Agricultural sector risk assessment in Central Asia. Kazakhstan, Kyrgyz Republic and Tajikistan

Agricultural Sector Risk Assessment in Central Asia

Kazakhstan, Kyrgyz Republic and Tajikistan

Why Central Asia?

In the Central Asia Region, the agriculture sector is among the most risk-prone sectors in the economies of the countries

– Yield variance in agricultural production in Kazakhstan is 27%, compared to only 5 % in the EU, and almost 80% of this variability is related to weather.

– Climate change, which is expected to have negative impact, in particular, in Kyrgyz Republic and Tajikistan.

– Almost region-wide, animal health and food safety issues resulting in export bans.

Risk management options underdeveloped: crop insurance is not working well; price risk management instruments very limited

NASRA Methodology

– 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 to facilitate dialogue and knowledge exchange.

NASRA Methodology

– Phase 1: Based on a holistic framework for risk analysis and management, the assessment identifies, analyzes, quantifies, and prioritizes risks (i.e., production, market, enabling environment risks) that adversely impact agriculture production.

– Phase 2: A solutions assessment is 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.

– 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.

Summary of NASRA Methodology

GAO breakdown in the countries reviewed

Kazakhstan Kyrgyzstan Tajikistan

% of Gross Agricultural Output

Wheat 53.1% 14.6% 12.9%

Potatoes 15.0% 27.8% 14.8%

Cotton 2.6% 4.1% 10.2%

Vegetable 3.5% (tomatoes) 3.4% (onions) 8.9% (onions)

Animal production 20% 30% 30%

Total 94.2% 79.9% 76.8%

FINDINGS SUMMARY FOR KYRGYZ REPUBLIC AND TAJIKISTAN– At Sector Level

– Major sector shocks are high impact, low frequency, exogenous

– Transition/Hyperinflation in Kyrgyzstan, Civil War in Tajikistan 1993-1994

– Generalized price shock in 2007, Political Instability in Kyrgyzstan in 2010

– Shows the importance of diversification and access to irrigation as the basis for minimizing sector and farm level risk

– At Commodity Level

– Losses are more frequent but are small in both absolute terms and relative to agriculture sector GDP

– Production shocks are less frequent and less severe than price shocks (impact of diversification and irrigation)

– Drought is the major cause of production shocks

– Price volatility is the major cause of risk, affects most commodities.

Solutions Areas – Kyrgyz Republic and Tajikistan

– Solutions Area 1: Creating market opportunities to address commodity level price risk

and market access risk

– Solutions Area 2: Improving livestock productivity to address animal production risks

Trade Facilitation

To minimize endogenously driven factors that impedes reliant access to export markets.

– Upgraded transport corridors – More efficient border crossings – Compliance with international food safety standards

Investment Promotion and Business Operating Environment

Enhanced competitiveness among actors in the agro-food sector to decrease their exposure and vulnerability to risk.

– Improved post-harvest handling and increased value added in the sector

– Modernized agro-food processing – Strengthened SPS and food-safety standards in production and

processing

Better Market Knowledge

To allow actors to make quick decisions in response to changes in prices, market access, and consumer preferences.

– Strengthened market information systems (domestic and international)

– System for dissemination– Capacity among market actors to better understand evolving

consumer preferences

Solution Area 2: Improving Livestock Productivity– Livestock Nutrition

– Pasture Management

– Pasture Monitoring

– Feed Sector Development

– Animal Health and Food Safety

– Disease Control

– Surveillance

– On-Farm Food Safety

– Insurance

– Index-based Livestock Insurance

Recommendations for Risk Management – Kyrgyz Republic and Tajikistan

– Continued support for a diversified agricultural production base and assured access to irrigation will remain 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 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.

– 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. Governments may benefit from guidance on how to provision public financial resources for significant periodic shocks.

KAZAKHSTAN SUMMARY– At Sector Level

– Drought is the most common cause of sector level shocks, but usually in association with other sector level shocks

– Exposure to “drought +” risks is increasing due to increased reliance on wheat production and export.

– Risks highest for: crop production, large farms, multiple shocks (drought +)

– At Commodity Level

– Drought is also the major cause of risk at commodity level

– Price shocks are low frequency-low loss events; BUT joint price-production shocks can have a high impact

– Wheat is the riskiest commodity due to its high vulnerability to both production and price shocks.

– Production and price risks for livestock commodities are low.

Solutions Areas - Kazakhstan

The following risk management recommendations were selected for in-depth review and form the Solutions part of the report:

– Solutions Area 1: Improve wheat productivity (given the crop’s share of 50 percent of gross agricultural output);

– Solutions Area 2: Agricultural diversification in Northern Kazakhstan;

– Solutions area 3: Improve livestock productivity.

Recommendations for Risk Management - Kazakhstan

– Broaden and strengthen the use of conservation agriculture for crop production on medium and large-scale crop farms in northern Kazakhstan, as the basis for more sustainable management of drought risk.

– Increase support for research into ways to increase crop diversification in this region, in response to the prospective positive impacts of climate change.

– Continue the current collaboration with the International Finance Corporation to review the potential use of hedging instruments to reduce cereal price risk;

– Encourage both large-scale agricultural enterprises and medium-scale peasant farms to diversify further into lower risk, extensive livestock production, in order to reduce their vulnerability to both drought and cereal price risk;

– Improve livestock feed conservation techniques and access to seasonal finance for peasant farms and small-scale household farms as a means to reduce their vulnerability to droughts and severe winters, and associated price hikes for animal feed.

Thank you!

For more information please contact:

– Sandra Broka, Sr. Agriculture Economist, [email protected]

– Asa Giertz, Sr. Agriculture Economist, [email protected]

– Talimjan Urazov, Sr. Agricultural Specialist, [email protected]