Ecssd environmentally and Socially Sustainable Development Working Paper N

A. Prices/Subsidies

• Measured inflation is relatively low (about 10% annually), but suppressed inflation may imply a higher actual rate.

• Foreign exchange controls continue and the manat is over valued at the official exchange rate.

• Since 2002 crop year the mandatory state purchases of grains (wheat and rice) have been reduced to 50% of the planned production, with the leaseholders being allowed to trade the output domestically freely. Cotton which is still subject to 100% procurement by the state, although starting from the crop of 2002 the producers are allowed to retain the seeds and other by-products of raw cotton processing. The prices paid by the state for these commodities however remain much lower than their corresponding border values.

• Material inputs for cotton and wheat production are subsidized by 50%.

• No significant payments for irrigation water.

• Adopt a program of macroeconomic stabilization and unify the current multiple exchange rates.

• Adopt program to raise producer prices for cotton and wheat to border price levels and reduce state orders by 75% over the medium term.

• Phase out input subsides and stimulate procurement and distribution of inputs by private sector operators.

• Develop a multi-year plan to introduce higher irrigation water tariffs towards cost recovery levels of the O & M costs of irrigation and drainage over the medium and long-term.

• Government controls all cotton exports.

• Minimum export prices for hides and skins.

• Allow export of cotton by private intermediaries eliminate price controls on outputs.

• Private owners pay a land tax, but collection sporadic.

• Gradually increase land tax as state orders reduced.

• Use land tax to pay for rural social services eliminating mandatory payments to farm associations now providing social services.

• A new Land Code came into affect in 2004 allowing for private property of up to 3 Hectares to a land lessee that has shown a satisfactory performance over 10 year period.

• Roughly 85% of land in peasant associations allocated to households via leaseholds (10 to 15 years duration). No current plans for farm privatization.

• About 8% of land in individual private farms with the majority of them holding property lands over the land.

• Leaseholds convertible to ownership upon successful performance for two years.

• Since independence the arable land holdings of the households have been increased by 50%.

• Develop a program of privatization/transformation of peasant associations into private “daihan” farmers.

• Adopt complementary reforms so that private owners can function in market environment.

• Make the conversion process transparent by clarifying the requirements which new farmers must meet to have the leased land converted to ownership.

• Most processing and services handled by state enterprises organized into large associations.

• Little privatization.

• Cost recovery for selected inputs such as animal health services has been introduced.

• Encourage privatization and demonopolization of existing agribusiness companies and associations.

• Remove barriers to new entry in processing and services.

• High dependence on subsidized credit.

• Daikhan Bank is the designated credit agency for farm leaseholders. It has little risky debt from the past, but is not yet engaged in genuine intermediation.

• Reduce subsidy element of directed credit and stimulate the development of commercial rural financial services.

• Conduct financial audit and develop corporate plan for Daikhan Bank.

• Extra budgetary Agricultural Development Fund manages sectoral financial flows in non-transparent fashion.

• Frequent institutional reorganization and high turnover of administrative staff in response to declining sectoral performance.

• Frequent local government interference in production decisions.

• Research and extension much reduced

• Consolidate costs and revenues from sector into general budget and abolish Agricultural Development Fund.

• Remove authority of local administration to interfere in decisions regarding production and marketing.

• As resources permit, develop agricultural research and extension to serve needs of agents in a market economy.