Report No: AUS0000211 . Central Asia China (and Russia) 2030 - Implications for Agriculture in Central Asia Phase 1 & 2 results June 8, 2018 AGR . © 2017 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution—Please cite the work as follows: “World Bank. 2018. China (and Russia) 2030 - Implications for Agriculture in Central Asia. © World Bank.� All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Acknowledgements The presentation was prepared by a World Bank team led by David Nielson (Lead Agriculture Economist and co-TTL) and Kateryna Schroeder (Agriculture Economist and co-TTL). The team is thankful for the research and data collection support provided by Jianwen Liu, John Nash, Dauren Oshakbaev, Roman Pogojev, Yerlan Syzdykov, Usmon Rakhimjanov, Farrukh Irnazarov, Evgeniy Tsvetnov and Olga Cherkasova. The team also greatly benefited from collaboration with the following organizations: • International Food Policy Research Institute (IFPRI) • Eurasian Center for Food Security (Russian Federation), that provided both research and funding support, and • IFC Executive summary • Central Asia (CA) has for centuries occupied a position of strategic importance in trade between East and West. Talk of reviving a modernized “Silk Road� to Europe, as well as the burgeoning markets of South Asia and Russia, underscore the opportunities for the countries of this region to take advantage of global trade as an engine of development for their economies. • Most agri-food export from CA continues to go to Russia. Yet, the long-term demand for most agri-food there is projected to remain modest or even decline. On the other hand, population growth, rising incomes, urbanization, and changes in consumer preferences in China will result in an ever-growing demand for food in the future. Fueled by the strong economic growth and rapid urbanization, China’s growing and increasingly more affluent middle-class consumers are shifting their dietary preference to more protein, more diverse, healthier and higher quality foods. China is, therefore, attractive for CA countries to diversify their agri-food exports and potentially enjoy higher export revenues. • The IMPACT’s model used in this study confirms the rising demand for higher value agri-food products in China at least until 2030. This is very useful. Enabling CA countries to convert their natural/endowment advantages into competitive advantage in specific export markets requires complementary investments in processing, logistics, trade/export infrastructure, both hard and soft. The long-term forecast of strong demand provides a helpful scenario to plan/justify investments by CA countries for export-oriented development of their agricultural sectors. Based on international experience, this should generate a sustainable source of value-addition and jobs. • Post-2030, ageing and declining population as well as slowing income growth will largely contribute to declining food demand in China for all major agri-food categories, except for milk, sugar and pulses. Thus, looking beyond China and penetrating to the EU and other markets needs to be included in a long-term trade diversification strategy of CA countries. • The objective of this study is to deepen CA governments’ understanding of the opportunities that may be created by the evolution of the Chinese (and Russian) economies over the next 30 years and to provide insight into how agriculture and the food industry in CA would need to be reshaped to respond to these opportunities. Executive summary (cont.) • The findings of the stakeholder consultations and comparative advantage analysis show that CA countries (exc. Kazakhstan and Turkmenistan) have a strong export potential in several horticulture products, including grapes, apricots (fresh and dry), plums (fresh and dry), walnuts, and cherries. In addition, Kyrgyzstan has a strong potential in becoming competitive in milk exports. • For Kazakhstan, the commodities that are (or can become) competitive in Chinese markets include wheat, sunflower seed, and rapeseed. Moreover, the additional commodities were suggested by the national experts to be further analyzed, including beef, lamb, dry peas, and sunflower oil. • While Kazakhstan is already an active agri-food exporter to China, other CA countries have very limited exports of their horticulture products to China. Most of the current exports remain regional and are destined for Kazakhstan and Russia. Constraints on further increasing exports to both Russia and China are to be analyzed in the next phase of the study. • To realize their export potential, the CA countries would need to overcome a number of constraints, identified during the stakeholder interviews and literature review, including production and processing constraints (i.e. low yields, lack of cold storage facilities, insufficient irrigation), technical barriers (i.e. lack of adequate SPS capacities) and institutional constraints (i.e. cumbersome customs procedures and limited export promotion efforts at the national/regional level). • The upcoming Phase 3 of the analytical work will study these constraints for selected products and provide regional and country-specific recommendations, especially on how to convert natural/endowment advantages into competitive advantages in targeted markets. Study objective • The objective of the study is to improve Central Asian (CA) governments’ understanding of opportunities for their agri-food exports into Chinese markets, driven by growing domestic demand, pressure on natural resources and rising rural wages in China, and examine how agriculture in Central Asia could take advantage of these opportunities. • The scope of the study was further expanded to analyze the opportunities for increasing exports to Russia. • Results presented here include food demand growth projections for both China and Russia, as well as export potential assessment for the products most relevant for the Chinese markets. Further analysis of the products destined to the Russian markets is proposed to be conducted in the Phase 3 of the analysis. Study description The study consists of 3 stages: • Stage 1 (completed): Use IFPRI IMPACT model to identify agri-food products for which Chinese (and Russian) demand will likely exhibit strong growth until 2050 and provide market opportunities for imports from CA countries. • Stage 2 (completed): Through stakeholder consultations and comparative advantage analysis make a preliminary identification of particular product value chains in which CA countries have a strong potential to become competitive in the Chinese markets. • Stage 3: (FY 2019) To identify determinants of competitiveness for the selected agri- food value chains in the CA countries and suggest policy reforms and investments that could enhance their competitiveness and support the expansion of production and exports for these products. Chinese and Russian markets represent prime opportunities for the agri-food sectors of CA Rising incomes will lead to steeply rising demand for food (especially for high- value food) China - Real GDP per capita to triple by 2050 Russia - Real GDP per capita to double by 2050 Central Asia well-positioned to supply Chinese and Russian demand for food Geographical proximity Untapped yield potential in many crops Good growing conditions for highly demanded food products Potential for policy reforms to boost to private sector investment – leading to expanded agricultural production AGRI-FOOD TRADE IN CENTRAL ASIA: AN OVERVIEW SD PG Structure of agricultural trade in Kazakhstan Exports, 2016 Imports, 2016 Animals Vegetables and meat Animals and Dairy Fruit and meat Tobacco nuts Other Other Processed Dairy food and Fibers Fibers Tobacco Vegetables beverages Fruit and nuts Fats and oils Cereals and Processed flour Fats and oils Cereals food and and beverages flour Total value 2.2 billion USD Total value 3.1 billion USD Source: ITC, 2016 Structure of agricultural trade in Kyrgyzstan Exports, 2016 Imports, 2016 Animals and Animals and Other Other meat meat Dairy Vegetables Tobacco Tobacco Dairy Fibers Fruit and nuts Fibers Cereals and flour Processed food and beverages Fats and oils Fats and Vegetables Processed oils food and Fruit and beverages nuts Cereals and flour Total value = 167 million USD Total value = 470 million USD Source: UN Comtrade, 2016 Structure of agricultural trade in Tajikistan Exports, 2015 Imports, 2015 Animals and Processed Dairy food and Tobacco Tobacco meat Vegetables beverages Fibers Other Dairy Other Vegetables Cereals and Animals Fruit and flour and meat nuts Fats Fruit and nuts and oils Processed food and beverages Cereals and flour Fats and oils Fibers Total value = 201 million USD Total value = 811 million USD Source: FAO, 2017 Structure of agricultural trade in Uzbekistan Exports, 2015 Imports, 2015 Animals Other and meat Tobacco Vegetables Dairy Tobacco Dairy Fibers Other Animals Fruit and nuts and meat Vegetables Processed food and beverages Cereals and Fibers Fruit and flour nuts Fats and oils Cereals and flour Processed food and Fats and oils beverages Total value = 2.7 billion USD Total value = 1.7 billion USD Source: FAO, 2017 Geography of agricultural trade in Central Asia, 2015 100% 111.3 mln$ 80% 4.7 60% 8.4 396.6 40% 20% 0% from Kazakhstan from Kyrgyzstan from Tajikistan from Uzbekistan to other world countries to other FSU countries to EU to China to Ukraine to Russia to Kazakhstan to Belarus Source: FAO, 2017 PHASE 1: RESULTS SD PG Phase 1 • Goal: Use IFPRI IMPACT model to identify agri-food products for which Chinese (and Russian) demand will likely exhibit strong growth until 2050 and provide market opportunities for imports from CA countries. IFPRI IMPACT model IMPACT is a partial equilibrium agriculture sector model designed to examine alternative futures for global food supply, demand, trade, prices and food security. IMPACT 3: Basic Model System Model coverage: 159 countries 154 water basins 320 food production units 58 agricultural commodities Source: IFPRI, 2016 IMPACT socio-economic assumptions Projected population growth* Projected income growth* 50 5.0 GDP per capita, 1000 USD (2005) Average annual GDP per capita average annual growth rate 40 4.0 Population, mln. (% per year) growth rate, % 2017 2050 2017-2050 30 3.0 China 1,377.8 1,273.2 -0.2 20 2.0 Russia 142.4 136.7 -0.1 10 1.0 Central Asia (exc. 0 0.0 Turkmenistan) 59.0 68.1 0.4 Uzbekistan 29.4 33.5 0.4 Kazakhstan 17.2 20.2 0.5 2017 2050 2017-2050 Tajikistan 7.4 8.0 0.3 Kyrgyzstan 5.7 6.4 0.4 * IFPRI baseline SSP2 pathway, no climate change assumption Source: IFPRI, 2015 Chinese food demand projections (IMPACT model) Average annual growth in food • Positive population growth (until 2025), demand*, % coupled with growing incomes and 5 changing diets in China, will result in fast food demand growth for milk, 4 sugar, oilseeds and meats. 3 • Following the already existing trend, 2 consumption of cereals, roots and 1 tubers will continue to decrease. 0 • Post-2030, ageing and declining -1 population as well as slowing income growth will largely contribute to -2 declining food demand for all major agri-food categories, except for milk, sugar and pulses. 2017 to 2030 2031 to 2050 Source: IFPRI, 2015 * SSP2 pathway, no climate change assumption Chinese agri-food net imports growth Projected value of the Chinese agri-food imports in Absolute and relative change in net 2050 imports’ quantities, 2016 to 2050 1000 USD (2005) 25,000 350 Pork 51,478,593 300 Milk 23,251,078 20,000 250 Soybean seed 18,740,197 15,000 200 Lamb 12,966,640 1000 MT Wheat 6,116,322 % 10,000 150 Sugar 5,707,705 100 Soybean oil 3,938,351 5,000 50 Soybean meal 3,756,247 177 78 0 0 Rapeseed seed 1,042,018 Sunflower oil 174,355 Soybean seed Wheat Soybean meal Sugar Soybean oil Sunflower oil Lamb Rapeseed Sunflower seed Milk Pork Sunflower seed 124,268 Current value of all agri-food exports 1000 USD % (2015 est.) from CA to China is equal to only 521 million USD. Source: IFPRI, 2015 Selection process for horticulture products • IFPRI IMPACT model offers projections for fruits and vegetables’ aggregates only, and does not offer differentiation across the specific horticulture products • To pre-select horticulture products for the Stage 2 analysis, FAOSTAT latest historic data was used to examine recent horticulture trade for China and Central Asia • Based on this analysis, horticulture products for which China is a net importer (2013 est.) were compared to the horticulture products for which Central Asian countries are net exporters (2013 est.) • The horticulture products at the intersection of these two were selected for the further analysis in the Stage 2 of the project Preliminary product selection for exports to China Kazakhstan Kyrgyzstan Tajikistan Uzbekistan Wheat Milk Beef* Pork Lamb Sugar Soybean (seed, meal, oil) Sunflower (seed, oil) Rapeseed (seed) Horticulture products Peas (dry) Grapes Apricots (fresh) Plums and sloes Apricots (dry) Cherries Walnuts, with shell Walnuts, with shell Juice, grape Plums dried (prunes) Plums dried (prunes) Watermelons Watermelons Cherries *Chinese net imports of beef are projected to decline by 70 percent between 2016 and 2050; however, due to the projected high food demand for beef, it was included for the analysis in this study. Russian food demand projections Average annual grown in food • Similarly to the Chinese demand, % projections, growing incomes and 1.2 changing diets in Russia, will result 1.0 in fast food demand growth for 0.8 vegetables, fruits, meats and 0.6 sugar. 0.4 • Post-2030, declining population as 0.2 well as slowing income growth will 0.0 largely contribute to declining food -0.2 demand for all major agri-food -0.4 categories, especially for oilseeds and eggs. 2017 to 2030 2031 to 2050 Source: IFPRI, 2015 Russian agri-food net imports’ growth projections, 2050 (IMPACT model) 1000 USD (2005) Temperate Fruit* 5,712,101 Poultry 4,838,763 Milk 3,367,813 Beef 3,006,456 Eggs 1,311,530 Pork 1,208,458 Sugar 549,599 Potato 168,165 Groundnut 140,714 Soybean Meal 75,389 Source: IFPRI, 2015 *IFPRI IMPACT model offers projections for fruits and vegetables’ aggregates only, and does not offer differentiation across the specific horticulture products. See slide 20 for the selection process of the horticulture products Preliminary product selection for exports to Russia Kazakhstan* Kyrgyzstan Tajikistan Uzbekistan Poultry Milk Beef Eggs Pork Sugar Potato Groundnut Soybean meal Horticulture products Grapes Grapes Strawberries Apricots (fresh) Cherries Plums (dry) Plums Apricots (dry) Peaches Watermelons Cherries Walnuts, with shell Apricots, fresh Strawberries Apricots, dry Cherries Watermelons Plums Prunes Watermelons *Most of the horticulture exports from Kazakhstan to Russia are re-exports from other CA countries (Kyrgyzstan, Tajikistan and Uzbekistan) PHASE 2 RESULTS SD PG Phase 2 Goal: to make a preliminary identification of particular product value chains in which CA countries are likely to be (or could become) competitive in the Chinese markets. Activities: Calculation of “revealed comparative advantage� and “domestic resource costs� indicators Consultations with stakeholders Revealed Comparative Advantage (RCA) Country with a high degree of comparative advantage in product A should be relatively specialized in the production of A, and should be an exporter. Country can be inferred to have real comparative advantage in products of which it is a strong exporter. In other words, this approach uses existing trade/specialization patterns to infer comparative advantage. “Revealed comparative advantage� index is defined as the relative weight of exports of a commodity in a nation’s total exports, relative to the share of that commodity in total world exports (Balassa, 1965). where Xij stands for net exports of product j from country i. Thus the numerator of the RCA is the share of product j in the exports of country i, and the denominator is the commodity’s share in all global exports of all products. When RCA > 1, the country has a comparative advantage in that commodity (and the higher the RCA, the stronger the advantage), or a comparative disadvantage when RCA< 1. A negative value for the RCA indicates that the country is a net importer of the product, which would not be considered a positive indicator of competitiveness. Nonetheless, a low or negative RCA combined with a low DRC could indicate that there is some policy or trade barrier that is artificially lowering the ability to export, and if this is corrected, the country might become competitive on world markets Domestic Resource Cost (DRC) DRC of a product shows the value of a country’s resources used to produce one dollar’s worth of that commodity. where cijd and cijf represent respectively domestic and foreign input costs for country i’s production of good j. The denominator of this fraction is the price of a unit of the output (its undistorted border price, measured in foreign exchange) minus the cost of imported inputs needed to produce it -- the net foreign exchange generated (if the good is an export) or saved (if it is an import substitute) by producing one unit of product j domestically. DRCij < 1 is an indication that country i has a “comparative advantage� in producing good j, that is, it costs less to produce a unit of the commodity than it is worth. The smaller the DRCij is, the greater the advantage would be. In DRC methodology all values are “economic� values, that is, the value to society as a whole. Tradable goods prices are adjusted for taxes/ tariffs/ effects of quantitative trade restrictions/ subsidies. Non-tradable goods are adjusted to “shadow prices�. Financial profitability is based on market prices, so will result in a “false� indication. Problems and Caveats: RCA RCA is based on actual patterns of trade, which may be strongly affected by a number of factors related to present or past policies. For example, if production of a good is heavily subsidized by public funding, it may have high exports and RCA, but greater production would make society as a whole worse off. In addition, these policies could be changed in the future. RCA is “static�: it does not demonstrate whether or not the current level of specialization is above or below the long run equilibrium optimal level. If the current trade patterns represent an equilibrium, then the fact that a country has a high RCA in a product does not imply that further specialization in that product would improve its welfare. Rather, the inference from a high RCA that the country should expand its production of that commodity (relative to the expansion of production in the world at large), requires the assumption that the current trade patterns are not already at some equilibrium state. In the case of countries that are still in a state of transition from previous highly distorted trade environment, such as those in Central Asia, this is probably a reasonable assumption. Problems and Caveats: DRC Empirical difficulties in estimating DRC: Lack of quality data on input use and production costs, and their variability across different classes of producers. In stage 2 of this study, estimates of the cost of production and its structure were based on a small sample of farmers who were interviewed for this purpose. The group was divided into small and large farmers for each commodity, but it is not possible to verify how representative the sample is of the whole class. In Stage 3 of the study we hope to be able to cross-check these numbers with a larger sample. Hard to estimate shadow prices for non-tradables (labor, capital, land), given absence of some of the required data and other issues. Complications in making empirical adjustments for tradable products. The border prices must be adjusted by transport costs to make them comparable to farmgate prices. Also, for products that are not traded in the same form in which they are produced on the farm, calculating a border price equivalent to compare to the farmgate price requires an adjustment for processing costs. Policies induce shifts in production decisions that affect the coefficients of input use that are used in the empirical calculation of the DRCs. For example, if fertilizer prices are artificially subsidized, farmers adopt more fertilizer intensive production technologies. So these distortions affect the DRC calculations in a way that cannot be fully corrected by simply adjusting the prices. In recognition of the shortcomings of the objective indicators of comparative advantage and competitiveness, the selection of the short list in stage 2 was also guided by expert opinion from interviews with actual market participants. PHASE 2 RESULTS: KAZAKHSTAN SD PG Product selection: Export competitiveness assessment Summary: Based on the RCA indicators, the products with the most export potential include wheat and sunflower seed. Relatively high RCA for rapeseed seed suggests its competitiveness potential as well. In addition, the results of the DRC indicators point to the competitiveness of rapeseed seed and dry peas. Based on the expert opinions, additional products for consideration include lamb, beef and sunflower oil (these are also supported by the DRC, but not RCA results). Projected value of the Net exports RCA Chinese agri-food imports, Product (2015-2017 average), DRC* (2017) (2012-2016 average) 2050 1000 USD 1000 USD (2005) Wheat 670,988 6.17 0.71 6,116,322 Sunflower seed 50,700 5.38 0.4 124,268 Rapeseed seed 25,118 0.94 0.18 1,042,018 Peas (dry) 5,146 0.72 0.32 335,349** Lamb 1,167 0.04 0.77 12,966,640 Beef -31,450 -0.2 0.85 - Sunflower oil -60,467 -2.4 0.4 174,355 Soybean oil 4,899 0.22 - - Soybean seed 4,966 0.03 - - Pork -2,746 -0 - - Soybean meal -4,632 -0.1 - - Milk -101,073 -1.5 - - Sugar -193,839 -2.8 - - Source: UN Comtrade, own calculations *Here and elsewhere, the list of products for which DRCs were calculated was pre-selected based on the expert opinion ** Chinese net imports (2015-2017 average) Note: Darker color suggests that the product can be included in the short list based on all three criteria – RCA, DRC and expert opinion; lighter color shades imply that not all the criteria are met. Kazakhstan has a strong potential to further increase wheat production and exports • The country has a strong potential in increasing wheat production by increasing • Annual growth of wheat exports to its yields. China = 10 percent in 2013-2017. • Capacity of Dostyk and Khorgos border rail • China is ready to allocate an even terminals (1,200 and 300 tons per day) are important bottlenecks for wheat exports to larger amount of quota for wheat China. imports from Kazakhstan. • However, Kazakhstan is considering investing in development of additional rail terminals. China wheat imports, 2017 Kazakh wheat yields remain very low 6% 1% 6 5 17% 39% USA MT/ha 4 Australia 3 Canada 2 Kazakhstan 1 Other 0 37% Total value = 908 million USD Sources: UN Comtrade, USDA PSD Similarly, Kazakhstan has a strong potential to further increase sunflower seed production and exports • Exports to China has been • Country has a strong potential to continuously growing from USD 0.37 increase sunflower seed production. Its average yield million in 2013 to 32.88 in 2017. reached historical record of 1.02 • Currently, Kazakhstan dominates tons per hectare in 2017, mostly sunflower seed exports to China. due to new seeds varieties adaptation, increased use of inputs and improved machinery China sunflower seed imports, 2017 efficiency. 8% 2% • Overall, production of sunflower has increased by 88% during in Kazakhstan 2016 compared to 2012, both USA due to expansion in area (by Other 18%) and increased yields (by 90% 59%), and may expand further. Total value = 37 million USD Source: UN Comtrade Kazakhstan has been capturing sunflower seed exports markets in both China and Russia Kazakh rapeseed seed and its products may occupy GM-free niche on Chinese market • Currently, Kazakhstan can export only Kazakhstan exports, 2017 rapeseed oil to China. For exporting rapeseed and rapeseed meal, Chinese and Kazakh 3% authorities need to sign phytosanitary 11% agreements and Chinese inspection should Mongolia certify Kazakh producers. As of March 2018, 14% Russian Federation both countries have developed an action plan Iran to accomplish preparation of agreements. 57% Latvia 15% Other • However, Kazakh rapeseed seed was actively re-exported to China through Mongolia in 2016 and 2017. Total value = 40 million USD • Canada is a key exporter of rapeseed seed to China imports, 2017 China. It will be challenging for Kazakhstan to compete with Canadian rapeseed in the 2% 1% Chinese market. First, there is less area in Kazakhstan that suits well for the rapeseed Australia production. Second, most of the Canadian Canada canola is genetically modified to be resistant to Russian Federation the glyphosate herbicide, making it more productive. Nevertheless, Kazakh rapeseed 97% and its products may occupy GM-free niche on Total value = 2.1 billion USD Chinese market. Source: UN Comtrade Sunflower oil • RCA indicator for sunflower oil exports from Kazakhstan exports, 2017 Kazakhstan did not indicate export competitiveness of this product. However, 19% based on both expert opinions and DRC China results, sunflower oil can be considered for 13% Afghanistan the short list of products that require further 54% Uzbekistan analysis. Other 14% • Both overall exports of the Kazakh sunflower oil and exports to China have been increasing Total value = 41 million USD since 2013. China imports, 2017 • In 2016, China became a main destination, accounting for 43 percent of total sunflower oil 4%2% exports. 20% • In 2016 Chinese invested in oil processing Ukraine facility in North Kazakhstan with projected Russian Federation capacity of 120-150 thousand tons of oil. By Kazakhstan comparison, vegetable oil production in the Other 74% country in 2016 was 312 thousand tons. Total value = 612 million USD Source: UN Comtrade Share of Kazakh sunflower oil exports to China has been strongly increasing over time Peas (dry) Kazakhstan exports, 2017 • Kazakhstan has good capacity for production growth (2017 production 5% 6% 131 thousand tons). 7% Afghanistan • Production and transportation costs 11% Uzbekistan Iran are competitive for exports to China. Italy 71% • China’s peas imports come mainly Other from Canada, where natural Total value = 10.5 million USD conditions are similar to the ones observed in Kazakhstan. China imports, 2017 • Currently, due to relatively low prices, 6% 3% peas is less competitive crop than lentils or flax in Kazakhstan. Growers keep producing it for more rotational Canada USA reasons rather than profit. As peas Other could be produced in all regions where wheat grows, production could 91% potentially be increased in more than Total value = 381 million USD 10 times. Source: UN Comtrade Product selection: Interviews with the stakeholders The next two slides offer a summary of expert opinions on whether to include the following products in the ‘short list’ • There are no strong preconditions for milk export development in the short-run, which is reflected in Milk the strong net importer position of Kazakhstan • Kazakhstan may struggle to be price competitive with meat exports to China originating in South America. • However, potentially, Kazakhstan may find a niche on Chinese market, including for natural meat, pasture fed meat, organic meat, etc. Beef • Current efforts of the Kazakh government are targeted towards improving the competitiveness of the sector. For example, veterinary services has been reformed and significant investments were made in livestock identification, labs and vaccination. • In addition, meat union of Kazakhstan has signed a memorandum with CITIC Construction on intentions to invest USD 600 million in livestock production and export infrastructure by 2024. Pork • Local Islamic traditions reject pig meat production and currently population of pigs is declining. • Kazakh sheep meat has different taste characteristics than Australian or New Zealand one and may find consumer in China. • Four meat processing enterprises passed inspection and permitted to be used for exports of sheep meat to China. Lamb • Australian company Cedar meat established a joint venture with Kazakh company Eurasian Agroholding which is investing in abattoir with 10,000-12,000 tons of meat capacity as well as sheep feedlot with 5,000 heads capacity. Facility will be located in Ayagoz city, East Kazakhstan, region bordering with China. Cedar meat is expected to bring knowledge in production and processing of sheep meat as well as its’ expertise in marketing in China. • There are no strong preconditions for export development, which is reflected in the strong net importer position of Kazakhstan Sugar Product selection: Interviews with the stakeholders (cont.) • There is a potential to increase soybeans production in the country both through increased land allocation and improved yields. • But this potential is limited by area of irrigated land, where soybeans compete with higher value crops like vegetables. • For production on rain-fed lands, Kazakhstan is disadvantaged on precipitation and sun Soybean seed radiation, which are required for soybeans. • Local poultry industry most likely will continue to compete for soybeans with exports, limiting their expansion. Poultry population increased by 16% in five years (from 34.2 million heads in 2013 to 39.9 million heads in 2017 (end of year). • Although products seem to be competitive on Chinese market, domestic demand would likely stay high. • Currently, however, Kazakhstan cannot export soybean meal to China due unsettled Soybean meal phytosanitary agreements • Main consumer of soybean meal is poultry industry, which continue growing (see above). • Although products seem to be competitive on Chinese market, domestic demand would likely stay high. Soybean oil • Export contracts to China require substantial volumes and relatively low prices, which Kazakhstan cannot offer. PHASE 2 RESULTS: KYRGYZSTAN SD PG Product selection: Export competitiveness assessment Summary: Based on the RCA and DRC results, and the interviews with the stakeholders, the products with the most export potential to China include cherries, walnuts, milk, fresh apricots, and plums (fresh and dried). Other products mentioned by stakeholders as possible competitors in the Chinese markets include beef, lamb and honey. Main export destinations for the products of interest are Russia and Kazakhstan. Exports to China remain limited, however, have been increasing for some products (i.e. cherries). Kyrgyz net exports RCA* Chinese net imports Russian net imports Product (2013-2017 average), (2013-2017 DRC** (2017) (2015-2017 average) (2015-2017 average) USD average) USD USD Apricots (fresh) 2,605,524 78.8 0.77 496,490 66,240,193 Walnuts, with shell 7,331,118 29.0 0.56 25,300,000 18,326,576 Plums (fresh) 637,057 13.4 0.72 99,008,118 102,209,431 Cherries 505,818 7.6 0.17 903,424,257 179,307,051 Plums (dried) 210,043 3.3 0.29 7,557,770 50,631,719 Milk 2,930,699 1.4 0.43 23,251,078*** 3,367,813**** Watermelons 79,643 0.95 - 106,480,374 17,381,844 Source: UN Comtrade, own calculations **The list of products for which DRCs were calculated was pre-selected based on expert opinion *** Projected value of the Chinese agri-food imports, 2050,1000 USD (2005) **** Projected value of the Russian agri-food imports, 2050,1000 USD (2005) Note: Chinese net imports of fresh apricots increased from -1.5 mln. USD mln 2015 to 4.2 mln USD in 2017 Product selection: Export competitiveness assessment (cont.) Kyrgyz net exports RCA Product DRC* (2017) (2015-2017 average), mln USD (2015-2017 average) Lamb -503,668 -1.2 - Beef -7,611,935 -2.2 - Sunflower seed 33,036 0.2 - Rapeseed seed -1,276 0.0 - Soybean seed -113,492 0.0 - Soybean oil -123,746 -0.2 - Apricots (dry) 122,636 -0.6 - Soybean meal -1,462,612 -0.8 - Grapes -2,699,179 -3.3 - Pork -16,510,645 -6.0 - Peaches -1,802,521 -8.4 - Wheat -46,194,669 -13.0 - Sugar -40,333,505 -18.1 - Sunflower oil -41,672,674 -50.3 - Source: UN Comtrade, own calculations *The list of products for which DRCs were calculated was pre-selected based on the expert opinion Cherries Average yields in top exporting countries, 2015-2017 • Cherry yields have been increasing in Kyrgyzstan since 2007, but still lag behind MT/ha those of the major world exporters. This United States of America indicates a potential for further increasing 8.4 cherry production, and exports, if yields are Turkey 6.4 improved. Chile 5.0 • The key destinations of the Kyrgyz cherries are Russia and Kazakhstan. Uzbekistan 8.6 • However, exports to China have been Kyrgyzstan 5.1 gradually increasing since 2015. Most cherries from Kyrgyzstan come into China via air freight to Urumqi, the capital of Cherries exports’ destinations, 2017 Xinjiang Uyghur Autonomous Region. 2% • In the last two years, China and Kyrgyzstan 10% have been strengthening their cooperation in the area of SPS requirements, creating a further potential to increase exports of 13% Russian Federation cherries and other horticulture products to Kazakhstan China. In 2017, around 10 cherry orchards China was inspected by Chinese delegation and Other received permission for exports to China. 75% • New marketing channels are also opening with the development of the online delivery services. Total value = 1.5 million USD Source: UN Comtrade Walnuts, with shell • Kyrgyzstan has the second largest Walnuts exports’ destinations yields of 4.7 MT/ha among the key 17% walnut exporting countries (after neighboring Uzbekistan, which has Russian Federation average yields of 9.2 MT/ha). 7% 41% Iran Syria • Kyrgyzstan is also one of the largest 9% Uzbekistan walnut exporting country in the world. Other • Walnuts are exported to a variety of 26% countries, including to China. Total value = 6.2 million USD • National experts conveyed in the interviews that Kyrgyzstan has a strong potential for further increasing walnuts exports, including to China, under the condition that walnut plantations are expanded. Source: UN Comtrade Apricots (fresh) Apricots exports’ destinations • Production of fresh apricots in Kyrgyzstan has remained relatively 0% stable since 2010. 30% • On average the Kyrgyz farmers Russian Federation Kazakhstan harvest 3 MT/ha, which is low Other comparing to other large apricot 70% producers (i.e. Uzbekistan - 11 MT/ha, and France and Italy -12 Total value = 1.8 million USD MT/ha, Spain 7.5 MT/ha, Turkey – 5MT/ha). • Large demand from Russia creates an important opportunity for Kyrgyzstan to increase its fresh apricots exports. Source: UN Comtrade Plums (fresh and dry) Exports of fresh plums • Production of fresh plums in Kyrgyzstan has remained relatively 0% stable since 2010 • Kyrgyz plum yields are significantly Kazakhstan 48% lower (6.2 MT/ha) than those in the 52% Russian Federation Uzbekistan largest exporters of plums (i.e. 17 MT/ha in Chile, 16.2 MT/ha in Italy) Total value = 0.9 million USD • The Kyrgyz fresh plums are mainly exported to Kazakhstan and Russia. Exports of prunes • Geography of prunes exports is much 2% more diversified. Nevertheless, most 11% of the exports still go to Russia and Russian Federation Kazakhstan. 20% Kazakhstan Germany • Overall, the export volumes of plums 67% Other (fresh and dry) remain very low in comparison to the current demand in Total value = 0.8 million USD both China and Russia. Source: UN Comtrade Milk • With over 380 thousand dairy farms Milk exports’ destinations and 1.5 million tons of raw milk, 1% Kyrgyzstan ranked #65 in global milk 12% production (2015). Kazakhstan • Dairy industry in the country is Russian relatively well developed and has a Federation strong potential to growth further. Other • Milk prices are six percent above the 87% world market, while feed prices are 13 percent below, which provides a profit Total value = 8.2 million USD opportunity for milk producers and processors (FAO). Source: UN Comtrade Key challenges: Interviews with the stakeholders The following key constraints were outlined by the Kyrgyz experts with regards to increasing production and exports: Cherries: outdated production technologies, high seasonality of production, few cold storage facilities, and inefficient processing and packing practices; Plums: small scale farming and low production volumes, high seasonality of production, outdated production technologies, few cold storage facilities; Apricots: high seasonality of production, low capacity to comply with phytosanitary and packaging requirements; Walnuts: high seasonality of production, outdated cleaning, drying and storage facilities, old walnut plantations; Milk: low productivity, small scale production, poor veterinary system and problems with animal health. Other challenges: non-product specific Low capacity to comply with with the China rules, regulations and requirements on food, packaging, labeling Low efficiency of customs clearance in Kyrgyzstan Weak inland transport infrastructure: rail, road, air Low production efficiency, including - Lack of manpower, especially skilled mid-level professionals - Outdated production equipment - Poor quality control Low export promotion capacity Ineffective marketing to target audiences PHASE 2 RESULTS: UZBEKISTAN SD PG Product selection: Export competitiveness assessment Summary: Uzbek exports that exhibit export competitiveness based on the RCA analysis, include cherries, apricots (dry and fresh), plums (fresh), grapes (fresh) and walnuts. Currently, Uzbekistan does not export any of the selected horticulture product to China, however, starting in 2018, Uzbek cherries will be allowed into China. For some products (i.e. cherries, plums and grapes) both China and Russia have large demand that Uzbekistan may strive to meet. Uzbek net exports RCA Chinese net imports Russian net imports Product (2012-2017 (2012-2016 DRC (2017) (2015-2017 average) (2015-2017 average) average), USD average) USD USD Cherries 44,733,333 172.0 0.20 903,424,257 179,307,051 Apricots (fresh) 20,396,311 109.1 0.17 496,490*** 66,240,193 Apricots (dry) 9,594,508 57.1 0.17**** -665,132** 26,998,989 Walnuts 39,208,645 37.5 0.20 25,300,000 18,326,576 Plums (fresh) 10,665,391 28.6 0.41 99,008,118 102,209,431 Grapes, including 0.22 (table) table 78,195,406 22.1 0.65 (wine) 532,000,000 573,936,999 Plums (dried) 11,261,431 7.3 0.41**** 7,557,770 50,631,719 Source: UN Comtrade, mirror trade statistics; own calculations **Chinese net imports of dry apricots increased from -3.5 mln USD in 2015 to 2.6 million USD in 2017 ***Net imports of fresh apricots increased from -1.5 mln. USD mln 2015 to 4.2 mln USD in 2017 **** DRCs for fresh fruits are used to approximate the DRCs for the corresponding dry fruits Product selection: Export competitiveness assessment (cont.) Uzbek net exports RCA Product DRC (2017) (2015-2017 average), USD (2015-2017 average) Watermelons 54,961 0.1 - Lamb -47 0.00 - Rapeseed seed -111,376 -0.03 - Soybean seed -3,024,822 -0.1 - Pork -2,858,085 -0.2 - Milk -2,579,232 -0.3 - Beef -11,667,407 -0.6 - Sugar -27,058,365 -2.3 - Soybean oil -12,406,061 -3.9 - Soybean meal -49,800,000 -9.8 - Wheat -204,658,742 -11.6 - Sunflower seed -33,096,062 -22.5 - Sunflower oil -105,629,987 -24.1 - Source: UN Comtrade, mirror trade statistics; own calculations Cherries • Uzbekistan has strong pre-conditions for Main export destinations, 2017 the production of cherries due to its good climatic conditions, early crop 8% 1% maturing and inexpensive labor. • Upgrading cherry production technologies has potential to further 20% Kazakhstan boost cherry yields. Russia • For example, there are opportunities for Kyrgyzstan using technologies to further extend the Other cherry season to allow for larger 71% harvests. • Kazakhstan and Russia are the main Total exports value = 66.8 million USD destination of cherry exports. However, Uzbekistan is also exploring new markets, including recent exports to South Korea. • Starting in 2018, Uzbek cherries are also allowed into China (previously held quarantine restrictions have been removed). Source: UN Comtrade, mirror trade statistics Table grapes • Table grapes are the number one Table grape production, MT product from the fresh produce 1.8 category exported from Uzbekistan. 1.6 1.4 • Thanks to its climatic conditions, Million MT 1.2 1 Uzbekistan can export table grapes 0.8 almost all year round. 0.6 0.4 • Its production has been steadily 0.2 increasing since 2008, primarily 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 driven by improved yields. Main export destinations, 2017 • Key destinations for the table grapes 6% 0% exports from Uzbekistan include Kazakhstan and Russia. 29% Kazakhstan Russian Federation Kyrgyzstan 65% Other Total exports value = 98.6 million USD Source: UN Comtrade, mirror trade statistics Apricots (fresh and dry) • The production of apricots has Apricots, fresh, 2017 drastically increased since 2000, 9% 0% reaching over 660,000 MT in 2016 (from 68,000 MT in 2000) 24% Kazakhstan Russian Federation • In the last 17 years, Uzbekistan has Kyrgyzstan been among the top three world 67% Other producers of fresh apricots, behind Turkey and Iran. Total exports value = 20.5 million USD • Fresh apricots are mainly exported to Kazakhstan and Russia. Apricots, dry, 2016 • Geography of dry apricots is much 13% more diversified – in 2017, 7% Uzbekistan exported them to 26 Kazakhstan countries 8% Germany Ukraine 10% 62% Belarus Other Total exports value = 9.4 million USD Source: UN Comtrade, mirror trade statistics Walnuts, in shell • Uzbekistan has a strong potential to Production of walnuts 60 increase both production and exports of walnuts. 50 • Production of walnuts has been Thousands MT 40 30 increasing since 2012 both due increases in area and yields. 20 10 • In 2017 the President of Uzbekistan signed a decree "On creation and 0 2009 2010 2011 2012 2013 2014 2015 2016 organization of activities of the Association of producers and Main export destinations, 2017 exporters of walnuts“ that established 1% the Association, and allocated additional 50 mln. USD and 10,000 ha to new walnut plantations. Turkey Other 99% Total exports value = 24.3 million USD Source: UN Comtrade, mirror trade statistics Plums (fresh and dry) • Similarly to other horticultural Plums, fresh, 2016 products, production of plums has been increasing in Uzbekistan in 2% 0% 20% recent years. Kazakhstan • Exports of fresh plums, however, Russian Federation remained rather volatile in the last five Kyrgyzstan Other years. 78% • Exports of prunes saw a sharp Total exports value = 13.4 million USD increase in 2017, reaching 16.9 mln. USD in value (comparing to 8 million Plums, dry, 2016 in 2016 and 2015). 7% 4% • Fresh plums are mainly exported to 6% Kazakhstan Kazakhstan and Russia. 7% Germany Belarus • Geography of prunes is much more Ukraine diversified – in 2017, Uzbekistan 76% Other exported prunes to 15 countries. exportsvalue Totalexports Total 8.6 million value==24.3 million USD USD Source: UN Comtrade, mirror trade statistics Key constraints: interviews with stakeholders All the stakeholders that were interviewed pointed to the potential Uzbekistan has in increasing the production of the selected horticulture products. However, they outlined a number of constraints that prevent Uzbekistan from increasing horticulture exports in general and taking the advantage of the Chinese growing horticulture demand, specifically. These included: Lack of modern cold storage facilities Lack of drip irrigation systems Small production volumes relative to the Chinese import demand Lack of long-term, well-established relationships between farmers, trading companies and importers Limited trade networks outside of Russia and Kazakhstan; lack of foreign market knowledge Lack of certification capacity in the country – national quality infrastructure lacks recognition in importing countries Mismatch in the quality standards with the international ones Inability to meet stringent Chinese quarantine requirements Rewarding the khokims on the value of regional exports creates pre-conditions for corruption, i.e. khokims do not allow trucks with horticulture leave their region PHASE 2 RESULTS: TAJIKISTAN SD PG Product selection: Export competitiveness assessment Summary: Tajik exports that exhibit export competitiveness based on the RCA analysis, include apricots (dry and fresh), plums (fresh) and grapes (fresh). Among the analyzed products, the only one that Tajikistan exports to China is dry apricots, albeit in very small quantities (0.6. percent of total dry apricots’ exports’ value in 2015-2017). Chinese net Russian net Tajik net exports RCA imports (2015-2017 imports (2015-2017 Product (2015-2017 average), (2012-2016 average) average) average) USD USD USD Apricots (dry) 6,086,562 287.3 -665,132 26,998,989 Apricots (fresh) 833,364 35.6 496,490 66,240,193 Plums (fresh) 889,636 19.6 99,008,118 102,209,431 Grapes 2,655,497 5.8 532,000,000 573,936,999 Pork -41,404 0.0 - - Soybean seed -491,179 -0.2 - - Source: UN Comtrade, mirror trade statistics; own calculations Note: **Chinese net imports of dry apricots increased from -3.5 mln USD in 2015 to 2.6 million USD in 2017 Net imports of fresh apricots increased from -1.5 mln. USD mln 2015 to 4.2 mln USD in 2017 Product selection: Export competitiveness assessment (cont.) Tajik net exports RCA Exports to China, % of Product (2015-2017 average), USD (2015-2017 average) total (2015-2017 average) Lamb -120,800 -0.3 0.0 Rapeseed seed -409,072 -0.8 0.0 Beef -7,273,017 -2.6 0.0 Milk -3,806,826 -2.8 0.0 Soybean oil -1,557,340 -5.0 0.0 Soybean meal -4,897,029 -5.5 0.0 Sunflower seed -1,699,919 -8.9 0.0 Sugar -21,832,412 -15.3 0.0 Sunflower oil -33,300,000 -55.6 0.0 Wheat -171,666,667 -76.4 0.0 Source: UN Comtrade, mirror trade statistics; own calculations Kyrgyzstan and Kazakhstan serve as major importers of the Tajik horticulture products of interest. Apricots (dry), 2017 Apricots (fresh), 2017 4% 2% 2% 6% Kazakhstan 17% Russian Kyrgyzstan Federation Kazakhstan Ukraine Russia 73% Other 96% Plums (fresh), 2017 Grapes (fresh), 2017 3% 0% 14% Kyrgyzstan Kyrgyzstan 17% Ukraine Russia Russia Kazakhstan 69% 97% Source: UN Comtrade, mirror trade statistics Key constraints for increased production Historically, Tajikistan was one of the largest producers of fruits in the USSR. However, following the collapse of the Soviet Union and the civil war, the production of stone fruits decreased as many farmers cut down their orchards, and the marketing channels collapsed. Starting 1999, the government of Tajikistan has made an effort to diversify agricultural production by encouraging farmers to produce more fruits. However, in order to make the horticulture sub-sector in Tajikistan more profitable and export-oriented, a number of constraints need to be addressed, including: Stone fruit production and exports in Tajikistan is highly seasonal due to the lack of cold storage and processing facilities, as well as other logistical issues (i.e. lack of refrigerated trucks, and cumbersome customs procedures) Access to irrigation water often remains limited There is lack of high quality seedlings and saplings There is a need for long-term access to land, plant protection and extension services Key constraints for trade with China China could become an attractive market for Tajik fresh and dried fruit exports – the two countries share a border and a relatively large share of expatriate ethnic Tajik population lives in Xinjiang region. However, there are several constraints that prevent the exports of the selected products to grow, including: Tajikistan’s Pamir Mountains and China’s Taklamakan Desert serve as geographic obstacles for rail and truck shipments, while air transportation remain prohibitively expensive; Small production volumes relative to the Chinese import demand Inability to meet the Chinese SPS requirements GEOGRAPHY OF THE CHINESE HORTICULTURE IMPORTS SD PG Summary The purpose of this section is to list key horticulture importers for the Chinese markets that will potentially serve as key competitions for the CA products. Overall, in most cases, China imports horticulture products from a limited number of countries. Among the CA countries, exports to China remain very limited. Cherries and grapes imports* Cherries (HS 080921, 080929) Grapes, fresh (HS 080610 ) 11% 9% Hong Kong 26% Chile SAR 16% Hong Kong Chile 19% SAR Indonesia 50% Australia Other Other 25% 44% Total import value = 1.6 billion USD Total import value = 708 million USD * For many of the horticulture products of interest, a large share of Chinese imports come from Hong Kong, which re-exports its horticulture imports. Key exporters of the horticulture products to Hong Kong include Chile, Australia, and USA. Source: UN Comtrade, 2017 Walnuts imports Walnuts (HS 080231, 080232) 10% 8% USA 8% Hong Kong SAR Mexico Other 74% Total import value = 43.3 million USD Source: UN Comtrade, 2017 Imports of plums (fresh and dry) Plums, fresh (HS 080940) Plums, dry (HS 081320) 1% 4% Hong Kong USA 4% SAR 19% Chile Chile 45% 40% USA Hong Kong 55% SAR Other Other 32% Total import value = 123 million USD Total import value = 10 million USD Source: UN Comtrade, 2017 Imports of apricots (fresh and dry) Apricots, dry (HS 081310) Apricots, fresh (HS 080910) 6% 0.4% Turkey 21% USA Kyrgyzstan Other Other 73% 99.6% Total import value = 3.6 million USD Total import value = 5.5 million USD Source: UN Comtrade, 2017 SUMMARY AND POINTS FOR DISCUSSION SD PG Preliminary product selection: short list for exports to China* Kazakhstan Kyrgyzstan Tajikistan Uzbekistan Apricots (fresh) Apricots (fresh) Apricots (fresh) Wheat Plums (fresh) Plums (fresh) Plums (fresh) Sunflower seed Grapes Walnuts, with shell Walnuts Rapeseed seed Apricots (dry) Grapes Cherries Cherries Plums (dried) Milk Plums (dried) Apricots (dry) *Cells are color-coded to show an overlap in products across the countries. Additional products for consideration The following products were suggested by the national experts as the ones with the high potential for the exports to China, and could be considered for further analysis. Kazakhstan Kyrgyzstan Uzbekistan Lamb Lamb Raisins Beef Beef Watermelons Rapeseed meal Honey Melons Watermelons Rapeseed oil Sunflower oil Peas (dry) Constraints on exporting to China Interviews with the country experts and literature review pointed to a set of constraints relevant to all (or most of) the CA countries that hinder their export development, including: Production/processing level constraints Low yields, resulting in low production volumes Low quality and/or insufficient quantity of planting materials/inputs Insufficient irrigation Logistical constraints (cold storage, refrigerated trucks, etc.) Inefficient processing and packaging practices Technical barriers Lack of adequate SPS capacities Mismatch between national and international quality standards Lack of compliance with the China rules, regulations and requirements, including labeling and packaging requirements Institutional constraints Weak inland transport infrastructure Lack of export promotion capacity Cumbersome customs procedures Limited spending on agricultural research and extension Next steps: Phase 3 (FY19) Goal: to identify determinants of competitiveness for the selected agri-food value chains in the CA countries and suggest policy reforms and investments that could enhance competitiveness and facilitate expansion of agricultural exports from CA to China (and Russia) Activities: Completion of the export competitiveness analysis for the products relevant to the Russian markets A full value chain analysis for the products selected in Phase 2, potentially in collaboration with IFC; Key questions that the analysis will address: a) what makes growing these products in CA competitive? b) are there important constraints to expanding exports from CA in these products? • Quality? • Trade Policy? • Factors of production? c) what policies and investments (both public and private) at the national level would improve the competitiveness of these products in each of the Central Asian countries and support the expansion of their export to China (and Russia)? d) are there policies or investments that could be enacted at the regional level to facilitate the expansion of agricultural exports from Central Asia to China (and Russia)? Development of a report to communicate the findings and recommendations of the analysis Presentation and discussion of the findings in each of the CA countries Thank you!