management and crop rotations to improve yields
  and sustainability.
• for farmer training programs to be successful, it
  is important that freedom to farm is fully
  respected
• there are some specific project programs
  underway, however no broad program, and further
  donor support is required.

18
Seed Breeding (4.3)

• the design and nature of future cotton seed
  breeding and reproduction programs needs
  consideration and planning.
• WB will be trialing CIS cotton seed varieties in
  their Land Registration and Cadastre System for
  Sustainable Agriculture project.
• further donor assistance is required

19
Quarantine Regulations (4.3)

• Currently, no new cotton varieties from outside
  the CIS can be imported into Tajikistan for entry
  into the State Commission for Variety Testing
  program.
• This year the Ministry of Agriculture rejected
  applications for trailing of new cotton seed
  varieties from Turkey on Quarantine grounds.
• Quarantine does not have the proper resources to
  inspect seeds and regulations are out of date.
• Swedish SIDA, who support the current seed
  project in the Ministry of Agriculture, are
  considering an extension of their project to
  address quarantine issues.

20
Tajik Universal Goods and Commodity Exchange
(TUGE) (4.3)

• TUGE has a cotton price setting mechanism,
  however, in reality its role is largely
  regulatory in nature
• TUGE needs support to transition to a true
  Commodity exchange, with linkages into the
  international market for a range of commodities.
  
• TUGE would like to move forward with on line and
  live cotton auctions.
• The Liverpool or NY Cotton Exchange have the
  skills to assist with this
• Donor support for this would be valuable.

21
Ginning sector (4.3)

• Ginning equipment is dated and often not well
  maintained, evidenced by long ginning periods,
  fiber quality problems attributable to ginning
  performance, and poor out turn.
• Critical to improving ginning sector performance
  is competition between cotton gins
• WB is planning sector support in its Integrated
  Cotton project on a pilot area basis

22
Ginning sector (cond) (4.3)

• A commercial finance package for the ginning
  sector is required for
• purchase of spare parts packages for cotton gins
• improved out of season maintenance
• major capital upgrades, and
• trade finance for raw cotton purchases

23
Agricultural Chemical regulatory harmonization
(4.3)

• Farmers in Tajikistan presently have access to a
  limited range of agricultural chemicals
• Introduction of new chemicals is hampered by the
  approval process
• Tajikistan has not adopted any system which
  allows third party country approvals.
• Donor assistance is required.

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Updating of on Farm Equipment (4.3)

• Tajik farm equipment is showing advanced signs of
  age and wear.
• as new systems of farming practice are
  demonstrated, and farmers become profitable, they
  will want to update to newer equipment
• there has been a considerable loss of fabrication
  skills in Tajikistan.
• Donors may consider programs to update skills
  training.

25
Rapid Response Advisory Technical Assistance
Facility for FDRS Reform Support and Capacity
Building

• GoT wishes to move forward with the FDRS
• we are receiving requests from the GoT for rapid
  response TA
• no facility exists.
• TA components will be a sub set of all of the
  above
• timely and flexible assistance is required to
  avoid stalling important progress
• a proposal for an Advisory Technical Assistance
  facility will be prepared for donor consideration

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Conclusion

• There is progress with the FDRS.
• farm by farm debt analysis is underway, however
  more financial support from donors may be
  required to extend the program
• Continued progress with agricultural reforms is
  required - -
• Priority areas are Land use certificates need to
  be available as collateral and freedom to farm
  must be respected
• A competitive and profitable agricultural sector
  is essential to reduce poverty and service debts
• much is still be done and more donor support in
  the areas identified is essential