UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION
Project title
Strengthening quality and standards compliance capacity of the fruits value chain to facilitate market access
Project ID
180061
Thematic area code
Trade Capacity Building (TCB), DD 13
Starting date
3 QRT 2019
Duration
3 years (36 months)
Project site
Kyrgyzstan - Issyk-Kul region
Main Counterparts
Ministry of Economy of the Kyrgyz Republic (Vice Ministry in charge of the National Quality System)
Other Counterparts
Ministry of Agriculture, Food Industry and Melioration of the Kyrgyz Republic, Ministry of Health of the Kyrgyz Republic, Agri-SME, Farmers, Business Associations and other actors along the fruits VC
Executing agency
UNIDO
Project inputs
· SECO
TOTAL
EUR 864,450 (incl. 13% support costs)
As part of the Global Quality and Standards Program (GQSP), the overall objective of the country project for Kyrgyzstan is to contribute to fostering Kyrgyzstan’s competitiveness by enhancing the quality and standards compliance capacity along the fruits value chain (VC), to facilitate market access for small and medium-sized enterprises (SME).
The project will pursue three outcomes, thus responding to the main compliance challenges identified in the country in alignment with the outcomes of the GQSP:
Outcome 1: Enhanced technical competence and sustainability of the National Quality Infrastructure System for services supporting the fruits VC.
Outcome 2: Enhanced SME capacity to comply with international standards and technical regulations relevant to the fruits VC.
Outcome 3: Enhanced quality awareness along the fruits VC.
Approved:
Signature:
Date:
Name and title:
On behalf of
Kyrgyz Republic:
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On behalf of
UNIDO:
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As a witness of honor
On behalf of
SECO:
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TAble of contentsAcronyms and abbreviations5A. CONTEXT7A.1. Socio-Economic Outlook7B. QUALITY INFRASTRUCTURE9B.1. Overview of Quality Infrastructure System9B.2. The Kyrgyz National Quality Infrastructure System14C. THE FRUITS VALUE CHAIN16C.1. Selection methodology16C.2. The selected value chain – Fruits17C.3. Global market tendencies and Kyrgyzstan fruits market18C.4. The geographical area20C.5. Analysis of the Fruits VC – structure and bottlenecks22C.6. Principal actors along the Fruits VC29D. REASONS FOR UNIDO ASSISTANCE32D.1. Extensive and specialized experience32D.2. The Global Quality and Standards Programme32D.3. The UNIDO approach33E. THE PROJECT35E.1. Objective35E.2. Components/outcomes35E.3. Activities and outputs37E.4. Beneficiaries39E.5. Link with the GSQP40E.6. Environmental and social impact41E.7. Duration and inception phase41E.8. Cooperation with other ongoing programmes and activities42E.9. Coordination with UNIDO PCP Kyrgyzstan and other UNIDO projects43E.10. Relevance to SECO/WE's44E.11. Sustainability and exit strategy45E.12. Gender mainstreaming45E.13. Opportunities and risks46F. BUDGET AND INPUTS48F.1. Budget48F.2. Counterpart inputs51F.3. UNIDO inputs51G. Project MAnagement AND GOVERNANCE52G.1. Project structure52G.2. Project management and coordination53G.3. Project governance54G.4. Counterpart roles and responsibilities54G.5. Procurement55H. Monitoring, Reporting and evaluation55H.1. Monitoring and reporting55H.2. Evaluation56I. REFERENCES56J. ANNEXES58Annex 1. Kyrgyz NQIS institutions and functions58Annex 2. Evolution of Kyrgyz exports for main fruits64Annex 3. Log-frame65Annex 4. Timeline of main activities71
Acronyms and abbreviations
AVEP
Agricultural and Rural Vocational Education Project
BCTCM
Bishkek Center of Testing, Certification and Metrology
BSO
Business Service Organization(s)
C
Component
CAB
Conformity Assessment Body(ies)
CHF
Swiss Franc(s)
CODEX
Codex Alimentarius - Food Code
COOMET
Euro-Asian Cooperation of National Metrological Institutions
CSM
Center for Standardization and Metrology of Kyrgyzstan
DDP&SSES
Department of Disease Prevention and State Sanitary and Epidemiological Supervision of the Ministry of Health of the Kyrgyz Republic
EAEU
Eurasian Economic Union
ERBD
European Bank for Reconstruction and Development
EU
European Union
€
Euro
GAP
Good Agriculture Practices
GIZ
German Agency for International Cooperation
GRP
Good Regulatory Practices
GQSP
Global Quality and Standards Programme
ha
Hectare(s)
HACCP
Hazard Analysis and Critical Control Points
HQ
Headquarter(s)
IAF
International Accreditation Forum
IEC
International Electrotechnical Commission
IHAF
International Halal accreditation Forum
ILAC
International Laboratory Accreditation Cooperation
ILO
International Labour Organization
IPPC
International Plant Protection Convention
ISC-CIS
Interstate Council on Standardization, Metrology and Certification (ISC) of the Commonwealth of Independent States (CIS)
ISO
International Organization for Standardization
JICA
Japanese International Cooperation Agency
KCA
Kyrgyz Center of Accreditation
KG
Kyrgyz
Kg
Kilogram
KPI
Key Performance Indicator(s)
MoAFIM
Ministry of Agriculture, Food Industry and Melioration of the Kyrgyz Republic
MoE
Ministry of Economy of the Kyrgyz Republic
MRA
Mutual Recognition Agreement(s)
NES
National Export Strategy
NQI
National Quality Infrastructure
NQIS/NQIS
National Quality Infrastructure System (also referred as NQIS)
NSC
National Steering Committee
NTC
National Technical Coordinator
OECD
Organization for Economic Co-operation and Development
OIE
World Organization for Animal Health
OVOP
One Village One Product
PAS
Pacific Accreditation Cooperation
PC
Project Coordinator
PCP
Programme for Country Partnership
PM-SQI
Project Manager - Standards and Quality Infrastructure Division
PMU
Project Management Unit
PTB
Physikalisch-Technische Bundesanstalt (National Metrology Institute of Germany)
PTC
Programme Development and Technical Cooperation, UNIDO
QI
QMS
Quality Infrastructure
Quality Management System
QTR
Quarter
RBM
Results-based Monitoring
RMA
Rapid Market Assessment
ROM
Results Oriented Monitoring
SC
Steering Committee
SDG
Sustainable Development Goal(s)
SECO
State Secretariat for Economic Affairs – Switzerland
SI
International System of Units
SME
Small and Medium-sized Enterprise(s)
SMIIC
SOP
Standards and Metrology Institute for Islamic Countries
Standard Operating Procedures
SPS
Sanitary and Phytosanitary Measure(s)
SQI
Standards and Quality Infrastructure Division
SWOT
Strengths-Weaknesses-Opportunities-Threats
TBT
Technical Barrier(s) to Trade
TC
Technical Committee(s)
TII
Department of Trade, Investment and Innovation of UNIDO
ToR
Terms of Reference
UNECE
United Nations Economic Commission for Europe
UNIDO
United Nations Industrial Development Organization
USD/$
Dollars of the United States of America
USAID
United States Agency for International Development
VC
Value Chain(s)
WE
Economic Cooperation and Development Division – SECO
WEHU
Division, Trade Promotion – SECO
WTO
World Trade Organization
A. CONTEXT A.1. Socio-Economic Outlook
Kyrgyzstan has a total population of 6,201,500, of which 64% live in rural areas and 42% participate in the labor force (2,605,503 people). The GDP of the country is 7,565 Billion USD and 1,219.82 USD per capita, which classifies the country as lower-middle income with the national poverty index at 25.4%[footnoteRef:1]. The economy of Kyrgyzstan shows positive moderate growth rates and tendency (annual GDP growth is expected to be around 4.6% in the next years), and the average annual inflation rate remains in the range of 5-7%. In the total GDP for the year 2017, the share of services was 48.0%, industry accounted for 18.2%, agriculture 12.3% and construction 8.2%[footnoteRef:2]. The overall share of agricultural production, including also forest and fishery sectors, in GDP was constantly declining, from 16.6% in 2012 to 12.8% in 2016. Production of grains, potatoes, vegetables and fruits was constantly increasing from 1991 to 2016, while production of cotton, tobacco, grapes and wool decreased[footnoteRef:3]. It is projected that the growth in the agricultural sector in the period 2018-2020 will make 3%. This growth will be mainly driven by implementation of measures by state and private sector to increase productivity of plant growing and life stock. [1: Indicators sourced from World Bank, data as of 2017. ] [2: The Development Program of the Kyrgyz Republic for the period 2018-2022. Data from the World Bank is Services (50.4%), Industry (26%), Manufacturing (15%), Agriculture (12%).] [3: Industrial Development Kyrgyzstan: Infrastructure and priority industrial sectors. UNIDO (2018).]
Kyrgyzstan’s industrial structure is not diversified, largely reliant on sectors including agriculture, natural resources and some manufacturing industries, the latter being low-technology firms, characterized by low levels of innovation and engaged in comparatively low value-added activities like textiles. Many firms still use outdated and inefficient production technologies, and limited access to external funds strongly decelerates the shift to more efficient, productive and expansive leading-edge production technologies. The advantage of low labour costs is eroded by low labour productivity. The managerial and technological practices and skills are also often insufficient[footnoteRef:4]. [4: Background document to the Industrial Development Strategy of Kyrgyzstan. UNIDO (2018).]
The indicators of the Kyrgyz Republic in the system of international ratings, such as the Doing Business, Global Competitiveness Index, Transparency International and the Global Happiness Index, have improved[footnoteRef:5]. In the Global Competitiveness Report 2017-2018, Kyrgyzstan scored 3.90 and occupies the 102nd position out of 137 countries[footnoteRef:6]. These results confirm the positive trend towards improvement in the last six periods, with the exception of the year 2016-2017 (Figure 1). Analyzing the country profile, Kyrgyzstan performs better in the sub-indexes of basic requirements (position 97) than in the efficiency enhancers (108) and innovation (128). Compared with the Eurasian countries, Kyrgyzstan performs average in the pillars of health and primary education, macroeconomic environment and financial market development. In infrastructure, with respect to market size and technological readiness, the country has important opportunities to improve (Figure 1). [5: The Development Program of the Kyrgyz Republic for the period 2018-2022. Data from the World Bank is Services (50.4%), Industry (26%), Manufacturing (15%), Agriculture (12%).] [6: Global Competitiveness Report 2017-2018. WEF (2017).]
Among the most problematic factors of doing business in Kyrgyzstan are corruption, government and policy instability, access to financing, tax regulations, inefficient government bureaucracy, inflation, tax rates, inadequate educated workforce and inadequate supply of infrastructure[footnoteRef:7]. These factors characterize the business environment in which the country project will be implemented. [7: WEF (2017). Global Competitiveness Report 2017-2018. ]
According to the National Development Plan, 2018-2022, opportunities for economic growth are “objectively hindered due to resource-energy constraints, geographical location and natural-climatic features and the absence of a significant domestic market. The potential of the private sector is still generally limited by low levels of labor productivity, lack of qualified human capital, limited access to capital and energy resources, and regulatory barriers. The fragmented nature of agriculture, processing and production, and the shortage of transport and logistics networks, do not allow most producers to compete in emerging regional markets even in industries with low added value”[footnoteRef:8]. To face these challenges in the medium term, “the Government aims to achieve the following targets: 1) ensuring the dynamic development of the economy (at least 4%) and stable growth in the incomes of the population and, consequently, reducing the level of poverty to 20%; 2) ensuring the balance of public finances and maintaining a controlled level of the deficit of the state budget, within 3-5% of GDP”[footnoteRef:9]. [8: The Development Program of the Kyrgyz Republic for the period 2018-2022.] [9: Ibid.]
Figure 1. Competitiveness performance overview
Trade plays an important role in the development trajectory of the country. Kyrgyzstan is member of the World Trade Organization (WTO) since 1998 and acceded to the Eurasian Economic Union (EAEU) in 2015, “[which] led the country's producers to a 180 million market and enabled the development of the integration potential with the main bilateral partners”[footnoteRef:10]. Observed positive effects from joining the EAEU include the harmonization of Kyrgyz legislation in key export industries with the more modern EAEU framework. For example, the number of procedures required to start a new business was reduced to two, while the number of supervisory authorities decreased from 21 to 13. Importantly, the double taxation on trade of goods and services has been eliminated[footnoteRef:11]. Moreover, in 2016 the country was granted GSP+ status (European Union's Special Incentive Arrangement for Sustainable Development and Good Governance). The extended status of GSP+ means that zero customs duty applies to Kyrgyzstan for more than 6,200 EU tariff lines. Earlier, the Kyrgyz exporters paid customs duty of 14.6% for some types of fruits and vegetables. However, the GSP+ status does not provide any simplification of procedures for obtaining certification or their cancellation; the requirements in the field of technical regulation (on safety, quality, packaging, labeling etc.) remain in place[footnoteRef:12]. Switzerland received 27.4% of total exports (99.9% of which consisted of pearls, precious stones, metals and coins)[footnoteRef:13], followed by Kazakhstan (16.5%), Russian Federation (14.7%), European Union (13.8%), Uzbekistan (8.2%) and others (19.4%)[footnoteRef:14]. Exports of agricultural products accounted for 11.3% of all exports in 2016[footnoteRef:15], mainly directed to Turkey, Kazakhstan, Russian Federation, Bulgaria and Serbia[footnoteRef:16]. Of exports to the European Union, 8.2% were agricultural products and 91.8% industrial products[footnoteRef:17]. [10: Ibid.] [11: Industrial Development Kyrgyzstan: Background. UNIDO (2018).] [12: Ibid.] [13: Trading economics (https://tradingeconomics.com/kyrgyzstan/exports/switzerland)] [14: WTO. Country profiles – Kyrgyzstan, 2017.] [15: World Integrated Trade Solutions (https://wits.worldbank.org/CountryProfile/en/Country/KGZ).] [16: Ibid.] [17: European Union (http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113409.pdf)]
However, trade is still to be exploited to its full potential. It remains driven by imports, which has consistently outstripped exports, and is hampered by low productivity, a burdensome business environment, limited financial access, and an underdeveloped physical and quality management infrastructure[footnoteRef:18]. Lack of capacity of producers and SME in complying with EAEU regulations contributes to this imbalance, despite the country’s significant effort to create the necessary infrastructure to comply with them, in part funded by donors. Reversing this trend ranks high on the Government’s development agenda. The Government’s dedication to export growth, SME capacity building, and development of strategic sectors, including agro-industry, is stipulated in the Development Program of the Kyrgyz Republic for 2018-2022. [18: UNIDO. Country assessment GQSP.]
The Development Program 2018 – 2022 has its foundation laid in a long-term vision until 2040, allowing the country to maintain a clear framework in the light of global challenges and national opportunities and interests[footnoteRef:19]. The Program considers nine strategic sectors of the economy, agro-industrial sector being one of them, and contains a number of cross-cutting priorities, namely gender, environmental and technological aspects, which should be closely integrated into each of the program areas. The capacity building of small and medium-sized enterprises (SME) is among the measures to create an enabling environment for doing business. For the agro-industrial sector, the priority direction of the Government's policy will be state support for the production and processing of agricultural products, which creates high added value and are labor-intensive. Targets for the development of the industry will be the growth of production volumes and its efficiency, improving the quality of agricultural products, ensuring the country's food security and building the capacity of the processing industry. Promotion of organic production is also among the strategic lines stated in the Development Program. [19: The Development Program of the Kyrgyz Republic for the period 2018-2022.]
The country possesses some beneficial features: the distribution of income is remarkably fairly across society; democratic development has been progressing over the years, and several reforms have taken place over the last years to improve the work of governance institutions. However, these reforms did not address the methods of the institutions’ work or the existing mechanisms of cooperation between local, regional and national governance levels. They have neither improved the cooperation between different ministries and other decision-making entities, and communication between national and local institutions remains weak.[footnoteRef:20] [20: Background document to the Industrial Development Strategy of Kyrgyzstan. UNIDO (2018).]
B. QUALITY INFRASTRUCTURE B.1. Overview of Quality Infrastructure System
B.1.1. Introduction
Quality Infrastructure system (QIS) is a combination of initiatives, institutions, organizations, activities and resources, necessary to ensure the quality and safety of products and services manufactured and placed on the market, whether they are locally produced or imported, as well as to ensure the quality of processes and systems. A QIS can be defined as the system comprising the organizations (public and private) together with the policies, relevant legal and regulatory framework, and practices needed to support and enhance the quality, safety and environmental soundness of goods, services and processes.
A QIS is required for the effective operation of domestic markets, and its international recognition is important to enable access to foreign markets. Thus, it is a critical element in promoting and sustaining economic development, international trade, environmental protection and social wellbeing. A QIS includes a national quality policy and three main functions and institutions to implement it: standardization, metrology and accreditation; a regulatory framework; quality service providers (e.g. Conformity assessment); enterprises; customers and consumers, including citizens as “consumers” of government services (Fig. 2).
Figure 2. Quality Infrastructure System and UNIDO approach - From policy to consumers
Source: UNIDO, 2015
A QIS is articulated through two key functions: 1) establishment of requirements (standardization, including voluntary standards and technical regulations) and 2) demonstration of compliance with the requirements (conformity assessment, metrology, accreditation), in a way that should form a system, geared to meet international requirements. The pillars of a QIS at national level (NQIS or NQIS) are the standards, metrology and accreditation organizations/institutions (Figure 3). In addition to these pillars, the NQIS also consists of a wide variety and conformity assessment service providers (CAB) that include calibration laboratories, testing laboratories, inspection bodies and certification bodies for systems, services, products and persons.
Figure 3. Basic pillars of a National Quality Infrastructure System
Source: UNIDO.
QIS can only function properly as a whole. The absence or weakness of any one of the institutions will compromise the effectiveness, and ultimately the efficiency, of the whole system, thereby negatively impacting the business environment. A healthy business environment is a prerequisite for trade and competitiveness, and it is essential for growth and poverty reduction. The NQIS is an important element of the business environment, and it is also understood as the “invisible” or “soft” infrastructure of a country, an underlying foundation or basic framework, as producers/enterprises, government and consumers make daily use of its components without always being aware of it.
A NQIS is a catalyst for improving the quality of products and services on a national scale. It therefore helps to stimulate demand for these products and services, which invigorates individual businesses and the economy as a whole, providing the underpinnings that enable enterprises to compete nationally and internationally. By helping national industry to meet the requirements of export markets, a NQIS increases the competitiveness of the nation’s economy and its ability to participate in global trade and in global value chains. The ultimate goal of the NQIS is to provide confidence to the buyers, users and authorities that the products, processes or services comply with the requirements of application. Therefore, the NQIS plays a crucial role in the internationalization and competitiveness of the enterprises, the transparency of the market and the welfare of society.
B.1.2. Standardization
Standardization is the activity through which desired characteristics for products, processes or services are translated into dimensions, tolerances, weights, processes, systems, best practice and other specifics, so that products and services that conform to their requirements are safe to consumers and provide confidence to buyers[footnoteRef:21]. [21: Standardization is carried out in order to stimulate the scientific and technical progress; to improve the competitiveness of products, works and services in accordance with the level of development of science, techniques and technologies; to increase the level of safety of facilities, taking into account the degree of risk of emergency situations of natural and man-made types; to facilitate compliance with technical regulations; to ensure energy efficiency and resources savings; to ensure technical and informational compatibilities; to ensure the uniformity of measurements, comparability of measurement results and testing; to ensure product interchangeability; to improve the safety of life, the health of individuals and the life and health of animals and plants, the properties of individuals and legal entities, state and municipal property and the environment (Law of the Kyrgyz Republic “On the Fundamentals of Technical Regulations in the Kyrgyz Republic”).]
The standardization function includes technical regulations and technical standards, the latter usually referred to as standards. Both, standards and technical regulations, set out specific characteristics of products and performance, the way they are labelled or packaged, and the related process and production methods. Although both terms are often used interchangeably, they differ with respect to the nature of compliance and issuing responsibilities. Technical regulations are developed by governments to fulfil particular objectives - generally safety, health, security or environmental protection -, and their compliance is mandatory, enforced by the government. Standards are developed by Technical Committees (TC), coordinated by the standardization bodies, and their compliance is voluntary; only market can enforce it. Thus, if a product does not meet the requirement of a technical regulation in an importing country, it will not be allowed to enter market. But if a product does not meet a voluntary standard, it is free to enter the country, although it may not find a market. The Technical Barriers to Trade (TBT) Agreement of the WTO encourages the use of international standards, assuming a rebuttable presumption that technical regulations aligned with international standards do not constitute “unnecessary” obstacles to international trade. So, the use of international standards as a basis for technical regulations is part of Good Regulatory Practices (GRP).
B.1.3. Conformity Assessment
Conformity assessment is the activity to demonstrate that a product, service, management system, organization or personnel meet specified requirements, of mandatory or voluntary nature. The requirements for conformity assessment activities are given in international standards such as ISO/IEC 17000 series. This helps to ensure consistency worldwide and cross-border acceptance of results, so facilitating international trade.
The field of conformity assessment includes testing, inspection and certification activities. These services are used to prove to buyers and consumers that specific quality, safety, health and environmental standards are met. They are increasingly being provided by the private sector rather than by governments, while governments retain responsibility for maintaining the fundamentals of the NQIS (standards, metrology and accreditation). Typically, the larger and more industrialized the economy, the more the private sector is involved in conformity assessment activities. This allows conformity assessment services to be competitive and self-sustainable.
Conformity assessment procedures are especially susceptible to becoming TBT, as for example when conformity assessment certificates of an exporting country are not accepted in importing countries if they lack international recognition (i.e. CAB be accredited). International recognition avoids duplication and burdensome costs of conformity assessment procedures, pursuing the goal of "once tested, accepted everywhere”.
B.1.4. Accreditation
Accreditation is the activity by which the accreditation body formally recognizes that an organization is competent to conduct specified conformity assessment services. It is imperative to build up confidence and ensure credibility, to customers and other stakeholders, in the services and results offered by the CAB.
To be recognized internationally, accreditation should be based on international standards (e.g. ISO/IEC 17025 for testing or calibration laboratories; ISO/IEC 17020 for inspection bodies; ISO/IEC 15189 for medical clinic laboratories; ISO/IEC 17065 for the certification bodies of products, processes and services; ISO/IEC 17021 for the bodies carrying out the audit and certification of management; ISO/IEC 17024 for bodies operating certification of persons, among others). For full recognition, national accreditation bodies must comply with international requirements and join regional or international accreditation organizations (e.g. International Accreditation Forum – IAF; International Laboratory Accreditation Cooperation - ILAC), through which they can participate in mutual recognition arrangements (MRA) based on peer evaluation and acceptance of their accreditation systems.
B.1.5. Metrology
Metrology is the science of measurement, embracing both theoretical and experimental determinations at any level of uncertainty, in any field of science and technology.
Measurements are involved in all trade transactions. In order to ensure fairness to all parties, they must be able to be considered as "acceptable" (e.g. food must be free from hazardous content, such as toxins, pesticides, antibiotics, hormones, etc.-; the weight of goods and other parameters such as size, color, content of sugar, etc. must be determined accurately). Without the capability to perform accurate measurements, one or other of the parties would be disadvantaged. An effective measurement system is an essential element in achieving globally accepted calibration and testing results. Essential factors for such a system are traceability to the International System of Units - SI (scientific metrology), regulated measurements and measuring instruments (legal metrology) and confidence in testing and measurement results (industrial metrology). Thus, a good metrological system is necessary to ensure consumer protection and, in general, to ensure that goods being sold conform to national and international standards. If no effective measurement system is in place, it may lead to increased costs, inhibit the free flow of goods or require repeated testing.
B.1.6. Awareness for Quality – Quality culture
Quality culture is an “environment” that has quality at its core, and refers to a set of shared and accepted patterns embedded at all levels - individual, organizational, societal and country level - which contributes to the development of effective care for quality. The notion of quality culture comprises of shared values, beliefs, expectations and commitments toward quality, reflected and supported by policies, systems (including NQIS) and processes, which guide how actions are performed and how improvements are made to everyday practices and consequent activities.
Developing a quality culture is the most effective, meaningful and sustainable way to ensure and improve quality, and to embed a dynamic system of change for better competitiveness at all levels. As quality does not only refer to products, but extends to all areas of production, distribution and management, a quality culture is required to assist SME to strengthen their competitiveness sustainably, in order to effectively compete in the global market.
Awareness of and commitment to quality, in conjunction with a solid culture of evidence and an efficient management of quality (through quality assurance and quality management procedures and practices) are ingredients of a quality culture. Enhancing awareness for quality is the first step in achieving it, and for a proper QIS development, enhance a quality culture is required.
Hence, the standards, metrology and accreditation institutions are imperative for the NQIS to function, and governments need to ensure their establishment and sustainability. In addition, the NQIS also consists of a wide variety of calibration and conformity assessment service providers. While governments might provide some initial support, the private sector should take over and include calibration laboratories, testing laboratories, inspection bodies and certification bodies for systems, services, products and persons.
B.2. The Kyrgyz National Quality Infrastructure System
B.2.1. Overview
The principles of current Kyrgyz (KG) NQIS are regulated in accordance with the provisions of the Law of the Kyrgyz Republic of May 22, 2004 Nº 67, "[on] the fundamentals of technical regulation in the Kyrgyz Republic" and is under the Ministry of Economy (MoE)[footnoteRef:22]. [22: Amended by Laws № 299 of 16.11.2009, № 171 of 14.10.2011, № 153 of 15.11.2014, №163 of 25.12.2014, №230 of 30.12.2015 and №167 of 2.08.2017).]
The components of the NQIS are as follows: metrology, standardization, accreditation, laboratories (testing, calibration), inspection bodies, certification bodies and state supervision bodies. The three main pillars of the NQIS (i.e. Standardization, Metrology and Accreditation) stand separately in two institutions, both under the MoE (Figure 4): the Center for Standardization and Metrology (CSM) and the Kyrgyz Accreditation Center (KCA). The authorized bodies for surveillance (inspection bodies) are under the Government, but MoE, as the authorized body for technical regulations, coordinates activities in state supervision[footnoteRef:23]. Annex 1 summarizes the regulatory framework and functions per institution and includes the organizational chart and human resources of the CSM and KCA. [23: The MoE appoints a body responsible for state supervision over the implementation of the requirements of a technical regulation.]
Figure 4. Organizational structure of the NQIS
Despite funds from the Government currently representing the major part of the budget of CSM and KCA,[footnoteRef:24] the Law of the Kyrgyz Republic of May 22, 2004 Nº 67 sets the basis for the NQIS bodies to receive their own funds from the provision of paid services to business entities, which contributes to the sustainability of the NQIS. [24: Approximately 86% of the total budget of CSM and 65% of the budget of KCA.]
As of August 2018, the institutions of the NQIS are members of international organizations in their respective fields:
· CSM is a corresponding member of ISO, an affiliate member of IEC and a member of: Codex Alimentarius; Euro-Asian Cooperation of National Metrological Institutions (COOMET); Interstate Council for Standardization, Metrology and Certification (ISC) of the Commonwealth of Independent States (CIS); Institute of Standardization and Metrology of Islamic Countries (SMIIC); Interregional Association for Standardization and United Nations Economic Commission for Europe (UNECE).
· KCA is a member of: Interregional Association for Standardization; International Halal accreditation Forum (IHAF); ILAC[footnoteRef:25] and ISC-CIS and Pacific Accreditation Cooperation (PAC) and International Halal Accreditation Forum (IHAF). [25: Signatory status in ILAC for testing laboratories, suspended in November 2015, was recovered in October 2018, and in addition the signatory status for KCA to the ILAC MRA has been extended to include the accreditation of calibration laboratories using ISO/IEC 17025.]
The NQIS institutions participate in international TC, although their active participation is limited both by budget constraints and language (English) barriers.
The national registry of standards, maintained by the CSM, is dominated by the regional – i.e. CIS – GOST92 standard. Despite the attempts to harmonize GOST standards with international standards (ISO), important differences remain, for example in the field of Sanitary and Phitosanitary Measures (SPS). Taken into account the complexity of SPS regulations and limited budgeting, SPS agencies remain insufficiently funded and staffed. Thus, Kyrgyzstan currently struggles to comply with the GOST-based SPS system.[footnoteRef:26] [26: Diagnostic for the Programme for Country Partnership (PCP): The Kyrgyz Republic. UNIDO (2018).]
In regard to laboratories, there are 96 accredited public and private testing laboratories[footnoteRef:27], of which 29 are specialized in food products. Of the 29 laboratories, 11 are private, including laboratories of production companies. [27: www.KCA.gov.kg (September 2018)]
Laboratories run by the state operate test for a wide range of goods, including processed agro-products, primarily under the mandate of the Department of Disease Prevention and State Sanitary and Epidemiological Supervision of the Ministry of Health of the Kyrgyz Republic (DDP&SSES), Plant Quarantine Department of the Ministry of Agriculture, Food Industry and Melioration of the Kyrgyz Republic (MoAFIM) and several territorial branches of the CSM. For public laboratories, fees for testing services are fixed by a Government resolution, and they do not cover laboratory operational costs.
The testing laboratory of Bishkek Center of Testing, Certification and Metrology (BCTCM) and laboratories of DDP&SSESS carry out the main part of tests on safety and quality parameters of products, either domestically produced or imported. The capacity of testing laboratories of food products is limited to test products on all parameters of technical regulations in force in the country and of requirements of big markets, such as the European Union.
Several laboratories comply with ISO/IEC 17025 requirements and are accredited by the KCA, but do comply with the current version of ISO/IEC 17025 (2017 version). Furthermore, 7 private laboratories and 12 public laboratories (that can conduct fruits testing) are included in the register of accredited testing laboratories of the EAEU, thus the results of the tests conducted by these laboratories should be recognized in all member states of the EAEU[footnoteRef:28]. [28: www.eurasiancommission.org ]
B.2.2. SWOT analysis
The KG NQIS has several Strengths and Opportunities to improve, that together with its Weaknesses and Opportunities (SWOT analysis) are summarized in Table 1.
Derived from Table 1, and considering the scope and objectives of the country project for Kyrgyzstan, the main areas to be strengthen are: 1) ensuring sustainability of international recognition by ILAC/IAF for accreditation of testing laboratories and calibration laboratories, 2) expand international recognition to accreditation of certifying bodies for product and management systems certification, and 3) make available standards in the state languages and strengthening/improving traceability of measurements, all of them demand-driven by the fruits VC, which has been analyzed in section E of this document.
With the regard to laboratories, with the exception of DDP&SSES in Bishkek, which was recently upgraded with World Bank financing, laboratory technology is largely inherited from the Soviet Union. Stakeholder interviews revealed that the current bio-laboratory infrastructure is deficient in size, quality, endowment and skills, and therefore unable to issue the necessary quality certificates to exporters, which would prove their compliance with EAEU SPS requirements and guarantee barrier free exports within the EAEU[footnoteRef:29]. However, as part of the conditions of the Kyrgyz Republic EAEU accession roadmap, the Government received funds aimed at improving the equipment of the testing laboratory of the BCTCM at the Ministry of Economy, including the purchase of equipment and consumables, as well as repair of premises. [29: Diagnostic for the Programme for Country Partnership (PCP): The Kyrgyz Republic. UNIDO (2018).]
Table 1. SWOT analysis matrix for the NQIS
STRENGTHS
WEAKNESSES
· Skilled human resources.
· All the NQIS institutions open to learning/improvement.
· The management and specialists of NQIS institutions strive to promote Kyrgyz products to foreign markets through the improvement of their activities.
· Insufficient government funding (Ministry of Economy); donor dependency.
· Insufficient number of international standards in Russian and state languages.
· Lack of application of international standards and best practices in all areas of the work carried out by the NQIS.
· Dependence of NQIS activities on political decision-making.
· Under-equipped laboratories, which has led to poor traceability of measurements.
OPPORTUNITIES
THREATS
· There are opportunities to facilitate and increase exports through a stronger NQIS:
· Sustainable membership/international recognition by ILAC and IAF will reduce the costs of Kyrgyz exporters in promoting products to international markets.
· Knowledge and application of international standards by all NQIS participants will allow promotion of Kyrgyz products to foreign markets.
· International recognition for accreditation of at least one certification body for food products will facilitate the promotion and market access of Kyrgyz products to international markets.
· Sustainability of the international recognition for accreditation.
· Unstable operation of testing, calibration and phytosanitary laboratories even after equipping due to poor provision of reagents, standard samples, etc.
Source: UNIDO, based on information collected through the field mission and in-depth analysis of the NQIS, 2018.
C. THE FRUITS VALUE CHAIN C.1. Selection methodology
The Global Quality and Standards Programme (GQSP), and its respective country projects, was designed to be impact-oriented, targeting a number of prioritized VC per country as a way of be cost-effective in resource use, while being able to adopt good practices to be adapted for other parts of the country, or on another VC.
UNIDO has extensive experience working with VC and has developed a methodology for the selection and prioritization of VC, which is based on a quality-driven gap-analysis along the VC. In Kyrgyzstan, UNIDO has been implementing a project to stimulate economic growth and employment by promoting linkages between the tourism sector and related productive industries in the Issyk-Kul region, from 2016 to 2019. During the preparatory assistance phase of this project, UNIDO carried out an analysis for selecting VC. Five value chains were identified as having the highest potential to contribute to the socio-economic development of the Issyk-Kul region: creative industries/handicrafts, dairy processing, fish processing, fruits and vegetables, herbal teas and remedies.
To select the VC for the country project under the GQSP, the methodology applied was based on UNIDO’s know-how, the knowledge generated during the referenced selection process, the latest advances in the country, including the publication of the “Development Program of the Kyrgyz Republic for the period 2018-2022”, and the field mission carried out by the International Labour Organization (ILO) – The Lab with UNIDO’s support in June 2018. The methodology included four steps: 1) determine selection criteria; 2) collect and analyze data (secondary and primary sources); 3) conduct selection exercise; and 4) make final selection. The criteria considered are detailed in Table 2.
Initial products included fruits (apples, apricots, pears, wild berries), vegetables (potatoes, carrots, cabbage, green radish, garlic, wild mushrooms), honey and medicinal herbs. Each criterion was rated 1 to 5 (5 being the highest score, indicating most potential) for each VC considered - fruits, vegetables, medicinal herbs - and obtained the total scores. The criteria were not weighted as all were perceived to be equally essential to the project. Fruits VC was ranked the highest, scoring 75, followed by medicinal herbs (65), vegetables (62) and honey (59). That result led to the selection of the fruits VC for the country project in Kyrgyzstan titled “Strengthening quality and standards compliance capacity of the fruits VC to facilitate market access.”
Table 2. Criteria considered in VC selection for the country project
COMPETITIVENESS criteria – VC is experiencing growth
· Unmet market demand and growth potential.
· Potential to meet market demand and export.
· Potential to compete with imports.
· Potential for value addition.
· Favorable raw material supply for processing (volume, quality).
· Unique qualities which promote and differentiate the area from competitors.
· Potential number of key enterprises/SME and willingness to improve and invest in the VC.
TARGETING criteria – VC is reaching the targeting populations
· Potential to increase income (of producers, of processors).
· Potential to increase employment.
· Potential number of producers/enterprises to benefit.
· Potential to have a positive impact on the environment and contribute to long-term sustainability.
ENABLING ENVIRONMENT criteria – There is sufficient support & readiness
· Defined as priority sector by Government.
· Presence of favorable framework conditions (e.g. laboratories, legal, etc.).
· Presence of support institutions.
Source: UNIDO.
C.2. The selected value chain – Fruits
The fruits VC is one of the VC selected by the Government within the agro-industrial sector and one of the prioritized sectors in the “Development Program of the Kyrgyz Republic for the period 2018-2022”. In point 4.1.12 of the aforementioned document, it states, “Priority areas of crop production should be industries that ensure more efficient use of water and land resources: the cultivation of high-yield cereals, legumes, technical, fruit and berry and stone fruits”. Further, it states that the Government will promote organic production: “The Government will provide assistance to enterprises of the agro-industrial complex to form such brands of ecological and organic products as "Kyrgyz meat", "Kyrgyz milk", "Kyrgyz apple", etc. Ecological cleanliness and quality of grown fruits and vegetables should become a brand of domestic agricultural products, as well as national drinks, fruit juices, mineral water and medicinal herbs” (4.1.15).
In the fruits sector, overall, apples and apricots hold greatest potential for promoting export growth than other sub-sectors/products[footnoteRef:30]. However, a deep assessment during the inception phase of the project is needed to design the action plan/roadmap for implementation. Thus, the list of fruits includes apples, apricots, pears, plums and berries, and will remain open to avoid too few beneficiaries from narrowing the scope of intervention to only two or three fruits. [30: ILO-UNIDO report, 2018.]
C.3. Global market tendencies and Kyrgyzstan fruits market
Global trade in fruits and vegetables is a one hundred-billion-dollar market, and is growing steadily at about 3% per year[footnoteRef:31]. Fruit exports alone are growing at nearly 7% a year and about 80% of global fruit production is sold as whole fresh fruit. In fact, demand for fresh and frozen fruit continues to rise, while demand for preserved fruits has stagnated and even decreased in Europe, USA and Australia. [31: Data and information for this section was extracted from ILO-UNIDO report, 2018.]
Contributing factors to the growing fruit trade include improved market access, changing consumer preferences, a more professional retail environment, a rise in purchasing power (especially in countries like China) and improved logistics alongside temperature-controlled storage and cold-chain facilities. Certified organic products are also a growing trend, particularly in developed economies. The World’s largest markets for organic products are United States, Germany and France[footnoteRef:32], and Switzerland is the leading country with the highest organic food per capita consumption[footnoteRef:33]. [32: Research Institute of Organic Agriculture, FiBL, Frick, Switzerland. ] [33: Ibid. Also www.statista.com (https://www.statista.com/statistics/263077/per-capita-revenue-of-organic-foods-worldwide-since-2007/).]
In Kyrgyzstan, agriculture accounts for 12% of GDP and employs 40% of the labor force, more than any other sector. The majority of production takes place on small household farms, which makes aggregation of produce to fulfil export orders a challenge.
Exports of horticulture products in 2016 accounted USD 63 million (6.2% of total national exports). While the Government is eager to increase this number, the sector still struggles with many issues, including limited production volume, compliance with standards, packaging deficiencies, limited access to capital, and disorganized logistics. Compliance with necessary international phytosanitary and quality standards is difficult for producers and one of the most urgent barriers they currently face, especially to maximize the benefits of EAEU accession.
Investment in processing units to promote value added products like jams, compote, juices and dried fruits has increased substantially in recent years, but they are operating under capacity, some at only 20% to 40%. Lack of management skills, access to finance, outdated equipment, and poor market information all contribute to their underperformance. Processed fruits and vegetables account for 2% of total production. Furthermore, a favorable climate for berries has resulted in cottage industries for herbal plants, jams, jellies and alternative medicines. However, considerable obstacles prevent both farmers and processors from further expansion. The challenges include small production yields, lack of trust between producers, difficulty to meet international standards such as ISO 22000 and HACCP, underdeveloped logistics’ system and little control (traceability) over existing value chains.[footnoteRef:34] [34: Ibid.]
The Development Program for the Kyrgyz Republic 2018-2022 includes several measures to face these challenges (in brackets are the article numbers of the Development Program):
· Develop the agro-industrial complex to overcome small-scale production, create processing complex and develop logistics (4.1.1.).
· Growth of production volumes and its efficiency, improving quality of products and building capacity of the processing industry (4.1.2.).
· Develop logistics centers for agriculture products (4.1.4.).
· Build appropriate infrastructure for increasing exports, such as logistic centers, laboratories, processing enterprises and transport (4.1.5).
· Provide agricultural producers affordable financial resources (4.1.6.).
· Support the development of cooperation/operation and taxation of cooperatives (4.1.10.).
· Support increase of exports through ecologically clean and organic products (4.1.11.).
· Increase yield and land use efficiency, in accordance with environmental quality standards (4.1.14.).
· Promote brands of ecological and organic products […] expand the range of services of laboratories for the certification of products and introduce international standards (4.1.15.).
· Create regional center for agro-technical servicing of agricultural machinery (4.1.16.).
Below follows a brief analysis of Kyrgyzstan’s market for the main fruits considered in the VC[footnoteRef:35]: [35: Data of this section extracted from ILO-UNIDO report. ]
· Apples: while there is an array of Kyrgyz horticultural products reaching the export market, for fruits, apples and apricots are the front-runners. Apples are the most popular fruit in Kyrgyzstan, accounting for more than 70% of total fruits produced, and its production is widely spread all over the country. Every third household is cultivating apple trees or harvesting wild apples on a total of 45,500 ha. However, most of these households only satisfy home consumption needs. Nationwide, Chui has the highest production area, taking 25.5% of the share of tree cultivation areas, followed by Osh (23.5 %), Issyk-Kul (21.5%) and Jalal-Abad (14.5%). Exports represent a rather small share of all produced apples; they fell steeply from 2013 to 2015 by 93% (see Annex 2) but have slowly recovered between 2015 and 2017 (384%). The unit value of exported apples per ton rose significantly from USD 265 in 2010 to USD 661 in 2017. Exports of fresh apples in 2017 were 5,373 tons, valued at USD 3,550,000. Kazakhstan and Russia are the primary export markets for apples (57.8% and 40.5%, respectively), with small markets in Uzbekistan and Tajikistan (less than 2%). Most processors are somehow involved in the production of apples, which signals a degree of innovation in the sector, and apple processing occurs more frequently than for apricots. An opportunity may lie for exporting organically-produced apples to Germany and Netherlands due to demand for organic production in these markets. However, stakeholders perceive that this would involve fierce competition as the European market is generally satisfied by European producers. In terms of organic production sales, the country currently exports organic apples to Russia, China and Kazakhstan, with the support of Bio Service for certification.
· Apricots: Kyrgyzstan is the fourth largest producer of apricots. The Batken region hosts 68% of the country’s apricot trees, compared with Osh (13%), Issyk-Kul (8%), Jalal-Abad (7%) and Chui (3%). Over 1.5 million people benefit from growing apricots; of these, 350,000 are directly involved in the sector. Exports of fresh apricots fell quite steeply from 2012 (see Annex 2), when they were valued at USD 12,178,000, to USD 551,000 in 2016 (a 95% fall) but started to recover in 2017. Exports of fresh apricots in 2017 were 2,233 tons valued at USD 1,785,000 (up 224% from the previous year). International markets for apricots are Russia and Kazakhstan (70.2% and 29.8% of exports, respectively). Fresh apricots are sold for a higher price in Russia at USD 823/ton than in Kazakhstan at USD 749/ton.
· Plums: they are the third most produced fruit grown in Kyrgyzstan, after apples and apricots. They account for 3% of the total fruit output (between 15,000 and 20,000 tons on a surface area of 3,000 to 4,000 ha) and the production is growing at an average annual rate of around 14%. Jalal-Abad region is the largest plum producer in Kyrgyzstan (90% of total plum production). Concerning prices and demand, plums have less volatility in comparison to other crops such as walnuts. Most of the harvested plums are sold to intermediaries and a relatively low share is kept for self-consumption, mostly consumed dried. In the production and processing of dried plums, women are somewhat active. They are perceived as reliable partners and workers, and usually run control systems at processing facilities and green houses and also participate in the sales of seedlings. Exports of plums have low value at only USD 941,000. Main export markets are the Russian Federation (52.4%) and Kazakhstan (47.7%). Over the past last five years, both the value and quantity of exports have diminished by 23% and 39%, respectively. There is an increasing demand originating from China and some enterprises reported an interest from German buyers.
· Pears: total production was around 10,395 tons in 2017. International markets for pears are Kazakhstan, Russia, and Mongolia. Exports of fresh pears in 2017 were 279 tons valued at USD 155,000 (USD556/ton). While production has decreased in the last few years (see Annex 2), the unit price rose. According to available data, pears do not appear to have been exported prior to 2015.
· Berries: production was around 4,526.6 tons in 2017, of which 4,355.4 tons (96%) were produced in Issyk-Kul region, 21 tons in Osh and 150.2 in Jalal-Abad. Black currant makes up 78% of total berries produced and is not currently exported.
Relative position of Kyrgyzstan in the region for apples and pears are summarized in Table 3.
Table 3. Relative position of exported fresh apples and apricots in the region
COUNTRY
FRESH APPLES
FRESH PEARS
Value (USD)
Quantity (Tn)
Value (USD)
Quantity (Tn)
Kyrgyzstan
3,550,000
5,373
1,785,000
2,233
Kazakhstan
227,000
1,078
76,000
3,787
Russia
6,767,000
17,904
46,000
54
Tajikistan
28,000
87
873,000
2,946
Turkmenistan
354,000
857
2,000
2
Uzbekistan
4,224,000
7,031
20,513,000
22,840
Source: ILO-UNIDO report, 2018.
C.4. The geographical area
In order to ensure the best value for the available resources and enhance overall impact, the project will be focused on a particular geographical area. Best practices will be identified and formalized for adoption and adaption to other parts of the country for the same VC or others, as appropriate.
Under this focus, in June 2018 the International Labour Organization’s “the Lab” project supported UNIDO by conducting a rapid market assessment (RMA) of horticultural sub-sectors in three regions of Kyrgyzstan. The objective of the RMA was to identify the sub-sectors and products that hold the greatest potential for market development via export promotion, targeting stakeholder income increases, particularly for SME. The geographical focus included three regions: Osh, Jalal-Abad and Issyk-Kul.
ILO-the Lab used market systems development-inspired criteria - sector relevance to the target groups, sector opportunity for growth, and project feasibility to stimulate change - to review and narrow down the list of products to focus the field research. As a result of the short-listing exercise, apples, apricots, mushrooms and medicinal herbs were recommended as focus sub-sectors, and the list grew to include potatoes in Osh, plums in Jalal-Abad and berries in Issyk-Kul. The research team agreed to remain open to flexibly adapting the short-list as new information was discovered during the field research. Analyzed sectors varied by region, but together covered apples and apricots (analyzed in the three regions); potatoes (analyzed in Osh); plums (analyzed in Jalal-Abad); cherries, pears, berries, mushrooms and medicinal herbs (analyzed in Issyk-Kul). Based on the research conducted, scores were given to each sub-sector for the criteria groups ‘relevance’, ‘opportunity’º and ‘feasibility’ in each of the three regions. Results are shown in Table 4.
Table 4. Scoring matrix of products per region
Product
Relevance
Opportunity
Feasibility
Total
Osh
Potatoes
3
2
1
6
Apples
2
2
2
6
Apricots
1
2
1
4
Jalal-abad
Apples
2
3
2
7
Apricots
3
2
2
7
Plums
1
1
1
3
Issyk-Kul
Apples
3
3
2
8
Apricots
3
3
2
8
Pears
2
1
1
4
Berries
2
2
1
5
Medicinal herbs
2
2
1
5
Source: ILO-UNIDO report, 2018.
Based on the results, geographical focus of the project is Issyk-Kul (Fig. 5), mainly for apples and apricots, but it will also include pears, plums and berries and will remain open to other fruits. However, specific interventions to enhance readiness in other regions could be considered, for example delivering training in Jalal-Abad. The in-depth assessment to be conducted during the inception phase will analyze and confirm the final geographical scope, if any apart from Issyk-Kul.
Figure 5. Issyk-Kul region in Kyrgyzstan
Balykchy
Karakol
The Issyk-Kul region sits at an altitude from 1,607 metres to 7439 metres above sea level and covers about 43,100 square kilometers. Of this, Issyk-Kul Lake covers 6,236 square kilometers (the second largest high-altitude lake in the world). The region is surrounded by the Tian-Shan mountain ranges, as of 2016, 180,412 ha. of land were used for cultivation in Issyk-Kul, with 156,600 ha. occupied by small farms. 88,747 ha. were used for growing grain crops and 26,410 ha. for potatoes. Apples, apricots, pears, and berries were jointly grown on 8,041 ha, equating to about 4.5% of cultivated areas. A small share of agricultural products is exported to other countries, but this is not based on any scheme and is largely attributable to the efforts of the producers themselves.[footnoteRef:36] [36: Background document to the Industrial Development Strategy of Kyrgyzstan. UNIDO (2018).]
The region belongs to the ones with the most advanced industry: the Chui region (41 per cent), the Issyk-Kul region (24 percent), Bishkek City (17 per cent) and the Jalal – Abad region. These regions have a leading position in industrial development, with major large-scale industrial enterprises located in these regions.[footnoteRef:37] [37: Ibid.]
There are roughly 483,000 people (as of January 2018) living in the region, whom are primarily employed through agriculture and tourism. Roughly 70% live in rural areas. Despite having a lower poverty rate than the national average, 60% to 70% of people in the region are still considered to be living in poverty. Increased tourism (up to 1,000,000 people visit the region annually) has contributed to the development of the region, but poses challenges in terms of proper planning and land use[footnoteRef:38]. [38: Data from ILO-UNIDO report.]
Karakol is the administrative capital for the region and considered to be an agro-industrial base to the local economy. Balykchy lies to the west on the opposite side and is half way between Karakol and Bishkek. It is more industrialized (largely in food production and processing) than Karakol and serves as the location for the recently developed largest logistics center in the region. Balykchy is also better connected to the other regions through rail systems, making it a strategic location for storing eventually exported produce to Kazakhstan.
C.5. Analysis of the Fruits VC – structure and bottlenecks
C.5.1. Map of the fruits VC
The VC for fruits is significantly segmented and there are a large number of market requirements applicable for producers, producer organizations, processors and traders. Figure 6 represents the map of the fruits VC.
Figure 6. Map of the fruits value chain
Source: UNIDO, 2017.
C.5.2. SWOT analysis of the fruits VC
A SWOT analysis has been conducted for the fruits VC globally, which is summarized in Table 5.
As stated in the Table, there are a number of transversal bottlenecks along the VC, which have an influence on market access and the quality of the products. The fruits VC faces a huge number of requirements; while some of them are mandatory (food safety SPS and TBT measures) to protect human health, other are voluntary (organic, fair trade, sustainability, social, carbon neutral etc.). Compliance with food safety requirements is the most critical barrier producers’ face, especially to commercialize their products for international markets. With the accession to the EAEU, Kyrgyz firms have to comply with technical regulation of the custom union if they were to benefit from the large common market. The regulations imposed by the EAEU are more demanding than the country’s national regulations. The Unified List of Products subject to mandatory requirements includes most of Kyrgyzstan’s prominent export items (UNECE, 2015).[footnoteRef:39] [39: Diagnostic for the Programme for Country Partnership (PCP): The Kyrgyz Republic. UNIDO (2018).]
Furthermore, production volume is perceived by stakeholders as a hindrance to value addition and export promotion, yet the reasons for low production for aggregation or processing appear to be linked to other factors such as weak market relationships, access to services, outdated technology and limited access to storage facilities, among others[footnoteRef:40]. Some of these issues are structural problems that the Development Program of the Kyrgyz Republic will face. The period of the Development Program of the Kyrgyz Republic (2018-2022) and of the country project (2019-2022) mostly overlap. [40: ILO-UNIDO report.]
Table 5. SWOT analysis matrix for the Fruits VC in the Issyk-Kul region
STRENGTHS
WEAKNESSES
· Weather and soil appropriate for cultivated and wild fruit.
· Cultivation and consumption of fruits have a long tradition in the country.
· Strong potential for quality improvement of fruits to be well recognized/accepted in international markets.
· Willingness of actors to improve to access better market conditions.
· Low production volume/atomized small holders.
· Low integration of actors along the VC/weak market relationships.
· Limited extension services and training (GAP, integrated pest management, organic, etc.).
· Insufficient phytosanitary surveillance actions.
· Majority of fruit production distributed through open markets and bazaars.
· Lack of knowledge of VC actors on trade/exports.
· Low technification of work (manual and inefficient harvesting and processing, which leads to low productivity and incompliance with food safety requirements).
· Outdated technology.
· Dependence on the import of materials and ingredients used for processing and packaging.
· Lack of compliance with market requirements, including food safety.
· Limited investment capacity and access to credit.
· Lack of storing/processing centers.
· Insufficient local technical assistance providers.
· Inadequate management (stages along the VC).
OPPORTUNITIES
THREATS
· Fruits are one of the priority areas of crop production/agro-industrial development of the Development Program of the Kyrgyz Republic for the period 2018-2022. The plan includes measures for improvement of the sector.
· Increased demand for fruits in international markets.
· Increased demand for organic products in international markets.
· Climate change may affect cultivation of fruits.
· Increased demands on quality levels in international markets.
· Endemic pests and diseases.
Source: UNIDO, based on information collected through the field mission, UNIDO report (2017) and ILO-UNIDO report (2018).
C.5.3. Quality demand and bottlenecks along the fruits VC
Fruits can be consumed fresh or processed; the more transformation, the higher the price. Five stages have been considered along the VC: inputs/production, harvest, drying/storage, processing/preparation for trade, and exports/access to markets. The required services from the NQIS along the fruits VC, per stage, are detailed in Figure 7 and analyzed below.
The applicable standards and requirements related to safety and quality should be ensured along the whole VC through the country project. Also, along the VC from producers to exporters, the culture of quality should be strengthened for all actors to understand the impact their actions have on the quality of the products. During the field mission, producers showed willingness to improve based on the understanding of barriers related to financing for quality improvements (e.g. improving facilities, implement food safety and quality principles, etc.) and lack of training on good practices along the VC stages. Storage and processing are particularly critical stages in the VC.
Figure 7. Required services from the NQIS along the fruits VC
Source: UNIDO, 2018.
C.5.3.1. Inputs/production
At the initial stage of the VC the farmer/producer is the main actor when it comes to planting the fruit trees, except for some berries that grow wild and are harvested. In this stage several areas were observed to be improved:
· Productivity: it was found that the implementation of Good Agriculture Practices, GAP (e.g. soil preparation, plantation, pruning…) was generally not applied in the collection of fruits. Three factors seem to contribute: current culture/mindset; insufficiency of skilled labor (i.e. experts)[footnoteRef:41]; lack of financial resources on the farmer side (e.g. soil preparation, fertilization, pest control…) and on the Government side (e.g. the test/control of the soil is now in charge of the farmers; limited extension services). Proper soil analysis, appropriate quality seeds, standardized GAP and technical assistance (advice, training) can increase productivity along the cultivated fruits VC, resulting in improved farm incomes and better quality of fruits. While productivity is not the target of the country project, some training on GAP should be conducted. [41: Only 7% of those employed in agriculture, who received professional education, have chosen agriculture as their field of study. The majority of those employed in agriculture have a degree in education (33%), engineering and technical studies (17%) and economy (16%).]
· Quality control: soil control was transferred from the Government to the farmers. In general farmers are neither conscious about the quality of their soil (unable to distinguish fertile versus contaminated) nor about soil enriching practices, which at the same time face financial constraints. So far, there is limited consciousness about the presence of heavy metals in soils and the impact that can have on their production (e.g. cultivated berries), which could influence exports at a later stage in the chain and also affect the health of national consumers.
· Pest control/plant health: the MoAFIM is in charge of inspections and technical assistance to ensure plant health, but they lack human (i.e. inspectors) and technical resources (e.g. vehicles to do the inspections). In the fruits VC, pests affected pear production, so many farmers decided to switch their cultivation to other fruits less sensitive to plant pests.
· Organic production: some farmers are already certified in organic production and the tendency is increasing in the country. It was found that organic production has been generally accepted and assumed as the best pathway for gaining market advantage in the market, but without being fully aware of the reasons behind. When farmers/producers were asked on the rationale supporting the advantages (e.g. higher prices in the market) and the disadvantages (e.g. cost of the implementation and certification processes) they lacked answers. However, organic production in Kyrgyzstan has good opportunity to gain a position in international markets, and the Government of the Kyrgyz Republic stated it as a priority in the Development Program of the Kyrgyz Republic for the period 2018-2022.
C.5.3.2. Harvest
Harvesting of planted or wild-growing fruits is done by farmers/producers who hire extra-personnel to help them during the season. No practices are known to separate the fruits per size or other quality aspects, including content of sugar, or to ensure hygiene (e.g. use of not contaminated containers for collection). Therefore, there are opportunities to improve, that could be covered through training in GAP, as a transversal issue. Traceability is also a challenge along the VC.
C.5.3.3. Drying/storage
Once harvested, the fruit can be directly stored (in farmer’s premises or in premises of cooperatives, collection centers and enterprises) or initiated in the transformation process.
· Drying: the simplest and most common form of processing is drying, especially for apples and apricots. There is a country culture of consuming dried fruit and dried fruit is also among the ten top exported products (HS0813 Other fruit, dried)[footnoteRef:42]. With a few exceptions, it was found that the process of preparing the fruit for drying is done manually (e.g. peel, cut…), and premises to dry the fruit in many cases lack compliance with basic food safety requirements. Thus, there is a general need to improve the process and premises as a requirement to implement principles and requirements related to HACCP, whether the fruit will be consumed internally or be exported. [42: WTO, country profile Kyrgyz Republic.]
· Storage: collection centers/stores belong to cooperatives, middle men or enterprises, especially the latter in the case of refrigerated stores. The owners of the stores can collect production of a certain number of farmers, or the farmers can rent a space in the stores. Bottlenecks at this stage seem to be: 1) lack of appropriate storage (in number and in quality of facilities); 2) inappropriate quality control and registry/management systems of collected lots according to quality, resulting in loss of records and hence traceability of the production; 3) unsuitable transportation and storage in transit (e.g. humidity and temperature control and use of appropriate containers); 4) lack of associativity/cooperation culture among enterprises.
C.5.3.4. Processing (other than drying) and preparation for trade
· Processing: processing into derivates is still in an incipient phase in the country, but a number of cooperation projects worked or still work in strengthening this stage of the fruits VC, as a means to increase income for the farmers. Currently processing mainly includes juices and jams. The latter is the primary focus of a number of women cooperatives in the country that have knowledge and are committed to quality, but in general lack proper facilities and automatization of the process. These are requirements if thinking of exporting the products, but have good potential to be linked to the tourism VC, for example. Food safety standards should be strengthened in this phase as well as environmental standards/clean production among bigger producers/enterprises. Cooperatives and SME should receive training and technical advice in terms of standards compliance, productivity, packaging and other aspects related to how to better market the products and manage the organizations, to increase their competitiveness in a sustainable way.
· Preparation for trade: fruits and derivates are packaged according to market requirements. At this stage assistance to improve packaging can enhance product quality to find and take advantage of better market conditions.
C.5.3.5. Exports/markets
Although there are a number of successful exporting producers and enterprises, producer organizations and SME face several barriers to the introduction of their products in international markets: 1) difficulty to collect/supply large volumes; a culture of associativity or collaboration should be reinforced, with appropriate mechanisms (e.g. agreements/contracts); 2) lack of compliance with standards of importing countries, including traceability; the accession to the EAEU reinforced the use of commercial companies to export to neighboring countries, as not all producers who exported before are currently prepared to comply with the requirements; 3) lack of knowledge about export management practices and favorable export regulations, including free trade agreements; 4) unsteady and untrained management personnel, and scarce availability of qualified managers in the export business.
The main bottlenecks relevant to the country project are summarized in Table 6, together with potential interventions.
Table 6. Main bottlenecks along the fruits VC and potential intervention strategies
STAGE
BOTTLENECKS
ACTORS
POTENTIAL INTERVENTIONS
Inputs/ production
· Low productivity and in general poor agricultural practices.
· Farmers[footnoteRef:43] [43: Even though the training is mainly aimed at producers and SME, the project will coordinate with the respective institutions so knowledge can be transferred to enhance sustainability.]
· State bodies
· Provide training and advice on GAP and appropriate standards to implement them (e.g. organic production, Global GAP, etc.).
· Create a pool of experts and extension agents, entrusted to CSM, to provide training on GAP /ensure sustainability of knowledge and application.
· Insufficient phytosanitary surveillance.
· Government
· Provide equipment in the geographical area of intervention to address the major bottleneck.
· Enhance knowledge on preparation of inspection plans based on risk analysis.
· Train experts and extension agents to provide training on plant health.
· Lack of knowledge of the scope, implications and benefits of organic production and other certifications.
· Farmers
· Government
· Business associations
· Enhance awareness (material and events).
· Provide training courses and train experts to provide training, so ensuring sustainability of the knowledge transferred.
Table 6. Main bottlenecks along the fruits VC and potential intervention strategies (continuation)
STAGE
BOTTLENECKS
ACTORS
POTENTIAL INTERVENTIONS
inputs
· Lack of compliance with HACCP requirements/ other requirements (e.g. organic).
· Farmers
· Provide training and advice on the requirements of application.
Harvest
· Non-selective harvesting
· Lack of compliance with hygiene practices.
· Farmers/ producers
· Government
· Provide training to farmers on good practices for harvesting and review relevant standards – update and disseminate.
· Provide technical advice in HACCP/appropriate standards.
· Create a pool of experts and extension agents to provide training on best agricultural practices.
Drying/
storage
· Heterogeneous Quality
· Farmers and business associations
· Standardize best practices for post-harvest activities.
· Develop/review/update standards, as appropriate.
· Provide training and create a pool of experts and extension agents/business associations to provide training on best practices.
· Provide technical advice on HACCP/appropriate standards.
· Manual processes.
· Farmers
· Promote best practices/standards for process improvement.
· Purchase some equipment.
· Incompliance with food safety requirements/ HACCP/other requirements.
· Poor quality management systems/management capabilities.
· Farmers
· Farmers and business associations
· SME
· Provide training and technical advice on food safety requirements/standards of application. Whenever possible apply a train-the-trainers approach.
· Provide advice for the implementation of appropriate standards/enhance management practices.
Processing/ trade
· Not compliance with food safety requirements.
· Manual processes.
· Poor quality management systems/management capabilities.
· Lack of proper Infrastructure and inputs.
· Poor packaging/marketing.
· SME/
business associations
· Provide training and technical advice and training on food safety requirements/standards of application.
· Whenever possible apply a train-the-trainers approach.
· Promote investment in improving the facilities, as necessary.
Exports
· Lack of knowledge of export management practices/ standards and favorable export regulations, including free trade agreements.
· Lack of compliance with standards.
· Lack of trained personnel.
· SME/
business associations
· Provide training and technical advice on quality control and food safety standards/other standards as necessary.
· Whenever possible apply a train-the-trainers approach/create a pool of experts.
Table 6. Main bottlenecks along the fruits VC and potential intervention strategies (continuation)
STAGE
BOTTLENECKS
ACTORS
POTENTIAL INTERVENTIONS
Transversal issues
· Lack of proper facilities and operational processes.
· Lack of compliance with standards.
· Lack of management capabilities.
· Lack of financing.
· Lack of calibrated equipment.
· Lack of traceability.
· Poor cooperation culture.
· Poor culture of quality.
· Testing laboratories
· Calibration laboratories
· Public institutions/ NQIS
· Producers, SME and other actors along the VC
· Provide training and technical support to address barriers/enhance capability.
· Support sector activities to strengthen institutionalization.
Source: UNIDO, based on information collected through the field mission and ILO-UNIDO report, 2018.
C.5.4. Analysis of the Fruits VC in Issyk-Kul region
Being Issyk-Kul the region to target the country project, relevance, opportunity to growth and feasibility to stimulate change in the Fruits VC were analyzed for the region and summarized in Table 7. Constraints do not differ from those identified for the VC in general (C.5.3.).
Table 7. Brief analysis of fruits VC in Issyk-Kul
CRITERIA
DESCRIPTION
Relevance (context and market structure)
Apples
The Issyk-Kul region produced 38,567 tons of apples in 2017 (28% of national production, about 1.5 tones per farmer).
Apricots
Production in 2017 was 6,425.9 tons (27% of national production, about 1.2 tones per farmer). Apricots are particularly famous in the Jeti-oguz village of Issyk-Kul. The north side of Issyk-Kul Lake is better known for apples, whereas the south side of the lake is more so known for its apricots.
Pears
Production in 2017 was 353.4 tons (3.4% of national production, about 700 Kg. per farmer). Pear production has in general seen a decline over the past five years due to their susceptibility to disease.
Berries
Production of berries in Issyk-Kul region has risen over the past few years, up to 4,355.4 tons in 2017 (21% increase from 2015 to 2017). Black currant makes up 78% of total berries produced. 3,391 tons of black currant were produced in Issyk-Kul in 2017 (about 300 kg per farmer), but they remained on the domestic market (black currant is not currently exported). The average volume of raspberries per farmer and year is about 80 kg; of barberries, 100 Kg; and of sea buckthorn, 150 kg.
Across crops
The majority of fruits grown in the region is sold fresh. There are 32 fruits and vegetables processors in Issyk-Kul, including 26 small enterprises and 6 large companies.
Due to the climatic conditions, it is difficult to dry fruit naturally. A few farmers or cooperatives own drying machines, but they are small-scale. Those products that are dried or sent to a juicer are typically damaged or of a sub-standard size.
As of 2015, there were at least 20 nurseries in Issyk-Kul, larger ones employing an average of 20 workers, roughly 60% women. Kyrgyz nurseries, however, do not meet demand (both in quantity and quality) and many saplings are imported from abroad.
Roughly 60% of household producers of orchard fruits and berries are women and members of cooperatives are closer to 75% women.
Table 7. Brief analysis of fruits VC in Issyk-Kul (continuation)
CRITERIA
DESCRIPTION
Opportunity for inclusive growth
Outlook
The local government in Karakol is eager to expand production areas by supporting farmers to convert currently non-productive soil into arable farmland.
Exports from Issyk-Kul in 2017 were: 1) apples: to Russia 1,927 tons; 3,218 to Kazakhstan, 212 to Uzbekistan and 17 to Mongolia; 2) apricots: 1,523 tons to Russia and 710 to Kazakhstan; 3) pears: 27 to Russia, 250 to Kazakhstan and 2 to Mongolia; 4) strawberries (109 tons) and raspberries (35,414 tons).
Cold chain storage and logistics
Cold chain storage facilities and improved logistics are key enablers of export growth. Cooled storage and logistical centers do exist, with the largest one (Oberon) located in Balykchy, but are currently limited, given the fragmentation of production, access by and coordination with smaller producers.
Production levels
Aggregated production needs to significantly increase if the region is to be able to work with big international buyers and increase exports. One of the biggest issues contributing to limited production and aggregation is the mistrust between producers and buyers (processors in some cases), largely in part to poorly enforced laws and contracts that would otherwise hold each other accountable to contractual agreements.
Disease
Surveillance and technical assistance for pests/diseases are poor, due to the lack of agronomists in Kyrgyzstan and lack of resources from the Government.
Feasibility to stimulate change
Outlook
Active support services in Issyk-Kul are primarily provided by NGOs and non-profits, or are private service providers that are directly subsidized by donor money.
Source: ILO-UNIDO report, 2018.
C.6. Principal actors along the Fruits VC
The main players in the fruits VC are the producers and producer organizations, processors, merchandisers, exporters and the buyers for the foreign market. In addition, in the Kyrgyz market there are a number of other actors directly or indirectly involved in the VC. The following list provides an overview of the institutional reality of actors and its role within the fruits sector, gathered through interviews with representatives of the different actors[footnoteRef:44]. Actors were structured by private, public and conformity assessment. While conformity assessment organizations belong to the private or public domain, they were considered in a separate section, due their relevance to the country project. In order to avoid duplication, stakeholder analysis can be extracted from Table 6, sub-section C.5.3.5. [44: During field mission and carried out by UNIDO and during ILO-UNIDO mission. ]
C.6.1. Private sector actors
The main actors from the private sector in the fruits VC are the producers and producer organizations, processors and merchandisers/exporters. Figure 6 provides an indication of the number of actors per stage of the VC, and Table 8 summarizes the relevant cooperatives and enterprises operating in Issyk-Kul, with indication of their capacity and willingness to collaborate.
Table 8. Relevant private sector actors in the fruits VC in Issyk-Kul
ACTORS
DESCRIPTION
Open Joint Stock Company Yntymak
Located in Balykchy. It has 2 ha apricot trees and 21 ha apples trees in Ananyevo and Grigorievka villages. The enterprise also collects apples and apricots from the local producers. About 150,000 of 3 liter-jar apricot are produced in July-August and about 150,000 of 3 liter-apples juices in September-October.
Issyk-Kul shiresi LTD
Located in Balykchy, it produces only 3-litre apple juices. Volume is not significant. The company collects the apples from the local producers.
Table 8. Relevant private sector actors in the fruits VC in Issyk-Kul (continuation)
ACTORS
DESCRIPTION
Compromservice LLC
Located in Cholpon-Ata, working for more than 20 years. The company produces different varieties of juices and processed products under the branding “Soki Issyk-Kul”. Fruit storage facility is available.
Fair LTD
Located in Karakol city, producing “Eco Juice” apple juices in combination of barberry, pears, tomatoes and apricots.
Grogoriyeskiy Sad farming collective
Located in Grigoryevka village, producing of 3-liter bag-in-box juices under the branding “Nakktai”, with different fruits such as pears and peaches.
Municipal Enterprise - Bal shireh
Located in Ak-Terek/Jeti-Oguz rayon. It was supported by the Kumtor Gold Mining company to produce different types of juices and jams from the local fruits and jams.
Oberon Logistical Centre
It opened in Balykchy in 2016 with the capacity to store up to 2,400 tons of fresh products. It mainly stores apples, apricots, pears and cherries, from Issyk-Kul and from the South as well.
The facility complies with HACCP and is regularly contacted by buyers and investors, making it an important gateway to international markets.
Source: ILO-UNIDO report, 2018
C.6.2. Public sector actors/support institutions
There are a number of services and institutions that support the fruits VC. Figure 8 represents the support services and institutions for the VC focused on the Issyk-Kul region (see E.6. for the project intervention area). At the bottom of the Figure are the national and regional government agencies and rules that regulate the sector. At the top are the services, institutions and groups of producers that support the sector in the specific region of Issyk-Kul. The Figure includes only those that specifically support the fruits sector in the mentioned region, and has left out sector cross-cutting institutions, as for example the NQIS or surveillance from the Government.
Figure 8. Supporting services and institutions in the orchard and fruits
