Regions and Countries

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p. 8 of 19 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies A. Agriculture B. Infrastructure C. Social Infrastructure and Environment D. Governance Dimensions of ADB Operations E. Gender Dimensions of ADB Operations F. Private Sector Development IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Uzbekistan : III. Sector Strategies

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A. Agriculture and Rural Development

36. The agricultural sector is a critical sector for growth, with further reforms required to improve agricultural productivity and efficient resource utilization. Agriculture is the backbone of Uzbekistan's economy, accounting for 30 percent of GDP, 60 percent of foreign exchange earnings, and 44 percent of employment. In addition to supplying food, agriculture supports a large industrial base that includes food and non-food processing industries. By far the most important crop is cotton. Uzbekistan ranks as the world's fourth largest producer and cotton alone accounts for about 50 percent of export earnings.

37. The Government's agenda in the agriculture sector includes (i) promotion of cotton production and increase of export revenues, (ii) achievement of domestic self-sufficiency in the production of wheat, (iii) redistribution of revenues earned in agriculture to finance investments in other sectors, and (iv) improvement of rural standards of living and employment. Although the Government has followed a gradualist policy with regards to reforms in the agriculture sector, some progress has been made in recent years. A new land law and related legislation were enacted in July 1998 aimed at improving land use rights and giving greater security of tenure to individual farmers. In 1999, the Government (i) raised the state procurement prices of cotton and wheat (it was increased in 2000 as well), (ii) transferred to the Government budget the financial burdens of farms for maintaining social and community facilities, (iii) wrote off farm debts to the state and rescheduled those to input suppliers, and (iv) simplified the taxation system and provided a tax cut for farms, particularly to promote private farming. The Government recognizes the urgent need to tackle the issue of rural unemployment. Therefore, it attaches a very high priority to income and employment generation activities in the rural areas.

38. Further policy measures are required particularly in the areas of (i) modifying the state procurement system for cotton and wheat to provide farmers with incentives to increase cotton and wheat yields and increasing the incentive structure and extent of private participation; (ii) phasing out the existing monopolistic associations in domestic marketing, processing, and foreign trade of agricultural commodities to encourage competition and improving access to quality inputs and services; (iii) farm restructuring including corporatization; (iv) developing sustainable and viable rural financial institutions; and (v) improving water resources and land management. In parallel of these policy measures, the physical constraints, in particular, the continued deterioration of the irrigation and drainage systems which restricts increases in crop yields and farm income and threatens sustainable sector development should be addressed.

39. There are basically two approaches for ADB to provide assistance to agriculture and rural development: (i) development of projects, especially pilot projects to demonstrate the utility of the sectoral reform, and (ii) support for rural finance institutions that can potentially ease one of the key constraints on the sector's development. In each area, the extent to which support can be provided will depend crucially on the assessment of the reform program adopted by the Government.

40. The inherent difficulties in undertaking broad-based reforms and the limited capacity of the Government agencies in project design and implementation are major constraints. These factors suggest that ADB's investment in agriculture and rural development in the immediate future should focus on pilot projects that can demonstrate the efficacy of reforms as well as investments. Pilot projects can provide focus for policy dialogue, with concrete activities by which to test or validate policies relevant to the Uzbekistan situation. These pilot projects can (i) provide institutional support for the development of new institutions in the rural area, such as water users associations; (ii) promote rural employment through microfinance and SME development and other income generation activities; (iii) support rural financial system development; and (iv) attract selective investments in infrastructure, especially irrigation and drainage systems.

41. The pilot project approach offers opportunities for developing a poverty reduction focus of ADB operations. Given the structure of the rural economy, support for small-scale and private farming and rural non-farm activities potentially has strong income effects. Agriculture and rural development projects will respond to local needs, initiatives, and conditions. To reduce rural poverty, the promotion of small industries and credit-union-based rural financial systems will be pilot-tested and supported. Activities that will directly support private sector enterprises will be particularly important in demonstrating the potential of market-based activity.

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