The cotton sector is central to Tajikistan’s economic growth and poverty reduction strategy. Not only does it provide employment to about 80% of the country’s rural labor force, but cotton fiber is also the Tajikistan’s second largest export, contributing almost one-fifth of total export revenues. Almost 75% of the extreme poor live in cotton growing areas.
Since independence in 1991, Tajikistan has gradually privatized cotton farms by giving collective land tenure rights to individuals and families. Though fairly widespread, this collective privatization strategy has not significantly increased individual farmers’ decision-making authority since it leaves farm management unchanged. As a consequence of the shortcomings in the privatization process, as well as large inefficiencies in the cotton fiber production chain (including financing, ginning, and marketing) cotton yields have fallen from 2.8 tons of seed cotton per hectare in 1991 to 1.9 tons by 2003. As an initial step towards addressing this problem, Tajikistan has experimented with transferring individual land tenure to farmers along with seed capital grants with the support of the World Bank. Under this method, farmers have direct control over crop choice and all financial decisions. A Poverty and Social Impact Analysis (PSIA) study looks at the distributional impact of both this new privatization method and complementary liberalization of the cotton fiber production chain. In addition, the PSIA quantifies the losses due to inefficiencies and distortions in the cotton production and marketing chains. Results of the PSIA show that current distortions in the cotton sector, combined with the sub-optimal privatization, result in an annual loss to the economy in the range of $136 million to $204 million (8.7% to 13.1% of GDP). These losses are a combination of rent seeking ($63 million to $104 million) and production inefficiencies ($73 million to $100 million). The PSIA considers two options, both of which anticipate privatization that provides for individual land tenure to farmers, but differ on liberalization of the cotton production and marketing chains. Under the first option, complementary liberalization of the production chain does not occur. This option would most likely be opposed by farm managers who would lose control over “their” farmlands, but it would meet with little resistance from vested interests in the ginning and marketing sub-sectors. While the impact on the income level of poor farmers would be positive, the magnitude of the benefits would be fairly modest to the second option. The second option considers the impact of liberalizing the production and marketing chains. This would result in significant improvements in productivity and incomes for farmers and would result in significant benefits to the country as a whole. However, this option could meet with considerable opposition from both farm managers and vested interests in the ginning and the marketing sub-sectors. Maintaining the status quo is also a choice to for the government. From the PSIA study it is clear that in the absence of privatization and liberalization, poverty in cotton growing areas will remain high and cotton yields would not rise significantly which would adversely impact the balance of payments position. Dissemination of the PSIA results will be actively pursued. The Bank team will present the results in a BBL in the headquarters, there will be a donor round table on land reform where the Ministry of Agriculture, Water and Irrigation, and the Deputy Prime Minister of Tajikistan shall discuss the results of the PSIA, and the Bank team will pair up with the IFC to build a farmer ownership module. Within the Bank, the findings of the PSIA shall be incorporated into the country program. Within Tajikistan, the PSIA hopes to help foster a more informed debate among stakeholders and policy makers. However, tough political choices remain, and PSIA report cannot substitute for the domestic decision making process of policy makers. (Adapted from Welfare Implications of Cotton Farmland Privatization: A Poverty and Social Impact Analysis. World Bank. June, 2004). Contact: Saiyed Shabih Ali Mohib, smohib@worldbank.org http://www.worldbank.org/psia
psia@worldbank.org
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