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Kyrgyz RepublicAGRICULTURAL SECTOR RISK ASSESSMENT
Sandra Broka, Åsa Giertz, Garry Christensen, Charity Hanif, Debra Rasmussen, and Rhoda Rubaiza
World Bank Group Report Number 103078-KG FEBRUARY 2016
Agriculture globAl PrActice technicAl AssistAnce PAPer
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Kyrgyz RepublicAGRICULTURAL SECTOR RISK ASSESSMENT
Sandra Broka, Åsa Giertz, Garry Christensen, Charity Hanif, Debra Rasmussen, and Rhoda Rubaiza
World Bank Group Report Number 103078-KG FEBRUARY 2016
Agriculture globAl PrActice technicAl AssistAnce PAPer
© 2016 World Bank Group
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Cover image credit: Nonviolent Peaceforce
i
Contents
Abbreviations iv
Acknowledgements v
Executive Summary vi
Introduction 1
Country Context 6
Country Risk Identification and Quantification 12
Crop Production 12
Livestock Production 17
Price Risks 22
Enabling Environment Risks 25
Agricultural Insurance 28
Costing and Prioritizing Agricultural Risk 30
Conceptual and Methodological Basis for Analysis 30
Ranking and Prioritizing Agriculture Sector Risk 40
Sector wide Risks 41
Solution Area 1. Creating Market Opportunities 46
Risk Management: Background 46
The Kyrgyz Agriculture Sector 47
Risk Management: Areas of Priority 52
Risk Management in the National Agricultural Strategy 52
Potential Interventions 53
Solution Area 2. Improve Livestock Productivity 65
Overview of the Risk Environment and Framework 65
The Agricultural Risk Environment 66
The Risk Management Framework 69
Potential Interventions 71
Recommendations and Action Plan 84
Summary and Recommendations of the Solutions Areas 86
Appendix A: Risk Assessment Methodology 88
A.2: Production: Price Derivation for Indicative Loss Analysis 90
ii
Appendix B Chronology of Major Economic and Adverse Events 92
Appendix C Coefficients of Variation and Adjusted Coefficients of Variation 94
References 95
List of Tables
Table ES.1 Agriculture Risk Management Action Plan Summary viii
Table 1 Projected Impact of Climate Change on Crop Productivity in the Kyrgyz Republic, 2005–100 8
Table 2 Locust Infestation and Control in the Kyrgyz Republic, 2006–13 (hectares) 17
Table 3 Incidence and Impact of Livestock Disease in the Kyrgyz Republic, 1996–2013 21
Table 4 Impact and Causes of Adverse Events for Aggregate Agricultural Output 32
Table 5 Impact and Causes of Adverse Events for Main Crop Commodities 33
Table 6 Impact and Causes of Adverse Events for Main Livestock Commodities 35
Table 7 Impact and Causes of Adverse Events for Commodity Prices 37
Table 8 Most Important Crops in Gross Agricultural Output in the Kyrgyz Republic 47
Table 9 Food Balance Sheet in the Kyrgyz Republic, 2011 48
Table 10 Trade in Agricultural Products in the Kyrgyz Republic, 2012 49
Table 11 Top Export Markets for Kyrgyz Agricultural Products, by Value, 2012 51
Table 12 Market Risks and Proposed Responses for the Aggregate Agricultural Sector in the Kyrgyz Republic 54
Table 13 Market and Price Risks and Actions to Address Them in the Kyrgyz Republic 66
Table 14 Risks and Proposed Responses for the Livestock Sector in the Kyrgyz Republic 73
Table 15 Risks and Actions Related to Community-Based Pasture Management 78
Table 16 Agriculture Risk Management Actions Plan for the Kyrgyz Republic 86
Table A.1 Data Collected and Reviewed for Each Country 88
Table B.1 Major Events in the Kyrgyz Republic, 1992–2013 92
Table C.1 Coefficients of Variation or Adjusted Coefficients of Variation 94
List of Figures
Figure 1 Implications of Climate Change for Agriculture Risk Management 9
Figure 2 National and Agricultural GDP in the Kyrgyz Republic, 1993–2012 9
Figure 3 Components of Gross Agricultural Output in the Kyrgyz Republic, 1992–2012 10
Figure 4 Crop Production in the Kyrgyz Republic, 1992–2012 11
Figure 5 Wheat Production in the Kyrgyz Republic, 1992–2013 12
Figure 6 Maize Production in the Kyrgyz Republic, 1992–2013 13
Figure 7 Cotton Production in the Kyrgyz Republic, 1992–2012 14
iii
Figure 8 Potato Production in the Kyrgyz Republic, 1992–2012 15
Figure 9 Tomato Production in the Kyrgyz Republic, 1992–2012 16
Figure 10 Livestock Production in the Kyrgyz Republic, 1992–2012 18
Figure 11 Cow’s Milk Production in the Kyrgyz Republic, 1992–2012 19
Figure 12 Beef and Sheep Meat Production in the Kyrgyz Republic, 1992–2012 20
Figure 13 Egg Production in the Kyrgyz Republic, 1992–2012 21
Figure 14 Cereal Prices in the Kyrgyz Republic, 1998–2012 23
Figure 15 Cotton Producer Prices in the Kyrgyz Republic, 1995–2012 24
Figure 16 Real Vegetable Producer Prices in the Kyrgyz Republic, 1998–2012 24
Figure 17 Real Producer Prices for Livestock Commodities in the Kyrgyz Republic, 1998–2012 25
Figure 18 Nominal Exchange Rates, 1994–2013 26
Figure 19 Real Current Budget Expenditure for Agriculture in the Kyrgyz Republic, 2003–09 27
Figure 20 Indicative Losses in Constant Prices for Agricultural, 1992–2012 39
Figure 21 Indicative Losses in Real Prices for Agricultural Products in the Kyrgyz Republic, 1992–2012 40
Figure 22 Major Shocks to Aggregate Output in the Kyrgyz Republic, 1995–2015 41
Figure 23 Shocks to Physical Output by Commodity in the Kyrgyz Republic (Constant Prices) 42
Figure 24 Shocks to Producer Prices by Commodity in the Kyrgyz Republic (Real Prices) 43
Figure 25 Shocks to Production and Prices by Commodity in the Kyrgyz Republic (Real Prices) 44
Figure 26 Risk Layering 71
List of Boxes
Box 1. Market Information System to Facilitate Export Growth 57
Box 2. Challenges to Establishing a Leasing Industry for Agribusiness: Lessons from Armenia 59
Box 3. Innovation to Increase Investment in Agribusiness 61
Box 4. Stepwise Approach to Food Safety 63
Box 5 China-Canada Livestock Health Extension Project 76
Box 6 LEWS in Mongolia 80
Box 7 Canada-China Feed Industry Project 84
iv
Abbreviations
ADB Asian Development Bank
ADG average livestock growth rates
BEE business enabling environment
CAREC Central Asia Regional Economic Cooperation
CV coefficient of variation
FAO Food and Agriculture Organization
FMD foot and mouth disease
GAO gross agricultural output
GDP gross domestic product
IFAD International Fund for Agricultural Development
IFC International Finance Corporation
KAMIS Kyrgyz Agricultural Market Information System
LEWS livestock early warning system
MAWR Ministry of Agriculture and Water Resources
NSDS National Sustainable Development Strategy
OIE International Office of Epizootics
PES payment for environmental services
PPR pestes des petits ruminants
PUA pasture user association
RATIN Regional Agricultural Trade Network
SRM sustainable rangeland management
USAID U.S. Agency for International Development
WBG World Bank Group
v
Acknowledgements
This report was prepared by a team led by Sandra Broka (Task Team Leader, Senior Rural Finance
Specialist, GFADR) and Åsa Giertz (co-Task Team Leader, Senior Agriculture Economist, GFADR),
and comprising Garry Christensen (Lead Author), Charity Hanif, Debra Rasmussen, Rhoda Rubaiza,
Talaibek Koshmatov, Ulan Tungatarov, Kairat Nazhmidenov, Traci Johnson, and Lidia Hvan.
Jitendra Srivastava, Eugene Gurenko, Rupak Manvatkar, and Peter Wrede were also part of the team.
Elisabeth Forsyth and Gunnar Larson edited this report.
The team is grateful to the Government of the Kyrgyz Republic for their helpful collaboration and
contributions to the works during and beyond the field mission.
The team would like to thank Saroj Kumar Jha (Country Director), Dina Umali-Deininger (Practice
Manager, GWADR), and Jean-Michel Happi (Country Manager) for their valuable guidance and
support.
Diego Arias (Senior Agriculture Economist, GFADR), Daniel Clarke (Senior Insurance Specialist,
GFMDR), Heinz-Wilhelm Strubenhoff (Senior Operations Officer, GTCDR/IFC), and Adama
Toure (Lead Agriculture Economist, GFADR) were peer reviewers. Comments were also provided
by Amy Evans (Food Safety Specialist, GFADR).
vi
Executive Summary
Agriculture is among the most risk-prone sectors in the economies of Central Asia. Production shocks
from weather, pests and diseases and adverse movements in agricultural product and input prices not
only impact farmers and agri-business firms, but can also strain government finances. Some of these
risks are small and localized and can be managed by producers. Others are the result of more severe,
exogenous shocks outside agriculture or outside the country, which require a broader response. Failure
to respond adequately to these more severe risks leads to a perpetual cycle of “shock-recovery-shock”,
which reinforces poverty traps and compromises long-term growth.
The agriculture sector’s exposure to production and price risk is increasing. Climate change is
increasing production risks in the short to medium-term by increasing the frequency and severity of
droughts and floods and in the longer-term by reducing the availability of water for irrigation due to
accelerated glacial melt. The modernization and commercialization of agricultural production and
processing, which is critical for sector growth, also raises the sector’s exposure to price risk at a time
of high volatility on international markets for agricultural commodities.
An effective response to these risks requires a broader, more integrated approach to risk management
than the current system of ex-ante, public sector activity associated with crop and livestock disease
and ad hoc, ex-post emergency responses to local disasters. Measures to strengthen risk mitigation
need to be mainstreamed into sector development and investment programs, additional human and
financial resources need to be allocated to the public institutions responsible for ex-ante and ex-post
risk management, and the potential for transfer (insurance) mechanisms will need to be clarified and
developed where feasible. Given the limited human and financial resources available for public sector
activity, a clear sense of the priorities for agriculture risk management is also required, together with a
balanced view of the respective roles of public and private sector stakeholders.
In response to these issues, the World Bank Group (WBG) initiated an agricultural sector risk
assessment in the Kyrgyz Republic in 2014, as part of a three-country study to improve agricultural
risk management at both national and regional level (the reports for Kazakhstan and Tajikistan are
also available). Based on a framework developed by the Bank's Agricultural Risk Management Team,
this work consists of three phases. Phase I identifies, analyses and prioritizes the systemic risks
affecting production, markets, the enabling environment, and public sector support to agriculture. The
second phase focuses on solutions and strategies, and on the instruments that will be most effective
in reducing major risks, including technical assistance, investments by local governments and
development agencies - and how these instruments can best be scaled up. Phase III of the national
agriculture sector risk assessment, which is not covered in this report, involves support for the public
sector to develop a systematic agricultural risk management plan. The ultimate objective of this body
of work is to reduce short and medium term volatility in the agricultural sector while improving
resilience over the longer term, thereby reducing vulnerabilities among all stakeholders and increasing
the potential success of agricultural investment and development strategies.
For purposes of discussion and analysis, risks to agriculture are defined as an uncertain or
unpredictable event with adverse consequences for the volume or value of agricultural output. Risk
vii
thus differs from constraints to agriculture, which are permanent impediments to sector output.
Sudden shocks to production (droughts, floods, locusts), prices or the enabling environment (sudden
policy changes or sharp, unexpected exchange rate movements) are thus considered risks; while factors
such as low productivity, poor access to credit, lack of land and lack of information are viewed as
constraints. Analysis is based on the risks that led to significant shocks to agricultural output, at both
aggregate and commodity level, for the 20 year period from 1992-2012.
The major shocks to agriculture in the Kyrgyz Republic are the result of economy-wide political and
macro-economic events outside of agriculture. Complex shocks can also have a major impact, such as
the combined impact of drought and falling prices due to economic downturn in 2012. Most of the
lesser shocks are the result of market-related shocks to real prices, rather than production shocks,
reflecting the country’s position as a small, open economy in a politically and economically volatile
region. Irrigation and high levels of diversification minimize the impact of climatic shocks on
production, with drought as the main cause of the production shocks that do occur. Crops are more
vulnerable to risk than livestock, with price shocks as the major cause of commodity level crop risks.
Wheat and cotton experience the highest level of price risk, followed by potatoes.
These results show that public and private sector initiatives to support the current high level of
diversification within the sector, and to maintain the physical and institutional infrastructure for
irrigation are the foundation for agricultural risk management. At commodity level, future agricultural
sector development will need to place more emphasis on responding to price risk for all commodities,
as opposed to the traditional emphasis on production risk. As government is very aware of the need
for diversification and irrigation, and sector investment programs already support these imperatives,
Phase II of the study focused on the development of more specific recommendations for risk
management grouped under two “Solution Areas”: the creation of market opportunities and the improvement
of livestock production.
Many of the price risks facing specific commodities can be significantly reduced by measures to create
more market opportunities in both domestic and regional markets. Wider, deeper markets reduce price
risk by improving the capacity for spatial and temporal arbitrage. Improving the competitiveness of
agricultural commodities is the basis for deepening and stabilizing agricultural markets, however,
starting with an increase in on-farm productivity. Associated market-related initiatives include
continued investment to strengthen market information systems, storage capacity, transport
infrastructure and supply chains. Market stability will also benefit from the expansion of export
markets in Kazakhstan, Turkey and Russia, provided that Kyrgyz products are competitive on these
markets. Improved compliance with phytosanitary, veterinary, and animal health requirements is also
essential to improve access to export markets, particularly in Kazakhstan and Russia. Specific
recommendations to increase sectoral efficiency and competitiveness are developed in three areas: (1)
market knowledge and training, (2) investment promotion and business enabling environment, and
(3) trade facilitation.
The second “Solutions Area” focuses on improving livestock productivity by strengthening the
resilience of livestock systems and rangelands in the Kyrgyz Republic. The recommended
interventions include: (1) reverse degradation of water, soil, and vegetation cover; (2) safeguard the
long-term viability of rangeland ecosystems, while ensuring sustainable access to grazing land; and (3)
viii
strengthen livestock services (veterinary, animal health, feed and fodder supply, destocking, water and
grazing access, and weather and market information, among others), enabling farmers to manage their
resources better, to respond to climate and market signals, and to protect their assets in times of
drought.
The recommendations developed under these two solution areas continue the underlying emphasis
on mitigation as the foundation for risk management. They also highlight the mutually reinforcing
benefits of measures to improve crop and livestock productivity, the competitiveness of agricultural
commodities and the depth of agricultural markets for both risk management and sector growth.
Table ES.1 summarizes the Agriculture Risk Management Action Plan for the Kyrgyz Republic, based on the Risk Identification and Proposed Solution Sections of the report.
Table ES.1 Agriculture Risk Management Action Plan Summary
Main program and subprogram Expected outcome Proposed monitoring indicators
Market Knowledge and Training Timely regular reporting of public sector market information
Improved market information; increased market efficiency
Reports complete and timely
Training and market development for private market intelligence products
Increased end market diversity for production
Survey access and utilization of market intelligence products by producers
Investment Environment and Business Enabling Environment (BEE) Regular public/private consultative dialogue to promote agriculture sector investment and improve BEE
Increased private sector downstream investment; improved competitiveness of Kyrgyz products domestically and abroad
Value of downstream investment in Ag Sector
Matching Grant Fund for Investment in Innovation and Technology Upgrades in Ag Sector
Increased efficiency and competitiveness of Kyrgyz agriculture sector; Increased value addition of products (packing, grading and sorting, and/or processing)
Value of downstream investment in Ag Sector;
Trade Facilitation Food Safety Regulatory Reform Increased diversity of exports Value and diversity of
export products Domestic Animal Health Project Improved animal health
status supports exports and improved rural livelihoods.
% coverage of vaccine programs Laboratory evaluations by OIE % coverage of coverage of Animal IDs
Animal Health - Regional Transboundary Control
Reduced incidence of transboundary disease
Reported incidence
Community-based Pasture Management Improved pasture management and increased pasture productivity
# of pasture installations Bio-mass and bio-diversity measures
Pasture Monitoring and LEWS Climate resilience; Improved emergency preparedness
Monitoring ongoing LEWS Functional
ix
Bio-mass and bio-diversity measures
Feed Sector Development Project Increased supply of high quality nutritionally balanced livestock feeds; improved feed utilization on farm
Area of feeds (ha) Amount of manufactured feeds (mt) Average livestock growth rates (ADG) Average milk yields (l/lactation)
Indexed-based Livestock Insurance Conditional Loans and Grants (note – included in individual programs and summarized here)
Increased use of insurance products by livestock producers Increased investment in productivity and risk management approaches
% of producers participating # of loans % producers participating # of grants % producers participating
Conditional Loans and Grants (note – included in individual programs and summarized here)
Increased investment in productivity and risk management approaches
# of loans % producers participating # of grants % producers participating
1
Introduction
Agriculture is among the most risk-prone sectors in the economies of Central Asia. These risks lead
to a perpetual cycle of “shock-recovery-shock”, which endangers the sustainability of ongoing
initiatives and constitutes a major impediment to the development of agriculture. These risks can lead
to and reinforce poverty traps and pose serious consequences for all stakeholders. Adverse
movements in agricultural commodity and input prices, together with production-related shocks (e.g.
from weather, pests and diseases) not only impact farmers and firms active in agricultural sector, but
may also put severe strains on a government’s fiscal position. The prevalence and complexity of
multiple risks facing agriculture systems and the failure to address them on an ex-ante and integrated
basis, continues to leave countries and their agricultural sectors less competitive, at best, and more
often extremely vulnerable.
Risks in agricultural production have become more pressing after independence with the increased
reliance on local food production for livelihoods and food security. Previously managed through
redistribution systems between sectors and regions in the Former Soviet Union, such risks are now
left to the individual Governments to deal with.
The mainstreaming of agricultural risk management, and thereby development of medium term
resilient and sustainable agricultural systems requires:
An integrated operational approach to agricultural resource management, which is embedded in country development and investment planning;
Expertise and capacity in the field of agricultural risk management;
Interaction and knowledge exchange by stakeholders and practitioners, to break down the often existing siloed approach to products, strategies and risks.
In light of the above, the World Bank Group (WBG) initiated an agricultural sector risk assessment
in the Kyrgyz Republic, using in part the agricultural risk management framework developed by the
World Bank’s Agricultural Risk Management Team (ARMT) as described below in the Methodology
Section.
This study is the first step towards a comprehensive agricultural risk management dialogue in the
Kyrgyz Republic and developing the investment program. The report is part of a three-country study
(the reports on Kazakhstan and Tajikistan are also available at this time), and also covers the regional
dimension given the proximity of the countries, which leads to sharing of some of the same risks
across more than one country. Fieldwork for the study was undertaken in the three countries in early
2014. Follow-up analysis and report writing were completed in mid-2014, with separate reports for
each country.
The objectives of this component of the study are to (a) determine the main sources of agricultural
risk in the Kyrgyz Republic and (b) to quantify the frequency and severity of those risks. The analysis
draws on time-series data from FAOSTAT, the World Bank’s World Development Indicators, the
national statistical agencies of each country, and other sources of secondary data.
2
Methodology
The World Bank’s Agricultural Risk Management Team (ARMT) has developed an approach for a
comprehensive and coherent Agricultural Sector-Wide Risk Management Framework, which covers
the following:
Pillar I: Risk Assessments and Management - includes a number of Technical Assistance activities to help
clients evaluate agricultural risks and put in place requisite systems for improved risk management.
Pillar II: Capacity Transfer - offers a range of training products on various aspects of agricultural risk
management.
Pillar III: Knowledge and Networks – includes production of a number of knowledge products on
agricultural risk management, which, among other things, facilitates dialogue and knowledge exchange
among the practitioners and stakeholders.
The ultimate objective of such assessments is to reduce short and medium term volatility in the
agricultural sector while improving resilience over the longer term, thereby reducing vulnerabilities
among all stakeholders and increasing the potential success of agricultural investment strategies.
Phase 1: Based on a holistic framework for risk analysis and management, the agricultural sector risk
assessment will identify, analyze, quantify, and prioritize systemic risks (i.e., production, market,
enabling environment risks) that adversely impact the current and future growth of the bulk of a
country’s agricultural commodities. The study will assess aggregate trends and risks in agricultural
production, but will focus on the three major crops grown in the region (wheat, cotton, potatoes,), as
well as the most important high-value vegetable crop (onions) in the Kyrgyz Republic to illustrate the
main risks. Together, these four crops constitute 50 percent of the country’s gross agricultural output
and 42 percent of total area cultivated.
The risk assessment will also evaluate existing and potential risk management strategies (i.e.,
mitigation, transfer, and coping) to understand if interventions are in line with the magnitude of
existing risks and where gaps may exist. The ultimate objective is to optimize the use of available
public resources for improved agricultural risk management and to build risk management capacity
among local private and public stakeholders.
Phase 2: Once the risk assessment has been conducted through desk review and in close consultation
with relevant stakeholders, and the most appropriate risk management instruments have been
identified, a solutions assessment will be conducted. This phase involves a mapping of: 1) prioritized
risk management instruments already in place; 2) responsible institutions (including gaps and
overlaps); and 3) potential needs (e.g., TA, investments, policy support) for scaling up risk
management approaches to more effectively manage prioritized risks.
Phase 3: A third phase involves supporting Government efforts to: 1) develop an integrated and
systematic Agricultural Risk Management Plan that appropriate responds to priority risks; and 2) and
to identify and allocate resources.
3
Agricultural Sector Risk Assessment Study in the Kyrgyz Republic
This study is limited to Phase 1 and Phase 2 of the NASRA methodology, due to time and resource
considerations. Therefore, further work is needed to develop a broader, integrated agricultural risk
management framework in the country, including the recommendations proposed in the Solutions
part of this study.
As part of the preparation of this report, fieldwork was undertaken multiple times during the risk
identification and solution identification phases of work. The analysis draws on time-series data from
FAOSTAT, the World Bank’s World Development Indicators, national statistical agencies of each
country, and relevant sources of secondary data.
Recommendations Summary
This study concludes that future agricultural sector development will need to place a much greater
emphasis on responding to price risk, as well as drought and water scarcity. The recommendations in
this report are targeted to encourage diversified production, create better market opportunities in
response to price risks, and strengthen the resilience of the livestock sector. Action should be taken
to:
Continue to support diversified agricultural production and access to irrigation. These
are fundamental components of effective risk management.
Continue measures to create wider, deeper domestic markets to reduce price risks for
agricultural commodities. These measures include better market information systems, more
effective supply chains, better access to storage, and improved transport infrastructure.
Promote climate smart agricultural practices for livestock, pasture crops and rainfed
crops. Prioritize improved watershed management, rainfed water harvesting and on farm
water use efficiency to mitigate production risks.
Strengthen capacity to comply with phytosanitary, veterinary, and health requirements
to reduce market instability. Border closures and barriers to transit incur high costs in terms
of price instability and lost trade. While some of these problems are beyond the direct control
of the Kyrgyz Republic, many constraints on trade flow are the result of inadequate
compliance with conventional phytosanitary, veterinary, and health requirements on the part
of Kyrgyz producers and exporters.
Strengthen regional coordination and surveillance on locust and trans-boundary
livestock disease outbreaks. Border regions with Uzbekistan and Kazakhstan are highly
vulnerable to locust attacks, and many highly contagious livestock diseases are impossible to
control at the national level.
Specific Recommendations for Creating Market Opportunities
These recommendations focus on widening and deepening agricultural markets by increasing market
knowledge and training, promoting agribusiness investment, and facilitating trade.
Improve market knowledge by designing and implementing a market information
structure. Existing market information and forecasting tools should be inventoried, and in
4
collaboration with the private sector, a new structure should be designed to provide timely
reporting of market information.
Develop and implement, with the private sector, training in the use of market
information and market intelligence for producers and small- and medium-size
agribusinesses and traders. These trainings may be specific to the value chain and should
occur at the oblast or rayon level. Training may be leveraged to facilitate market linkages and
develop business relationships.
Establish a re-occurring consultation between the Ministry of Economy and private
sector stakeholders focused on promoting agribusiness investment and development,
sharing the experience of other countries, and working with existing organizations.
This platform could be used to raise critical issues, with the overarching goal being to
improve the capacity of the sector to cope with normal risks. The Ministry of Agriculture
and Melioration may be an appropriate co-chair to maintain an agribusiness focus.
Develop a business plan for, and create a matching grant fund to spur critical
investment in new technology and encourage innovation to improve competitiveness
and efficiency. Consider risk within the framework and governance of the fund to avoid
incentivizing extremely high-risk investments.
Undertake a food safety regulatory environment reform aimed at achieving
compliance with international best practices in food safety. Design and structure the
project to address both public and private sector needs and work collaboratively with
existing commodity and value chain groups.
Specific Recommendations for Improving Livestock Productivity
The interventions identified below would strengthen the resiliency of livestock systems and rangelands
in the Kyrgyz Republic by i) reversing degradation of water, soil, and vegetation cover; ii) safeguarding
the long-term viability of rangeland ecosystems, while ensuring sustainable access to grazing land; and
iii) strengthening livestock services, enabling farmers to manage their resources more effectively.
Strengthen the country’s animal health systems. A national animal health and food
safety program is needed to address various issues contributing to higher risks to human and
animal health, food safety, product quality, and market access.
Refine regulations for Community-based Pasture Management and Monitoring.
Clarify the role of PUAs and pasture committees to improve the use of pasture resources,
relieve the pressure on nearby pastures, and increase the use of remote pastures.
Strengthen drought cycle management and community preparedness. Early warning
indicators should be used to trigger community drought preparation and/or response
interventions within the parameters of an effective national drought management
framework.
Promote supplementary feed production and pasture rehabilitation. Encourage
producers to a) grow perennial hay crops, b) grow annual fodder crops and/or c) grow feed
grains to maturity and use as high-energy feed.
5
Enable private sector provision of livestock insurance products. The government
should move away from compulsory insurance and focus on creating conditions for private
insurers to provide crop and livestock insurance on their own or in partnership with
government. Enabling action include: building a database on climate and agricultural
production, removing the reinsurance constraint, and increasing the number and capacity of
actuaries.
Improve access to seasonal credit. Develop season credit products that allow producers
to invest in risk mitigation inputs.
Reform subsidies. Review subsidies and, where possible, convert to performance-based
payments for desirable actions such as vaccination programs, pasture improvements, and
forage production. These payments could fall into the category of PES, with the possibility
of transferring the costs to international markets (carbon trading) or donor support.
Revitalize the research and extension system to encourage innovation and
adaptation. Research into drought-resistant varieties of cereals, feed grains, and forage
crops needs to be undertaken. Research into livestock feeds, feeding, and feed efficiency
should be given high priority.
6
Country Context
The performance of the agriculture sector in the Kyrgyz Republic during the last 15 years
demonstrates both the sector’s capacity for growth and its vulnerability to internal and external shocks.
Agricultural gross domestic product (GDP) grew 34 percent in real terms from 1998 to 2007 and then
fell 19 percent from 2007 to 2012 in response to a series of shocks. Both of these trends had a
significant impact on the country’s wider economic performance, as agriculture accounts for 20
percent of GDP and one-third of employment. The performance of the agriculture sector also has a
significant impact on poverty reduction, as 67 percent of the country’s poor live in rural areas.
Approximately 55 percent (10.6 million hectares) of the country’s total land area is classified as
agricultural land, although only 7 percent (1.35 million hectares) is arable. The remaining agricultural
area (9.24 million hectares) is grazing land. Crop production accounts for approximately 55 percent
of agricultural GDP, as 74 percent (1 million hectares) of arable land is irrigated and high-value crops
are an important component of production. Small-scale, mixed farms predominate, with an average
of 3–5 hectares of arable land. The sector produces approximately 60 percent of the country’s wheat
requirements and exports vegetables, fruits, and dairy products to Kazakhstan, Uzbekistan, and the
Russian Federation.
Prior to independence, the sector was dominated by livestock production, consisting largely of sheep
production for fine wool. Low wool prices and the loss of Soviet-financed subsidies led to a massive
reduction in the number of sheep after independence and gave rise to a more diverse base of
production. Cereal crops now account for 48 percent of the total area cultivated, with wheat being the
most important crop. Vegetables account for a further 16 percent, industrial crops for 8 percent, and
fruit for 6 percent. Cattle, sheep, horses, and goats are now raised for milk and meat, but herds are
small. Livestock are wintered on the farm and then grazed in the mountains during summer and
autumn.
Agro-Climatic Conditions
A dry continental climate predominates, with considerable variation according to altitude and type of
mountain range. At lower elevations, temperatures average 27°C in summer and -5°C in winter, with
precipitation of 450 millimeters in the northwest, 520 millimeters in the southwest, and 600 millimeters
at the eastern end of Lake Issyk-kul. Frost occurs everywhere, and dry summers bring the risk of
drought. Above 3,000 meters, temperatures range from 10°C in summer to -40°C in winter, with
precipitation up to 1,000 millimeters. Most crop production takes place in the irrigated river valleys in
northern and southern Kyrgyz Republic, where the combination of climate, type of soil, and irrigation
is suited to cereal, fruit, and vegetable production. Irrigation is vital given the low average rainfall.
Dryland production of cereals, potatoes, and livestock is practiced in foothill areas throughout the
country.
Agro-Ecological Zones
The Kyrgyz Republic is dominated by the Tien Shan Mountains. Most of the country is above 1,000
meters, with an average altitude of 2,750 meters. The mountains run from west to east in a series of
parallel ranges, dividing the country into three main zones.
7
The northern zone includes the Talas and Chu river valleys, which mark the southern edge of the
Kazakh steppe. This zone includes a huge upland basin that cradles Lake Issyk-kul. Much of this zone
is irrigated, allowing high-value crop production in the lower areas. Cereal and livestock production
predominate in the foothills.
The central zone, which is the main body of the country, is a vast alpine area of rugged mountains,
high river valleys, upland steppes, and alpine and subalpine pastures. Most of the summer grazing
areas (above 2,500 meters) are in this zone. Crops are grown in the more sheltered, upland valleys, but
conditions are hard and production is low. This zone is best suited to extensive livestock production,
especially in areas such as Naryn, where there is good winter grazing in valleys with light winter
snowfall. Production risks—in both summer and winter—are highest in this region.
The southern zone is a fringe of rich agricultural lowlands around the edge of the Ferghana Valley,
near Osh and Jalalabad, plus the foothills and lowland areas in Batken. The milder climate, high soil
fertility, and higher precipitation in the lowland areas facilitate intensive crop production, although
land pressure is very high and farms are small. Livestock production is more prevalent in the foothills
above the Ferghana Valley. Shocks to production and prices can have a large impact on rural
livelihoods in this zone, as farms are small and rural poverty is high.
Implications of Climate Change for Agricultural Risk
Recent climate projections for the Kyrgyz Republic indicate that climate change will have a profound
impact on the agriculture sector (see Government of the Kyrgyz Republic 2009; World Bank 2013).
The current warming trend will continue, with an increase of 2°C in average temperature by 2060 and
4–5°C by 2100. This projected rise in temperature will be higher during the summer months. Winter
temperatures will change little. As rainfall is also projected to decline during the summer months, the
risk of drought will increase markedly. At the same time, precipitation is projected to rise in winter,
increasing the risk of floods and landslides. Rainfall is also likely to become more variable.
The projected impact of these changes on crop productivity varies by crop and by region, as shown
in table 1. The productivity of wheat, maize, and sugar beets will fall, while the productivity of cotton,
tobacco, rice, potatoes, and melons will rise. Batken and Chui will be hurt by falling crop productivity,
while Naryn, Talas, Jalalabad, and Osh will benefit from rising productivity, leading to widespread
changes in the composition of crops.
8
Table 1 Projected Impact of Climate Change on Crop Productivity in the Kyrgyz Republic,
2005–100
Location Wheat Maize
Pota-
toes Cotton
Vege-
tables Fruit Rice
Sugar
beets Melons Barley Tobacco Grapes
Batken - + - - + 0 -
Jalalabad 0 - 0 + + + + + 0
Issyk-Kul 0 0 - 0 0 0
Naryn + + + +
Osh 0 0 0 0 + 0 0 0 0
Talas - + + + -
Chui - 0 0 0 - - + 0 -
Source: Government of the Kyrgyz Republic 2009; World Bank 2013.
Climate change is projected to have a favorable impact on pasture productivity in most regions. The
impact of this higher productivity on livestock production will depend heavily on stocking rates,
however, and the ability to balance the amount of pasture production and livestock feed required.
Increased desertification is projected for the high mountain pasture areas in the Tien-Shan, Ak-Say,
and Alay valleys due to the combined effects of higher temperature and lower rainfall.
Water availability is projected to rise until 2025, due to glacial melt. Thereafter, it will fall, as the supply
of water for irrigation declines. This combination of higher summer temperatures and less access to
water for irrigation is the major long-term risk for agriculture.
Climate change will have important implications for agriculture risk management in that (i) it will
change the context in which the sector operates in, and (ii) it will likely change the patterns of the risks
that have occurred in the past in terms of frequency and impact. A changing climate is in itself not
considered a risks but rather a trend as it is a shift that occurs over a longer term and thereby is
predictable. Instead, agriculture risk assessments look at risk events that takes place as a result of
unpredicted and/or extreme weather events (among other risks). Globally, most climate change
models, and indeed already occurring events, point however at more volatile and unpredictable
weather patterns emerging as a result of this change in climate, and with them new and/or more
frequent/severe pests and diseases – i.e. more risks.
Important for policy makers is also that the context in which the sector operates may over time not
be what it was in the past. Climate projections also indicate a shift in the average growing conditions.
This means that policies have to adapt to the new context and longer-term agriculture risk
management investments (e.g. in research and irrigation infrastructure) should take climate change
projections into account. Nevertheless, agriculture risk assessments will remain important as a tool to
prioritize and quantify current risks to the sector and to make optimal risk management decisions in
the short to medium term (figure 1).
9
Figure 1 Implications of Climate Change for Agriculture Risk Management
National and Agriculture Sector Growth
Economic output contracted sharply after the end of central planning in 1989. The initial collapse
from 1990 to 1992 was due to the abrupt termination of Soviet support and political and economic
instability. The Kyrgyz Republic then began an impressive recovery, adopting its own currency (som)
in 1993 and initiating a comprehensive program of macroeconomic and structural reform in 1994.
The budget was stabilized, the banking sector was restructured, the privatization of small enterprises
was implemented, land reform was started, key laws to establish a market-based economy were passed,
and price and trade policies were liberalized.
A strong economic recovery began in 1996 (figure 2), driven by the agriculture sector. Growth slowed
in 1998 due to lower output from the Kumtor mine, lower agricultural output, and the Russian
financial crisis. In addition to a sharp currency depreciation and increased inflation, this crisis also
weakened the banking system and reduced domestic and Russian demand for Kyrgyz agricultural
products. These effects were exacerbated in 1999, when Russia, Kazakhstan, and Uzbekistan increased
barriers to trade to mitigate the continued impact of the crisis.
Figure 2 National and Agricultural GDP in the Kyrgyz Republic, 1993–2012
Source: World Bank various years.
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National economic growth then continued from 2000 to 2008, apart from a downturn in 2002 due to
the combined effects of reduced output from the Kumtor mine, a fall in energy exports, and the
imposition of trade barriers by Kazakhstan, which restricted exports from the Kyrgyz Republic to
both Kazakhstan and Russia. A sequence of severe shocks from 2008 to 2012 affected both national
and agriculture sector growth. The global food price crisis in 2008 was followed by the global financial
crisis in 2009 and political instability in 2010. Following a year of respite in 2011, a major drought and
a substantial fall in gold production at the Kumtor mine shocked the economy in 2012.
Both crop and livestock production fell sharply during the transition, with a 28 percent fall in crop
production from 1992 to 1995 (in constant prices) and a 36 percent fall in livestock numbers
(measured in livestock units). Production recovered strongly in 1996, in response to land reform,
market liberalization, and favorable climatic conditions. While crop and livestock production has
grown steadily since 1996, the real value of output has varied markedly since 2008.
Aggregate Crop and Livestock Production
Analysis of gross agricultural output (GAO) in constant prices for the period 1992–2012 shows the
contribution of crop and livestock production to overall GAO and to the variability of physical
production (figure 3). Crop production accounts for 55–60 percent of sector output in most years. It
is more variable than livestock production, with an adjusted coefficient of variation (CV)1 of 0.13*
versus 0.06* for livestock. The variability of both components is low, however, due to the diversified
base of crop production, access to irrigation, and the ability to move livestock to alternative pasture
areas in the event of grazing shortages.
Figure 3 Components of Gross Agricultural Output in the Kyrgyz Republic, 1992–2012
Source: FAOSTAT.
1 Coefficient of variation adjusted for trend using the Cuddy Delle-Valle Index.
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A similar pattern emerges when GAO is measured in real prices, even though such data are only
available for the period 1998–2012. The adjusted CVs were 0.14* and 0.07* for real crop and real
livestock GAO, respectively. The variability of total GAO is correspondingly low, with an adjusted
CV of 0.07* for total real GAO since 1998 versus 0.09* for total (constant prices) GAO since 1992.
The low variability of aggregate output is attributed to increased crop and livestock diversification
(figure 4) following the shift away from the production of sheep for fine wool after independence.
Wheat is now the major crop, although forage crops still account for around 20 percent of cropped
area. More important, vegetables, industrial crops, and perennial crops account for 30 percent of total
cropped area versus approximately 10 percent prior to independence.
Figure 4 Crop Production in the Kyrgyz Republic, 1992–2012
Source: FAOSTAT.
Sheep numbers are now half of what they were before independence, while poultry numbers are 31
percent and pig numbers are 15 percent of their pre-independence levels. In contrast, cattle numbers
have increased 18 percent and goat numbers have increased more than 320 percent. Livestock
production systems have also changed significantly in association with changes in the number and
composition of livestock. Pasture- and forage-based production systems now predominate, whereas
systems relying on concentrate feed prevailed before independence. Cattle are now more important
than sheep with regard to overall feed requirements, and sheep are grown for meat rather than wool.
The emphasis has thus shifted to meat and dairy production for domestic and regional markets and
away from fine-wool production for international markets.
This broader base of livestock production, lower reliance on international markets, and more rational
management systems have reduced the sector’s vulnerability to risk. Moderate livestock production
and marketing risks remain nevertheless. Livestock feed shortages occur due to lower production of
winter forage crops, reduced use of far (summer) pastures, and overgrazing of near (village) pastures.
Livestock product prices fluctuate in response to demand shocks on domestic and regional markets.
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12
Part I Risk Identification
Country Risk Identification and Quantification
This part of the study reviews aggregate national-level trends and systemic risks for crop and livestock
production, followed by a more-detailed review of key agricultural commodities which form
approximately 80 percent of the Kyrgyz Republic’s total GAO: wheat, maize, cotton, potatoes,
tomatoes, cow’s milk, beef, sheep meat, and eggs.
Crop Production
The crops analyzed were chosen because they are important to sector output and because they reflect
different types of production, price, and enabling environment risk.
Wheat
With approximately 7 percent of GAO and 30 percent of total cultivated area, wheat is the major food
staple (38 percent of total caloric input) and an important source of livestock feed (WFP 2013). It is
also one of the most variable components of crop output, with a CV of 0.23 for production and 0.12
for yield. Production grew rapidly from 1995 to 1997, as producers sought to improve food supply
after independence, but it has fallen gradually since, as producers have diversified into other crops
(figure 5).
Figure 5 Wheat Production in the Kyrgyz Republic, 1992–2013
Source: FAOSTAT.
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13
Inter-annual changes in both yield and area account for the variation in wheat production. Drought
affects production as approximately one-third of wheat is not irrigated. Major droughts occurred in
1994 and 2012 and a lesser drought in 2010. Production also varies in response to marked inter-annual
reductions in the area planted to wheat, notably in 2003 and 2007 due to falling real prices and in 2010
due to political instability. The most severe production shock in 2012 was due to the impact of drought
on both area and yield.
Locusts pose an annual risk, but an effective control program has minimized losses thus far. Crop
disease does not appear to be a major risk for wheat production, although officials note that disease
is a major cause of storage losses.
Maize
Maize is grown for livestock feed, accounting for approximately 9 percent of GAO and 7 percent of
total cultivated area. Output is less variable than for wheat, with an adjusted CV of 0.17* for
production and 0.11* for yield. Production fell sharply during the initial years after independence, as
for most crops, and then rose rapidly from 1995 to 2001, as the livestock sector recovered. Subsequent
growth has been more moderate, apart from a pronounced area-driven increase in production in 2011
(figure 6).
Figure 6 Maize Production in the Kyrgyz Republic, 1992–2013
Source: FAOSTAT.
The production shocks of the transition period (1992–95) were the result of falling yield and area in
response to lack of fertilizer, low rainfall, and farmer decisions to reduce the area planted in line with
reduced livestock numbers. Both of the production shocks since 1995 were the result of area
adjustments. Producers reduced maize production in line with lower demand for livestock products,
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14
in 2002 due to economic recession (Kumtor landslide and a fall in energy exports) and in 2009 due to
the global food price and financial crises.
Cotton
Cotton is an important export crop, with 3 percent of GAO and 2–3 percent of total cultivated area.
Output is variable, with a CV of 0.27 for production and an adjusted CV of 0.04* for yield. Irrigation
reduces the climatic risks to production, which explains the low risk to yield (figure 7). Most of the
variability in production is the result of changes in area in response to changes in producer prices and
profitability relative to other crops. After independence, production rose steadily from 1993 to 2004,
except for a fall in area planted in 1997 in response to a fall in producer prices. Production then fell
from 2004 to 2009 as producer prices fell, with sharp area-driven falls in production in 2007 and 2009
in response to a sharp drop in prices. A short-lived recovery in world cotton prices from 2009 to 2011
then led to a recovery of production, but a further period of falling prices resulted in further area-
driven falls in production in 2011 and 2012.
Figure 7 Cotton Production in the Kyrgyz Republic, 1992–2012
Source: FAOSTAT.
Potatoes
Potatoes are produced both for domestic consumption and for exports, accounting for approximately
14 percent of GAO and 7 percent of total cultivated area. Production grew rapidly from 1994 to 2004
and then stabilized at around 1.3 million tons (figure 8). Production risks are relatively low, with
adjusted CVs of 0.17* for production and 0.09* for yields. Area changes account for the main
observed production shocks in 2002 and 2005. In both cases, border closures by Kazakhstan, which
restricted exports, apparently led producers to reduce the area harvested. The smaller area harvested
in 2005 was exacerbated by a moderate fall in yield.
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Figure 8 Potato Production in the Kyrgyz Republic, 1992–2012
Source: FAOSTAT.
Tomatoes
Tomato production accounts for 3 percent of GAO and 6 percent of the area planted to vegetables.
Like potatoes, tomatoes are also grown for domestic use and for export. Output has more than
doubled since 1992, driven by steady increases in both yield and area (figure 9). Production risks are
low, with adjusted CVs of 0.15* for production and 0.05* for yield.
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Figure 9 Tomato Production in the Kyrgyz Republic, 1992–2012
Source: FAOSTAT.
Production shocks occurred in 1993 and 1994 during the early stages of economic transition and again
in 2002 due to a sharp reduction in area planted. The production shock in 2002 was also caused by a
Kazakh border closure and a decision by many producers not to harvest their crop.
Crop Disease and Locust Protection
Crop disease and locust protection is the responsibility of the Department of Chemistry and Plant
Protection in the Ministry of Agriculture and Water Resources (MAWR). Approximately 130
department specialists monitor crop production throughout the country, report on the incidence of
crop diseases as they occur, and provide guidance to farmers on control measures. Farmers are
responsible for obtaining agricultural chemicals and implementing control. The department also tests
and authorizes agro-chemicals. This structure provides effective protection against the main crop
disease risks in the region, with a low reported incidence of rust, Colorado beetle, nematodes,2 and
white butterfly. Vegetable producers are vulnerable to a range of crop diseases, but losses are localized
and relatively low. Department staff noted that crop protection measures are not widely used by
farmers, due to poor training in disease identification and control, lack of cash, and weak impact of
the low-quality Chinese agro-chemicals they prefer. Farmers also show minimal interest in rotating
crops as a means to reduce crop disease.
Locusts are an ever-present risk (table 2), although control measures have minimized losses thus far.
The border regions with Uzbekistan and Kazakhstan are the most vulnerable, with Moroccan locusts
in Chuy, Talas, Jalabad, Osh, and Batken oblasts and Italian locusts in the central mountain zone,
2 Kazakhstan imposed a temporary ban on Kyrgyz exports of seed potatoes in 2008 following the identification of nematodes.
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17
especially Naryn. Locust infestations occur every year, with the most recent major attacks in 2000,
2008, and 2009, but effective control means that damage is generally limited. Control relies heavily on
strong donor support, however, with the European Union providing training and equipment from
1996 to 2009 and the FAO providing support from 2012 to 2014. Budget allocation procedures are
the main constraint to effective control programs, as the necessary funding is often provided at the
end of the budget year—after the attacks have occurred. The MAWR is thus forced to fund control
programs on credit by delaying payment to the enterprises responsible for monitoring and spraying.
It is imperative that public support for locust control continues. Otherwise crop losses from locust
damage will increase significantly, both now and in the future. The increase in temperatures associated
with climate change will improve breeding conditions for locusts – increasing both the potential costs
of locust damage and the costs of control.
Table 2 Locust Infestation and Control in the Kyrgyz Republic, 2006–13 (hectares)
Area 2006 2007 2008 2009 2010 2011 2012 2013
Surveyed areas 156,300 154,800 217,600 194,300 124,537 100,784 41,696 84,336
Infested areas 90,700 95,800 163,200 149,500 98,722 61,436 29,023 57,353
Treated areas 74,500 85,600 157,000 126,900 90,088 58,071 27,963 53,741
Source: FAO various years.
Livestock Production
Livestock numbers fell dramatically after independence due to the impact of economic transition and
the loss of Russian subsidies for intensive production of sheep, pigs, and poultry (figure 10). Numbers
began to recover after 1997, except for pigs, for which demand is weak. Sheep production began to
recover in 2005, as breeds produced for meat took over from breeds produced for fine wool. Growing
domestic demand for dairy and meat products has driven this increase in livestock numbers, facilitated
by continuous economic growth and higher disposable income.
18
Figure 10 Livestock Production in the Kyrgyz Republic, 1992–2012
Source: FAOSTAT.
Livestock production is important in all regions, providing an important source of food and cash
income on the small, mixed farms that predominate in the Kyrgyz Republic. It also helps to stabilize
incomes in rural households when either crop production or crop prices fall. Cattle are now the most
important form of livestock production, followed by sheep and goats, but most farms own some
combination of all three. Most herds are small, and productivity is low, as farmers are allocating more
land and labor to crop production—except in more mountainous and upland areas.
Milk Production
Cow’s milk is the most important livestock commodity, with 24 percent of GAO. Figure 11 shows
trends in production from 1992 to 2012 and the impact of changes in the number of cows and
production per cow. Economic transition and drought in 1994 led to a fall in production, due mainly
to a decline in the number of cows. However, production has increased more than 150 percent since
1996, due mainly to an increase in the number of cows. Milk yields increased until 2004, but have
fallen slightly since due to reduced availability of feed. They remain low, at approximately 2,000
kilograms per cow.
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Figure 11 Cow’s Milk Production in the Kyrgyz Republic, 1992–2012
Source: FAOSTAT.
Overall milk production is highly stable, with an adjusted CV of 0.04*. The number and production
of cows fell slightly in 2004 (for unknown reasons), and production was stagnant in 2011 following
political instability in 2010.
Beef and Sheep Meat Production
Beef accounts for 14 percent of total GAO and sheep meat for 6 percent. Beef production has
increased since 1995 (figure 12), with limited year-to-year variation and a correspondingly low adjusted
CV of 0.05*. The higher adjusted CV of 0.21* for sheep meat reflects the impact of the declining
number of sheep during economic transition. Production after 1999 has been stable.
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Figure 12 Beef and Sheep Meat Production in the Kyrgyz Republic, 1992–2012
Source: FAOSTAT.
Egg Production
Eggs account for approximately 2.5 percent of total GAO. The trend in egg production is similar to
the trend in sheep meat, with a massive decline in production associated with economic transition,
followed by strong growth from 1995 to 2007 due to a significant increase in the number of laying
hens and a smaller increase in egg production per hen (figure 13). Subsequent growth has been
moderate. The adjusted CV for egg production for the period 1992–2012 is low, at 0.11*, reflecting
the steady growth in output since transition.
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
0
20,000
40,000
60,000
80,000
100,000
120,000
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
An
nu
al %
Ch
ange
Pro
du
ctio
n (
ton
ne
s)
% Change Beef % Change Sheep meat
Beef production Sheep meat production
21
Figure 13 Egg Production in the Kyrgyz Republic, 1992–2012
Source: FAOSTAT.
Livestock Disease
In addition to production losses, livestock disease in the Kyrgyz Republic is also a risk to human health
and livestock export earnings.3 The priority disease risks for livestock are brucellosis, anthrax, foot
and mouth disease (FMD), pestes des petits ruminants (PPR), avian influenza, and rabies. Table 3
presents the incidence and impact of these diseases on livestock production, based on official reports
to the International Office of Epizootics (OIE) for the period 1996–2013. These data probably
underestimate the true incidence and impact of these diseases, however, as they are based on the level
of in-country surveillance and reporting to the OIE.
Table 3 Incidence and Impact of Livestock Disease in the Kyrgyz Republic, 1996–2013
Disease Outbreaks
Susceptible
animals Cases Deaths Destroyed Slaughtered
Anthrax 34 4,235 46 42 11 —
Brucellosis 4,158 15,984,473 62,954 3 8,786 53,305
FMD 98 587,865 7,313 — — —
Rabies 251 326,189 324 324 — —
Source: OIE.
Note: — = none reported.
There were no reported outbreaks of PPR or avian flu. Rabies and anthrax were reported in most
years, although their impact on livestock production and human health is regarded as low. On average,
FMD outbreaks occur every second year, with most outbreaks (99 percent) occurring in cattle. Losses
3 This section is drawn from a separate report by Rhoda Rubaiza, consultant.
-80.0
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
An
nn
ual
% C
han
ge
Egg
Pro
du
ctio
n (
ton
ne
s)
% Change No. hens % Change No. eggs/hen
% Change Eggs produced Egg production (tons)
22
are higher than reported, as the Kyrgyz Republic does not have a slaughter and destroy policy for
FMD, although actual production losses are considered low. Less than 0.5 percent of cattle were
reported as infected in the worst outbreak in 2011. The potential impact is much higher, however,
with approximately 10 percent of cattle reported as susceptible in the outbreak in 2011. FMD
outbreaks in 2007 and 2011 also resulted in a Russian ban on Kyrgyz exports of meat and live animals
and a Kazakhstani ban on Kyrgyz meat and dairy products.
Brucellosis poses the greatest risk, not only to production but also to human health and exports.
Outbreaks were reported to the OIE in 11 of the 14 years from 1999 to 2013, for both cattle and
small ruminants. No deaths were reported for these outbreaks, but an average of 2,340 cattle and 2,830
small ruminants were slaughtered or destroyed in each year of occurrence. In all cases these losses
were less than 0.5 percent of total livestock, although there is good evidence that actual infection rates
were much higher.4 The Kyrgyz Republic also has one of the highest incidences of human brucellosis
in the world, with 362 cases per 1 million people (Bonfoh et al. 2012). The continued inability to
control brucellosis in both people and livestock led Kazakhstan to ban all dairy exports from the
Kyrgyz Republic in 2012–13, depriving farmers and processors of an important source of revenue and
depressing milk prices on domestic markets. During a seven-month period, this ban cost the sector
an estimated som 5 million per day (US$10,000), according to MAWR officials.
Disease control measures are implemented with varying levels of effectiveness. Vaccinations are
supposed to be carried out twice yearly, with government paying for vaccines and farmers paying
veterinarians to administer the vaccines. Government is also supposed to pay for the slaughter and
destruction of infected animals, for compensation for farmers (up to 75 percent of the value of the
animal), and for planning and enforcement of quarantine and movement restrictions.
Many of the major livestock diseases in Central Asia are highly contagious, trans-boundary diseases
that are impossible to control at the national level (for example, FMD, brucellosis, PPR). In the Kyrgyz
Republic, these diseases are transmitted by domestic animals, wild animals, people, and vehicles across
3,878 kilometers of border, including 2,150 kilometers with Uzbekistan and Kazakhstan. Support for
regional livestock disease surveillance and control offers a means not only to reduce the risks of these
diseases, but also to strengthen the capacity of weaker national veterinarian systems.
Price Risks
Producer price data are available for the period 1998–2012 only (1996–2012 for cotton).
Wheat and Maize Prices
The Kyrgyz Republic produces approximately half of its total wheat requirement (for human and
animal consumption), importing the rest from Kazakhstan. Maize is grown for livestock feed, with
domestic production meeting requirements. Domestic prices for both wheat and maize are largely set
by the Kazakh export price for wheat, which in turn follows international prices (figure 14). Maize
4 Bonfoh et al. (2012) report seroprevalence rates for brucellosis in the Kyrgyz Republic of 2.8 percent for cattle, 3.3 percent for sheep, 2.5 percent for goats, and 8.8 percent for humans.
23
prices follow wheat prices, as much of Kyrgyz wheat is of lower quality and is used for livestock feed.
Trends in real prices are also influenced by trends in inflation.
Figure 14 Cereal Prices in the Kyrgyz Republic, 1998–2012
Sources: FAOSTAT; World Bank Commodity Prices; Kazakhstan Statistics Agency.
Real prices are variable, with a CV of 0.23 for wheat and an adjusted CV of 0.20* for maize, compared
with adjusted CVs of 0.17* for international wheat prices and 0.25* for Kazakh wheat export prices.
Measured in real prices, major shocks to both wheat and maize prices occurred in 2002, 2006 and
2009 in parallel with sharp changes in wheat prices on regional and international markets.
Cotton Prices
Trends in world markets are the major determinant of cotton producer prices. Nominal prices have
closely tracked international prices since 2001 (figure 15), although real price trends differed until 2008
due to the impact of inflation. Both real producer prices and world prices are quite variable, with a
CV of 0.22 for real producer prices and an adjusted CV of 0.30* for world prices. Variation in world
market prices led to major shocks in real prices from 1995 to 1999 and in 2012. High inflation
magnified the impact of a small drop in world prices on real domestic prices in 2005.
0
50
100
150
200
250
300
350
0
5,000
10,000
15,000
20,000
25,000
199819992000200120022003200420052006200720082009201020112012
$U
S/to
nn
e
Som
/to
nn
e
Wheat Prod Price (Real) Maize Prod Price (Real)
Intnl Wheat Price (SRW, $US/ton) Kazakh Wheat Price ($US)
24
Figure 15 Cotton Producer Prices in the Kyrgyz Republic, 1995–2012
Sources: FAOSTAT; World Bank Commodity Prices.
Vegetable Prices
Potatoes and tomatoes are grown mainly for domestic consumption. Both crops are also exported,
but the volume of exports constitutes a small proportion of total production and varies widely from
year to year. Real price variability is highest for potatoes, with an adjusted CV of 0.26*, compared with
0.18* for tomatoes. Both crops experienced sharp real price shocks in 2004 due to above-average
harvests and in 2010 due to political instability and a fall in domestic demand. Real potato prices also
fell markedly in 2008 and 2012 due to economic slowdowns and lower demand. Much of this observed
instability is attributed to the weakness of domestic markets and the limited scope for export in years
when marketed surplus is higher than normal. Domestic markets are easily saturated, especially for
perishable crops.
Figure 16 Real Vegetable Producer Prices in the Kyrgyz Republic, 1998–2012
Source: FAOSTAT.
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
$U
S c/
kg
Som
/to
nn
e
Producer Price (nominal) Producer Price (Real) Intnl Price (Cot A Index, c/kg)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Som
/to
nn
e(2
01
2 =
10
0)
Potatoes Tomatoes
25
Livestock Commodity Prices
Real prices for livestock products have risen steadily since 1998 (figure 17) in response to growing
domestic demand. Most observed price shocks are the result of economy-wide influences on demand,
including the impact of the Russian financial crisis in 1999 and political instability in 2010. Milk prices
increased markedly in 2006 due to a strong increase in milk exports. The price fall in 2010 reflects
border closures with Kazakhstan, which blocked exports and reduced the price of milk on domestic
markets. Overall price instability is low, however, with adjusted CVs of 0.10* for milk, 0.10* for beef,
and 0.12* for sheep meat and a CV of 0.08 for eggs.
Figure 17 Real Producer Prices for Livestock Commodities in the Kyrgyz Republic, 1998–2012
Source: FAOSTAT.
Enabling Environment Risks
Exchange Rates
In an open economy like the Kyrgyz Republic exchange rate shifts can have a wide-ranging impact on
economic activity, affecting export revenues, the price of imported agricultural commodities and the
purchasing power of remittances. Government employs a managed exchange rate policy, with
moderate intervention in foreign exchange markets. Sharp movements in nominal exchange rates
occurred in response to the Russian ruble crisis in 1998 (figure 18). Government policy has resulted
in reasonable exchange rate stability since then—particularly against the ruble and the tenge—the
currencies of the Kyrgyz Republic’s main trading partners. The som appreciated against the U.S. dollar
from 2000 until the global food price crisis in 2008 and was then allowed to depreciate in order to
mitigate the impacts of the crisis. In light of the sharp depreciation of the tenge, the som has
depreciated by more than 10 percent against the U.S. dollar in 2015. Prior to 2015, exchange rate
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Milk
(so
m/t
on
ne
)
Me
at, E
ggs
(so
m/t
on
ne
)
Eggs Beef Sheep Meat Cows Milk
26
volatility had been very low since 1999, with CVs of 0.06 for the ruble, 0.04 for the Kazakh tenge, and
0.09 for the U.S. dollar and an adjusted CV of 0.09* for the euro.
Figure 18 Nominal Exchange Rates, 1994–2013
Sources: World Bank various years; National Bank of the Kyrgyz Republic.
Agricultural Policy and Budget Support
The total expenditure budget for 2014 for the MAWR was approximately som 1 billion. It has fallen
in both real terms and as a percentage of the total budget since 2008 and now amounts to less than
1.5 percent of total budget expenditure. For the period 2003–09, most of this expenditure was
allocated to the operation and maintenance of irrigation infrastructure (figure 19), followed by support
for the public services linked to livestock and crop production. Most direct support for agricultural
production is in the form of interest subsidies, which amount to approximately som 400 million per
year.
0.00
1.00
2.00
3.00
4.00
5.00
6.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.001
99
4
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Ru
ble
/Te
nge
$U
S an
d E
uro
$US Euro Tenge Ruble
27
Figure 19 Real Current Budget Expenditure for Agriculture in the Kyrgyz Republic, 2003–09
Source: World Bank 2010.
A highly interventionist policy stance was adopted from 2008 to 2010 based on market intervention
activities by the state-owned Agro-Food Corporation, which tried to stabilize both consumer and
producer prices. Agro-Food has now been dissolved, although the government continues to play a
limited role in price stabilization based on the acquisition and disposal of public stocks. The variable
level of expenditure on interest subsidies creates a further element of policy instability.
Public officials also note that continuous political change is a major source of uncertainty. The
frequent changes to the MAWR’s organization and funding make it difficult to program, implement,
and coordinate essential public service activities. This difficulty is accentuated by the rigid budget
allocation procedures of the Ministry of Finance. Initial budget allocations are restricted to the
minimum amount needed for salaries and operation, with the funds needed for program
implementation not released until toward the end of the budget cycle. Hence departments such as
Crop Protection and Veterinary Services often lack the resources they need to respond to outbreaks
of crop and livestock pests and diseases—even when they are officially covered in the ministry budget.
This practice further stretches the resources of a ministry that operates with very low levels of funding.
Emergency response to major catastrophes (earthquakes, floods, mudslides) is coordinated and
funded by the Ministry of Emergencies. It receives an annual budget allocation of approximately som
140 million for emergency response plus a further som 2 billion for reconstruction of physical
infrastructure (roads, bridges, communications, water supply, schools, and hospitals). The Ministry of
Emergencies also has access to a contingency fund of approximately som 100 million. During the
harsh winter of 2010–11, this fund was used to purchase and distribute animal feed to farmers in
severely affected areas.
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2003 2004 20052006
20072008
2009
Tho
usa
nd
so
m (
20
12
=10
0)
Other Research and Extension Subsidies and Credit Administration and Policy
Crops and Seed Livestock Irrigation Total
28
Agricultural Insurance
The Kyrgyz insurance industry is small, with a penetration rate of 0.36 percent in 2012.5 Non-life
insurance accounts for 97 percent of gross written premium. The industry is growing relatively rapidly,
with gross written premiums increasing from som 276.9 million (US$7.6 million) in 2008 to som 1.1
billion (US$23.2 million) in 2012. To further this growth, government initiated the establishment of a
reinsurance company in 2012. It will own 10 percent of this company, and a privately held British
company will own the remaining 90 percent (Timetrics 2014).
Officially, agricultural insurance is compulsory, although few insurance companies offer it and even
fewer farmers buy it. Of the 17 private insurance companies in operation, 5 are licensed to provide
crop insurance and 3 are licensed to provide crop and livestock insurance. Only one of these
companies is providing agricultural insurance—to one client (a poultry farmer).6
The government is trying to increase the use of agricultural insurance. Legislation was enacted in 2009
to set up a compulsory weather-index crop insurance program, with 50 percent of insurance premiums
to be financed by the state. This public contribution was to come from a government insurance fund
financed with 5 percent of premiums, plus annual contributions from the Treasury. The law was not
accepted by the insurance industry, which claimed that it had not been adequately consulted, and the
scheme has yet to become operational. In 2011 the Ministry of Agriculture drafted a law on livestock
insurance, but this law has yet to be passed. As for weather-index crop insurance, this proposal was
also based on a public-private partnership between government and the insurance sector, with
government to pay 50 percent of premiums from a government insurance fund.
The continued emphasis on state control of premiums, blanket coverage of all risks and terms and
conditions for the industry constitutes a significant disincentive. Private insurance companies have
little interest to insure agricultural production when they cannot properly underwrite the risk and are
unable to adjust premiums and terms and conditions to reflect the level of expected loss or the costs
of doing business. Farmers are also reluctant to participate in a heavily state controlled program
redolent of central planning, especially when they doubt the capacity of insurance companies and
government to meet their obligations in the event of a production shock. Further barriers to the
development of agricultural insurance include a limited database on climate and agricultural
production, weak access to reinsurance, and a lack of trained actuaries in the Kyrgyz Republic.
There could be opportunities for commercial agricultural insurance in the Kyrgyz Republic, beginning
with the insurance of high-value crops against frost and hail. The expected losses from these risks are
moderate, increasing the incentives for private insurance companies to offer suitable products and for
farmers to buy them. Beyond this, any expansion to broad-based insurance for cereal and industrial
crops and for livestock or livestock production will require a major investment in the development of
a market-based program of agricultural insurance with considerable government financial
participation. Inter alia, such a national program will have to rely on commercial reinsurance, adequate
pricing and underwriting of risks and professional claims management. In addition, the government
5 Ratio of total insurance premiums (in U.S. dollars) to GDP. 6 Information from the Kyrgyz State Insurance Agency.
29
will have to clearly demonstrate its commitment to the program through budgeting for the cost of
program subsidies in the annual national budget. Therefore, a comprehensive feasibility study is
required to consider any agricultural insurance. In the meantime, there is a need to focus on animal
health, improving crop yields, knowledge transfer to farmers and other measures to reduce production
risks and thus, the cost of insurance in the future.
30
Costing and Prioritizing Agricultural Risk
This section analyzes the frequency, severity, and costs of adverse events to provide an empirical basis
for prioritizing different sources of risk. Official information on losses due to adverse events is usually
calculated in different ways and is invariably approximate. Analysis is thus based on estimates of the
“indicative” value of losses (defined below) to provide a more consistent basis for comparison. While
these estimates draw on actual data as much as possible, they represent indicative, not actual, losses.
Conceptual and Methodological Basis for Analysis
Risk is defined as exposure to a significant financial loss or other adverse outcome whose occurrence
and severity are unpredictable. It thus implies exposure to substantial losses over and above the normal
costs of doing business. Agriculture is inherently variable, as producers incur losses every year due to
suboptimal climatic conditions at different times in the production cycle or departures from expected
prices. For the purposes of this study, risk refers to the more severe and unpredictable adverse events
that occur beyond these smaller events, measured as the inter-annual variation in the value of
agricultural output. A loss threshold was set to distinguish major adverse events from smaller, inter-
annual variations in output. Drawing on the results of agricultural risk analysis in other countries, this
threshold was set at 10 percent.
This definition also distinguishes between risks, which are unpredictable, and constraints, which are
known and so predictable. Sudden shocks to production (droughts, floods, locusts), prices or the
enabling environment (sudden policy changes or sharp, unexpected exchange rate movements) are
thus considered risks; while factors such as low productivity, poor access to credit, lack of land and
lack of information are viewed as known, predictable constraints to sector output.
Indicative losses were calculated as follows. For production risks, the value of gross agricultural output
“lost” for each adverse event was first calculated in soms as the difference between the actual change
in output and the threshold change in output, using constant producer prices (2004–06). The resultant
value was converted into U.S. dollars at 2012 exchange rates and also expressed as a percentage of the
value of GAO.
The same methodology was used to derive the combined impact of production and price shocks,
based on actual production and real prices. This captures the joint impact of price and production
shocks, which is the reality that the sector faces.
As shown in appendix A, losses due to the joint impact of production and price shocks (as derived
above) can be disaggregated into production impacts and price impacts. These identities were used to
calculate the indicative losses associated with price shocks alone, for individual commodities.7
Application of this methodology requires a consistent set of data on both production and prices for
an extended time period. Of the various sources of data available, FAOSTAT’s data series (1992–
7 Measuring the impact of producer price risks on the economy poses several challenges. Producer prices and retail prices or international prices do not always move together. Seasonal price movements (not measured) may be a greater risk than annual price changes. Finally, lower commodity prices will, all things being equal, be beneficial for consumers and thus may have a positive impact on the overall economy. Nevertheless, estimating the severity of commodity price risks indicates sector volatility that stems from price risk and identifies the commodities that are most vulnerable to price risk.
31
2012) on the value of gross agricultural production and producer prices is considered the most suitable.
These data allow the analysis of risk for a 19–20-year period for all products in constant prices and
for 1998–2012 in real prices. The various shocks derived from this analysis are attributed to specific
events on the basis of interviews with officials in national and regional government, farmers, and
traders, plus information from published reports and Internet sites. A chronology of these adverse
events is presented in appendix B.
Aggregate Production Risks
The impact and causes of the major shocks to aggregate output since 1992 for constant prices and
since 1998 for real prices are summarized in table 4, first for total GAO and then for livestock and
crop GAO. Results in both constant and real prices are presented to show the impact on production
alone (constant prices)8 and the joint impact of shocks to production and prices.
The main conclusions from these results are as follows:
Adverse, economy-wide political and economic events are the major cause of shocks to aggregate agricultural production. The indicative costs associated with these shocks can be substantial, as occurred during the political unrest in 2010.
In general, market-related shocks to real prices have a bigger impact than production shocks. This reflects the Kyrgyz Republic’s status as a small open economy trading in a politically and economically volatile region.
Irrigation and high levels of diversification minimize the impact of climatic shocks on aggregate production. Drought was the major cause of the sector-wide shock in 2012, but its impact was amplified by a concurrent fall in real prices for some commodities.
Crops are more vulnerable to production, market, and enabling environment risks than livestock.
8 FAOSTAT; constant producer prices are calculated as average for 2004–06.
32
Table 4 Impact and Causes of Adverse Events for Aggregate Agricultural Output
Indicative loss value (2012)a
Item Year
Som
(million)
US$
(million) % of GAO Causes
Aggregate GAO
Constant prices 1994 -3,155 -67.1 -6.2 Economic transition; drought
Real prices 2010 -5,368 -114.2 -6.6 Political instability; border closures;
fall in production, domestic demand,
and prices
Crop GAO
Constant prices 1994 -2,854 -60.7 -5.6 Economic transition; drought
Real prices 2002 -822 -17.5 -1.2 Economic slowdown; trade
restrictions
2010 -7,076 -150.6 -8.6 Political instability; border closures;
fall in production, domestic demand,
and prices
2012 -3,375 -71.8 -3.4 Drought; fall in wheat production; fall
in international cotton prices
Livestock GAO
Constant prices 1994 -301 -6.4 -0.6 Economic transition; drought
Real prices 1999 -1,090 -23.2 -1.9 Russian financial crisis; fall in
domestic demand and prices
Source: FAOSTAT.
a. Calculated as the inter-annual change in GAO minus the threshold change in GAO. 2012 values are based on real som prices (2012 = 100) and US$-som exchange rates for 2012.
Crop Commodity Risks
Indicative losses for the main crops are presented in table 5. Shocks for the constant price (production)
analysis cover the period 1992–2012, while shocks for the real price analysis cover the period 1998–
2012 (1996–2012 for cotton).
33
Table 5 Impact and Causes of Adverse Events for Main Crop Commodities
Indicative loss value (2012)a
Item Year Som (million)
US$ (million) % of GAO Causes
Wheat
Constant prices 1994 -1,640 -34.9 -3.2 Drought (yield -26%)
2006 -175 -3.7 -0.2 Reduced area and yield (low rainfall)
2010 -1,622 -34.5 -2.0 Reduced input supply; drought (reduced
yield)
2012 -2,112 -44.9 -2.6 Drought
Real prices 2000 -121 -2.6 -0.2 Moderate reduction in production (area)
and real price
2002 -2,083 -44.3 -3.1 Fall in real prices (-21%)
2003 -2,491 -53.0 -3.6 Area reduction; 20% fall in real prices
2006 -2,012 -42.8 -2.3 Yield reduction; 17% fall in real prices
2009 -1,389 -29.6 -1.4 Fall in real prices (-43%); fall in world
prices
2010 -3,688 -78.5 -4.5 Drought; 24% fall in real prices
(political instability)
2012 -2,602 -55.4 -2.6 Drought
Maize
Constant prices 1993 -725 -15.4 -1.2 Economic transition; fall in livestock
numbers
1994 -381 -8.1 -0.8 Economic transition and drought; fall in
livestock numbers
Real prices 2002 -1,588 -33.8 -2.4 Area reduction; fall in real prices
2005 -249 -5.3 -0.3 Fall in real prices
2009 -762 -16.2 -0.8 Fall in real prices
2010 -1,257 -26.7 -1.5 Political instability and drought; fall in
production (area) and real prices
Cotton
Constant prices — — — — —
Real prices 1996 -219 -4.7 n.a. Fall in world and domestic prices
(cotton market)
1997 -721 -15.3 n.a. Area reduction and fall in world and
domestic prices
1999 -424 -9.0 -0.8 Fall in world and domestic prices
(financial crisis)
34
2005 -954 -20.3 -1.3 Fall in world and domestic prices
(cotton market)
2007 -594 -12.6 -0.6 Area reduction and fall in world and
domestic prices
2008 -69 -1.5 -0.1 Fall in real domestic prices
2009 -832 -17.7 -0.9 Area reduction and fall in world and
domestic prices
2012 -1,046 -22.3 -1.0 Area reduction and fall in world and
domestic prices
Potatoes
Constant prices 1993 -203 -4.3 -0.3 Economic transition
Real prices 2004 -6,076 -129.3 -8.9 50% fall in real prices; market volatility
(oversupply)
2008 -3,959 -84.2 -4.0 24% fall in real prices; market volatility
(food price crisis)
2010 -2,889 -61.5 -3.5 21% fall in real prices; market volatility
(political instability)
2012 -3,876 -82.5 -3.9 24% fall in real prices; market volatility
(economic downturn)
Tomatoes
Constant prices 1993 -195 -4.1 -0.3 Economic transition
2002 -468 -10.0 -0.6 Reduced production (area); economic
slowdown; Kazakh trade and transport
restrictions
Real prices 2002 -166 -3.5 -0.2 Reduced production (area); economic
slowdown; Kazakh trade and transport
restrictions
2004 -63 -1.3 -0.1 27% fall in real prices; market volatility
2009 -36 -0.8 ** 15% fall in real prices; market volatility
(financial crisis)
2010 -259 -5.5 -0.3 17% fall in real prices; market volatility
(political instability)
Source: FAOSTAT.
Note: — = no indicative losses; n.a. = not available.
a. Calculated as the actual inter-annual change in GAO minus the threshold change in GAO. 2012 values are based on real som prices (2012 = 100) and US$-som exchange rates for 2012.
** Less than 0.1% of GAO.
The results reflect the impact of the shocks identified in table 5, plus further commodity-specific
shocks due to market volatility and adverse climatic, political and economic events. The following
summarizes the main results:
35
Crops are subject to frequent changes in production and prices. The indicative cost of these changes is generally proportional to their contribution to GAO, with wheat and potatoes incurring the highest indicative losses.
Many inter-annual changes in production are due to area reductions in response to a change in relative prices. These were not considered production shocks, as yields did not fall, land was reallocated to other crops, and there was no substantive reduction in aggregate crop output.
The main production shocks were the result of economic transition (1993, 1994) and drought (2010, 2012).
Market volatility is the main cause of crop-specific shocks. In addition to price volatility on international and domestic markets, price shocks occur as a result of exogenous economic shocks and national and regional political uncertainty. Cotton and wheat prices are the most volatile, as these commodities are vulnerable to all of these risks. Potatoes are also highly vulnerable to price risk.
Livestock Commodity Risks
Indicative losses for the main livestock commodities are presented in table 6. As for crops, the shocks
identified for the constant price (production) analysis cover the period 1992–2012, while shocks for
the real price analysis cover 1998–2012.
Table 6 Impact and Causes of Adverse Events for Main Livestock Commodities
Indicative loss value (2012)a
Item Year Som (million)
US$ (million)
% of GAO Causes
Cow’s milk
Constant prices — — — — —
Real prices 1999 -350 -7.4 -0.6 Russian financial crisis; lower domestic
demand and prices
Beef
Constant prices — — — —
Real prices 1999 -531 -11.3 -0.9 Russian financial crisis; lower domestic
demand and prices
Sheep meat
Constant prices 1995 -1,567 -33.3 -3.3 Economic transition
1997 -534 -11.4 -0.9 Economic transition (continued fall in
sheep numbers)
Real prices 1999 -237 -5.0 -0.4 Russian financial crisis; lower domestic
demand and prices
Eggs
Constant prices 1993 -884 -18.8 -1.5 Economic transition
1994 -911 -19.4 -1.8 Economic transition
36
1995 -208 -4.4 -0.4 Economic transition
Real prices 1999 -62 -1.3 -0.1 Russian financial crisis; lower domestic
demand and prices
2010 -127 -2.7 -0.2 Political instability; lower domestic
demand and prices
Source: FAOSTAT.
Note: – = no indicative losses.
a. Calculated as the actual inter-annual change in GAO minus the threshold change in GAO. 2012 values based on real som prices (2012 = 100) and US$-som exchange rates for 2012.
Livestock production is much less vulnerable to adverse events, with a lower consequent frequency
of production and price shocks. The main observed shocks were the result of exogenous, economy-
wide shocks. Economic transition resulted in sharp production shocks from 1993 to 1995 due to the
rapid destocking of sheep, pigs, and poultry in response to the termination of Soviet subsidies. The
Russian financial crisis raised inflation and depressed domestic demand for livestock products in 1999,
reducing real prices. Political instability in 2010 had a similar impact.
Commodity Price Risks
Price shocks were analyzed for the livestock and crop commodities examined above, using real prices
as the basis for analysis (table 7). The analysis focused solely on price shocks associated with an overall
loss above the threshold for the period 1998–2012 (1996–2012 for cotton). Price falls offset by
production increases were not included.
37
Table 7 Impact and Causes of Adverse Events for Commodity Prices
Commodity
and year
Indicative loss value (2012) a
Price loss as % of
total loss Cause
Som
(million)
US$
(million)
% of
GAO
Wheat
2000 -121 -2.6 -0.2 100 High inflation
2002 -2,083 -44.3 -3.1 100 Trade restrictions
2003 -2,491 -53.0 -3.6 86 Domestic market volatility
2006 -2,012 -42.8 -2.3 91 Domestic market volatility
2009 -1,389 -29.6 -1.4 100 International markets
2010 -3,688 -78.5 -4.5 58 Political uncertainty
Maize
2002 -1,588 -33.8 -2.4 81 Trade restrictions
2005 -249 -5.3 -0.3 100 Domestic market
2009 -762 -16.2 -0.8 100 International markets
2010 -1,257 -26.7 -1.5 100 Political uncertainty
Cotton
1996 -219 -4.7 n.a. 100 International markets
1997 -721 -15.3 n.a. 85 International markets
1999 -424 -9.0 -0.8 100 International markets
2005 -954 -20.3 -1.3 100 International markets
2007 -594 -12.6 -0.6 100 International markets
2008 -69 -1.5 -0.1 100 Domestic market
2012 -1,046 -22.3 -1.0 73 International markets
Potatoes
2004 -6,076 -129.3 -8.9 100 Domestic market
2008 -3,959 -84.2 -4.0 100 Economic downturn
2010 -2,889 -61.5 -3.5 100 Political uncertainty
2012 -3,876 -82.5 -3.9 100 Economic downturn
Tomatoes
2004 -63 -1.3 -0.1 100 Domestic market
2009 -36 -0.8 ** 100 Post–food price crisis adjustment
38
2010 -259 -5.5 -0.3 100 Political uncertainty
Cow’s milk
1999 -350 -7.4 -0.6 100 Economic downturn
Beef
1999 -531 -11.3 -0.9 100 Economic downturn
Sheep meat
1999 -237 -5.0 -0.4 100 Economic downturn
Eggs
1999 -62 -1.3 -0.1 100 Economic downturn
2010 -127 -2.7 -0.2 100 Political uncertainty
Source: FAOSTAT.
Note: n.a. = not available.
a. Calculated using the identities in appendix A. 2012 values based on real som prices (2012 = 100) and US$-som exchange rates for 2012.
Table 7 confirms the high exposure of crop commodities to price risk and the numerous sources of
this exposure. Wheat, potatoes, and cotton are the most vulnerable, with potatoes exhibiting the
highest levels of indicative loss. Price risk is low for livestock commodities, occurring in all cases in
response to an economy-wide reduction in domestic demand due to exogenous political and economic
shocks.
A Timeline of Agriculture Sector Shocks: 1992–2012
Figures 20 and 21 provide further insight into the incidence and magnitude of agriculture sector shocks
during the last 20 years. The two figures are drawn to the same scale to allow comparison of the
magnitude of production shocks alone versus joint production and price shocks. The short-lived
impact of economic transition is apparent in figure 20. Production shocks since transition have been
few in number and small in magnitude, with the largest occurring in 2010 (political uncertainty) and
2012 (drought).
Although the analysis of real price shocks only covers the period 1998–2012, the greater impact of
price versus production shocks on the value of agricultural output is evident. Price shocks occur more
often than production shocks, affect more commodities, and incur much higher indicative losses. The
high joint impact of price and production shocks is also evident in 2010 and 2012, when economy-
wide downturns coincided with drought.
39
Figure 20 Indicative Losses in Constant Prices for Agricultural, 1992–2012
Source: FAOSTAT.
0
20
40
60
80
100
120
140
160$
US
mill
ion
(2
01
2)
GAO All GAO Crop GAO Lstk Milk Beef Sheep Meat
Eggs Wheat Maize Cotton Potatoes Tomatoes
40
Figure 21 Indicative Losses in Real Prices for Agricultural Products in the Kyrgyz Republic,
1992–2012
Source: FAOSTAT.
Comparison of figures 20 and 21 also shows the need to measure the impact of shocks on both
production and prices. The impact of many production shocks on GAO is often offset by a
corresponding increase in producer prices, which tend to rise when production falls. As observed in
2010 and 2012, the worst shocks typically occur when production shocks coincide with an exogenously
driven fall in real prices.
Ranking and Prioritizing Agriculture Sector Risk
The preceding analysis shows that the agriculture sector faces two main types of risk: high-cost, low-
frequency shocks to aggregate output associated with exogenous, economy-wide events such as the
political instability of 2010 and lower-cost, medium-frequency, commodity-specific risks associated
with price volatility. These two sets of risks are examined in this section to elucidate approaches to
risk management.
Each category of risk is quantified according to two parameters: (a) the average indicative cost of the
observed shocks above the loss threshold during the relevant time period and (b) the frequency of
these shocks, expressed as the number of events during the relevant time period (for example, 3 events
in 21 years: frequency = 0.14). Results are presented for both production shocks (in constant prices)
and joint production-price shocks (in real prices). Due to lack of price data, production shocks are
analyzed for the period 1992–2012 and joint production-price shocks are analyzed for the period
1998–2012. While this limits the number of data points for analyzing joint production-price shocks,
the economic and political conditions since 1998 are more representative of future agriculture sector
conditions, particularly the growing importance of price risk.
0
20
40
60
80
100
120
140
160
$U
S m
illio
n r
eal
pri
ces
(20
12
=10
0)
GAO All GAO Crop GAO Lstk Milk Beef Sheep Meat
Eggs Wheat Maize Cotton Potatoes Tomatoes
41
Sector wide Risks
Major shocks to aggregate agricultural output are less likely to occur in a diversified agriculture sector
with reasonable access to irrigation, as in the Kyrgyz Republic. Losses can be high when they do occur,
however, as such shocks are usually caused by extreme events that affect the price and production of
a range of commodities. Figure 22 shows the incidence, cause, and impact of sector-wide shocks from
1998 to 2012.9 The indicative costs incurred represent the combined impact of these shocks on
production and prices, measured in real (2012) prices. (The size of the bubble represents the size of
the indicative loss).
Figure 22 Major Shocks to Aggregate Output in the Kyrgyz Republic, 1995–2015
Source: FAOSTAT.
The Russian financial crisis of 1998–99 and the economic recession of 2002 depressed domestic
demand, raised inflation, and depressed real prices for agricultural commodities, with a consequent
fall in the value of aggregate agricultural output. Real prices fell for livestock commodities and cotton
in 1999 and for cereal prices in 2002, all of which are major components of sector output. In both
years, aggregate losses were low in relative terms, however, at approximately 2 percent of GAO.
The political unrest of 2010 had a more severe impact, with indicative losses estimated at 6.6 percent
of GAO. Both production and prices fell, particularly in the south, where border closures reduced
input supply and political unrest disrupted cropping and markets. Localized droughts and a severe
winter accentuated the fall in production. The impact of these adverse events was highest for the value
of crop production. Drought was the major cause of reduced output in 2012, with wheat and cotton
production most severely affected. A concomitant fall in international cotton prices exacerbated the
underlying production shock. Despite their magnitude, neither of these two shocks had a major impact
9 The adverse impact of economic transition in 1994 was not included, as it is not relevant for future risk management.
0
20
40
60
80
100
120
140
160
180
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Ind
icat
ive
Co
sts
$U
S m
illio
n (
20
12
)
Russian Financial Crisis - Lstk GAO
Economic Recession - Crop GAO
Political Unrest - Crop GAO
Political Unrest - Total GAO
Drought - Crop GAO
42
on the value of aggregate livestock production. Drought was the least frequent cause of aggregate
shocks to agricultural output for the period 1998–2012. Exogenous political and economic shocks
were both more frequent and more damaging to agriculture.
Commodity-Level Risks
Analysis by commodity provides further insight into production risk, (real) price risk, and the impact
of joint production and price risks. Production shocks (measured in constant prices for 1992–2012)
were observed for wheat, mutton, eggs, maize, potatoes, and tomatoes (figure 23). Economic
transition in 1992–95 caused production shocks for mutton, eggs, potatoes, and tomatoes. Drought-
related shocks for wheat were the only production risk since the mid-1990s. Wheat’s susceptibility to
drought is due to the reliance on upland (unirrigated) production in some areas. The large area sown
to wheat also means that indicative losses can be high. Access to irrigation appears to mitigate drought
risk for the other crop commodities, and the ability to move livestock to better grazing areas reduces
production shocks for livestock commodities.
Figure 23 Shocks to Physical Output by Commodity in the Kyrgyz Republic (Constant Prices)
Source: FAOSTAT.
Analysis of the frequency and cost of (real) price shocks was based on adverse events caused partly or
solely by a decline in real prices, using the identity in appendix A. Price shocks that were offset by
increased production were not included in the analysis. The results are shown in figure 24.
Price volatility is a much greater source of risk than drought. All of the main commodities experienced
(real) price shocks during the period 1998–2012 in response to both economy-wide and market-
specific adverse events. Wheat and cotton price shocks occurred with the greatest frequency, although
the indicative cost of these shocks was moderate. In both cases, this risk was heavily influenced by
price variability in international markets. Price risk also was high for potatoes, with a pattern of
0
10
20
30
40
50
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50
Ind
icat
ive
Lo
ss $
US
(mill
ion
)
Probability of Shock
Eggs
Tomatoes
Wheat
Mutton
Maize
Potatoes
43
medium-frequency, high-cost shocks. Potato price shocks were the result of instability in both regional
and domestic markets, due to border closures and trade disputes and to short-term imbalances in
domestic supply and demand. Of the other crop commodities, maize and tomatoes exhibited medium-
frequency, low-cost price risk. Economy-wide shocks had the biggest impact on livestock commodity
prices, although in general price shocks for livestock commodities were low-frequency, low-cost
events.
Figure 24 Shocks to Producer Prices by Commodity in the Kyrgyz Republic (Real Prices)
Source: FAOSTAT.
The pattern of joint production-price shocks by commodity for 1998–2012 follows an identical pattern
to that observed for price risk (figure 25). This is to be expected, given that price risks are larger and
more prevalent than production (drought) risks.
0
20
40
60
80
100
120
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50
Ind
icat
ive
Lo
ss $
US
(mill
ion
)
Probability of Shock
EggsMutton
Potatoes
Beef
Wheat
MaizeCotton
TomatoesMilk
44
Figure 25 Shocks to Production and Prices by Commodity in the Kyrgyz Republic (Real
Prices)
Source: FAOSTAT.
Conclusions and Recommendations for Risk Management
The preceding analysis confirms that agricultural risk is low at aggregate level due to the sector’s highly
diversified production base and access to irrigation. Public and private sector initiatives to sustain this
diversity and maintain the physical and institutional infrastructure for irrigation are thus the foundation
for agricultural risk management.
At commodity level the analysis shows that future agricultural sector development will need to place
a much greater emphasis on responding to price risk, compared to the traditional focus on production
risk. Drought is the major source of production risk, but its impact is limited to wheat – due probably
to the reliance on non-irrigated, upland wheat production in some areas. Wheat also emerges as the
commodity most vulnerable to risk due to its exposure to both production and price risk.
Wheat, cotton and potatoes are the commodities most vulnerable to price risk, although most crop
commodities are vulnerable to one degree or another. Price shocks to major commodities such as
wheat and potatoes can also incur the highest indicative costs. Livestock commodities are much less
vulnerable to price risk, with low frequency-low cost shocks observed. The aggregate impact of
commodity level price shocks tends to be small, however, as shocks/losses for one commodity are
typically offset by increased prices for others. Occasional, economy-wide price shocks can result in
high, sector-wide losses, as occurred in response to the political unrest in 2010.
These conclusions highlight the implications of the continued shift towards commercial agriculture –
and the increasing consequent vulnerability to market shocks. Improved management of price and
market risks will require deeper, stronger markets, a better understanding of market behavior by
0.0
20.0
40.0
60.0
80.0
100.0
120.0
0.00 0.10 0.20 0.30 0.40 0.50
Ind
icat
ive
Lo
ss (
$U
S m
illio
n)
Probability of Shock
Tomatoes
Wheat
Mutton
Potatoes
BeefMilk Cotton
Maize
Eggs
45
producers and market agents and better access to market information. The free flow of exports and
imports with Kazakhstan and Uzbekistan is also critical. A much greater emphasis on product quality
and compliance with phytosanitary, veterinary, and health requirements is essential in this context.
The main recommendations of this report are as follows:
Continued support for a diversified agricultural production base and assured access to irrigation will remain fundamental to effective risk management;
For livestock, pasture crops and rainfed crops, climate smart agricultural practices, watershed management, rainfed water harvesting and on farm water use efficiency will help mitigate production risks;
Similarly, continued measures to deepen domestic markets are needed to address many of the price risks for agricultural commodities. These measures include better market information systems, more effective supply chains, better access to storage and improved transport infrastructure;
Reliable access to traditional export markets in Kazakhstan, Uzbekistan and Russia is also critical – for both agricultural imports and exports. Border closures and barriers to transit incur high costs in terms of both price instability and lost trade. While some of these problems are beyond the direct control of Kyrgyzstan, many trade flow constraints are the result of inadequate compliance with conventional phytosanitary, veterinary and health requirements by Kyrgyz producers and exporters. Improved compliance with these requirements will help to reduce market instability – particularly for livestock commodities;
Stronger regional coordination of measures to mitigate locust attacks and outbreaks of trans-boundary livestock disease would reduce the high current exposure to these risks.
The following risk management recommendations were selected for in-depth review and form the
Solutions part of the report:
Solutions Area 1: Creating market opportunities
Solutions Area 2: Improving livestock productivity.
46
Part II Solutions
Solution Area 1. Creating Market Opportunities
Different layers of risk in agriculture are based largely on the frequency and magnitude of risk events
(OECD 2011). The interconnected nature of supply chains and agriculture sector actors and
stakeholders requires a holistic systems approach that emphasizes transparency and predictability from
the public sector. Aggregate sector efficiency, diversity, and competitiveness underpin any strong risk
management strategy.
Part I of the risk assessment concluded that agricultural risk at an aggregate level is low in the Kyrgyz
Republic due to the country’s highly diversified production base, which has emerged over the past 20
years. The Kyrgyz agriculture sector is fairly resilient as a result of its strong diversification and access
to irrigation. Normal risks, which are high-frequency, low-magnitude events that affect only a single
commodity or a handful of value chains at a time, have a minimal effect at the national level. The
sector is generally responsive to market signals at all levels, with an active trade in which Kyrgyz and
foreign traders pursue producers’ products and producers respond by specializing in certain products
or shifting their mix of crops. With diversity of production already contributing to resilience, the risk
management solutions presented here prioritize practical policies, programs, and investments to
increase efficiency and competitiveness across the agriculture sector, without focusing on any one
commodity.
This section offers recommendations to increase sectoral efficiency and competitiveness in three areas:
(1) market knowledge and training, (2) investment promotion and business enabling environment, and
(3) trade facilitation.
While each value chain or commodity may have fairly unique constraints on efficiency or
competitiveness related to technology, seasonality, handling and perishability, or markets,
overemphasis or investment in a particular subset of crops or products may increase the aggregate risk
profile by decreasing diversity. A balance between efficiency, diversity, and competitiveness must
underpin all policies and interventions.
Risk Management: Background
Normal agricultural market risks, including high-frequency, low-magnitude (or low-cost) events,
market-based shifts in production, prices, and markets, and weather, do not typically require any
specific policy response and are managed directly by farmers and other stakeholders as a part of their
everyday business strategy. Catastrophic risks, which are infrequent low-frequency, high-magnitude
extreme events that affect many or all producers and sector stakeholders, are usually beyond the
capacity of producers or markets to cope.
47
Between the extremes of normal and catastrophic risks are marketable or transferable risks.
Government policy can ensure a predictable and equitable operating environment by encouraging the
development of market-based risk management tools, such as investment and financing, insurance,
and marketing contracts.
In this risk assessment, aggregate risks at a national level have been considered instead of at a supply
chain level or from the perspective of a particular set of actors, such as producers. A systemic approach
considers both the long-term and short-term effects of adverse events across the entire sector. A
systemic approach empowers agriculture sector actors to manage normal risks by formulating
strategies and policies that balance sector efficiency, diversity, and competitiveness with sector growth.
The risk assessment presented in phase I of this report concludes that the Kyrgyz agriculture sector is
exposed mostly to normal market risks, including price volatility and the country’s position as a small
open economy located within a politically and economically volatile region. Government can help
supply chains and key stakeholders, including producers, to cope with these normal risks by
strengthening agricultural services, creating an enabling environment that encourages private
investment and competition, and satisfying specific infrastructure requirements.
The Kyrgyz Agriculture Sector
Despite the diversity of crops grown, a handful of crops dominate the country’s gross agricultural
output. Of the eight products making up roughly 80 percent of GAO, livestock products represent
roughly 45 percent (table 8). These livestock products are sold almost exclusively within the domestic
market.10 Two cereals (maize and wheat) make up roughly 16 percent of GAO and occupy 37 percent
of cultivated area.
Table 8 Most Important Crops in Gross Agricultural Output in the Kyrgyz Republic
Product % of GAO % of cultivated area
Milk 24
Beef and mutton 20
Potatoes 14 7
Maize 9 7
Wheat 7 30
Cotton 3 2.50
Tomatoes 3 6a
Egg production 2.50
Source: Based on FAOSTAT.
a. % of vegetable cultivation.
10 Export market opportunities for livestock products are constrained largely by nontariff barriers, including animal health
and sanitary standards and labs and certifications. These barriers are discussed in the trade facilitation section of this report.
48
Potatoes, cotton, and tomatoes are 14, 3, and 3 percent of GAO, respectively, and are also among the
country’s 10 most important agricultural exports. Even milk and meat, the two largest contributors to
GAO, do not constitute half of the aggregate sector’s value. The diversity within the most significant
eight crops and the limited share of each in the total contribute to the diversity within the Kyrgyz
agriculture sector.
While the Kyrgyz production base has become more diverse, the country remains a net importer of
food, as shown in the food balance sheet in table 9. Imports are dominated by wheat, sugar, and
vegetable oils. Agricultural exports equaled only 7 percent of total production by volume, but 17
percent by value. Export crops are higher-value products, including dry beans, cotton, fresh apricots,
apples, potatoes, and tomatoes.
Table 9 Food Balance Sheet in the Kyrgyz Republic, 2011
Source: FAOSTAT.
Agricultural products accounted for roughly 14 percent of total exports in 2012, with agricultural
exports valued at US$1,687 million (table 10). Dry beans represented the largest-value food product
export, with 61,000 metric tons exported worth US$48 million (79 percent of total dry beans
produced). Cotton exports were worth US$33 million, and fresh apricots and apples together
Kyrgyzstan
2011
FoodBalanceSheets
Prod. Impo.Stock
Var.Exp. Total
Trade
BalanceFood
Food
ManuFeed Seed Waste
Oth.
Uses
SingleItems
DomesticSupply DomesticUtilization
1000Metrictons
GrandTotal 6,131 922 21 451 6,622 (471) 4,095 295 1,603 338 170 125
Cereals-ExcludingBeer 1,498 525 1 6 2,017 (519) 920 71 916 73 35 3
StarchyRoots 1,379 2 - 90 1,291 88 545 2 416 260 67 1
SugarCrops 159 - - - 159 - 158 1
Sugar&Sweeteners 18 111 4 5 128 (106) 127 - 1 -
Pulses 76 1 8 76 8 75 7 1
Treenuts 15 1 (1) 6 10 5 10
Oilcrops 118 6 (10) 1 112 (5) - 61 45 5 2 -
VegetableOils 15 40 1 - 57 (40) 44 - 13
Vegetables 973 10 - 135 848 125 797 12 40
Fruits-ExcludingWine 222 48 - 86 183 38 167 3 3 10
Stimulants 19 2 16 (17) 16
Spices 1 - - 1 - 1
AlcoholicBeverages 49 39 1 88 (38) 78 10
Meat 190 87 - - 276 (87) 199 1 78
Offals 25 - - 26 - 19 - 7
Animalfats 13 5 - 1 17 (4) 5 - 12
Eggs 22 4 - - 26 (4) 25 - 1
Milk-ExcludingButter 1,358 13 18 42 1,347 29 1,125 - 209 13
Fish,Seafood - 11 - - 12 (11) 10 1 -
AquaticProducts,Other - - - - -
Miscellaneous
49
accounted for US$23 million (about 10 percent of the apples appear to have been re-exports). Potato
exports, equal to 62,000 metric tons, were worth US$10.5 million, with exports representing only
about 5 percent of total Kyrgyz potato production. Wheat, sugar, and cocoa were the highest-value
imported food crops. Vegetable oils may represent the most interesting import substitution
opportunity, with a total import value of US$53 million.
Table 10 Trade in Agricultural Products in the Kyrgyz Republic, 2012
Exports Imports
Product
Total
production
(metric tons)
Quantity
(metric
tons)
% of total
production
Value
(US$)
Quantity
(metric tons)
Value
(US$)
Trade balance
(US$)
Dry beans 77,800 61,519 79 48,342,051 2,207 851,880 47,490,171
Cotton 28,000 26,910 96 33,850,157 2 17,309 33,832,848
Apricots, fresh 22,000 18,469 84 12,178,336 — — 12,178,336
Apples, fresh 137,000 30,815 22 10,791,366 3,894 2,335,805 8,455,561
Potatoes 1,312,699 62,025 5 10,541,455 157 58,921 10,482,534
Milk 1,350,150 17,918 1 10,493,616 875 1,371,205 9,122,411
Raw hides 36,461 10,216,514 21,309 4,489,062 5,727,452
Other rootsa 128,887 45,379 35 6,468,552 12 2,031 6,466,521
Walnuts 5,800 3,418 59 6,272,525 — — 6,272,525
Tomatoes 191,735 5,896 3 5,672,982 390 149,305 5,523,677
Cocoa — — — 2,854,937 — 84,401,817 (81,546,880)
Sugar 13,000 — — 1,069,968 — 85,689,146 (84,619,178)
Wheat 540,531 — — — 440,094 88,100,188 (88,100,188)
Vegetable oilb 13,463 — — — 38,276 53,538,423 (53,538,423)
Margarine — — — — 9,444 14,725,321 (14,725,321)
Rice 23,069 — — — 25,844 12,357,405 (12,357,405)
Sources: UN Comtrade; FAOSTAT.
Note: – = not available.
a. Includes carrots, beets, turnips, and others. b. Includes sunflower seed, safflower, and cottonseed oil.
While diversity of production underpins the current risk profile, diversity of export products indicates
the resilience of the sector. While exports represent only 17 percent of total GAO, roughly 55 percent
of those exports are spread across 10 crops. Even though dry beans are the most significant
agricultural crop exported by value, they contribute only 18 percent of the total value of Kyrgyz
agricultural exports.
50
The diversity of crops exported is important for risk mitigation. The larger market risk is where there
is little or no diversity in destination export markets. Kazakhstan and Russia are the largest destination
markets for Kyrgyz agricultural exports. Many crops are exported to each of these principal markets,
but trade is dominated by these destinations. In 2012, those two markets accounted for US$166 million
in export value and for 61 percent of total agricultural exports. Adding in the third most important
market, Turkey, concentrates total agricultural exports in these three markets, with 74 percent of total
exports. Table 11 lists the top export markets for the Kyrgyz Republic in 2012 by value and indicates
the export product with the largest share of the trade.
51
Table 11 Top Export Markets for Kyrgyz Agricultural Products, by Value, 2012
Trade partner
Total
agricultural
exports
% of total
agricultural
exports
Highest-value export
product with that partner
Value of
product
% of total
exports with
that partner
Kazakhstan 120,027,461 41 Apricots and apples, fresh 22,199,256 18
Russian Federation 46,340,682 16 Cotton 29,013,492 63
Turkey 35,107,501 12 Dry beans 25,073,830 71
China 11,073,471 4 Raw hides and skins 4,690,821 42
Tajikistan 7,682,489 3 Live cattle 1,685,387 22
Bulgaria 7,622,741 3 Dry beans 7,310,052 96
United Arab Emirates 6,191,257 2 Processed meat products 4,329,716 70
Uzbekistan 5,282,361 2 Chocolate and prepared
food
1,066,203 20
Macedonia, FYR 5,081,870 2 Dry beans 5,081,870 100
Iran, Islamic Rep. 2,068,368 1 Shelled walnuts 1,746,472 84
Georgia 2,059,794 1 Dry beans 2,024,494 98
Source: UN Comtrade.
Fresh apricots and apples are the largest single commodity by value exported to Kazakhstan, but
account for only 18 percent of the total Kyrgyz agricultural trade with that country. The Russian
market is the second most important market for Kyrgyz agriculture. It is dominated by cotton,
although dry beans are also significant. Dry beans are sold to, among other buyers, Russian canning
companies. Dry bean exports to Russia in 2012 were worth US$5.3 million and accounted for 12
percent of the total export value of agricultural products into the Russian market. Dry bean exports
also accounted for 71 percent of total agricultural exports to Turkey. Hides and skins accounted for
42 percent of agricultural exports to China.
Market risk improves with diversity—diversity of products, diversity of markets, and diversity of
products in the target markets. Kazakhstan represents 41 percent of agricultural exports, but that 41
percent represents a very diverse basket of products. The Russian market is less significant, at 16
percent, but 75 percent of the export value is locked into cotton and dry beans. Of the exports to
Turkey, 71 percent are dry beans. Improving the risk profile of agricultural exports means not only
increasing the share of export value in additional markets, but also increasing the diversity of exports
to existing markets. Both of these can be achieved by increasing the efficiency of the supply chains
into these markets (including improvements in logistical infrastructure, marketing information, quality
and standards capability and capacity, and trade facilitation) and by improving the competiveness of
supply chains and products (including investments in upgrading technology along the supply chain,
access to affordable finance, and business enabling environment).
52
Risk Management: Areas of Priority
The Kyrgyz agriculture sector has a low risk profile and generally faces normal market risks, including
price volatility and market shifts that affect individual or groups of commodities rather than the entire
sector. While various livestock products represent roughly 45 percent of total GAO, no single crop
dominates. The domestic market is the most important market, as the destination for just over 80
percent of GAO by value, but the Kyrgyz Republic is a small, open economy, and the sector must
compete even domestically with regional and global production.
The potential significant market risk is the country’s economic reliance on Russia and Kazakhstan,
both because they serve as destination markets for the majority of food exports and because economic
problems in those markets have a significant impact on Kyrgyz domestic markets (including financial
crises abroad that reduce the amount of labor remittances and thus the purchasing power of Kyrgyz
consumers). Risk management policies should support the capacity of the sector’s producers and key
stakeholders to manage and respond to market shifts and events, without overemphasizing any
particular crop or set of crops.
Various donor projects and government programs are investing in increasing the efficiency and
competitiveness of specific agriculture value chains and in increasing private sector investment across
agricultural industries. They are also supporting services, including financial and information services.
These programs strengthen the capacity of stakeholders to manage and respond to normal agricultural
risks.
It is important to balance agriculture sector investments and development efforts across the three risk
management pillars of efficiency, diversity, and competitiveness. Diversity of production is the
strongest aggregate risk mitigation characteristic of the Kyrgyz agriculture sector. Practical programs
and investments to increase efficiency and competitiveness of specific value chains are important to
unlock the particular constraints on those value chains. But an overarching risk management strategy
has to balance the need to address narrow constraints with the need to pursue specific opportunities
to diversify production and markets. Without such balance, the sector may become too dependent on
a smaller set of products, value chains, and end markets.
Government interventions related to normal risk, such as establishing supported floor prices or
subsidizing insurance, may encourage producers and sector stakeholders to pursue risky activities.
Unintentionally incentivizing risky behavior should be avoided. Moreover, government needs to
ensure that all policies and activities are predictable and transparent. Uncertainty of regulations and
interventions, including responses to both normal and catastrophic risks, can disincentivize private
investment, savings, and an active commodity trade.
Risk Management in the National Agricultural Strategy
The Kyrgyz Republic’s National Sustainable Development Strategy (NSDS) highlights a few key
challenges and risks relevant to the agriculture sector and, more specifically, to the market risks
identified in phase I of this assessment. While the section on risk does not discuss the domestic market
or specific market access issues, the NSDS does highlight the market-related difficulties of the
country’s relatively isolated, landlocked geographic location, which inhibits access to ocean ports and
53
to international trade and transport corridors. The NSDS identifies the need to implement measures
to diversify the economy and exports and to foster the competitiveness of domestic industries.
Membership and participation in key international alliances are specifically named, including the
Commonwealth of Independent States, the Collective Treaty Organization, and the Shanghai
Cooperation Organization. Although not specifically mentioned, accession to the Eurasian Economic
Union is aligned with the intention to prioritize strategic international alliances and export orientation.
The NSDS recognizes the relatively low ranking of the Kyrgyz Republic in many of the international
ratings for investment climate and business enabling environment, including the Global
Competitiveness Index and the Doing Business Index. The private sector has continued to invest in
the agriculture and agricultural processing sectors, but has been hindered by the country’s weak
investment climate and by corruption. Addressing these constraints is a key component of the NSDS.
Agriculture’s ability to manage and respond to risks requires investment in transport corridors and
logistical infrastructure as well as in efforts to improve the efficiency, diversity, and competitiveness
of the sector and the general investment climate.
The National Export Strategy of the Kyrgyz Republic summarizes previous development plans for
the sector, which prioritized the availability of market information, quality control and standards,
access to finance, customs procedures, and trade support institutions. The current strategy focuses on
market diversification (including fostering trade with Uzbekistan, Turkey, United Arab Emirates, and
China and strengthening trade with Russia and Kazakhstan), access to finance, trade information and
promotion, quality management, and trade facilitation.
The strategy identifies ways to strengthen the efficiency and competitiveness of the agriculture sector.
Increased efficiency and competitiveness in traditional domestic and export markets should open up
alternative markets for Kyrgyz production. For example, modernization of quality testing and
standards necessary to access and compete in the Russian market will also be relevant to trade with
the United Arab Emirates or Chinese markets. Disseminating trade information as well as promoting
and facilitating trade in less traditional destination markets will decrease the reliance on Russian and
Kazakh markets, reducing the sector’s exposure to risk. Individual commodities and products will
likely continue to be exposed to a narrower set of risks, but the aggregate sector will be cushioned
through increased diversification of both production and destination markets.
Potential Interventions
Recommendations to increase sectoral efficiency and competitiveness fall into three broad areas: (1)
market knowledge and training, (2) investment promotion and business enabling environment, and
(3) trade facilitation. An aggregate, systemic sectoral approach can support actors and stakeholders
across diverse products and value chains. Table 12 provides an overview of identified market risks
and proposed interventions to respond to each of these risks.
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Table 12 Market Risks and Proposed Responses for the Aggregate Agricultural Sector in the Kyrgyz Republic
Risk level and response strategy
General risk area and specific targets for risk
management
Micro (idiosyncratic):
affects individuals and households; reducing and
mitigating risks
Meso (covariant):
affects groups or communities;
sharing, transferring, and pooling risks
Macro (systemic):
affects regions or nations;
coping with risks and recovering from disaster
Market Information and Intelligence
Reliable, consistent market datasets for
correlation and trend analysis
Training in utilization and market
development for market intelligence
products
Inventory available market information sets and
coordinate across Agencies through a single
responsible body
Relevant international market intelligence
on end markets and competing global
production
Access available market information via
publication, internet, or cell phone/SMS
Associations and industry groups
facilitate access market information
datasets to relevant international markets
Collate and publish market information in a timely
and consistent reporting schedule
Business Operating Climate and Private Sector Investment
Predictable and Transparent Legal and
Regulatory Framework
Changes and implementation in local policy
or regulations
Changes and implementation in local
policy or regulations
Changes and implementation in regional or
national policy and regulation, environmental law,
agricultural payments
Consultative Legal and Regulatory
Framework
Local and Regional Public/Private Sector
consultations regarding agricultural sector
investment
National consultative public/private dialogue
Tax regime Predictable, evenly applied tax
implementation
Comprehensive quantitative assessment of the
financial impact of taxes for ag stakeholders
Changes and implementation of tax regime
Access to finance for sector upgrades and
innovation; including storage and
processing
More consistent demand from value
addition and downstream operating capacity
Increased efficiency and competitiveness
through new technology and business
ventures
Matching Grant fund
Market Access and Trade Facilitation
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Trade Agreements Pursue trade agreements with diverse trade
partners
Non-tariff trade barriers Capacity to meet new market opportunities
that offer market premiums
Adopt globally competitive processes and
innovative technologies through
upgrading downstream investment
Upgrade capacity and infrastructure to meet and
certify global standards
Food Safety Regulatory Reform
Diversify end markets to reduce
dependence on markets which may
impose valid or suspect technical barriers
to trade
Transport Cost and Capacity Upgrade key transport corridors
Upgrade transport equipment to improve
efficiency of product transport and
logistics
Legal and regulatory framework for equipment
leasing
Customs and Border Formalization Technology, capacity, procedures, and
infrastructure improvements to reduce time and
cost
Exchange Rate Risk Diversify end markets
Note: — = not available
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Market Knowledge and Training
Asymmetrical availability of and access to market information result in significant sector inefficiencies.
Basic market information includes accurate data on historical market prices and timely data on
indicative market prices, volume of trade through critical markets, and production. Market intelligence
is the analysis of basic market information for use in decision making. It includes trend and correlation
analysis, forecasting, and analysis of relevant external business environment information, including
political and macroeconomic factors. Basic market information is typically a public good and is
necessary for developing proper market intelligence. Market intelligence is often a private sector
product that sector stakeholders may develop and analyze themselves or may purchase as a service
from a third-party specialist.
Active market actors, including producers, traders, and processors, track trends in prices and trades
across seasons and regions to predict market movement for the current season. Publicly available and
accurate data sets allow stakeholders, including not only market actors but also financial institutions,
to conduct trend and correlation analysis. Many larger actors are active in their local markets on a daily
basis and are extremely well informed, while remaining tangentially aware of the usual and expected
correlations between their markets and large regional markets. However, they do not monitor those
markets with the same depth or focus. Smaller producers and actors are often only active in their
usual, local markets as harvest approaches and into the storage season. They likely do not have access
to or resources to obtain market information or to generate their own market intelligence outside of
the main marketing season.
Under the NSDS, the Kyrgyz government has set a goal of establishing a modern market infrastructure
for the agricultural complex. This goal includes developing an annual forecast of supply and demand
in regional and local markets for agricultural products and forming official sources of the information
needed by rural producers. At present, the public sector seems to have a reasonably strong network
for forecasting production through the oblast and rayon administrations, but information moves
largely in one direction, with no timely reporting to the sector at-large. The oblast and rayon
administrations conduct a detailed survey of producers at various points in the production season,
starting in the planning phases. The information is collated at the national level, but oblast and rayon
officials do not appear to have timely access to national data to share with market actors, including
the producers who are surveyed. These forecasts are in addition to the annual production statistics
collected and documented by the National Statistics Bureau.
Previous donor programs supported the development of KAMIS, the Kyrgyz Agriculture Market
Information System. Now an independent and private organization, KAMIS produces some limited
market intelligence reports and maintains a data set of basic market price information. It used to
produce an agricultural markets magazine funded by donors, but once donor funding ended, the
private market did not sustain the activity. In addition, several private agriculture-focused consulting
firms provide market intelligence and strategy services to the largest investors and actors in the
agriculture sector. During the consultation, many producers, traders, and processors cited the Internet
and personal contacts as additional sources of market information and market intelligence.
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Box 1. Market Information System to Facilitate Export Growth
Market information systems (MIS) provide market monitoring indicators and decision-making
support to agricultural stakeholders. The goal of MIS is to correct for information asymmetry between
market actors and to improve market efficiency by increasing transparency. Price data alone is not
sufficient for MIS to be effective; the data must be comprehensive, timely, and commercially useful.
Agricultural stakeholders, particularly smallholders, should also be empowered to use the information
to facilitate decision-making and to negotiate with trade partners. Thus, successful MIS are typically
linked to support services, such as: business opportunities, market analyses, climate forecasts, and
training. Ideally, MIS are integrated into value chain and enterprise development activities.
The case of the Agricultural Market Information Service (SIMA) in Bolivia is a successful example of
a MIS designed to support export growth with regional trading partners. Donors provided long-term
funding for the creation of a private, non-profit organization to operate and maintain SIMA. Today,
SIMA collects daily price data on over 180 agricultural products in key markets in Bolivia, Peru, and
Argentina, providing access to annual historical data dating back to 2002. Fundación Valles, the non-
profit created to operate SIMA, disseminates price data via radio and provides value-added services
to farmers, including improving marketing channels and training on new technologies and practices.
Source: World Bank 2009.
Equal and predictable access to reliable market information, accurate data sets, and market intelligence
allows sector stakeholders, including producers, to make critical decisions related to mitigating risk
and coping with normal market risks.
A complementary set of market information, market intelligence, and training services and support
could be developed between the public and private sectors. For example, the public sector could
strengthen its timely collection and reporting of production forecasts, market prices, and end-of-
season commodity data. CAMIB in Moldova is an example of an NGO Agriculture Market
Information and Intelligence Service. It was launched within the Ministry of Agriculture and
Processing Industry under an EU TACIS program in 1997. In 1999, it was transitioned to a non-
profit NGO. A principle mission is to provide domestic food operators with information and
marketing services fundamental to create and maintain market transparency - which is an indispensable
prerequisite of market economy. They have continued to receive donor funding which have helped
to fund their publically available public good market information, as well as underwrite market
intelligence reports both on Moldovan and target international markets.11 Similarly, in Bolivia, a non-
profit organization collects and disseminates daily price data on agricultural products in key regional
markets in Bolivia, Peru and Argentina, improving transparency and helping stakeholders make more
informed trade decisions (box 1).
Private market intelligence services and commodity groups, such as the Association of Fruit and
Vegetable Enterprises, can use the publicly available data sets and political and economic analysis to
11 http://www.camib.com/eng/about_us.php
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provide useful market intelligence through a variety of fee-for-service mechanisms, including
agricultural magazines and regular commodity- or market-specific subscription-based newsletters.12
As noted, some private capacity already exists within the Kyrgyz Republic, but it focuses on larger,
individually developed market intelligence clients, such as financial institutions involved in
agribusiness lending or larger processors. This is due, in part, to a significant capacity constraint on
the part of farmers and small and medium actors who have limited exposure to reliable market
intelligence or training in how to apply the information to business decision making, including risk
mitigation. The commodity groups have not pursued strategic market intelligence products for their
constituents. Both the trade promotion agencies in the public sector and the specific export-focused
commodity groups are well situated to contribute to meaningful market intelligence to support market
diversification and trade in the most relevant foreign markets.
Training is needed to help key market actors, particularly producers and smaller traders and
agribusinesses, to use publicly available data sets and to build capacity for using and interest in
developing market intelligence services and products.
To improve market knowledge, the following could be implemented:
Inventory existing forecasting and market information processes and reports within the
relevant ministries and agencies, including the Ministry of Agriculture, Fishing, and Processing,
the Ministry of Economy, and the National Statistical Committee. A wealth of information is
collected, but it has not been collated or made available in a useful and timely format. The
information is collected and maintained in different ministries and agencies. Assigning clear
responsibility to one agency or team is recommended to drive the process and ensure progress.
Design and implement, with the private sector, a structure to provide timely reporting of
market information. Consider the use of appropriate information technology to facilitate
access. Review other country experiences.
Develop and implement, with the private sector, training in the use of market information and
market intelligence for producers and small- and medium-size agribusinesses and traders. The
objectives are to inform stakeholders of the public information that is available to increase the
use and effectiveness of information and reporting mechanisms and to build a market for
privately developed, high-quality market intelligence. These trainings may be specific to the
value chain and should occur at the oblast or rayon level. They may be leveraged to facilitate
market linkages and develop additional business relationships.
Investment Promotion and Business Enabling Environment
The Kyrgyz Republic has limited investment in the postharvest, downstream end of the various
commodity value chains. As highlighted in World Bank (2014), the Kyrgyz Republic has a generally
low level of investment in formal agribusiness. In addition, agri-food logistics and marketing is still
relatively poorly developed.
12 For an example of a private, market intelligence, subscription-based newsletter, see http://www.ciafrica.co.za/images/WeeklyReportExample.pdf.
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Despite the low level of investment in formal agribusiness, the consultations indicated that trade is
very active, with Kyrgyz, Kazakh, and Turkish traders regularly sourcing products from farmers. This
robust trade links producers with end markets within the Kyrgyz Republic and key export markets for
diverse crops, including potatoes, dry beans, fresh fruit, and tomatoes. Farmers receive market signals
from their interaction with this trade and respond to them. Dry beans were hardly produced 20 years
ago but have become the most significant cash crop for producers in the Talas region. In other areas,
it is common to find a village or cluster of villages specializing in carrots, cabbages, potatoes, or other
products. These crops are not the only crops produced, but after the early movers try new crops with
the encouragement of traders, others move into production as well. This clustering of production
encourages more traders, as the volume of products able to be procured from an area increases.
However, Kyrgyz trade focuses on primary crops, with little or no significant capital investment in
postharvest handling, storage, or processing technology. As an example, cabbages are stored in
traditional on-farm clamps,13 with a single extended family or trader storing up to 600 or 700 metric
tons in clamps and losing between 20 and 40 percent before marketing the final load in late winter or
early spring. Traders are actively engaged with buyers as far away as Moscow, but market uncertainty,
the burden of formalizing business operations (including taxation, corruption, and uneven regulatory
implementation), lack of affordable finance (and the additional risk that capital finance entails), and
unfamiliarity with the range of technologies available (and their costs and benefits) all inhibit
entrepreneurs from upgrading their capacity and efficiency through the acquisition of technology and
development of modern logistics infrastructure, transportation, and handling. A leasing industry can
help logistics companies to refleet and expand transport fleets (box 2). The Kyrgyz Republic can
collaborate with the financial sector to ensure that a supportive regulatory framework is in place for
banks to develop and offer leasing mechanisms.
Box 2. Challenges to Establishing a Leasing Industry for Agribusiness: Lessons from
Armenia
Leasing is a mechanism that can provide Small and Medium Enterprises (SME) with the ability to
invest in productive and logistics equipment. In credit-constrained environments, a lease provides
access to finance, where the borrower (lessee) makes a monthly payment in exchange for use of a
productive asset and the lender (lessor) retains legal ownership. This helps SMEs establish a credit
history and gain access to the formal financial system. In the agricultural sector, a leasing industry
can provide much needed access to term financing, allowing agribusinesses to use leased equipment
as collateral.
The case of the ACBA Leasing Company in Armenia provides lessons in overcoming challenges to
establishing a leasing industry. After starting up in 2006, ACBA encountered problems with the
availability of equipment for import, lack of consumer understanding of how leasing works, and
regulatory issues in the enabling environment. Since the type of equipment ACBA typically offers
for lease was not previously imported in large quantities, ACBA hired a manager to analyze the
lifespan, local capacity for operations and maintenance, and resale value of equipment being leased.
13 A clamp is a traditional, roughly insulated, compact heap used as temporary field storage for hardy crops, particularly root crops.
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To disseminate knowledge on leasing, ACBA provided training for staff and paid commissions to
each of its branches for every new lease deal. Finally, ACBA successfully advocated for equipment
imported for lease to be exempt from a value-added tax, if the equipment was already on the
government’s list of equipment exempt from VAT when imported for use.
Source: USAID 2007.
Similar experiences are present with other crops. Potatoes are stored almost exclusively on-farm in
basic excavated root cellars. Even in food processing and dairy processing, Soviet-era or outdated
technology is often still used, and logistics systems and marketing are often outdated. This lack of
investment in postharvest storage and upgraded technology weakens the competitiveness of Kyrgyz
products both in competition with imports on the domestic market as well as in international markets.
The lack of innovation is relevant with respect not only to physical technology but also to processes,
standards, and marketing such as the adoption and implementation of hazard analysis and critical
control points and other food safety and processing best practices, as well as packaging, labelling and
branding.
Extensive study and planning have taken place around large-scale, public-private investment and
development of logistics centers, particularly for fruits and vegetables. These large-scale investments
would provide a consolidation center for packing and storage as well as a transport hub. The studies
have considered some successes and learnings from these large-scale centers in other locations, but
may not have completely considered the many examples where these investments have operated either
significantly under capacity or stood idle or been abandoned. Therefore, establishment of smaller-
scale, completely privately driven logistics centers using the most appropriate technology and design
chosen through a competitive matching grant fund, as outlined below, may be preferred at this time.
Increasing investment in agribusiness along the supply chain would improve the competitiveness of
the Kyrgyz agriculture sector. This would reduce exposure to some market risks, including
displacement by competing producers and processors, and would improve market linkages to reduce
unpredictability. Improving the business enabling environment and promoting investment are cross-
cutting activities within many donor projects. However, these projects focus mostly on particular value
chains, including dairy, fruit, and horticulture.
Promoting investment and improving the business operating enabling environment have several key
components.14
First, private sector consultation should underpin all efforts to improve the enabling environment.
Several ministries of commerce and industry have established quarterly public-private forums to
discuss key issues. At the Presidential level, the Kyrgyz Republic has a Council on Development of
Business and Investment that meets quarterly for consultation on regulatory reform and investment
promotion. Agriculture and agribusiness investment needs to be a central focus, as it risks being
sidelined in a more general public-private dialogue.
14 These recommendations are drawn from World Bank (2014).
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Second, a comprehensive quantitative assessment is needed of the financial impact of the current tax
regime on all participants in the agriculture sector, including farmers, processors, and traders. A tax
regime that is vague in certain specifics and administration can be clarified, improved, and
implemented efficiently and evenly, including consideration of the fiscal impact of alternative tax
regimes.
Third, technology needs to be upgraded and innovations adopted across the agriculture sector in order
to improve competitiveness and efficiency. Existing finance has not been sufficient to encourage
investment and implementation of new technologies and innovations. A competitive matching grant
fund could be used to encourage the sector to upgrade innovation and technology, particularly in
postharvest marketing, handling, and processing. Existing enterprises could upgrade equipment,
processes, and technology to improve the competitiveness of their existing portfolio of products and
develop and produce new products. Producers, traders, and transportation companies could upgrade
their handling capacity and reduce losses by upgrading their storage, handling, transportation, and
packing facilities. A complementary activity could include commodity value chain groups and
chambers of commerce to facilitate information and exposure to international best practices and
technological advances.
To promote investment and improve the business operating environment, the following steps are
recommended:
Establish a twice annual or quarterly consultation between the Ministry of Economy and the private sector focused on promoting agribusiness investment and development, sharing the experience of other countries, and working with existing organizations. This platform could be used to raise critical issues, with the overarching goal being to improve the capacity of the sector to cope with normal risks. The Ministry of Agriculture and Melioration may be an appropriate co-chair to maintain an agribusiness focus. A consultative process for considering changes to the Tax Code and overseeing a comprehensive quantitative assessment of the financial impact of taxes for stakeholders across the agriculture sector is an area of shared interest that would help to build practical momentum and achieve buy-in to the consultative process.
Define, develop a business plan for, and create a matching grant fund to spur critical investment in new technology and encourage innovation to improve competitiveness and efficiency. Consider the example of Fundación Chile and others (box 3). It is important to consider risk within the framework and governance of the fund to avoid incentivizing extremely high-risk investments. Assess the feasibility of the fund in terms of scale and potential impact.
Box 3. Innovation to Increase Investment in Agribusiness
In 1976, the Chilean government created Fundación Chile to add economic value to the country’s
products and services through innovation. As a private, non-profit corporation with funding from
the state and an American conglomerate, Fundación Chile played a crucial role in technology
transfer and incubation in target industries, including agribusiness, investing in research and
development to overcome market failures. In the 1970s and 1980s, Fundación Chile supported
innovation to encourage export diversification, initiating quality-improvement programs for
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salmon, aquaculture, meat, vegetables, and fruit. As a result, exports of salmon and trout increased
from 300 tons per year to 24,000 tons a year in the 1990s. The “Boxed Beef” initiative introduced
vacuum packing to the meat supply chain, creating new jobs and bringing more hygienic, better-
quality packaged meat products to the market. Similar successes occurred in the oyster, berries, and
asparagus subsectors.
Business Model
Fundación Chile identifies investment opportunities with high potential, based on technology
innovation that is appropriate for local conditions. Once a new technology is developed (or acquired
and adapted), private sector partners are brought in to create a company for the technology. Today,
Fundación Chile is self-financing; it leverages competitive funds from Chile’s Economic
Development Agency, revenues from the sale of its products, and minority partnerships in each
new company it creates.
Key Features of Fundación Chile
• Public-private alliance • Private control • Market orientation • Use of networks for value creation and project scale-up • Creation of companies that will spread innovations • Self-financing
Source: World Bank 2014
Trade Facilitation
Trade facilitation focuses on helping trade across borders to occur faster, more cheaply, and more
predictably. Trade facilitation would directly strengthen the competitiveness of Kyrgyz exports in
foreign markets. Predictable, lower-cost trade procedures would encourage private investment,
including foreign direct investment, in the agriculture sector, particularly in postharvest handling and
processing ventures. The four pillars of trade facilitation are transparency, simplification,
harmonization, and standardization.
The World Bank’s Doing Business Index ranks countries according to factors important for the
business investment and enabling environment. The Trading Across Border factor considers the
bureaucratic and logistical challenges of international trade, including both imports and exports. It
considers the financial and time costs of procedures and transport. Central Asian countries rank
among the lowest in the world, reflecting both their geographic location and regional trade issues, as
transport and access to ocean ports are critical. The Kyrgyz Republic ranks 183 out of 189 in the Trade
Across Borders factor. The required documents to export do not appear to be onerous in comparison
with Europe, Central Asia, and Organisation for Economic Co-Operation and Development (OECD)
countries. However, exports take 63 days in the Kyrgyz Republic, compared to 23 days in Europe and
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Central Asia or 10.5 days in OECD countries. Moreover, transaction costs are high, representing
between 1 and as much as 15 percent of the value of traded goods.15
In 2009 the Kyrgyz Republic sought to improve trade facilitation by implementing a single window.
In 2010 border infrastructure and modernization improved at the Kazakh or Kyrgyz borders after the
border became an external border of the Eurasian Economic Union.16 The same improvements did
not occur at border points shared with other countries. The accession of the Kyrgyz Republic to the
Eurasian Economic Union in May 2015 includes important activities and outlines investment for
facilitating trade, particularly in the areas of trade technology, infrastructure, processes, procedures,
and capacity building of public sector trade institutions.
Nontariff barriers are among the most important trade-related concerns, and agriculture, in particular,
can be affected by domestic subsidies, uneven implementation of sanitary and phytosanitary
requirements, technical barriers to trade, export or import restrictions, and import or export licenses
(ITC 2011). While some nontariff barriers are expected to be lowered for trade with the markets of
Russia and Kazakhstan, these nontariff barriers are not significant for the primary crops exported.
However, they are important for animal products exported to traditional markets. Improving the
infrastructure for animal health and performance as well as upgrading the ability to meet, test for, and
certify international sanitary, phytosanitary, and food safety standards will improve the Kyrgyz
Republic’s ability to negotiate and overcome some of those barriers. The IFC has supported successful
food safety projects in transition countries, including the Ukraine and Belarus. Its extensive experience
could be replicated and adapted to the Kyrgyz Republic (box 4).
Box 4. Stepwise Approach to Food Safety
For Indian agribusinesses, compliance with food safety standards is one of the key barriers to entering
new markets. The upfront investment cost required for standard certification is too high for most
smallholder farmers, and this limits their ability to market horticulture crops to supermarkets and
regional exporters. To overcome this barrier, the Indian agribusiness Jain Irrigation System Ltd.
partnered with the IFC to develop and pilot a “JAIN GAP” standard to apply to farmers within its
supply chain. JAIN GAP – a simplified version of GLOBALGAP – introduces basic standards for
pesticide use and worker safety without significantly increasing production costs for farmers.
GLOBALGAP recognizes the JAIN GAP standard as a “Primary Farm Assurance” Standard,
providing a stepping stone for certifying small farmers to a higher standard in the future.
Source: IFC 2011.
Geographically the Kyrgyz Republic is situated between the Chinese, Russian, and European markets
and the Middle East. It is a mountainous country with 95 percent of transport by road (ADB 2009).
It is one of nine countries within CAREC, the Central Asia Regional Economic Cooperation. With
funding from the Asian Development Bank, CAREC is using transit trade through Central Asia to
develop links between Western China and Europe. The CAREC transport area has identified six
15 This figure is quoted in multiple overviews of trade facilitation, including ADB and UNESCAP (2013). 16 The information system supporting a single window was launched in 2011. Despite the investment and implementation so far, the Kyrgyz Republic’s ranking for Trading Across Borders remains low.
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transport corridors for investment and development to improve competitiveness of trade in, out, and
through the Central Asian countries. Four of the six corridors include the Kyrgyz Republic. CAREC
has identified a significant need to upgrade and invest in its road system along these key corridors.
Continued investment and upgrading of roads themselves as well as the trucks and transit equipment
used across the industry would help to lower transport costs and increase sectoral efficiency.
Improving trade facilitation will require a regular platform for private sector consultation (for example,
the public-private consultation dialogue outlined in the section on investment promotion). The Kyrgyz
Republic, under the NSDS, has prioritized negotiating and implementing strategic trade and economic
alliances with diverse partners. This includes accession to the Eurasian Economic Union but should
include other partners as well, including China, Uzbekistan, Tajikistan, and, further southwest, the
Islamic Republic of Iran, Turkey, and the Middle East. Consultation with the private sector can align
these trade facilitation activities with specific market opportunities and investment promotion
objectives.
The capability to control quality within both the public and the private sectors constrains access to
certain markets and weakens the competitiveness of Kyrgyz products with foreign products.17 This
has been particularly evident with regard to animal product exports. A collaborative approach between
government and the private sector should be pursued. The International Finance Corporation (IFC)
has supported successful food safety projects in transition countries, including Ukraine and Belarus.
Its extensive experience could be replicated and adapted to the Kyrgyz Republic. The IFC Food Safety
Toolkit provides extensive coverage of core building blocks and examples of food safety regulatory
reform. Some of the issues related to technical capacity are being addressed under implementation of
the Eurasian Economic Union accession. Upgrades to capacity within both the public and the private
sectors will be important for and relevant to nontraditional markets and help to increase the diversity
of products exported to and competitiveness with traditional markets.
To facilitate trade, the following next step is recommended:
Undertake a food safety regulatory environment reform aimed at achieving compliance with international best practices with regard to food safety. Design and structure the project to address both public and private sector needs and work collaboratively with existing commodity and value chain groups.
17 This recommendation is from World Bank (2014). The next step is influenced by the policy note as well.
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Solution Area 2. Improve Livestock Productivity
This section builds on the Phase I recommendations for the livestock sector to identify and assess
strategies to strengthen the resiliency of livestock systems and rangelands in the Kyrgyz Republic.
Interventions are identified that could (1) reverse degradation of water, soil, and vegetation cover; (2)
safeguard the long-term viability of rangeland ecosystems, while ensuring sustainable access to grazing
land; and (3) strengthen livestock services (veterinary, animal health, feed and fodder supply,
destocking, water and grazing access, and weather and market information, among others), enabling
farmers to manage their resources better, to respond to climate and market signals, and to protect
their assets in times of drought.
Overview of the Risk Environment and Framework
The government’s overarching strategy document is the National Development Program to 2017. All
sectoral programs must fit into this program. At this time, there is no strategy document for
agriculture, but the Food Security and Nutrition Program is expected to be approved in the coming
months. The U.S. Agency for International Development (USAID) has been approached to assist in
restructuring the MOA. The timing of restructuring could be influenced by the national elections in
the fall of 2015.
The World Bank and the International Fund for Agricultural Development (IFAD) are supporting
implementation of the 2009 Pasture Law through three major projects that focus on the law and other
interventions to improve forage supply, animal health, veterinary services, and dairy marketing. The
World Bank has supported the Agriculture and Services Project and, since 2014, the Pasture
Management Improvement Project, which addresses pasture management, health of livestock
(veterinary training and kits, brucellosis control), and value added (dairy, cooling points). Together the
IFC and the World Bank are working to support dairy processing by building the capacity of private
processing companies and their supply chains. The U.K. Department for International Development,
the FAO, the German Development Agency, the Global Environment Fund, IFAD, Australia
International Development Agency, and USAID are all active in the agriculture sector.
A scoping mission has been completed for nationally appropriate mitigation actions that could reduce
greenhouse gas emissions with the help of developed-country partners. The objective is to catalyze a
green economy and to support livestock producers and processors to access export markets and, by
doing so, to adopt more resource-efficient production. Specific help would be provided for sanitary
and animal health measures and improved productivity of animals in order to reduce the total herd
size and increase the offtake of younger animals to reduce grazing pressure. Productivity would be
improved as a result of improved feeding programs and other livestock management practices and a
higher proportion of livestock fattened in feedlots, from the current 9 percent to 20 or 30 percent.
The Japan International Cooperation Agency has conducted several projects in the Kyrgyz Republic,
including the Data Collection Survey on the Dairy Industry (May–November 2013) and various
trainings in Japan related to the dairy industry and to milk and dairy products safety and policy. The
Project for the Support of Joint Forest Management in the Kyrgyz Republic (2009–14) sought to
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improve forest co-management. The Community Empowerment Project through Small Business
Promotion by the One Village One Product Approach in Issyk-Kul Region, known as the One Village
One Product Project, was initiated in 2007 and is currently in its second phase. The project is working
with 74 local communities to develop local products and support local economic development. In
2015 it will initiate the Project for a Master Plan on the Inspection of Quality and Safety of Milk and
Dairy Products (August 2015 to April 2016), followed by the Project for Improvement in Technology
for the Sanitary Management of Milk in Chuy Province (2016–21).
An FAO-supported pilot project on animal identification will provide one oblast with physical ear
tags, a database, and scanning equipment for inputting information. Tagging will begin in the dairy
industry and at breeding farms. It is expected that 50 percent or more of all households in the village
will be active in the pilot. For the purpose of ear tagging and trace back, herds will be co-mingled into
groups of 500 head.
The Agricultural Risk Environment
Risks and their management approaches are multifaceted. The high-priority risks and proposed
management approaches identified in Phase I were investigated in more detail to identify their
component parts and related weaknesses or gaps in risk management. Phase I recommended
addressing the volatility and price risks that are accompanying the increased commercialization of the
agriculture sector. This includes improving market information and building effective supply chains
as well as improving storage and transportation infrastructure. For the livestock sector specifically,
greater emphasis should be placed on product quality and compliance with phytosanitary, veterinary,
and health requirements. Regional coordination on trans-boundary livestock disease and locust attacks
is also recommended.
The analysis here looks at the various types of risks facing livestock producers, including market risk,
price risk, production risk, business risk, financial risk, and policy risk. Issues with any single risk or
production problem will lead to suboptimal performance and profitability and ultimately decrease
resilience to risk. This section draws heavily on stakeholder interviews conducted in April 2015.
Market and Price Risk
The stakeholders interviewed for this phase of the project identified numerous market and price issues
and risks (Table 13). Most centered on issues related to market access caused by poor animal health,
poorly enforced sanitary and phytosanitary regulations, and inadequate labeling and certification.
Table 13 Market and Price Risks and Actions to Address Them in the Kyrgyz Republic
Risk element and Issues Actions
Market access related to animal
health, politics, and product
quality
Negotiate and enforce trade agreements; provide proper
certification and labeling; strengthen animal health programs
and veterinary services
Market access and
competitiveness stemming from
Productivity and quality improvement: on-farm food safety,
herd health, and bio-security programs; genetic improvement;
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production practices, low
productivity, and high costs of
production
feeding programs; farm management training
Processing plant food safety and quality control: International
Organization for Standardization program for hazard analysis
and critical control point, slaughter, and meat-cutting
methods; packaging and labeling; management training
Feed price risks, including rapid
price spikes during dry years or
winter emergencies
Irrigation; improved and expanded crops and varieties;
improved harvest and storage methods; equipment; silage
making
Access to inputs and finance Seasonal finance for purchasing inputs; contract farming;
microfranchise arrangement with input suppliers or
processors
Product price risks Extended production periods for year-round sales; improved
storage for improved timing of sales
They also raised issues related to poor market information systems and lack of transparent pricing
systems. There is a functioning market for livestock feed, primarily forages (lucerne, native hay, straw),
but price spikes occur. In the poultry feed market, a “micro-franchise” system helps smallholders to
enter into commercial production and to attain production indicators similar to those of larger-scale
commercial operations by providing a complete package of chicks, feeds, technical advice, and
troubleshooting.
Animal Health Risk
The greatest health risk is the outbreak of infectious disease. For example, outbreaks of FMD occur
every second year, creating a major risk to exports. An outbreak of brucellosis caused Kazakhstan to
ban Kyrgyz dairy exports for seven months in 2012–13, depressing milk prices and costing the industry
an estimated US$10,000 a day. Brucellosis poses the greatest risk to production and human health and
exports, having been reported to the OIE in 11 out of 14 years between 1999 and 2013. The Kyrgyz
Republic has one of the highest incidences of human brucellosis in the world. Brucellosis occurs in
both cattle and small ruminants. A program exists for destroying infected animals and compensating
farmers for 75 percent of the market value of their loss.
Vaccination is supposed to be conducted twice a year. However, the total budget (som 61 million) is
estimated to be half of actual need (som 126 million), and budget constraints limit the number of
diseases addressed and the number of animals covered. Only 9 of the 22 infectious diseases are
controlled. Among these are FMD, brucellosis, tuberculosis, pox, rabies, and anthrax. The vaccines
for these 9 diseases are provided free of charge, and farmers are expected to pay the veterinary service
fee. However, farmers reported that herds often have been comingled and taken to remote pastures
by the time vaccines are made available.
The condition of slaughterhouses constrains export development and poses a daily risk to public
health. Backyard slaughter is the norm, and rural slaughterhouses are little more than central locations
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for informal slaughter. Hygiene is inadequate, bio-security is lacking, and animal welfare standards are
not applied.
Farms and processing units have limited bio-security. Small farms are not able to take a comprehensive
approach to animal health and disease control. The Law on Veterinary Services was passed on
December 12, 2014, increasing the responsibility of farmers for vaccination by making them
responsible for timely vaccinations and reporting their compliance in a timely manner.
Herd health and on-farm food safety practices are issues. Parasites are common and have significant
negative impacts on feed utilization and productivity. In one pilot program on parasite control, 90
percent of animals were infected at the beginning of the project. Treatment eliminated nearly all
parasites, increasing slaughter weights by 10 to 15 kilograms and improving profitability nearly 30
percent.
Stakeholders reported the following issues related to animal health:
The vaccination program is weak, making it difficult to control infectious diseases.
Producers do not pay adequate attention to vaccination, with indifference being a larger problem than lack of funding.
Veterinary services are not available at the farm level.
Farm production is very small scale and uses poor-quality raw materials.
Farmers have limited knowledge of disease prevention and control.
The meat produced is poor quality and productivity is low, with carcass yields half those in Kazakhstan and Russia.
Smuggling and neighboring-country issues are common.
The capacity to test animals for disease is inadequate.
Labeling certification and processing are inadequate.
Testing facilities at markets are slow and narrow in their diagnosis.
Responsibility for food safety and security is not clear.
Transport and distribution are expensive and poorly organized.
Quality control and inspection at slaughterhouses are weak.
Lab facilities need to be upgraded, and staff need to be trained.
Gaps in surveillance include the lack of right to inspect private facilities.
Knowledge regarding food safety is weak throughout the supply chain, and training is needed.
Feed Risks
Adequate livestock nutrition is essential for productivity and resilience. Feed resources include pasture,
forages, feed grains, and manufactured feeds. Access to vitamins, minerals, and additives and
supplements can ensure balanced rations and optimal productivity. For extensive and semi-intensive
livestock production, pasture is the main source of feed. The use of pasture is regulated under the
Pasture Law (2009), which takes a community-based approach to sustainable rangeland management
(SRM).
Stakeholders identified the following feed risks:
Forage production (pasture and other) varies year to year because drought and other weather conditions lead to feed shortages.
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Price shocks occur during drought or severe winter weather.
Price shocks affect imported feed and ingredients due to currency fluctuations.
Permanent degradation of pastures reduces productivity. Pastures are in poor condition because of overgrazing, with up to 70 percent of pasture reportedly overgrazed and 40 percent degraded.
Water is scarce and expected to get even scarcer as a result of climate change.
The quality and variability of supplementary feed are compounded by lack of standards for feed processing and feed safety and inadequate capacity to analyze feed.
Knowledge and skills are inadequate with regard to least-cost formulation of feed and the development of livestock rations.
Farmers cannot afford to purchase feed at current levels of livestock productivity.
Producing forage on small, fractured plots of land is difficult.
Good-quality seeds are not always available. Producers also lack fertilizer and irrigation and are prone to weather risks.
The Risk Management Framework
Animal Health and Veterinary Services
The State Inspectorate on Veterinary and Phytosanitary Security is responsible for all livestock
inspection services. It has 67 staff in administration and another 906 veterinarians and phytosanitary
inspectors. The Kyrgyz Republic joined the OIE in 1992 and is slowly implementing several of its
animal health guidelines. A professional veterinary association was established in 2010 and made a
legal statutory body in 2014. The government’s Veterinary Service extends to the rayon level. At the
village level, private veterinarians provide services to farmers. The Law on Animal Identification was
passed in June 2014 and is being piloted.
There are 26 veterinary labs in the country. The National Reference Lab passed its certification to be
internationally recognized in March 2015. This will help to increase export capacity. The government
is now working to upgrade two labs in the south.
Veterinary training is out of date, with few upgrades having been made since the mid-1990s. The
government is working to upgrade the curriculum to prepare for OIE compliance, Eurasian Economic
Union requirements, and changes in livestock markets. A majority (60–70 percent) of working
veterinarians are more than 60 years old. Young veterinarians do not want to work in rural service, as
the pay is very low.
Pasture Management Systems and Oversight
The Kyrgyz Republic established the Pasture Law in 2009 after months of consultations with
stakeholders at the local, regional, and national level. Harmonization of other legislation to comply
with the Pasture Law has been completed. State ownership of pastures has been written into the
constitution. The law has been well accepted because it serves the needs of the majority of pasture
users and is based on local tradition.
Pasture management is decentralized to the local level and provides user rights to all villagers, not just
livestock owners. Pasture management is based on the principle of SRM conducted by groups: 354
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pasture user associations (PUAs) and pasture committees have been created to manage pastures
together with the aiyl okmotu (local government), aiyl kenesh (local council), village health
committees, and council of elders. Community pasture management plans are drawn up and approved
at the local level. A national Association of Pasture Committees has the role of strengthening local
institutions and transferring information and knowledge to local pasture associations. At the national
level, the Pasture Department of the Ministry of Agriculture is responsible for pasture management.
However, issues in the institutional framework and legislation impede the pasture management system
at the community level. The role and function of pasture committees need to be clarified within the
existing regulation.
Stakeholders reported the following issues with regard to pasture management:
It is difficult to collect fees and enforce other actions because committees lack power in relation to local government.
Both the PUAs and their members are taxed, giving rise to double taxation.
The Pasture Department has insufficient budget, personnel, and reach to be able to carry out pasture reforms effectively.
The PUAs lack collateral, which weakens their ability to finance pasture improvements and other services and investments.
The sustainable, high-quality grasses that could improve pasture productivity are expensive and beyond the reach of PUAs.
Fencing is needed for reserve pastures and hay fields, but fences are expensive and beyond the reach of most farmers.
Pasture Monitoring and Remote Sensing
Pasture management plans are a mandatory part of pasture management. They are prepared by the
pasture committees and approved by the local parliament. Violations of the plan can result in sanctions
and are considered on a case-by-case basis by local parliament. Despite initial resistance to the use of
sanctions, some PUAs have been successful in demonstrating the value of improved pasture
management and of the investments made possible by the collection of user fees and sanctions.
Monitoring efforts are focused on improving pastures. Monitoring is included in pasture plans, and
regulations are in place, but they are poorly implemented. No strict directives or parameters are given
regarding the carrying capacity of individual plots and pasture areas. The Department of Pastures has
drafted materials on how to prepare a pasture plan that includes monitoring. A new project from
IFAD will support implementation of the plan. It is envisioned that pasture monitoring should be
centralized, with input from individual pasture committees. An updated national pasture database is
needed and is being done in bits and pieces by projects. This work could be scaled up.
Insurance
The Kyrgyz insurance industry is small, with a penetration rate of only 0.36 percent in 2012. The
government established a reinsurance company in 2012 in partnership with a British firm that has a
10 percent ownership. Agricultural insurance is compulsory, but of eight licensed firms, only one
provides agricultural insurance. Three firms are licensed to provide livestock insurance. To promote
the use of agricultural insurance, legislation was enacted in 2009 for a compulsory weather-index crop
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insurance that would establish a government insurance fund using a 5 percent share of all premiums
paid and a top-up from the Treasury. Industry has not supported this approach, and the program has
not been operationalized. A law on livestock insurance was drafted in 2011 but has not been passed.
Emergency Response and Disaster Relief
The Ministry of Emergencies is responsible for responding quickly to major catastrophes such as
earthquakes, floods, and landslides. Its annual budget is approximately som 140 million plus an
additional som 2 billion for infrastructure repair. In addition, a contingency fund of som 100 million
was used in 2010–11 to purchase emergency feed for remote areas.
Potential Interventions
The recommendations offered here are based on a holistic, layered approach to addressing agricultural
risk in the Kyrgyz Republic. They are based on an in-depth look at the nuanced sources of risk within
the broad areas of feed production, animal health, and finance. Successful programs and pilot projects
that could be scaled up and the relevant institutions for action are identified. Where possible, good
regional and global examples are provided.
Figure 26 illustrates the concept of risk layering. The first layer includes high-frequency, low-loss risks.
These events are addressed through mitigation, usually by the producer. The second layer includes
low-frequency, medium-loss events. These are dealt with using risk mitigation and risk transfer. Risk
transfer can include, among other things, insurance programs, risk sharing through contracting, and
risk pooling through collaborative producer actions. These second-layer responses are generally
managed through markets, but they also may entail government involvement either directly or through
public-private partnerships. The third layer deals with very low-frequency, very high-loss disasters.
Here risk mitigation and risk transfer are accompanied by risk-coping (disaster recovery) responses.
Government has an important role to play in preventing nonsystemic risk from becoming chronic,
systemic risk. Where markets fail, government has a role to play in providing public goods during
epidemics (vaccination), infestations (pest control), and natural disasters (droughts, floods). In all
cases, program designers should address efficiency and equity issues.
Figure 26 Risk Layering
Source: World Bank ARMT.
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Table 14 summarizes the key livestock risks and the proposed responses in the areas of market and
price risks, production and ecological risks, and policy, business, and financial risks. These have been
broken into their component parts and addressed to produce a targeted, holistic approach to risk
management. Potential regional systems include a livestock early warning system (LEWS), an index-
based livestock insurance project, and control of infectious diseases such as FMD.
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Table 14 Risks and Proposed Responses for the Livestock Sector in the Kyrgyz Republic
Risk level and response strategy
General risk area and specific targets
for risk management
Micro (idiosyncratic):
affects individuals and households;
reducing and mitigating risks
Meso (covariant):
affects groups or communities;
sharing, transferring, and pooling
risks
Macro (systemic):
affects regions or nations;
coping with risks and recovering from
disaster
Markets and prices — Changes in price of land, new
requirements from food industry
Changes in input or output prices due to
shocks, trade policy, and new markets, among
others
Access to market due to animal
health and sanitary constraints
Vaccination; on-farm herd health or
food safety
— —
Feed price shocks due to drought,
exchange rate shocks
On-farm feed production and storage
(improved haying, storing, and silaging)
Public-private partnership income
stabilization schemes (modeled after
Canada, for example); forward
contracting
Finance program for feed production,
purchases, and storage
Access to feed due to market failure
(information gaps, storage, transport,
market structure)
Online platform for feed markets; feed
standards and testing; market
infrastructure and pricing
Public-private partnership on feed
storage
Emergency feed finance program to allow
producers to purchase supplementary feed
Production and ecological risks Hail, frost, noncontagious diseases, and
personal and asset risks
Rainfall, landslides, pollution Floods, droughts, pests, contagious diseases,
technology
Animal health risks
Trans-border disease risk On-farm bio-security programs;
improved border inspection
Index-based livestock insurance Animal destruction and producer
compensation (already exists)
Production disease risk On-farm herd health programs;
training for farmers and veterinarians;
diagnostic labs
Animal health circles for veterinary
advisory services
—
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Natural disasters
Droughts and storms that affect feed
supplies or cause the death of
animals
Drought-resistant crops; crop
diversification; reserve pastures; on-
farm feed storage and silaging
Index-based livestock insurance;
community feed storage; income
stabilization programs
Livestock early warning system (LEWS);
emergency programs for physical response,
feed purchases; emergency credit and
investment programs for rebuilding; disaster
insurance top-ups; exit strategies Natural disasters that destroy
agricultural infrastructure (landslides,
earthquakes)
On-farm investment for slope
strengthening, reforestation and other
preventative measures
Insurance; emergency funding for
community infrastructure
rehabilitation
Feed risks
Annual variability in pasture forage
production
Improved pasture management by
individual producers; encouragement
of quality over quantity in livestock
production; improved feed efficiency;
supplementary forage production
Pasture management plans;
community-level organization;
community-based monitoring;
infrastructure (wells, roads);
reseeding; reserve pastures
Capacity building in the Pasture Department
for monitoring and managing pastures and
for monitoring and managing a LEWS
Pasture degradation and permanent
loss of productivity
Extended rest periods; reseeding Extended rest periods; reseed and
rehabilitate idle land
Annual variability in supply of
feedstuffs
Improved processing, handling, and
storage on-farm; drought-resistant
crops, rotations, intercropping,
diversification; irrigation
Crop insurance; insurance law;
irrigation infrastructure
Seasonal finance; collateral; access to program
credit
Variability in forage and feed quality Improved processing, handling, and
storage, including silage
Commercial processing quality
assurance and control; feed testing
facilities
Feed laws and regulations
Loss of feed in storage and handling On-farm storage, handling Community storage (cooperatives) —
Policy, business, and financial risks Liability risk Changes in local policy or regulations Changes in regional or national policy and
regulation, environmental law, agricultural
payments
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Risk communication, regulatory
environment, leverage of risk
— — —
Human resources: quantity and
quality of labor management and
specialists
Training programs; information systems — —
Cross-cutting responses
Research and extension Feeds, breeds, seeds, and soil and water conservation; farm productivity and profitability
Finance Income stabilization programs, tax programs; stable and transparent financing
Organizational development Cooperatives and associations; monitoring systems
Note: — = not available.
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Animal Health and Food Safety Program
The top priority for risk management is strengthening the country’s animal health systems. A national
animal health and food safety program is needed in the Kyrgyz Republic to address various issues
contributing to higher risks to human and animal health, food safety, product quality, and market
access (see box 5 for one approach). The core components of the program would strengthen the
following:
Infectious disease control, including a stronger vaccination program with better vaccine
procurement systems, quality control of vaccines, cold chain and handling of vaccines, creation
of incentives for farmers to carry out vaccine programs (access to credit and other support
services), and farmer training
Surveillance systems, including better laboratories for food safety and disease detection
(infections and production), with upgraded facilities and equipment, upgraded processes and
protocols, and training of management and staff
On-farm herd health and food safety programs, including, among other things, farm bio-
security, hygiene, product handling (new milking and handling equipment), storage (milk tanks
and coolers), proper drug withdrawal protocols, and diagnosis and treatment of production
diseases (especially parasites and mastitis). This could include creating animal health circles
where a group of farmers would hire the services of a veterinarian to help them to set up herd
health programs to improve productivity and profitability
National rollout of the animal identification program and capacity building for handling
information and disease response (identification, trace back, containment, treatment,
destruction)
Food safety in processing, including plant and equipment and hazard analysis and critical
control point systems
Policy development, including completion of supporting regulations for the new Veterinary
Service Law
Capacity development aimed at improving practical knowledge and skills regarding animal
health and food safety among veterinarians, para-veterinarians, extension personnel, and
farmers.
Box 5 China-Canada Livestock Health Extension Project
The China-Canada Livestock Health Extension Services Project supported capacity building in
animal health policy, epidemiology, laboratory training, veterinary associations, on-farm bio-
security, and herd health programs and the development of livestock health extension services.
Work was carried out in seven provinces and at the national level. More than 13,000 people received
training. The total budget was US$19 million over five years, with matching contributions from the
government of China.
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Russia has committed to providing US$150 million assisting the Kyrgyz Republics’ entry to the
Economic Union of which US$9 million is designated for upgrading the animal health system. This
program may focus on inspection services. More information about Russia’s support is needed so that
additional programs will be complementary.
Community-Based Pasture Management and Monitoring
The Kyrgyz Republic has made great strides in developing a community-based pasture management
system. The legislative and organizational work that remains to be done is in refining the regulations
to clarify the role and authority of PUAs and pasture committees and in building the capacity of these
local organizations. The larger and more serious issue is the need to improve the use of pasture
resources to relieve the pressure on nearby pastures and increase the use of remote pastures. For this,
a combination of incentives and disincentives is required. Some of these are already conceptualized in
the legal framework, but they are not well implemented because of inherent weaknesses in the PUAs
and pasture committees and lack of financing.
The first Practitioners Conference on Sustainable Pasture Management in Central Asia was held in
Bishkek in November 2014. Actions were identified that could strengthen community-based SRM
(table 15). Most of these items could be incorporated into the technical actions and capacity
development programs of two recommendations: 3.4, Drought Cycle Management and Livestock
Early Warning System (LEWS) and 3.5, Supplementary Feed Production and Pasture Rehabilitation.
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Table 15 Risks and Actions Related to Community-Based Pasture Management
Risk element and issues Action
Pasture committees lack authority
to collect fees, lack capacity to
fulfill their duties, have
insufficient information
Resituate them within the village government system to provide
adequate authority; provide capacity development for management
and basic facilities and equipment; provide training and assistance to
expand sources of funds (other services and fees); complete the
regulatory framework to implement the Pasture Law
Pastures are poorly used, with
pastures near villages being
overgrazed and remote pastures
being underused
Pasture committees use fees and other funds to pay for infrastructure
investment; provide matching grants or loans through programs or
pay for environmental services (PES) arrangements; improve
telecommunications in remote areas; introduce incentives in pasture
fees to change behavior (charge higher fees for near pastures); build
awareness; provide training to shepherds
Pastures need to be rehabilitated,
especially near villages, where they
are heavily degraded
Ensure rest in pasture rotations and extended rest where needed;
reseed; provide training in SRM; create incentives (payment for
environmental services, access to credit and other services) and
disincentives (taxes, fees, fines) to stimulate behavioral change
With regard to the legal framework:
Revise by-laws to clarify the role and authority of PUAs and pasture committees with regard to local government and its ability to enforce the implementation of pasture management plans and to deal with unauthorized “poaching” of pastures
Improve access to pastures for secondary users (forestry, honey producers) and clarify the legislation and processes, including urban users (at much higher fees)
Ensure transparency and fairness in the allocation of pasture use rights to individuals
Review land zoning and enforcement to prevent encroachment of settlements and cropping on pasture.
With regard to capacity building for PUAs and pasture committees:
Strengthen the capacity of PUAs and pasture committees to hold capital and assets and to create pasture management plans and strengthen governance (executive roles, conflicts of interest, transparency and accountability, and roles and responsibilities), leadership, participation of women, business planning, management, and fund raising
Protect the productivity of pastures by sharing information with members on the reasons for lost productivity, building capacity on sustainable pasture management and pasture improvement, and enforcing pasture rotations in pasture plans
Improve public awareness of pasture management institutions and their functions by improving the amount of information available locally and strengthening the capacity of PUAs and pasture committees to share information and create vertical linkages to central bodies.
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With regard to investment in pasture improvements and access:
Establish a fund for pasture development (savings or insurance)
Improve the use of remote pastures through differential payment systems, infrastructure development, and support for social programs in remote areas and consider the use of transportation subsidies, yurts, and generators
Introduce benefit packages for poor and disadvantaged families to ensure access to pastures (waive fees, provide assistance in pooling animals, provide transportation support)
Provide support to fodder production.
With regard to institutional development:
Develop the state system of monitoring, including common standards and protocols.
Drought Cycle Management and Livestock Early Warning System
The appropriate response to a localized, recurring drought should be community preparedness and
response carried out within the parameters of an effective national framework of fully funded policies,
agencies, and programs for protection, preparedness, early warning, response, and recovery.
Specifically, these approaches are defined as follows:
Drought cycle management. Drought is an expected, normal event. Specific indicators can be used
to trigger preparation or response interventions either alone or in combination, depending on
the nature of the drought conditions. Early, timely response is important and preferable in
terms of cost-benefit analysis. For example, destocking allows households to decrease the
grazing or feeding pressure, while freeing up cash to procure additional feed and medicines or
to fund household food purchases.
Community preparedness. Communities should be capable of planning and preparing for both
slow- and rapid-onset emergencies. This planning can include the provision of shelter,
feedstocks, water points, and livestock vaccination, market development, pasture distribution,
and organization of livestock movement to emergency pastures within the local area or
provided through reciprocity arrangements with other jurisdictions.
Local monitoring systems for developing pasture management plans need to be established to support
SRM. Local information needs to be shared with the national level to establish a database of forage
information. Participatory monitoring systems can help to build local knowledge of pasture
conditions, but the processes used need to be simple and cost-effective. The GreenGold Project in
Mongolia has used combinations of clipping programs and photographic sampling.
Most livestock emergencies involve drought. Animals weakened by malnutrition lack the body
condition to survive harsh conditions without sufficient supplementary feed and adequate winter
shelter. These are considered slow-onset emergencies, and good disaster management systems
integrate the information from drought and humanitarian early warning systems into early decision
making. Early warning systems for drought, weather (including severe weather watches), and
humanitarian crises can be useful in determining the extent of an emergency and supporting sound
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decision making for emergency response. Drought forecasting systems, which integrate information
about forage quantity and quality, can provide livestock producers with information necessary to adapt
their grazing patterns and make decisions regarding the production and purchase of fodder. These
systems also allow policy makers and agencies to anticipate the location and extent of emergencies,
the population affected, and potential needs and give them time to prepare an adequate, coordinated
response.
A regional LEWS should be established to monitor pasture conditions in Kazakhstan, the Kyrgyz
Republic, and Tajikistan. This would be similar to the regional systems in Africa and the system
established in Mongolia (box 6). As climate change creates the potential for more frequent and severe
droughts, a regional system for drought warning and early response could provide policy makers and
producers with the time required to conduct advanced planning and take mitigating measures. The
information generated through the system (satellite imaging ground-proofed with local sampling)
could also provide the scope and detail of information required to support indexed-based livestock
insurance programs.
Box 6 LEWS in Mongolia
Mongolia has established a LEWS with the assistance of the World Bank, Mercy Corp, and Texas
A&M University. LEWS integrates satellite monitoring and physical sampling to provide reports
and forecasts on forage and carrying capacity. This system will provide nationwide data. It is
institutionalized in the National Agency of Meteorology, Hydrology, and Environmental
Monitoring, which conducts regular forage sampling that LEWS has used to verify its forecasting
system to a high degree of reliability.
Supplementary Feed Production and Pasture Rehabilitation
Supplementary feed in the form of forage crops and feed grains are important to sustaining livestock
through winter and providing the reserve feed necessary to keep livestock off early spring pastures,
when grass needs to attain a minimum level of growth prior to grazing. The three main approaches to
providing supplemental feed are to (1) grow perennial hay crops (either native or seeded grasses and
legumes) and use either cut and baled or left as standing hay crops, (2) grow annual fodder crops (such
as oats and barley) and harvest and bale them before maturity to use as “greenfeed” or preserve as
silage, and (3) grow feed grains (oats, barley) to maturity and use as high-energy feed. Additional
sources of feed include crop by-products (distillers mash, canola, and soybean meal).
The introduction of more feed crops into the crop sector can significantly increase the supply of
supplementary feedstuffs, provided there is suitable market incentive for crop producers to do so.
Crop rotations can include feed grains and legumes (alfalfa, field peas), which provide the added
benefit of nitrogen fixing. Integrating perennial pasture or forages and grain crops in long rotations
can have beneficial impacts on soil quality and crop yields. The introduction of alfalfa or other
nitrogen-fixing legumes in a four-year rotation can improve soil fertility and disrupt weed and disease
81
cycles, thus decreasing input costs. Additional benefits include control of soil erosion and improved
wildlife habitat.
Switching from a primary cash crop such as wheat to feed grains may not provide sufficient economic
return to the farm business. In Canada, with a similar cold climate and short growing season, research
has shown that intercropping spring and winter cereals (spring wheat with winter wheat or fall rye)
can extend the grazing season into the late fall without removing the main economic crop. Another
form of intercropping involves seeding annual crops such as barley into living mulch, an established
legume cover crop.
Promoting forage production by livestock producers requires supporting activities. Hay-making areas
need to be allocated and, in most cases, fenced to ensure that livestock do not consume the crop
before it is harvested. Fencing is a major long-term investment that requires materials and finance.
Improving the stand of forage requires top seeding or reseeding and fertilization. Seed must be
purchased, and suitable equipment for seeding has to be purchased or rented. In many semi-arid
locations, forage establishment is not possible without supplementary irrigation.
The conservation and storage of feed need to be improved. Hay cut late and stored loose or in loose
bales is prone to high losses from breakage, sun, and water. As a result, little can be stored into
subsequent years. Proper conservation and storage can allow hay to be stored with good nutritional
quality for multiple years. This is important for the ability to hold reserve supplies for use during
droughts and their aftermath. Methods of conservation range from the simple to the complex and can
include dense baling (large or small), round bales, bagging, and silaging. Improved storage ranges from
simple tarping to roofs or buildings. Silaging can be done in pits or silos, but pits are economical and
easy to construct. All of these approaches require some level of investment supported by information
and training for producers. Research into feed efficiency and economic returns should underpin the
introduction of any improved conservation and storage system.
Pasture rehabilitation should be part of a national program to preserve pasture area and potential. A
program could be developed to enable pasture committees and individual farmers to apply for
government matching grants or loans for the purpose of pasture rehabilitation or reestablishment. To
support this program, farmers and herders would need to receive technical assistance and training.
Equipment and seed would need to be made available. Equipment could be on a lease or rental basis.
Research should be conducted into varieties and establishment methods.
In the Kyrgyz Republic, optimizing available feed supplies could be improved by developing
geographic specialization in the type and stage of livestock production. Supplementary feeds and high-
quality forages suitable for dairy production are found in the irrigated plains of the north and
elsewhere, while the higher mountain areas tend to be semi-arid and more limited in the production
of forage and feedstuffs. Given the high feed conversion ratio in livestock production (6 to 9 kilograms
of feed to produce 1 kilogram of beef), it is always more economical to move livestock to the feed
than to move feed to the livestock. An efficient approach would be to concentrate dairy and cattle
fattening where supplementary feeds are grown in conjunction with other crops. This points to the
development of efficient markets and transportation for livestock and feed. This approach would
82
increase the annual offtake of animals, reduce grazing pressure on pastures, and accelerate cash flow
for livestock producers.
A Livestock Feed Program should be developed that would promote the production of feed by
livestock and crop producers and facilitate the improvement and rehabilitation of degraded pastures.
This program could be structured along a payment for environmental services (PES) approach,
whereby producers would be eligible for incentive payments based on their verifiable work on
identified activities, such as completed pasture management plans, forage production, pasture
rehabilitation, and even animal health programs (on the assumption that healthy animals are more
productive and less of a burden on limited pasture and feed resources). The incentives to undertake
these environmental improvements could include the following:
Direct payments or access to subsidized seasonal credit for PUAs and pasture committees for the completion of pasture management plans, monitoring activities, or animal health programs (vaccinations, parasite control)
Access to a mixture of seasonal (seeds, fuel, equipment rental) and long-term credit or grants (equipment purchase, fencing) for the establishment of perennial forage stands or pasture rehabilitation
Access to long-term subsidized credit programs for long-term investments in pasture infrastructure,
such as wells, bridges, roads, and social services infrastructure, including communications.
The program should be supported with applied research and development that would involve variety
trials, demonstrations, and research into intercropping and rotations that are technically feasible and
economically viable in the Kyrgyz Republic’s environment and market. Practical, hands-on training
should be provided to livestock and crop producers on how to manage forage production and
livestock feed. Forage cooperatives could facilitate the aggregation of land and cost-sharing of
equipment and other inputs. Cooperatives are still weak and require capacity-building support.
Livestock Insurance
Compulsory insurance has had a negative impact on growth of the insurance sector by making private
insurers reluctant to enter the market. This precludes the possibility of public-private partnerships in
the insurance sector. The government should move away from compulsory insurance and instead
focus on creating the conditions for private insurers to provide crop and livestock insurance on their
own or in partnership with government. One necessary action is for government to build a database
on climate and agricultural production. The reinsurance constraint needs to be removed. The number
and skills of trained actuaries need to be increased.
The Kyrgyz Republic may consider introducing, on the basis of a solid feasibility analysis, livestock
and/or pasture, insurance. Following the feasibility study, if the results are promising, a pilot project
involving the Ministry of Finance, the Ministry of Agriculture, and private insurance companies could
be implemented.
Another option to consider could be regional indexed-based livestock insurance. This would provide
a much broader pool for sharing risk.
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Investment and Seasonal Credit
Access to credit is necessary for producers to invest in risk mitigation. This includes longer-term
investment into assets for feed production, conservation, and storage as well as on-farm infrastructure
for water and other environmental assets (retaining walls, berms).
Seasonal credit is required to plant forage and fodder crops and to purchase feed prior to winter.
Given the relatively thin margins typical in agriculture, the long growing and storage periods, and the
large amount of funds required for inputs or feed, operating credit needs to be available at low rates
or there is no economic return. The reverse argument is that the productivity of crops and livestock
must be high enough to generate a positive return over interest carrying charges.
Developing seasonal credit products would accomplish the following:
Allow producers to obtain financing using the expected sale of crops or livestock as collateral
Link access to credit to the use of crop or livestock insurance to safeguard the loan in case of
crop failure or livestock loss
Support good risk analysis and planning by including productivity and profitability assessments
and collecting those assessments into a database of agricultural performance data to support
farm management, investment, and lending decision making; the IFC has developed a tool for
conducting this type of analysis
Promote contract farming or micro-franchise models of relationships between farmers and
processors or input suppliers.
Subsidy Reform and Disaster Relief
The Ministry of Emergencies is responsible for responding to major catastrophes such as earthquakes,
floods, and landslides. Its annual budget is approximately som 140 million plus an additional som 2
billion for infrastructure repair. In addition, there is a contingency fund of som 100 million, which
was used in 2010–11 to purchase emergency feed for remote areas.
Subsidies should be reviewed and, where possible, converted to performance-based payments for
desirable actions such as vaccination programs, pasture improvements, and forage production. These
payments could fall into the category of PES, with the possibility of transferring the costs to
international markets (carbon trading) or donor support.
Innovation and Adaptation
The research and extension system needs to be revitalized to serve the needs of the agriculture sector
as it modernizes to compete in global markets and survive in the shifting environment caused by
climate change. Improving productivity is necessary to accomplish the following:
Make efficient use of available feed supplies, both traditional and nontraditional (crop and processing by-products)
Improve competitiveness within an open economy
Adapt to climate change.
84
Research into drought-resistant varieties of cereals, feed grains, and forage crops needs to be
undertaken. Research into livestock feeds, feeding, and feed efficiency should be given high priority.
The strengthening of artificial insemination (AI) stations is being supported through a Turkish loan,
but supporting research into breeding systems and improved breeds should be undertaken. The feed
sector needs to be supported with research, testing, and extension. A testing laboratory capable of
testing feed and feed ingredients and screening for contamination and adulteration is needed. Building
local capacity to develop least-cost feed rations is required (box 7).
Box 7 Canada-China Feed Industry Project
The Canada-China Feed Industry Project established a national feed testing laboratory in Beijing.
The program worked with feed millers across the country to improve feed milling facilities and
quality control processes. Formulation of least-cost rations was introduced. The project helped to
modernize the Chinese livestock feed industry and contributed to the use of improved feed in
China.
The development of human resources underpins an innovation system. The Kyrgyz Republic has
knowledge and skills gaps in a number of technical areas. These gaps exist in terms of specialists
supporting the sector and at the farm level. The veterinary service is characterized by older
veterinarians trained during the Soviet era. As these veterinarians retire, younger veterinarians are
unwilling to take rural positions and those that do have limited practical training. There is a shortage
of pasture specialists at both the national or local level. While the World Bank has initiated a training
program within the past year, only 25 individuals are involved. Livestock nutritionists are also lacking
as are agronomists with the knowledge and skills to identify crop pests and diseases.
Farmer and herder knowledge and skills also need to be strengthened. Producer understanding of
livestock nutrition, feeds and feeding is fundamental to creating the motivation to invest in improved
pasture management and supplementary feed production. Likewise, farmer knowledge and skills are
needed in other areas of farm management, breeding, and animal health.
Supporting an effective extension system is important for transmitting information, creating
motivation for change, and helping communities to solve the problems they face. Extension is now
subcontracted out from the Ministry of Agriculture to nongovernmental organizations. Successful
models of private advisory services that could be replicated include the private system in Tajikistan
and the technical assistance provided to small-scale poultry producers by a commercial poultry feed
company in Bishkek. Developing a robust, pluralistic extension system that incorporates various
extension agents as well as more traditional government and research institutes is important to
supporting adaptation and innovation.
Recommendations and Action Plan
Agricultural risk in the Kyrgyz Republic is low at the aggregate level due to the sector’s highly
diversified production base and access to irrigation. Public and private sector initiatives to sustain this
85
diversity and maintain the physical and institutional infrastructure for irrigation are thus the foundation
for agricultural risk management.
At the commodity level, future development of the agriculture sector will need to place much greater
emphasis on responding to price risk, whereas the traditional focus has been on production risk.
Drought is the major source of production risk, but its impact is limited to wheat, due probably to the
reliance on unirrigated, upland production of wheat in some areas. Wheat also is the commodity most
vulnerable to risk due to its exposure to both production and price risks.
Wheat, cotton, and potatoes are the commodities most vulnerable to price risk, although most crops
are vulnerable to one degree or another. Price shocks to major commodities such as wheat and
potatoes also incur the highest indicative costs. Livestock commodities are much less vulnerable to
price risk, experiencing low-frequency, low-cost shocks. The aggregate impact of commodity-level
price shocks tends to be small, however, as shocks and losses for one commodity are typically offset
by higher prices for others. Occasional, economy-wide price shocks can result in high, sector-wide
losses, as occurred in response to the political unrest in 2010.
These conclusions highlight the implications of the continued shift toward commercial agriculture and
the increasing vulnerability to market shocks. Improved management of price and market risks will
require deeper, stronger markets, a better understanding of market behavior by producers and market
agents, and better access to market information. The free flow of exports and imports with Kazakhstan
and Uzbekistan is also critical. A much greater emphasis on product quality and compliance with
phytosanitary, veterinary, and health requirements is essential in this context.
The main recommendations of this report are as follows:
Continued support for a diversified base of agricultural production and assured access to
irrigation are fundamental to effective risk management.
Continued measures to deepen domestic markets are needed to address many of the price
risks for agricultural commodities. These measures include better market information systems,
more effective supply chains, better access to storage, and improved transport infrastructure.
Reliable access to traditional export markets in Kazakhstan, Uzbekistan, and Russia is also
critical—for both agricultural imports and exports. Border closures and barriers to transit
incur high costs in terms of both price instability and lost trade. While some of these problems
are beyond the direct control of the Kyrgyz Republic, many constraints on trade flow are the
result of inadequate compliance with conventional phytosanitary, veterinary, and health
requirements on the part of Kyrgyz producers and exporters. Improved compliance with these
requirements would help to reduce market instability, particularly for livestock commodities.
Stronger regional coordination of measures to mitigate locust attacks and outbreaks of trans-
boundary livestock disease would reduce the high exposure to these risks.
86
Summary and Recommendations of the Solutions Areas
Table 16 Agriculture Risk Management Actions Plan for the Kyrgyz Republic
Main program and subprogram
Estimated time for
implementation
Estimated cost (total and per beneficiary per hectare, etc.) Expected outcome
Proposed monitoring indicators
Market Knowledge and Training 2015–20
Timely regular reporting of public sector market information
Improved market information; increased market efficiency
Reports complete and timely
Training and market development for private market intelligence products
Increased end market diversity for production
Survey access and utilization of market intelligence products by producers
Investment Environment and Business Enabling Environment
2015–2020
Regular public/private consultative dialogue to promote ag sector investment and improve BEE
Increased private sector downstream investment; improved competitiveness of Kyrgyz products domestically and abroad
Value of downstream investment in Ag Sector
Matching Grant Fund for Investment in Innovation and Technology Upgrades in Ag Sector
Increased efficiency and competitiveness of Kyrgyz ag sector; Increased value addition of products (packing, grading and sorting, and/or processing)
Value of downstream investment in Ag Sector;
Trade Facilitation 2015–2025
Food Safety Regulatory Reform Increased diversity of exports
Value and diversity of export products
Domestic Animal Health Project 2016-2020 USD 23,521,763 Improved animal health status supports exports and improved rural livelihoods.
% coverage of vaccine programs
Laboratory evaluations by OIE
% coverage of coverage of Animal IDs
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Animal Health - Regional Transboundary Control
2015-2019 USD 2,800,000 Reduced incidence of transboundary disease
Reported incidence
Community-based Pasture Management
2017-2022
USD 29,120,000 Improved pasture management and increased pasture productivity
# of pasture installations
Bio-mass and bio-diversity measures
Pasture Monitoring and LEWS 2016-2020 USD 5,600,000 Climate resilience; Improved emergency preparedness
Monitoring ongoing
LEWS Functional
Bio-mass and bio-diversity measures
Feed Sector Development Project 2017-2021 USD 17,040,000 Increased supply of high quality nutritionally balanced livestock feeds; improved feed utilization on farm
Area of feeds (ha)
Amount of manufactured feeds (MT)
Average livestock growth rates (ADG)
Average milk yields (l/lactation)
Indexed-based Livestock Insurance
Conditional Loans and Grants
(note – included in individual programs and summarized here)
2016–2020
USD 23,000,000
Increased use of insurance products by livestock producers
Increased investment in productivity and risk management approaches
% of producers participating
# of loans
% producers participating
# of grants
% producers participating
Conditional Loans and Grants
(note – included in individual programs and summarized here)
2016-2025 USD 30,501,574 Increased investment in productivity and risk management approaches
# of loans
% producers participating
# of grants
% producers participating
88
Appendix A: Risk Assessment Methodology
Table A.1 Data Collected and Reviewed for Each Country
Task Data Source
Description of the main agro-ecological zones in each country,
including the characteristics and areas of these zones and the
main farming systems and crops and livestock produced in each
zone.
Country level data
Data series on average annual rainfall for the period 1980-
2012for the main agro-ecological zones.
Country level data, for the
period 1980-2012/3
Respective contributions to crop and livestock production made
by household plots, small-scale private (dekhan) farms, large-
scale private corporate farms, and state-owned agricultural
enterprises.
Country level data, for period
2000-2012.
Major crop and livestock production shocks observed from
1980-2012 and describe the causes of these shocks and the level
of loss incurred (area of crop damaged, yield losses, number of
livestock lost etc., reduction in livestock productivity etc.)
Country level data, for period
1980-2012/3.
Description of the incidence of livestock disease outbreaks and
the associated livestock losses.
Country level data, for period
1995-2012/3.
Description of government policy for intervention in agricultural
markets from 1995-2012 for wheat, cotton, potatoes and the
most important high-value vegetable crop, including the form of
intervention and the dates of any significant changes to these
policies.
Country level data, for period
1995-2012/3.
Government exchange rate policy from 1995-2012 and the dates
of any significant changes to these policies.
Country level data, for period
1995-2012/3.
Government interest rate policy from 1995-2012 and the dates
of any significant changes to these policies.
Country level data, for period
1995-2012/3.
Government trade policy for the three major crops for the period
1995-2012, including the level of import tariffs or export duties
and taxes imposed, and the dates of any significant changes to
these policies – including the imposition of trade embargoes.
Country level data, for period
1995-2012/3.
89
Information on country membership of any trade agreements or
customs unions.
Data series on Gross Value of Production (crops, livestock, total)
from FAOSTAT for the period from 1995-2011.
FAOSTAT data, for the period
1995-2011.
Data series on production, area and yield of the three major
crops (wheat, cotton, potatoes) grown in the region, plus the
most important high-value, vegetable crop in each country (see
above).
Country level data, for the
period 1980-2012/3.
Data series on livestock numbers for the period 1980-2012 for:
total cattle, milking cows, sheep, goats, pigs and horses.
Country level data, for the
period 1980-2012/3.
Data series on average annual producer prices for the three major
crops (wheat, potatoes, cotton) plus the most important
vegetable crop, for the period 1995-2012/3.
Country level data, for the
period 1995-2012/3. If
producer price data are not
available then market level price
data can be used. If monthly
price data are available for all or
part of this time period, they
should also be collected and
compiled.
Data series of international prices for wheat and cotton for the
period 1980-2012.
Data for the period 1980-
2012/3.
Data series on the exports and imports of cotton, wheat, and
wheat flour – volume and value - for the period 1995-2012. For
wheat and wheat flour these data should also include a break-
down of the trade flows among Central Asian countries. This will
be important for analysis of the regional implications of wheat
price and/or production shocks in Kazakhstan.
Data for the period 1995-
2012/3. For wheat and wheat
flour these data should also
include a break-down of the
trade flows among Central
Asian countries.
Data series on total public expenditure and expenditure on
agriculture and irrigation (in nominal national currency) for the
period 1995-2012.
Data for the period 1995-
2012/3.
Data series on government and donor expenditure in response
to any agricultural shocks or emergencies for the period 2000-
2012.
Data for the period 2000-
2012/3.
90
A.2: Production: Price Derivation for Indicative Loss Analysis
Base Case: Derivation without Loss Threshold
Let total output be Y1 = P1Q1, change in output be Y2 - Y1 = P2Q2 - P1Q1, and decompose this change
into a production impact and a price impact. Consider production impact alone by holding prices
constant at P1. Let production impact be P1(Q2 – Q1). Then price impact is total impact – production
impact:
= (P2Q2 - P1Q1) – [P1(Q2 – Q1)]
= P2Q2 - P1Q1 – P1Q2 + P1Q1
= Q2(P2 – P1).
Hence
Y2 - Y1= P1(Q2 – Q1) + Q2(P2 – P1). (1)
Total impact is production impact + price impact.
This construct allows full decomposition of the production and price impact on the total value of
output for each of the following scenarios:
Both production and price increase
Production increases and price decreases
Production decreases and price increases
Both production and price decrease. The methodology is only useful for individual commodities. It is technically possible to use it at the
aggregate level if all of the relevant price and production data for the aggregate are available. But this
would be very difficult and time-consuming to do.
The methodology cannot be used to disaggregate production and price impacts at the aggregate level
by using the results of constant price and real price analysis. At the aggregate level, the following are
the relevant parameters for analysis:
P1Q1
P2Q2
P1Q2. The first two parameters are available from real price analysis. In principle, the third parameter is
available from the constant price analysis. In fact, the P1 variable available from the constant price
analysis is not the same as the P1 variable from the real price analysis.
91
Derivation with Loss Threshold
Derivation varies according to whether the threshold applies to production (Q), price (P), or total
output (Y).
Where the loss threshold applies to production alone (Q), threshold = wQ1, where w = loss threshold in
percentage (for example, 0.1). Substitute Q1* for Q1, where Q1* = Q1 – wQ1.
Then indicative loss = Y2 - Y1 = P1(Q2 – Q*1) + Q2(P2 – P1). Price impact is unchanged in this scenario.
Production impact falls by the amount equivalent to the threshold.
Where the loss threshold applies to price alone (P), threshold = wP1, where w = loss threshold in percentage
(for example, 0.1). Substitute P1* for P1 where P1* = P1 – wP1. Then indicative loss = Y2 - Y1 = P*1(Q2
– Q1) + Q2(P2 – P*1). Price threshold affects both production and price impacts.
Where the loss threshold applies to total output (Y), threshold = wP1Q1, where w = loss threshold in
percentage (for example, 0.1). Let Y1* = Y1 - wP1Q1. Then indicative loss = Y2 – Y1* = Y2 – (Y1 -
wP1Q1) = (Y2 – Y1) + wP1Q1 = P1(Q2 – Q1) + Q2(P2 – P1) + wP1Q1.
Rearranging
= P1Q2 – P1Q1 + wP1Q1 + Q2(P2 – P1)
= P1(Q2 – Q1 + wQ1) + Q2(P2 – P1)
= P1[Q2 + Q1(w – 1)] + Q2(P2 – P1).
92
Appendix B Chronology of Major Economic and Adverse Events
Table B.1 Major Events in the Kyrgyz Republic, 1992–2013
Year Event
1992 Economic transition; earthquake.
1993 Economic transition; hyperinflation; new currency introduced; shortages of seed and fertilizer. Vegetable production falls 36%. Livestock numbers fall (pigs, 31%, poultry, 23%, sheep, 8%).
1994 Economic transition, hyperinflation; floods, landslides; shortages of seed and fertilizer. Cereal production falls 33% (lower yields); livestock numbers continue to fall (pigs, 31%, poultry, 34%, sheep, 16%).
1995 Presidential elections. Farm ownership titles are issued for 50% of land. Further transition-related fall in livestock numbers (poultry, 68%, pigs, 31%, sheep, 31%, cattle, 13%).
1996 Economic recovery; favorable conditions for agriculture. Government promotes increased wheat production to improve self-sufficiency. Cotton price falls on international and domestic markets. Agroprom Bank is closed down. Sheep numbers fall 17%, cattle, 6%.
1997 Kumtor mine gold production begins. Kyrgyz Agro-Finance Corporation opens. Sheep numbers fall 13%. Real cotton prices fall (-31%) as international cotton prices continue to fall. Cotton production falls 15% due to 21% reduction in cotton area.
1998 Russian financial crisis (August). Exchange rate depreciates 11%, bank assets impaired, economy slows down, inflation rises. Kumtor/Lake Issyk-kul disaster. The Kyrgyz Republic joins World Trade Organization. Floods, mudslides. Livestock commodity prices begin to rise due to impact of declining supply.
1999 Growing impact of Russian financial crisis: high inflation, reduced credit, barriers to trade imposed by Russia, Kazakhstan, and Uzbekistan reduce the demand for Kyrgyz exports. Sharp fall (-20%) in real prices for livestock products (milk, beef, sheep meat, eggs). Real cotton prices fall 37% due to falling prices on international markets.
2000 Unfavorable production conditions (extreme temperature, low rainfall); major locust outbreak, but no discernible impact on aggregate crop or livestock production.
2001 Good production conditions for agriculture.
2002 Economic slowdown due to Kumtor landslide and fall in energy production and exports. Kazakhstan limits transport and transit, reducing exports. Floods, hail storms. Crop production falls to trend following high production in 2001. Fall in real prices for maize (-28%) and wheat (-21%). Real crop GAO falls 12%.
93
2003 Floods, landslides. Real wheat price falls (21%) together with production (due to 15% reduction in area) due to continued fall in domestic price.
2004 Improved trade conditions (Kazakhstan removes extra rail tariffs); floods, landslides, delayed harvest; sharp fall in real prices for potatoes and tomatoes due to volatility on domestic markets.
2005 Political instability (March), presidential election. Gold production falls. Improved trade conditions with Kazakhstan; floods. Potato production falls in response to low prices in 2004. Real cotton prices fall 28%, and real maize prices fall 15%, both in response to modest falls in international prices.
2006 Earthquake in Naryn and Issyk-kul; low rainfall. Wheat production and real wheat price fall.
2007 FMD outbreak. Russia bans meat exports due to FMD. Cotton area falls 24% in response to falling real prices, as farmers switch to other crops.
2008 Combination of regional and domestic shocks. Global food price crisis drives up consumer (and producer) prices. Inflation surges. Global financial crisis results in reduced access to finance. Severe winter in 2007–08; spring frosts and hail storms; major locust infestation. Real prices fall for cotton (13%) and potatoes (-24%).
2009 Continued impact of global financial crisis on economic growth. Kazakhstan and the Kyrgyz Republic ban wheat exports. Major drought; major locust infestation. Sharp fall in real producer prices in aftermath of global food price crisis; wheat (-43%), maize (-24%), tomatoes (-15%). Cotton production falls 48% due to switch to other crops following lower prices.
2010 Political instability (April); border closures with Kazakhstan and Uzbekistan; political disturbances in Osh (June). Political uncertainty disrupts input supply (fuel, fertilizer) with reduced crop area and yields, especially for wheat; market activity restricted in the south. Drought in Chui, Issyk-kul, Naryn; spring floods and mudslides; real prices fall for cereals, potatoes, and vegetables; sharp contraction of aggregate crop, livestock, and total GAO.
2011 Severe winter (2010–11); FMD outbreak.
2012 Economic slowdown: Kumtor gold production drops 40%. Kazakhstan bans milk exports. Drought. Wheat production falls 32%. Cotton production down 16% due to 16% fall in real prices. Real potato prices fall 16%. Crop GAO falls 16%.
2013 Kazakhstan allows milk exports for qualified dairy processors; favorable conditions for agriculture; record wheat harvest.
Note: GAO = gross agricultural output; FMD = foot and mouth disease.
94
Appendix C Coefficients of Variation and Adjusted Coefficients of
Variation
Table C.1 Coefficients of Variation or Adjusted Coefficients of Variation*
Indicator Constant pricesa Productiona Yielda Real pricesb
Aggregate output
Total GAO 0.07* 0.09*
Crop GAO 0.13* 0.14*
Livestock GAO 0.06* 0.07*
Individual commodities
Wheat 0.23 0.12 0.23
International wheat price
— — 0.17*
Cotton 0.27 0.04* 0.22
International cotton price
— — 0.30*
Potatoes 0.17* 0.09* 0.26*
Maize 0.17* 0.11* 0.20*
Tomatoes 0.15* 0.05* 0.18*
Fresh cow’s milk 0.04* — 0.10*
Beef 0.05* — 0.10*
Sheep meat 0.21* — 0.12*
Eggs 0.11* — 0.08
Source: FAOSTAT.
Note: * = adjusted for trend using the Cuddy Delle-Valle Index; — = not available.
a. 1992–2012. b. 1998–2012.
95
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