Tajikistan’s Cotton Sector: A Train-Wreck Waiting to Happen

Rising costs recently forced managers at a textile plant in Tajikistan's northern Soghd Region to send all 1,200 workers on "unpaid" vacations. The move underscored that the cotton industry, one of the pillars of Tajikistan's economy, is teetering.

The shuttered plant, a Tajik-South Korean joint venture operating as Kabool-Tajik Textiles, is one of the country's largest processing concerns. In a May 15 letter to the Ministry of Industry, managers complained that several state agencies arbitrarily raised the price of raw cotton for domestic processors, rendering the plant unprofitable. Two days later, employees at the enterprise effectively were laid off.

Excessive government interference was a theme sounded throughout the letter sent to the Industry Ministry. "Since 2000, the rules and regulations [governing the sector] have been changed six times," said the letter, according to a report distributed by the Asia-Plus news agency. "Each time, the changes were detrimental to the development of domestic manufacturers."

In Tajikistan today, domestic manufacturers must pay 10 percent more than foreign consumers for raw cotton from state suppliers: the official price for local purchasers is $1,056 per ton, as opposed to $948 per ton of raw cotton sent abroad for processing. Officials attribute the price difference to a desire to fill state coffers with much needed hard currency. However, the discrepancy has only fueled frustration at home.

In general, Tajikistan's cotton sector is a financial mess – a rapidly rising sea of red ink. According to the figures compiled by the National Bank of Tajikistan, the total amount of cotton farmers' debts in 2005 amounted to $224.4 million, a whopping amount considering the annual national budget is around $400 million.

Several factors are contributing to the rapid demise of Tajikistan's cotton sector. Perhaps the most serious is Tajikistan's labor drain. More than 1 million of the country's 6.5 million population can be classified as migrant workers, obtaining seasonal employment in foreign countries, mainly Russia and Kazakhstan, where earn higher wages. [For background see the Eurasia Insight archive]. Tajikistan's most-skilled agricultural workers are among the migrants earning money abroad, and who remit approximately $800 million annually to relatives back home. Forced to rely on second-rate workers, cotton farms and processing plants in Tajikistan are plagued by inefficiency.

Compounding the problem, land reform has failed to foster private enterprise. Under a program launched a decade ago, the government provided land-tenure certificates, retaining title to the land, while supposedly granting farmers the freedom to plant any crop that they deemed profitable. In reality, old Soviet habits have proven hard to shed. Local representatives of the presidential administration still tend to meddle in farm operations, dictating to farmers what they should plant and what prices they can charge for their crops. According to the Tajik legislation, land-tenure certificates should be given to farmers for free. However, many farmers say they were forced to pay "tribute" to local bureaucrats in order to obtain access to a private plot.

In granting land-tenure certificates, authorities also stuck farmers with a proportional share of debts incurred by former collective farms, which during the late Soviet era came to be synonymous with inefficiency. The state also provided no credit or financing programs, leaving the overwhelming number of private farmers without any way to repair the crumbling infrastructure of their farms or obtain new equipment.

Some cotton-sector observers say that up to 90 percent of private farms in Tajikistan have developed a dependency on entities dubbed "futures companies," which effectively function as loan-sharking operations. The companies offer farmers credits and bridge loans, charging exorbitant rates for what sometimes turns out to be low-quality seeds, stale fertilizer and poor equipment.

International development organizations, including the World Bank (WB) and the Asian Development Bank (ADB), are now working with the Tajik government in an attempt to bring the cotton sector out of its downward spiral. One of the main aims of the international lenders is to open a channel of communication with farmers, facilitating direct access to loans and credits. Pilot development programs have been established in several cotton-growing districts, but local observers say such schemes are unlikely to be implemented on a national scale in the near future. In addition, WB and ADB experts are helping Tajik authorities conduct a farm-by-farm financial analysis in pilot program areas. The data gathered, it is hoped, will lead to the improvement of lending strategies.