Central Asia’s Horticulture Sector Capitalizing on New Export Opportunities in Chinese and Russian Markets The World Bank Group © 2020 The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclu- sions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concern- ing the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. 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Table of Contents Table of Contents Acronyms.................................................................................................................................... vi Acknowledgements.................................................................................................................viii Key Findings................................................................................................................................ ix Introduction . .............................................................................................................................. xi 1. China 2030: Developments in the Fresh Fruit Import Market..............................................1 1.1. Market Overview........................................................................................................................... 1 1.2. Opportunities and Constraints for Central Asian Fruit Exporters in the Chinese Markets............................................................................................................... 10 2. Russia 2030: New Trends in the Central Asian Traditional Market.....................................11 2.1. Evolution of Russian Food Retail................................................................................................ 14 2.2. Central Asian Fruit in Russian Retail Markets: The Case of Table Grapes............................... 20 2.3. Opportunities and Constraints for Central Asian Fruit Exporters in Russian Modern Retail Markets.............................................................................................. 25 3. Competitiveness of Central Asian Horticulture Exports ....................................................28 3.1. Country Findings: Kyrgyz Republic. ............................................................................................ 28 3.2. Country Findings: Tajikistan......................................................................................................... 38 3.3. Country Findings: Uzbekistan .................................................................................................... 44 3.4. Food E-Commerce in Central Asian Countries........................................................................ 49 4. Success Story: Determinants of Chile’s Competitiveness in the Chinese Horticulture Markets....................................................................................52 5. Policy Recommendations...................................................................................................63 References.................................................................................................................................73 Annex 1. Agri-Food Trade Between Central Asia and China ...............................................77 Annex 2. Agri-Food Trade Between Central Asia and Russia................................................80 Annex 3. Export Competitiveness Analysis—Description of Methods..................................83 Annex 4. Chinese Fresh Fruit Import Requirements . ..............................................................85 Annex 5. Russian Fresh Fruit Import Requirements .................................................................89 Annex 6. RCA Results. ................................................................................................................91 Annex 7. DRC Results. ................................................................................................................93 Annex 8. Retail Chain Product Requirements for Imported Fresh Fruit (Example of X5 Retail Group, Russia)................................................................................103 © 2020 The World Bank Group iii Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets List of Figures Figure 1.1. Fruit Consumption in China............................................................................................... 1 Figure 1.2. Chinese Fruit Imports’ Growth........................................................................................... 2 Figure 1.3. China’s Net Imports of Fresh Sweet Cherries and Plums................................................ 3 Figure 1.4. Geography of Chinese Fresh Fruit Imports, by Country, 2017........................................ 4 Figure 1.5. Movement of Imported Fresh Produce in China............................................................. 4 Figure 1.6. Wholesale Prices of Imported Cherries, Grapes and Plums in Guangzhou Jiangnan Market................................................................................................. 9 Figure 2.1. Central Asian Fresh Fruit Exports to Russia...................................................................... 11 .......................................................... 13 Figure 2.2. Fresh Fruit Consumption Across Russian Regions. Figure 2.3. Projected Average Annual Growth in Russian Food Demand, 2017–2030................. 13 Figure 2.4. Evolution of Modern Food Retail in Russia..................................................................... 14 Figure 2.5. Increasing Concentration of Modern Food Retail in Russia, Number of Stores......... 19 Figure 3.1. Export Potential of Kyrgyz Fresh Fruits............................................................................. 30 .............................. 31 Figure 3.2. Kyrgyz Export Geography for Apricots, Cherries and Plums, 2018. Figure 3.3. Comparison of Kyrgyz Stone Fruit Yields to Main Comparator Countries, .............................................................................................................................. 35 Tons/Ha, 2017. Figure 3.4. A Quarter of All Apricots in the Kyrgyz Republic is Wasted.......................................... 36 Figure 3.5. Areas for Export-Related Public Support as Identified by Kyrgyz Fruit Exporters........ 38 Figure 3.6. Export Potential of Tajik Fresh and Dried Fruits............................................................... 39 .......................................................... 40 Figure 3.7. Tajik Export Geography for Selected Fruits, 2017. Figure 3.8. Stone Fruit and Table Grape Yields, 2018....................................................................... 41 Figure 3.9. Export Potential of Uzbek Fresh Fruits.............................................................................. 45 Figure 3.10. Uzbek Export Geography for Selected Fruits, 2017..................................................... 46 Figure 4.1. Chilean Temperate Fruit Exports (HS 0806, 0808, 0809, and 0810)............................... 52 Figure 4.2. Chilean Exports of Cherries, Grapes and Plums to China............................................ 53 Figure 4.3. Share of Chilean Fruit in Total Chinese Fruit Imports, Percent...................................... 54 Figure 4.4. Monthly Exports of Chilean Fruit...................................................................................... 56 Figure 4.5. Agricultural Producer Support as a Share of the Aggregate Value of Agricultural Production.......................................................................................................... 58 Figure 4.6. General Services’ Support Expenditures........................................................................ 59 Figure 4.7. General Services’ Support to Agriculture Relative to the Aggregate Value of Agricultural Production.......................................................................................................... 60 Figure 4.8. Chilean Public Institutions Involved in Export Promotion.............................................. 61 Figure 4.9. Unified Brand of Chilean Fruit.......................................................................................... 61 Figure A4.1. AQSIQ Fresh Fruit Market Access Procedure.............................................................. 85 iv © 2020 The World Bank Group List of Tables List of Tables Table i.1. Projections of Chinese Fruit Imports....................................................................................xi Table 2.1. Russia: Top 5 Grocery Retailers by Sales Turnover........................................................... 15 Table 2.2. Russian Imports of Table Grapes, Tons............................................................................. 21 Table 2.3. Russian Monthly Imports of Table Grapes from Top Exporting Countries, Tons............ 23 Table 2.4. Average Import Prices, Overall Imports Versus Retail Imports....................................... 23 Table 3.1. Export Competitiveness Assessment, the Kyrgyz Republic ........................................... 29 Table 3.2. Cherry Price Comparison in the Chinese Markets......................................................... 33 Table 3.3. Export Competitiveness Assessment, Tajikistan.............................................................. 39 Table 3.4. Export Competitiveness Assessment for Selected Agri-Food Products . ..................... 45 Table 5.1. Policy Recommendations—Kyrgyz Republic................................................................. 67 Table 5.2. Policy Recommendations—Tajikistan............................................................................. 69 Table 5.3. Policy Recommendations—Uzbekistan.......................................................................... 71 The Kyrgyz Republic: Export, Import, and Balance of Trade with China (2016–2018), Million USD.................................................................................................................................... 77 Tajikistan: Export, Import, and Balance of Trade with China (2016–2018), Million USD................ 78 Uzbekistan: Export, Import, and Balance of Trade with China (2016–2018), Million USD............. 79 The Kyrgyz Republic: Export, Import, and Balance of Trade with Russia (2016–2018), Million USD.................................................................................................................................... 80 ................ 81 Tajikistan: Export, Import, and Balance of Trade with Russia (2016–2018), Million USD. Uzbekistan: Export, Import, and Balance of Trade with Russia (2016–2018), Million USD............. 82 Table A4.1. China’s State Standards on Pesticides and Other Contaminants in Food............... 87 Table A4.2. China’s State Standards on Product Labeling............................................................ 88 Table A4.3. China’s State Standards on Food Packaging............................................................. 88 List of Boxes Box 1.1. Fresh Fruit E-Commerce in China.......................................................................................... 6 Box 2.1. Overview of the Retail Chain’s Requirements for Imported Fruit (Example from X5 Retail Group)................................................................................................ 17 .............................................................................. 24 Box 2.2. Turkish Fruit Exports: Factors of Success. Box 3.1. Trade Cooperation Between the Kyrgyz Republic and China: Recent Developments............................................................................................................... 32 Box 3.2. Trade Cooperation Between Tajikistan and China: Recent Developments.................. 41 © 2020 The World Bank Group v Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Acronyms ACC Agricultural Credit Cooperative AQSIQ General Administration of Quality Supervision, Inspection and Quarantine ASOEX Fruit Exporters Association of Chile B2B Business-to-Business CCI Chamber of Commerce and Industry DRC Domestic Resource Cost EAC Eurasian Conformity EEU Eurasian Economic Union EU European Union FAO United Nations Food and Agricultural Organization FTA Free Trade Agreements FTZ Free Trade Zones GAP Good Agricultural Practices GDP Gross Domestic Product GSSE General Services’ Support Expenditures HACCP Hazard Analysis and Critical Control Points IFC International Finance Corporation IFPRI International Food Policy Research Institute IPCC International Plant Protection Convention IRA Import Risk Analysis ITC International Trade Center JICA Japan International Cooperation Agency KGS Kyrgyzstani Som MFN Most Favored Nation MPS Market Price Support MRL Maximum Residue Level O2O Online-To-Offline OECD Organization for Economic Co-operation and Development PSE Producer Support Estimator R&D Research and Development RCA Revealed Comparative Advantage RUR Russian Rubles SAMR State Administration for Market Regulation SAR Special Administrative Region of China SME Small And Medium-Sized Enterprise SPS Sanitary And Phytosanitary vi © 2020 The World Bank Group Acronyms TJS Tajikistani Somoni TL Turkish Lira TR Technical Regulations U.S. United States of America UN United Nations USAID United States Agency for International Development USD United States Dollars USDA United States Department of Agriculture UZS Uzbekistani Soʻm VAT Value-Added Tax WTO World Trade Organization Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Acknowledgements Jianwen  Liu, Sitaramachandra Machiraju, Kateryna Onul, Animesh Shrivastava and David Treguer for the helpful comments that helped shaping the study. This report was prepared by a team led by Kateryna Invaluable administrative assistance was provided by Schroeder (Agriculture Economist and TTL) and Sergiy Rosalie Trinidad and Funda Canli, editing—by Luisa Zorya (Lead Agriculture Economist and co-TTL), under LaFleur, graphic design—by Andrey Fedorov. the overall guidance of Frauke Jungbluth and Julian Lampietti, Practice Managers. The background papers The team gratefully acknowledges the coopera- used in the report were prepared by Yucheng Zheng tion and support provided by the International Food (Chapter 1), Ksenia Gorovaya (Chapter 2), Roman Policy Research Institute and Eurasian Center for Pogojev, Usmon Rakhimjanov, Yerlan Syzdykov and Food Security (Russian Federation) during Phases Nazira Zevarshoeva (Chapter 3), Rodrigo Perez Silva I and II of the project, and by Iryna Kobuta, Ekaterina and Alberto Valdes (Chapter 4). The team would like Krivonos, Alla Saranina and Adkham Akbarov of the to thank Elizabeth Ash, Kyle Farrell, Yulia Mitusova, United Nations Food and Agriculture Organization John Nash, David Nielson, Dauren Oshakbaev and as well as the Agricultural Trade Expert Network in Yinuo Zhang for the valuable research support and Europe and Central Asia, in particular, Daria Illina, inputs. The authors are grateful to Sandra Broka, Mavzuna Karimova and Roman Mogilevskii, during Sascha Djumena, Joanne Gaskell, Ruchira Kumar, Phase III of the project. viii © 2020 The World Bank Group Key Findings Key Findings Asian countries, generate employment and in- come in rural areas, and create opportunities for smallholder inclusion into the value chains. 99 With a  $5.8  billion fruit import market, China In addition to the clear macroeconomic ben- creates an enormous opportunity for Central efits from higher value-added exports, such as Asian fruit exporters to diversify geography and horticulture, research shows that horticulture increase the value of their agri-food exports. requires at least twice as much labor as cereal Between 2015 and 2017, China imported $1.5 bil- crops. lion worth of fresh cherries, grapes, plums and apricots—fruits in which Central Asian coun- 99 However, entering is not easy into the formi- tries hold a  comparative advantage. By 2030, dable Chinese fresh fruit markets. First, the Chinese import demand for these fruits is pro- Chinese markets require consistency in the jected to increase to $1.8 billion, while the over- quality and volume of the fresh fruit supplied all import potential is estimated at $2.7 billion. by exporting countries. Second, entering China necessitates the existence of sophisticated 99 Central Asian countries are well placed to be quality systems and logistics systems to ensure more competitive in satisfying fruit import de- that products are grown and preserved in their mand in the growing Chinese markets. The re- best possible condition to meet China’s strin- gion’s geographic location, natural resources, gent food safety standards. Third, the Chinese untapped yield potential, and the possibility of fruit markets’ highly fragmented and competi- greater private sector investment through pol- tive structure necessitates a close relationship icy reform create the necessary preconditions with a  Chinese counterpart on the ground. for the Central Asian countries to increase their Fourth, Chinese consumers value attractive agricultural exports to China. packaging and products with recognizable brands. 99 Based on the results of the export competitive- ness analysis and interviews with stakeholders, 99 The majority of Central Asian fruit producers the products with the most export potential from are small farmers who have limited access Kyrgyz Republic to China include cherries, wal- to financial and knowledge resources, which nuts, fresh apricots, and plums (fresh and dried). results in limited production volumes and in- The products with the most export potential consistent supply quality. While small farmers from Tajikistan to China are apricots (dry and across the region have adjusted to trading fresh), plums (fresh) and grapes (fresh); and from fruits domestically through a  network of local Uzbekistan to China, cherries, apricots (dry and traditional traders, entering international mar- fresh), plums (fresh), grapes (fresh) and walnuts. kets requires a  different level of bureaucracy Currently, this potential is largely underutilized. and procedural conformity for which Central Asian small-scale producers currently lack ca- 99 Fruit export growth has the potential to signifi- pacity. At the government level, the quality and cantly boost economic growth in the Central capacity of food and safety systems, customs © 2020 The World Bank Group ix Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets control and inspection bodies do not meet 99 To be competitive in the Chinese and higher- the requirements of Chinese markets, putting end Russian retail markets, Central Asian fresh Central Asian exporters at a disadvantage vis- fruit exports need to increase the quantity, à-vis major suppliers to China, such as Chile or quality, sophistication and sustainability of their the United States. In addition, limited export exports. National governments have a  role to promotion capacity results in most regional ex- play in creating an enabling environment for in- porters being unaware of the existing opportu- creased production and exports of horticulture nities in the Chinese markets and being unable products by tackling most binding constraints to understand the requirements to enter them. that exist in the sector. These include integra- tion of Central Asian smallholder fruit producers 99 As a result, China still accounts for only a small into the value chains, improving their access to share of total Central Asian (Kyrgyz Republic, production inputs and the latest knowledge on Tajikistan and Uzbekistan) agri-food exports in fruit production and handling, promoting an general, and fruit exports in particular. Russia increase in private investments in cold chain and other countries of the former Soviet Union storage and post-harvest processing capacity, remain key destinations for Central Asian fruits. investing in public goods, such as food safety However, despite Central Asian fruit export- and quality control systems and R&D, strength- ers’ traditionally large presence in the Russian ening export promotion to facilitate Central stone fruit markets, they have been slow to ad- Asian penetration in new export markets, and just to the growing role of the modern grocery creating opportunities for their exporters to store chains that have been growing in Russia take advantage of the new trends that emerge at an accelerated pace, largely at the expense in the global horticulture markets, such as the of traditional retail markets. rapid growth of e-commerce. 99 Central Asian fruit suppliers lose out to their 99 Chilean success in the Chinese horticulture competitors in their ability to provide the qual- markets can serve as a  lesson for Central ity, assortment, and packaging of produce in Asian countries. While some of the initial suc- accordance with Russian retailers’ needs and cess of Chilean fruit exporters in China can be volumes. As a result, they receive lower (up to attributed to external global macroeconomic 30  percent) import prices. A  range of factors trends and the counter-seasonality of Chilean contribute to this, including high fragmentation fruit production, it is also important to note that of production, informality and non-transparen- consistent, liberal trade and agricultural policy cy of Central Asian fruit supply chains, and lack reforms enabled the environment for agri-food of knowledge and compliance among produc- sector development and prepared the country ers and exporters of retail requirements. for success in the Chinese market. x © 2020 The World Bank Group Introduction Introduction markets requires complementary investments in processing, logistics, and trade/export infrastruc- ture, both hard and soft. The long-term forecast of In China, changing demographics, rising incomes strong demand provides a helpful scenario to plan and shifting consumer preferences have result- and justify investments by Central Asian govern- ed in an ever-growing demand for food that is ments for the export-oriented development of their more varied, healthier and of higher quality and agricultural sectors. this demand is set to persist well into the future. According to the International Monetary Fund pro- Central Asian countries are well placed to be more jections (2019), by 2024, Chinese per capita gross competitive in satisfying fruit import demand in the domestic product (GDP, in current prices) will in- growing Chinese markets and will reap economic crease to $28,450, from $13,130  in 2019, and the and social development benefits along the way. For population will increase to 1.5 billion people (United centuries, Central Asia has occupied a  position of Nations, 2019). The projected urbanization rate will strategic importance in trade between the East and reach 67 percent by 2030, compared to 56 percent the West. The region’s geographic location, natural in 2015  (Goh et al., 2014). The growing number of resources, untapped yield potential, and the possibil- consumers in China that are increasingly more af- ity of greater private sector investment through policy fluent and educated will continue shifting their di- reform create the necessary preconditions for the etary preferences to include more protein, fruits, and vegetables. Table i.1. Projections of Chinese Fruit Imports Growing Chinese demand for fresh fruit im- Current Chinese hor- Projected ticultural net imports, Chinese net ports creates an enormous opportunity for the Horticultural 2015–2017 average, imports, 2030, Central Asian1  fruit exporters to diversify geog- products USD 2005 USD2 raphy and increase the value of their exports. Cherries, fresh 903,424,257 1,075,074,866 Between 2015  and 2017, China imported $1.5-bil- Grapes, fresh 532,000,000 633,080,000 lion worth of fresh cherries, grapes, plums, and Plums and sloes, 99,008,118 117,819,660 apricots—fruits in which Central Asian countries fresh hold a  comparative advantage. According to the Apricots, fresh 496,490 590,823 IFPRI IMPACT model projections, Chinese import Source: UN COMTRADE (2018), World Bank calculations based demand for these fruits will increase to $1.8 billion on IFPRI IMPACT (2015)—SSP2 pathway, no climate change as- by 2030  (Table  i.1). Enabling Central Asian coun- sumption; Model version IMPACT 3.2.1. tries to convert their natural/endowment advan- Note: IFPRI IMPACT 3 is a global, partial equilibrium, multi-market tages into competitive advantage in specific export model focused on the agriculture sector.   The geographic focus of this report is on Kyrgyz Republic, Tajikistan and Uzbekistan. 1 2   The IFPRI IMPACT model offers projections for fruit and vegetable aggregates only. It does not allow for differentiation among the specific horticulture products’ import growth. The selected fruits are those that are projected to exhibit strong import growth until 2050 based on the latest relevant trade data for China and Central Asia. Based on this analysis, horticulture products for which China is a strong net importer were compared to the horticulture products for which Central Asian countries are net exporters. © 2020 The World Bank Group xi Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Central Asian countries to increase their agricultural increases in horticultural exports bring significant exports to China. As China places an important role economic benefits to the smallholder farmers who on meeting its growing food needs on dynamic ag- often produce most of these products, including in ricultural trade and investment cooperation with the the Central Asian countries. Smallholders benefit Central Asian countries, this results in significant op- from both higher incomes and the access to credit portunities for the region to increase its presence in and extension services which exporter companies the Chinese fruit markets brought by improved infra- often provide. Generating employment in agriculture structure and higher cross-border investment. For ex- as well as upstream and downstream agribusiness- ample, according to a recent World Bank report (World es for Central Asian migrants returning from Russia Bank, 2019), Belt and Road Initiative transport projects following the economic downturn and for large num- are estimated to increase trade by up to 9.7 percent. bers of rural youth joining the labor market annually Countries that have a comparative advantage in time- is an important social objective that increased horti- sensitive sectors, such as fresh fruits and vegetables, cultural production can help meet. are expected to be the biggest winners. The horticulture sector also provides an impor- Fruit export growth has the potential to signifi- tant year-round source of income in rural areas for cantly boost economic growth in the Central Asian women that creates opportunities for them to im- countries, generate employment and income in prove their standard of living. Women play a signifi- rural areas, and create opportunities for small- cant role in many aspects of agricultural production. holder inclusion into the value chain. In addition For example, according to the Statistical Agency un- to the clear macroeconomic benefits from higher der the President of the Republic of Tajikistan (2013), value-added exports, such as horticulture, the in- up to 85.5 percent of women are active in agricul- creasing production of fruits also has a strong posi- tural production. Increased horticulture production tive impact on employment when compared to other in the region is expected to result in higher incomes agricultural sub-sectors. Research shows that horti- for female laborers by providing employment op- culture requires at least twice as much labor as ce- portunities through processing, seed production, real crops. For example, for every job in horticulture, and nursery preparation, to name just a few. A ben- three jobs are generated elsewhere (not including eficiary survey of World Bank-financed horticulture employment generation among farmers). Further, investments in Uzbekistan showed that increased a  World Bank study of the Uzbek horticulture sec- investment in horticulture led to greater female la- tor (Khidirov et al., 2015) estimated that the num- bor force participation. Enterprises participating in ber of person-months per hectare of farm labor for the program showed a  67  percent increase in the selected fruits and vegetables ranges from 12-22, number of female employees. compared to 5 and 2 in cotton and wheat, respec- tively. Similarly, research conducted in South Africa However, much remains for the Central Asian shows (World Bank, 2018a) that commercial veg- countries to be able to enter and increase their etable and fruit cultivation generates about 1.3 jobs presence in the formidable Chinese fresh fruit per hectare compared with 0.01 jobs per hectare of markets. The Chinese markets require consistency maize. Evidence from around the world shows that in quality and volume of fresh fruit supply from the xii © 2020 The World Bank Group Introduction exporting countries, as well as the existence of so- higher-end markets such as China, will be tested phisticated quality and logistics systems to ensure by how successfully they are able to penetrate that products are grown and preserved in the best formal retail chains in Russia, a  country that has possible condition to meet China’s stringent food served as their traditional market. Currently, Russia safety standards. The majority of Central Asian fruit and other countries of the former Soviet Union re- producers are small farmers who have limited ac- main key destinations for Central Asian fruits. For cess to financial and knowledge resources, which example, 88  percent of cherries, and 99  percent results in limited production volumes and inconsis- of fresh apricots and plums are exported from the tent quality of supply. While small farmers across Kyrgyz Republic to Russia and Kazakhstan. Similar the region have adjusted to trading fruits domesti- export dynamics are observed for Uzbek and Tajik cally through a  network of local traditional traders, fruits. Despite Central Asian fruit exporters’ tradition- entering international markets requires a  different ally large presence in the Russian stone fruit markets, level of bureaucracy and procedural conformity, for they have been slow to adjust to the growing role which Central Asian small-scale producers lack ca- of modern grocery store chains, and most Central pacity. Currently, exports of fresh stone fruits are of- Asian fruits are largely sold in open-air markets. Yet, ten sporadic, and vary from year to year depending modern grocery store chains in Russia have been on yields and demand from Russia and Kazakhstan. growing at an accelerated pace, largely at the ex- At the government level, the quality and capacity of pense of traditional retail markets, following the tra- customs control and inspection bodies do not meet jectory observed in many developed countries. They the requirements that modern horticulture markets are also playing an increasingly important role in fruit pose, putting Central Asian exporters at a disadvan- imports, imposing stringent requirements for prod- tage vis-à-vis their global competitors. uct health safety, intrinsic product qualities (such as shape, color, and taste), packaging and labeling. As a  result, despite the existing opportunities, China still accounts for only a  small share of to- The objective of this study is to improve the Central tal Central Asian (Kyrgyz Republic, Tajikistan and Asian governments’ understanding of the oppor- Uzbekistan) agri-food exports, particularly fruit tunities for their agri-food exports in Chinese and exports. In 2018, agri-food exports to China totaled higher-end Russian markets, with a specific focus $415.5 million, up by $72 million from 2017 figures. on fresh fruit markets, and provide policy recom- Uzbekistan captured 96 percent of this value, while mendations on how to take advantage of these op- the Kyrgyz Republic and Tajikistan remained margin- portunities. The study was carried out in three phas- al players. However, Uzbek exports to China (82 per- es. During Phases I and II of the study (World Bank, cent) consist mainly of cotton and cotton products. 2018b), an export competitiveness assessment was The dominant export category from the Kyrgyz conducted for a  wide range of Central Asian agri- Republic is tobacco, which accounts for 58 percent cultural commodities to estimate their potential com- of total agri-food exports. petitiveness in Chinese markets. The findings of the stakeholder consultations and comparative advan- The extent to which Central Asian agri-food ex- tage analysis (see annex 3  for more details) show porters are ready to increase their presence in that Kyrgyz Republic, Tajikistan and Uzbekistan © 2020 The World Bank Group xiii Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets have strong export potential in several horticulture emerging opportunities and challenges for Central products, including grapes, apricots (fresh and dry), Asian fresh fruit suppliers to maintain and increase plums (fresh and dry), walnuts, and cherries. Building their exports to Russia (and potentially other coun- on the findings of Phases I and II of the study, Phase tries of the Commonwealth of Independent States), III focused on examining key developments and re- focusing on key barriers to entry to the Russian su- quirements in the Chinese and Russian fruit markets permarket chains and highlighting successful repli- and providing a more in-depth analysis of the Central cable entry strategies employed by Turkey, their ma- Asian fruit value chains to determine key constraints jor competitor in the Russian market. Section Three to the region’s export potential in the target markets. presents an analysis of the export competitiveness of the selected fruits as well as constraints along the The report is structured as follows: Section One Central Asian countries’ value chains that limit their presents an overview of the Chinese fresh fruit import potential to increase agricultural exports. Section market, including market access requirements for the Four includes a case study on the key drivers of the selected horticulture products, highlighting the key competitiveness of Chilean horticulture exports to differences between entering China’s market com- China. Section Five presents policy recommenda- pared to that of Russia. Section Two focuses on the tions for the Central Asian governments. xiv © 2020 The World Bank Group China 2030: Developments in the Fresh Fruit Import Market 1. China 2030: and fruits in urban households surpassed 70 kilo- Developments in the Fresh grams in provinces including Shandong, Tianjin, Fruit Import Market Liaoning and Xinjiang (Figure  1.1). China’s annual per capita fruit consumption is estimated to grow by 10 percent by 2022, according to the Organization 1.1. Market Overview for Economic Co-operation and Development (OECD)-Food and Agricultural Organization (FAO) Consumption of fresh fruit and fruit products Agricultural Outlook. Despite a  steady increase in has been steadily increasing in China, thanks to consumption in both urban and rural areas, the gap higher incomes, increased attention to healthy between the two is still evident—on average be- diets, and more diverse food choices for consum- tween 2015 and 2017, rural Chinese residents con- ers. According to provincial statistics, in 2017, the sumed 33 percent less fresh fruit than urban resi- per capita consumption of dried and fresh melons dents.3 In terms of preferences, Chinese consumers Figure 1.1. Fruit Consumption in China4 Jilin: 1,471 Nei Mongol: Xinjiang: 703 Liaoning: 1,753 1,590 Beijing: 1,166 Dili Agricultural Products Gansu: Trade Center (Shenyang) 532 Xinfadi Market (Beijing) Tianjin: 2,181 Ningxia: Shanxi: 356 1,291 Shangdong: Qinghai: 2,023 908 Shaanxi: Henen: Jiangsu: 1,382 667 1,293 Hubei: Huizhan Fruit and Vegetable Sichuan: 388 Market (Shanghai) 1,148 Fruit consumption, thousands of metric tons (2017 estimate) Jiangxi: 379 Guizhou: Fujian: 1,037 1,170 Guangdong: data unavailable 1,094 for this region large wholesale Jiangnan Fruit and Vegetable market here Market (Guangzhou) Source: National Bureau of Statistics of China (2017). IBRD 44975 | APRIL 2020 3   Averages are calculated based on the provincial statistics for Guangdong, Tianjin, Shangdong, Shaanxi, Sichuan, and Xinjiang.   The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of the World Bank 4 Group, any judgement on the legal status of any territory, or any endorsement or acceptance of such boundaries. © 2020 The World Bank Group 1 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets value nutrition, freshness, safety and quality, as value, from 2013 to 2017 (Figure 1.3). China is also well as “specialty” fruits. These preferences are re- the world’s fifth-largest importer of fresh grapes flected in the growing popularity of imported and/ in 2017 (233,912  tons, valued at $590.1 million). or branded fruit. Chinese consumers are sensitive However, China also exports grapes and as these to attractive packaging and products with recogniz- exports have grown, China has become a  net ex- able brands (USDA FAS, 2016). In addition, demand porter of grapes since 2016. Imported grapes fill for organic fresh fruits is growing, driven by affluent the gap during certain months of the year, includ- Chinese consumers. ing high-demand time periods such as the lunar new year and the Labor Day holiday. For example, China is one of the world’s top ten importers of grapes from the United States are sold from August fruits with imports totaling $5.8 billion in 2016 to December. Grapes from Peru are available from (Figure 1.2). China is a net importer of many fruits, November to January of the following year. They both fresh and dried, that can be sourced from are followed by grapes from Chile from February to Central Asia. In 2017, China imported 101,885 tons June. Apricot consumption in China has been rela- of sweet cherries (valued at $771.3  million) and tively low in recent years as Chinese consumers 40,619 tons of plums (valued at $103.5 million), are not in the habit of consuming fresh apricots and making it the world’s largest importer of both fruits. prefer peaches instead (Euromonitor International, Taking into account exports, China remains a  net 2017). Nevertheless, net imports of fresh apricots importer of sweet cherries and plums with steadi- increased from $1.5  million to $4.2  million be- ly increasing trade volumes, both in quantity and tween 2015 and 2017. Imported fruits typically fall Figure 1.2. Chinese Fruit Imports’ Growth Annual growth of countries’ imports – ,% Russian Federation Netherlands United States of America between Germany Belgium France China Canada United Kingdom Hong Kong, China Scale: , , USD thousand - - - - Annual growth of countries’ imports betwin – ,% The bubble size is proportional to the imported value in of countries fo the selected product Source: International Trade Center (2018). 2 © 2020 The World Bank Group China 2030: Developments in the Fresh Fruit Import Market Figure 1.3. China’s Net Imports of Fresh Sweet Cherries and Plums tons - - – Fresh Grapes – Fresh Sweet Cherries – Fresh Plums and Sloes Source: UN United Nations Statistical Division (2018). into premium price segments and are mainly sold Fresh fruit exports get to China via two main chan- in the first-tier cities, such as Beijing, Guangzhou, nels—direct exports to mainland China or re-exports Shanghai, and Shenzhen. However, this trend is via Hong Kong (Figure 1.5). Direct exports to Chinese now also spreading to second-tier cities, such as mainland ports (such as Guangzhou and Shanghai) Chengdu, Hangzhou, and Wuhan, largely driven by as well as via Free Trade Zones—such as the ones increases in e-commerce sales. established in Shanghai (2013), Tiajin, Guangdong, and Fujian (2015)—are the most preferred ways for Chile and the United States dominate China’s fruit exporters to supply fruit to the Chinese market. fresh fruit import market, particularly for sweet Exporters opting to re-export via Hong Kong SAR, cherries and plums (Figure 1.4). In 2017, Chile sup- China do not pay any tariffs, taxes or duties. Upon plied 68,951 tons of cherries, accounting for more re-export to China, distribution happens via ‘grey’/ than 60  percent of total Chinese cherry imports. semi-legal channels (Producer Marketing Association, The United States follows with almost all the rest 2016), where imported fruits fully or partially avoid of the imports. Similar trends exist for fresh plums. taxes or legal requirements associated with imports. In 2017, Chile and the United States exported to In recent years, however, semi-legal re-exports via China 29,911 and 8,272 tons of plums, respectively. Hong Kong SAR, China have fallen as Chinese au- The top contenders for the fresh grape import mar- thorities have strengthened customs enforcement. ket are more diversified. In addition to these two countries, Australia, Peru, and South Africa have China’s import fruit market is highly fragmented also reported strong export flows to China in re- and competitive. At the start of the supply chain, cent years. there are numerous geographically scattered © 2020 The World Bank Group 3 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Figure 1.4. Geography of Chinese Fresh Fruit Imports, by Country, 2017 Top Fresh Cherry Suppliers Top Fresh Grape Suppliers Top Fresh Plum Suppliers % % % % % % % % % % % % Chile USA Chile USA Chile USA Australia Canada Australia Peru Other New Zealand Other South Africa Other Source: UN COMTRADE (2017). Figure 1.5. Movement of Imported Fresh Produce in China Foreign Exporter Mainland China Import Port Hong Kong Import Port (Shanghai, Guangzhou) Chinese Importer “Grey” Channel General Distributor Wholesale Markets Local Distributor Supermarkets & Fresh Fruit Wet Markets Hypermarkets E-Commerce Convenience Stores Chain Stores Consumer Source: Producer Marketing Association, 2016. 4 © 2020 The World Bank Group China 2030: Developments in the Fresh Fruit Import Market importers. The market share of the leading players, imported fruits and vegetables in China. From these often within a  region, is limited. For example, nei- major wholesale markets, imported fruit is then ther Dole Food Company Inc, a big importer in East transported to Tier II and Tier III cities. Cold chain in- China, nor Joy Wing Mau Group, a large import com- frastructure is severely lacking in these cities, which pany in South China, have market shares of greater is as a  major constraint for fruit exports, but has than one percent. Under such conditions, when ex- been improving in recent years (Producer Marketing porting to China, a close relationship with a Chinese Association, 2016). counterpart becomes important. Two new trends are emerging for the retail market Further down the chain, primary distributors of imported fruits: online and offline retail chan- and wholesalers are the dominant buyers, pur- nels via e-commerce, and a shift from large store chasing more than 90 percent of imported fresh to smaller store formats. Modern retail chains fruits. Approximately 35 percent of it goes directly account for 67.4  percent of total grocery sales in to retailers such as premium supermarkets, hyper- China (Producer Marketing Association, 2016), markets, or online fresh fruit sales channels. Over and many foreign retailers, such as Carrefour and 60 percent, however, is bought by secondary dis- Metro Cash and Carry, continue to enjoy a strong tributors who then sell to retailers such as indepen- reputation among Chinese consumers as sources dent and fresh fruit chain stores. Currently, none of of high-quality fresh produce. However, the over- the imported fresh fruits are sold for food process- all growth rate of supermarkets and hypermarkets ing and less than five percent goes to the food ser- has slowed in recent years in response to online vice channel. competition. Internet penetration and the spread of mobile technology has allowed consumers to There are four major wholesale markets for im- easily buy imported fruits on e-commerce plat- ported fruit in China, including (Figure 1.1): forms or via social media such as Wechat or Weibo. 1) Jiangnan Fruit and Vegetable Market Interestingly, large platform companies, such as in Guangzhou Alibaba and JD, have been investing in omni-chan- 2) Huizhan Fruit and Vegetable Market nel marketing by also opening “new retail” chains in Shanghai such as “HEMA” (brick and mortar retail outlets as- 3) Xinfadi Market in Beijing sociated with Alibaba Group) and “7Fresh” (the of- 4) Dili Agricultural Products Trade Center fline retail chain for JD.com). In addition, to meet in Shenyang consumers’ growing preferences for convenience and quality, especially in higher-tiered cities, many Guangzhou serves as a  distribution hub for the retailers are switching the focus from hyper- and entire country, while Beijing, Shenyang, and supermarkets to smaller-scale convenience stores Shanghai directly supply the end consumer mar- or boutique supermarkets. Carrefour and Yonghui, kets, covering the Beijing-Tianjin-Hebei region, for instance, launched Easy Carrefour and Yonghui Northeast China, and Yangtze River Delta, respec- Membership Stores, which provide consumers with tively. Specifically, Guangzhou’s Jiangnan whole- premium products including high-quality imported sale market accounts for about 70  percent of all products. © 2020 The World Bank Group 5 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Box 1.1. Fresh Fruit E-Commerce in China The rapid growth of fresh fruit e-commerce in China reflects efforts from both the private sector and the public sector to meet consumer demands for convenience, diversity, quality, and affordability. Through the government’s regulatory support and the industry’s innovation, consumers have developed trust in fresh fruit e-commerce. Prior to e-commerce, many Chinese consumers relied on unregulated wet markets to supply their fresh produce. With fresh fruit e-commerce, China leapfrogged the supermarket system used in developed countries and arrived at a solution that provides consumers with greater convenience and quality assurance. Fresh food e-commerce has gained unprecedented popularity in China, especially among young, educated urban consumers. In the past three years, China’s fresh food e-commerce market has grown almost 400 per- cent, reaching 195  billion yuan ($29.5  billion5) in 2018 (Yunge Data, 2019). Fresh food e-commerce ac- counted for 19 percent of all household fresh food purchases in 2016 (BCG and AliResearch, 2016). In 2018, 285 million tons with a total value of 11 billion yuan ($1.66 billion) were sold online. Cherries, kiwis, and oranges rank among the most popular fruits in e-commerce. The majority of consumers that shop for fresh produce on- line are young, well-educated, and urban. The average age of fresh food online shoppers is 31, and 64.6 per- cent were born between 1982–1993 (Producer Marketing Association, 2018 and BCG and AliResearch, 2016). More than 80 percent of fresh food online shoppers have at least a university education, and most of them are very familiar with online shopping. About 82 percent of online fresh food shoppers live in first and second tier cities. Beijing, Shanghai, Guangzhou, and Shenzhen have the largest number of fresh food online shoppers (iResearch, 2018). Chinese Fresh Food e-Commerce Market Size and Annual Growth Rates % Market Size (Billion yuan) % % . % . . % Source: Yunge Data (2019), Chinese Internet Industry Review Report (2018). Alibaba-backed Yiguo and JD-backed FruitDay are the key players in China’s fresh fruit e-commerce indus- try. Yiguo was founded in Shanghai in 2005 with the goal of connecting domestic consumers to high quality and reasonably priced imported fruits. As Chinese consumer demand for imported fruits grew, Yiguo devel- oped close relationships with suppliers and farms in 39 countries and six continents to directly import fruits to China and distribute products to 310 cities. Founded in Shanghai in 2009, FruitDay brands itself as a provider (Box continued next page)  USD value calculated using average 2018 exchange rate, $1 = 6.61 yuan. 5 6 © 2020 The World Bank Group China 2030: Developments in the Fresh Fruit Import Market (Box 1.1. continued) of high-quality fruits. According to Fruitday co-founder Loren Zhao, imported fruits account for 90 percent of its online sales.6 Both Yiguo and FruitDay started as vertical B2C (business-to-consumer) companies, specializing in the sale of fresh food and retaining full control over their entire supply and distribution chains. In 2014 and 2015, Yiguo and FruitDay began to receive generous investments from Alibaba Group and JD, two of the largest integrated B2C e-commerce companies in China with 61.5 percent and 24.2 percent market share, respectively (Producer Marketing Association, 2015). Instead of specializing in one type of consumer goods, Alibaba and JD provide platforms for the online retail sale of all types of consumer goods, including electronics, books, cloth- ing, household items, and food and beverages. Alibaba and JD’s investments in Yiguo and FruitDay created mutually beneficial partnerships. Yiguo and FruitDay gained access to Alibaba and JD’s large customer bases, supplier connections, and supply chain management systems. In turn, Alibaba and JD benefited from Yiguo and FruitDay’s cold chain capacities and experience in fresh produce management. The Chinese government’s long-standing support for digitization and private innovation created the digi- tal infrastructure that has enabled the rise of fresh fruit e-commerce. In 2018, China’s internet penetration rate reached 59.6 percent, almost three times that of 2008 (China Internet Network Information Center, 2019). Of those internet users, 98.6 percent, which is more than twice the global average, accessed the web using mo- bile phones (China Internet Network Information Center, 2019). Moreover, China’s mobile payment penetration rate is more than 3.8 times the global average, accounting for 77 percent of all transactions in China (Deloitte, 2018). In 2018, 584.4  million users conducted 60.5  billion mobile payment transactions with a  total value of 277.4 trillion yuan ($40 trillion).7 The rapid development of this digital infrastructure reflects the government’s long-standing support for digitization. From investing more than 4.3 trillion yuan ($621 billion) in physical inter- net infrastructure to implementing the “internet +” initiative and promoting agriculture-related e-commerce, the government has prioritized digitization in China’s development strategy since 1993. The No. 1 State Document in 2018 reaffirmed the government’s commitment to digital infrastructure development, supporting the growth of e-commerce. In addition to developing digital infrastructure, the Chinese government also adopted policies that encour- age, legitimize, and regulate e-commerce activities. To encourage e-commerce activities, the government reduced entry barriers by simplifying capital registration procedures and created financial incentives by reduc- ing tax for e-commerce small and medium-sized enterprises (SMEs) and guiding investment funds to support e- commerce startups. In order to overcome the lack of trust in e-commerce, the government worked to legitimize it by standardizing the e-commerce credit information management system and requiring e-commerce vendors to register using their real names, addresses, and contact information (Hongfei Yue, 2017). In 2018, the National People’s Congress passed its first ever comprehensive Electronic Commerce Law. This new law addresses e- commerce activities broadly and creates a cohesive regulatory framework that allows for better coordination among various government departments. Under this law, e-commerce operators are responsible for protecting consumers’ personal data and preventing the circulation of fraudulent products. The law also stipulates that e- commerce operators must deliver goods or services to consumers in accordance with previous agreements and take responsibility for all risks involved in the transportation and delivery stages. As consumer preferences have shifted towards imported fruits on e-commerce platforms, the Chinese gov- ernment has adopted increasingly open trade policies to streamline the import process and reduce transac- tion costs. Since 2013, the Chinese government has established 11 Free Trade Zones (FTZ), maintained 14 Free (Box continued next page) 6  https://www.eurofresh-distribution.com/news/look-inside-china%E2%80%99s-premium-fruit-e-tailer-fruitday 7  http://www.chinadaily.com.cn/a/201903/21/WS5c932294a3104842260b1cc9.html © 2020 The World Bank Group 7 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets (Box 1.1. continued) Trade Agreements (FTA), and reduced tariff and value-added tax (VAT) rates for many cross-border e-commerce products (JD Research, 2018; Deloitte, 2018). These trade policy measures enable fresh fruit e-commerce com- panies to source imported fruits at lower prices and deliver from farm-to-table in as little as 72 hours.8 Since brand recognition is important to Chinese consumers, fresh fruit e-commerce companies often partner with well-known brands such as the Zespri brand of kiwis from New Zealand, Capespan from South Africa, Driscoll berries from the United States, FruitMasters from the Netherlands, and Prize from Chile.9 Furthermore, Chinese companies are increasingly visiting farms and plantations abroad and signing multi-year import agreements with countries that produce high quality fruits. For example, Alibaba signed a three-year agreement with Thailand pledging to import 3 billion yuan ($454 million) worth of monthong durians.10 In 2015, FruitDay became the first fresh fruit e-commerce company to establish operations in the Shanghai Yangshan FTZ. Inside the FTZ, ship- ping containers can be opened for quality checks immediately, and products can be released in 6–7  hours. Previously, customs inspection took 3 days as imported shipments were unloaded and transported to a quality check center outside the port and then transported back for final clearance before being released. This change has not only allowed FruitDay to cut costs by 20 percent but has also dramatically improved the quality of im- ported fruit by shortening the supply chain.11 Private sector efforts to improve cold chain capacity, logistics, and consumer convenience have also fu- eled the growth of fresh fruit e-commerce in China. Fruits are highly perishable and therefore require tem- perature-controlled storage and transportation systems. Despite the government’s investment in cold chain R&D and policy commitment to build “a green, safe, modern cold chain,” China’s cold chain capability remains underdeveloped (The State Council, 2017; Zhao et.al. 2018). The high transaction cost of long-distance trans- portation and delivery coupled with the low profit margin of fruits initially resulted in poor business perfor- mance (Jin, Li and Li, 2017). Of the 4,000 fresh food e-commerce companies started in the past decade, only 1 percent was profitable by 2016. In that year alone, 14 fresh food e-commerce companies, including Amazon- backed Yummy 77, went bankrupt.12 The companies that survived partnered with integrated e-commerce com- panies to increase their sales volumes and lower the unit delivery cost of their products. By partnering with Alibaba, Yiguo not only received investments to enhance its own cold chain system, ExFresh, it also gained access to Alibaba’s big-data backed logistics management system, Cainiao Network. Improvements in cold chain and logistics capabilities enable fresh fruit e-commerce companies to deliver consumer orders within 3  days. To further reduce the cost of cold chain logistics, companies have shifted their mode of operation from online-only retail to O2O (online-to-offline) retail, creating distribution hubs near urban consumers and limiting the distance of last-mile deliveries. Hema, the brick-and-mortar store for Alibaba, has opened more than 100 branches in 21 cities around China.13 Meanwhile, 7Fresh, the offline store for JD, attracted more than 10,000 customers each day during its trial period (MarketingToChina, 2019). The O2O business model allows e-commerce companies to deliver orders to consumers located within a certain distance of their offline stores in less than 30 minutes.14 These delivery services save time for consumers and offer them convenience with- out sacrificing trust or quality. (Box continued next page) 8  http://sh.eastday.com/m/20150919/u1a9036500.html 9  https://www.freshplaza.com/article/9021017/china-jd-com-wants-to-ship-fruit-from-all-over-the-world-to-china-in-48-hours/ 10  http://www.sohu.com/a/228824995_117373 11  http://www.ebrun.com/20150720/141367.shtml; http://sh.eastday.com/m/20150919/u1a9036500.html 12  https://news.newseed.cn/p/1334215 13  https://www.freshhema.com/ 14  https://new.qq.com/omn/20171214/20171214G0T2NH.html 8 © 2020 The World Bank Group China 2030: Developments in the Fresh Fruit Import Market (Box 1.1. continued) Fresh fruit e-commerce companies gained consumers’ trust and increased consumers’ willingness to shop for fruits online by offering excellent customer service and enhancing product traceability. Many consumers may also be wary of purchasing fresh fruit online because of quality concerns. To build Chinese consumer trust in online purchasing, fresh fruit e-commerce companies such as Yiguo and FruitDay instituted freshness and money-back guarantees. Under these policies, consumers unsatisfied with fruit quality can easily request a re- fund or exchange via their mobile app, and delivery personnel will pick up the returned order at their door. The satisfaction guarantee policies successfully reduced the uncertainty of fruit quality in online retail and improved consumer trust. Moreover, fresh fruit e-commerce companies leveraged digital technologies to improve fruit traceability. Under Alibaba’s Mantianxing initiative, e-commerce consumers can scan a QR code on their product and review information such as fruit origin, growth and transport conditions, and nutritional value. The improved traceability further enhances consumer trust by providing information that assures the safety and quality of the products. As a result, fresh fruit e-commerce achieved a consumer satisfaction rate 3 percent higher than that of offline retail (BCG and AliResearch, 2016). Cherries offer the highest value in the Chinese in August, the price of U.S. cherries continued markets but are also associated with higher price rising through the end of the year. Then cherries volatility compared to imported grapes and plums from Chile priced at $13-15 per kilogram arrived in (Figure 1.6). For example, in 2018 at Guangzhou the market, and the price slowly decreased after Jiangnan Market, early season cherries from the the new year. For imported grapes, the wholesale United States reached $18  per kilogram in June. price was stable from March to July, and steadily After dropping almost 30  percent to a  low point increased later in the year. The wholesale price of Figure 1.6. Wholesale Prices of Imported Cherries, Grapes and Plums in Guangzhou Jiangnan Market USD/kg . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - - - - - - - - Chile cherries US cherries US grapes US plums Source: http://www.jnmarket.net/ © 2020 The World Bank Group 9 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets imported plums, however, was relatively consistent However, taking advantage of the opportunity during the year despite a spike in October. There Chinese fruit markets present is not easy and a lot is no obvious price difference between Guangzhou needs to be done by the Central Asian countries to and Beijing markets. Longer term wholesale prices do so. First, Chinese markets require consistency in of cherries, grapes and plums imported from the the quality and volume of the fresh fruit supplied by United States showcase similar trends. Cherry exporting countries (see annex 4  for more details). prices varied a lot throughout the year, ranging be- Second, entering China necessitates the existence tween 60 and 120  yuan per kilogram. In general, of sophisticated quality control systems and logis- the price first peaked when the early-season cher- tics systems to ensure that products are grown and ries hit the market around May-June and reached preserved in their best possible condition to meet a  high point again around November-January in China’s stringent quality and food safety standards. response to strong demand during the holiday Third, the Chinese fruit markets’ highly fragmented season. Grape prices also experienced a small in- and competitive structure necessitates a close rela- crease towards the end of the year. Plum prices, tionship with a Chinese counterpart on the ground. on the other hand, have been relatively stable over Fourth, Chinese consumers value attractive packag- recent years. ing and products with recognizable brands. As this study shows, the majority of Central Asian fruit pro- ducers are small farmers who have limited access to 1.2. Opportunities and Constraints financial and knowledge resources, which results in for Central Asian Fruit Exporters limited production volumes and inconsistent supply in the Chinese Markets quality. While small farmers across the region have adjusted to trading fruits domestically through a net- Central Asian countries have the potential to take work of local traditional traders, entering internation- advantage of rising Chinese fruit imports. The al markets requires a different level of bureaucracy region’s geographic location, natural resources, and procedural conformity for which Central Asian untapped fruit yield potential and the possibility of small-scale producers currently lack capacity. At the greater private sector investment through policy government level, the quality and capacity of food reform create the necessary preconditions for the and safety systems, customs control and inspection Central Asian countries to increase their horticulture bodies do not meet the requirements of Chinese exports to China. In addition, analyses in this study markets, putting Central Asian exporters at a disad- show that Uzbekistan, Tajikistan, and the Kyrgyz vantage vis-à-vis major suppliers to China, such as Republic have a comparative advantage in the pro- Chile or the United States. In addition, limited export duction and export of horticultural products due to promotion capacity results in most regional export- favorable climatic conditions and low production ers being unaware of the existing opportunities in costs and, hence, can be competitive in the Chinese the Chinese markets and being unable to under- markets. stand the requirements to enter them. 10 © 2020 The World Bank Group Russia 2030: New Trends in the Central Asian Traditional Market 2. Russia 2030: New Trends from the Kyrgyz Republic and Tajikistan have shown in the Central Asian healthy growth over the same period as well—from Traditional Market $34,453 to $375,550 and from $364,791 to $691,774, respectively. Historically, Russia has been a  traditional market Despite Central Asian fruit exporters’ traditionally for Central Asian fresh fruit.  According to official 15 large presence in the Russian stone fruit markets, trade statistics, Central Asia exported $108.8 mil- they have been slow to adjust to the growing role lion worth of fresh fruit to Russia in 2018 (Figure 2.1), of modern grocery retail chains. Modern grocery accounting for 25  percent of Central Asia’s total retail chains in Russia have been growing at an ac- fresh fruit exports. If dried fruits and nuts are con- celerated pace, largely at the expense of traditional sidered, this share rises to 43  percent. These esti- retail markets, following the trajectory observed in mates are likely to be on the low side, as they do many developed countries. According to Beragua not include unrecorded re-exports via Kazakhstan (2014), the compound annual growth rate for modern to Russia. Between 2014 and 2018, the region’s fruit food retail between 2007  and 2014  was 25.5  per- exports to Russia grew by a  factor of 21, primar- cent, compared to a total food retail growth rate of ily from surging Uzbek exports that increased from 13.3  percent. The trend is projected to continue. In $2.8 million in 2014 to $99 million in 2018. Exports the same period, traditional food retail’s share in total Figure 2.1. Central Asian Fresh Fruit Exports to Russia Million USD Tatjikistan Kyrgyzstan Kazakhstan Uzbekistan Source: International Trade Center (2018).   Fresh fruit refers to HS codes 080610 (grapes, fresh), 0807 (melons and papaws, fresh), 0808 (apples, pears and quinces,fresh), 15 0809 (apricots, cherries, peaches, plums and sloes, fresh), and 0810 (strawberries, fresh) © 2020 The World Bank Group 11 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets food retail decreased from 74 percent to 41 percent. Moscow and St. Petersburg, Russia’s wealthiest cit- However, Central Asian suppliers remain largely de- ies, drive the country’s fruit consumption trends. In tached from modern retail chains in Russia. Most 2016, these two cities accounted for 11.4 percent (or Central Asian fruits are sold in Russia’s open-air 1.4 million tons) of the country’s total fruit consump- markets during the summer season. For example, tion. They have the highest per capita consump- in 2018, grapes imported by modern retail arrived kg/person in St.  tion of fruit—81.9  Petersburg and mainly from Turkey and India, while grapes directly 76.5 kg/person in Moscow—which is attributed to supplied by Central Asian countries to modern retail their higher income levels. Educated and wealthier were limited to 3 percent of the total export volume. consumers in these megapolises increasingly tend to demand fruits of higher quality and safety stan- The growing size and market power of Russian dards, and that are conveniently available at the modern retail chains create both challenges and nearest retail store. According to the FDF Group opportunities for fruit exporters. Similar to a trend study (2015), the most popular fruits among Russian observed in the developed world, Russian modern consumers were apples (80 percent of Muscovites retail chains are becoming more concentrated and purchase apples on a regular basis), followed by cit- play an increasingly larger role in food imports, in- rus fruits (40 percent), bananas and grapes (30 per- cluding those of fresh fruit. As a result, modern re- cent), and pears (25 percent). Stone fruits are less in tailer requirements for cost, quality, safety, and prod- demand. For example, cherry imports accounted for uct variety are determining what types of exporters just two percent of total imports in a 2018 estimate. can gain access to the fresh fruit retail chain. Russian modern retail chain requirements act as an effective Rising incomes and changes in dietary habits will barrier to participation in the chain for exporters who accelerate the demand for fresh fruit in Russia, are unable to meet these requirements. However, creating opportunities for those exporters that can the reward can be considerable for those exporters adjust to the country’s food retail trends. According that can participate. According to Russian customs to 2015 IFPRI IMPACT projections, demand in Russia statistics, the average import price per kilo of table for fruit will be the fastest-growing category of food grapes paid by retailers was up to 30 percent above demand (Figure 2.3) by 2030, reaching $11.4 billion, the average import price. with an average growth rate of 1.04 percent annually. Temperate fruits are expected to account for 62 per- Modern retail transformation in Russia is driven cent of that demand. This growing demand presents by young and higher-income consumers, who are an opportunity for Central Asian fruit exporters to in- also the main consumers of fresh stone fruit in the crease their presence in Russian markets, provided country. While food products as a whole are income- they can meet the volume, quality standards, and inelastic, fresh fruits are purchased disproportionate- fruit supply consistency requirements in the chang- ly by higher-income consumers. In Russia, this is par- ing food retail environment. The ability of Central ticularly true for the stone fruits that occupy a smaller Asian fruit exporters to penetrate Russian modern niche in the market as they tend to be more expen- retail chains would serve as preliminary proof of their sive. In 2016, Russians consumed 11.8 million tons readiness to comply with the requirements posed by of fruit or an average of 73.7 kg/person (Figure 2.2). higher-end export global markets. 12 © 2020 The World Bank Group Russia 2030: New Trends in the Central Asian Traditional Market Figure 2.2. Fresh Fruit Consumption Across Russian Regions16 Fruit consumption in metric tons, by Federal District (2016 estimate, 2015 population numbers) Siberian Far-Eastern North-Western Urals St. Petersburg Moscow Volga Central Southem North-Caucasian Source: Federal Service for State Statistics, 2019. Figure 2.3. Projected Average Annual Growth in Russian Food Demand, 2017–2030 Fruits . Vegetables . Sugar . Meats . Oilseed processing . Pulses . Cereals -. Roots and tubers -. -. -. . . . . . . . Percent Source: IFPRI IMPACT model projections (2015); SSP2 pathway, no climate change assumption; Model version IMPACT 3.2.1.   The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of the World Bank 16 Group, any judgement on the legal status of any territory, or any endorsement or acceptance of such boundaries. © 2020 The World Bank Group 13 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets 2.1. Evolution of Russian Food Retail modern retail turnover, due to its low population density. Growth in Russian modern retail chains is In a trend that will most likely continue, food sales expected to mirror trends observed in developed through modern retail channels have been steadily countries. In 2016, Russia had 170 square meters of increasing in Russia while sales through traditional grocery retail space per 1,000 inhabitants, less than stores and open markets have been decreasing. In the benchmark country average of 284 square me- 2018, modern retail channels accounted for about ters per 1,000 inhabitants (Figure 2.4). 38.5 percent of the Russian grocery market but dif- fered significantly across regions, depending on The share of fresh produce sold in modern retail population density and income levels. For example, stores also has been growing, particularly in large the Central Federal District (which includes Moscow) cities. According to a June 2016 Nielsen survey of is the smallest but most populous region of Russia 1,000 respondents residing in 30 megacities across and remains the largest retail market in the coun- Russia, more consumers preferred modern retail try, accounting for 35 percent of total modern retail stores as the point of sale for fresh fruits as com- sales. The Siberian region, which is nine times larger pared to street markets. For instance, 45 percent of than the central region in terms of area, accounts surveyed consumers preferred hypermarkets as the for only 12  percent of modern retail markets, while point of sale for fresh fruits and vegetables; 50 per- the Russian Far East region has the largest land area cent preferred discount stores; 23 percent preferred but accounts for only five percent of the country’s supermarkets; and 43  percent of the respondents Figure 2.4. Evolution of Modern Food Retail in Russia Share of organized vs. non-organized retail Square footage of formal retail, in Russia and its comparator markets m / , people Germany Germany France Poland Hungary Spain Spain Poland France Russia Romania Russia Russia Romania Russia Russia Percent m² Organized Non-organized Source: Nielsen company, 2016. 14 © 2020 The World Bank Group Russia 2030: New Trends in the Central Asian Traditional Market preferred open markets and fairs.17  Modern retail part of the modern retail business model. According saturation is higher in larger cities, which also have to INFOLine, the market volume of online food sales the highest per capita fruit consumption. According in Russia grew by almost 50  percent in 2018  from to the FDF Group, supermarkets were named the 2017 and generated $353.8 million. Online sales of main distribution channel in Moscow for fresh pro- the X5 Retail Group grew by 600 percent. Other re- duce in July 2015, with 92  percent of respondents tailers have online stores as well, including Auchan, citing this channel as their point of purchase over Lenta, O’KEY, and Azbuka Vkusa. Turnover of the the past three months. Traditional markets com- leading third-party delivery service—iGooods—in- prised just 33 percent. creased from $6.1 million to $18.5 million. Specialized produce delivery services exist as well, including In 2018, the largest player in the Russian grocery fruitonline.ru, edoque.ru, multi-frutti.ru, fruitymarket. market, both in terms of sales value and number ru, and others. Along with daily orders, consumers of stores, was a  Russia-based chain—X5  Retail may order fruit gift and surprise boxes. Overall, on- Group (Table 2.1). It was followed by Tander, an- line food shopping remains limited but is among the other domestic player, and Auchan, a  French retail fastest-growing segments in retail. chain. Most of these retail companies operate stores in varying retail formats, such as supermarkets, hy- One of the driving forces behind the growth of permarkets, discount operations, and convenience formal retail is the increase in government control stores, that allow them to keep customers irrespec- over VAT and excise duty collection in all sectors of tive of changing shopping habits. the economy over the last ten years. This has led to the gradual centralization of retail in favor of modern Online grocery shopping has become the fastest- vis-à-vis street retail. As an example, in 2007  and growing sales channel in Russia and an important 2008, street kiosks and common food sales outlets, Table 2.1. Russia: Top 5 Grocery Retailers by Sales Turnover Country Direct produce Sales revenues Growth # of stores № Retailer Chains of origin import (USD bln) 2017 y-o-y, % Dec 2018 1 X5 Retail Group Pyaterochka, Perekrestok, Russia yes 21.25 25.5 14,431 Karusel 2 Tander Magnit, Magnit Semeynij, Russia yes 18.78 5.8 17,442 Magnit Cosmetik 3 Auchan Auchan, Auchan City, Nasha France na 6.41 -6.2 314 Raduga, Atack 4 Lenta Lenta Russia yes 6.02 19.2 380 5 Dixi Dixi, Victoria, Megamart Russia yes 4.65 -9.4 2,707 Source: Retailer data.   Respondents could pick more than one point of sale for fresh fruits. 17 © 2020 The World Bank Group 15 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets were actively pulled down; such demolitions were re- and an emotional component in their shopping ex- peated in 2011–2016. According to media reports, in periences. Consumers are also more environmental- 2016 over 2,000 Moscow kiosks (out of 16,000) were ly cautious than ever and are increasingly interested demolished, as were 250  Ekaterinburg kiosks (out in ecologically sound and healthy produce. Cost- of 4,000) and many kiosks in other cities. Fresh mar- effective products that meet these expectations are kets have been closing down or changing their pro- in demand. files. For instance, in Moscow several markets were turned into gastro-hubs, with food courts occupying Educated and wealthier consumers in Moscow and most of the space. Strict fiscal policy also influenced St. Petersburg demand fruits of higher quality and traditional wholesale markets such as Cherkizovsky safety, conveniently available at the nearest retail (Moscow), Pokrovskaya, (Moscow), Sofiyskaya store. According to interviews conducted with lead- (St. Petersburg), 4th warehouse (Ekaterinburg), and ing Russian retailers, Russian consumers are looking the Khilokskiy market (Novosibirsk). Several zones for safe and high-quality fresh produce with a con- within these markets were closed; others are under sistent flavor that is available at their convenience frequent supervision from fiscal and law enforce- and at a competitive price. This has translated into ment agencies. the following requirements for fruit that Russian re- tail chains impose on their suppliers: Young, educated, and wealthier consumers are another driving force behind modern retail growth 99 Produce quality and safety: Products must be acceleration. Millennials, the first generation born visually appealing with a  shape, texture, and after the collapse of the Soviet Union, wield most of flavor that is attractive to customers.18  If the the country’s economic power. Roughly 21 percent of number of defective products exceeds the limit the population, or 30 million people, belong to this specified in the instructions during the retail stratum. Millennials are active users of the internet chain distribution center’s receiving of goods, and are savvy shoppers that check on a  product’s the products will not be accepted. Modern quality and real competitive price. Millennials ex- retailers make food safety and phytosanitary pect speed, simplicity, and comfort when they shop. standards their priorities to address public Online shopping is the category with the most rapid health risks and protect their reputations. Some turnover growth in recent years. Packaged con- premium retailers place their own phytosani- venient food, including produce, is another trend. tary controls on incoming produce. For produc- Brand recognition among consumers has been in- ers and exporters, this requires sophisticated creasing as well. This trend is reflected in the robust food quality and safety systems and logistics to development of branding in the produce sector. ensure that products are grown and then pre- Local producers are following global leaders of the served in the best possible state. fruit industry and developing their own trademarks. Country of origin and traceability is becoming impor- 99 Supply reliability: Formal markets require tant, as consumers look for stories behind products a  long-run period of supply in consistent 18   Please see Annex 8 for details on leading retailer quality requirements for selected stone fruits. 16 © 2020 The World Bank Group Russia 2030: New Trends in the Central Asian Traditional Market volumes. This places emphasis on logistics and suppliers and avoiding middlemen—one of extended supply seasons. the reasons more and more retail chains are involved in direct imports of fruit. 99 Competitive pricing: Russian consumers re- main extremely frugal, with consumer pur- 99 Variety and value-added: Apart from extending chasing power having declined over the past their fresh produce ranges and increasing the couple of years due to an economic crisis. number of fruit varieties, certain retailers also Price promotions have become the main pur- target consumers who look for a unique fruit as- chasing impulse and sometimes are the only sortment, for example, organic, farmer, or gour- reason for the purchase. The share of sales met fruits. Guaranteed high quality and trace- through promotions has increased: in 2016, it ability of products are important. Retail formats was 53  percent; in 2017, 58  percent; and in that cater to such consumers have been grow- 2018, it was 64  percent. In food categories, ing in metropolitan areas. Further value-adding the average discount in 2018 increased from improvements designed to attract customers 20 percent to 23 percent in order to stimulate include the development of new product combi- sales. Suppliers must be able to keep pric- nations, such as washed and peeled fruits ready es down while maintaining high quality and for immediate consumption. Preference is given consistent supply. To offset price reductions, to suppliers that are able to meet quality pack- supermarkets are trying to reduce their own aging requirements, such as standard boxes, or transaction costs by dealing with fewer, larger euro pallets. Box 2.1. Overview of the Retail Chain’s Requirements for Imported Fruit (Example from X5 Retail Group) 1. Product requirements Legal requirements: 99 Phyto-sanitary: lack of quarantine objects, bacteria, molds or viruses 99 Food safety: lack of residual pesticides or micro-organisms 99 Traceability: ability to track an initial product producer and all value chain owners (using appropriate hard or soft copies of documents) 99 Supporting documents: ƒƒ Commodity invoice ƒƒ Declaration of conformity ƒƒ Quarantine phytosanitary documents ƒƒ Quarantine certificate (issued when a commodity leaves a quarantine phytosanitary area) ƒƒ A state phytosanitary control act ƒƒ A certificate, which confirms a lack of quarantine in the particular areas 99 Marking – in accordance with the technical regulations of the Customs Union called ‘Marking of Food Products’. (Box continued next page) © 2020 The World Bank Group 17 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets (Box 2.1. continued) Additional requirements of retail networks: 99 Quality standards (see Annex 8 for more details): ƒƒ Minimum allowed requirements ƒƒ Ripeness requirements ƒƒ Classification 99 Regulations related to calibration 99 Regulations related to admittance: ƒƒ Quality-related admittance ƒƒ Size-related admittance 99 Regulations related to appearance of products: ƒƒ Homogeneity ƒƒ Packaging ƒƒ Product origin ƒƒ Product specifications 2. Transportation requirements There are specific requirements, which have to be fulfilled when a commodity is delivered to the Distribution Center; there are requirements for commodity packaging, transportation rules, temperature modes, etc. All such requirements are reflected in supply agreements. 99 Fresh fruits and vegetables should be delivered to the Distribution Center using specially equipped transport. 99 A truck carcass should be clean, without any smell or unnecessary items. 99 All pallets in the back of the truck should be lined up carefully and be easily accessible for offloading. If the truck is not full, the pallets should be fixed with special ropes, belts or rods to ensure that they are stable and not damaged while being transported. 3. Requirements to pallets 99 Commodities in any type of boxes should be supplied only on Euro pallets. 99 Vegetables supplied in nets should be placed onto wide pallets. 99 All commodities placed on a single pallet must have the same SKU number, shelf life, packaging type and approximately the same weight of a single unit. 99 All boxes and nets should be clean and firm to ensure the safety of commodities throughout all transportation and sales stages. 99 Commodities placed on pallets should not stick out of the edges of the pallets, ensuring smooth and uninter- rupted transportation of commodities. 99 Commodities in nets and boxes have to be covered with a stretch film; the lowest row on a pallet has to be affixed to the pallet firmly. 99 Commodities in carton boxes have to contain additional corners and tape. An important characteristic of Russia’s modern dominating fruit sales in the country. Consolidation food retail is its increasing market concentra- within the retail sector is expected to continue dur- tion, which has resulted in several key players ing the next few years, primarily within the top ten 18 © 2020 The World Bank Group Russia 2030: New Trends in the Central Asian Traditional Market retailers. The number of stores operated by lead- Figure 2.5. Increasing Concentration of Modern Food Retail in Russia, Number of Stores ing retail groups in Russia (Tander, X5, Dixi, Lenta, Auchan) increased by more than 30  percent be- , , tween 2017  and 2018  (Figure 2.5). In addition, the , , retail chains are becoming increasingly dominated , by federal retailers, while regional players are of- , , ten forced to leave the market as they face lower , , consumer purchasing power and often lose in price , , , competition. Currently, market concentration in , , , food retail is at a moderate level. However, experts , , , predict the top ten retailers will control more than , , 60 percent of the food retail market in the near fu- , , , , ture, while the share of modern versus traditional re- , , tail could exceed 80 percent. As the size and market power of top retailers continues to increase, so will X Retail group Tander their influence on food standard regulations in the country. Lenta, Dixi, O'KEY Source: Nielsen, 2018. Another characteristic of Russian modern retail chains is their increasingly important role in di- rect fresh fruit imports. Historically, fruit distribu- Another 37  distribution centers are operated by tion in the country has been managed by special- Tander. X5 Retail Group’s share of direct imports in ized produce import companies and intermediary the produce category reached 50  percent of total wholesalers. For the last ten years, modern retail produce sales,19  working with more than 25  differ- chains have been playing a growing role in the di- ent countries. The smaller federal retailers, includ- rect import of fruit. Four of the top five retailers ing Lenta, Dixi, O’KEY, and Spar/Semya, as well as in the country are engaged in the direct import regional retailers including the Maria-Ra retail chain of fresh produce (Table  2.1). X5  Retail Group and in Siberia and Samberry in the Russian Far East, are Tander, the two largest retailers in Russia, are also also involved in the direct import business. In such leading the development of fruit logistics chains. conditions, close and consistent relationships be- Currently, there are roughly 100 distribution centers tween retailers and exporters become imperative operated by the largest retail market participants. for maintaining a presence in Russian retail markets. About 40  percent of the distribution centers—that is, 42 of them—belong to the X5 Retail Group, and Direct imports allowed companies to decrease distribution center development continues. In 2017, the number of intermediaries in the industry, and X5 Retail Group launched seven distribution centers as a  result reduce consumer prices and regulate with a total storage area of 166,700 square meters. assortment during peak demand periods. Until  https://ru.reuters.com/article/companyNews/idRUL5N1ND1VV 19 © 2020 The World Bank Group 19 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets recently, regional wholesalers have played an im- an alternative channel because import documenta- portant role in distributing fresh produce across tion is assigned to a certain consignee (the retailer). the country. They would buy it at wholesale bases, That means the entire container of a declined prod- mainly in Moscow or St. Petersburg, and make de- uct is a loss. As a result, retailers import only limited liveries to regional retail, traditional retail, or other volumes of fruits with high perishability characteris- intermediaries across the country. Due to this, there tics, such as cherries. could be up to four or five intermediaries involved in getting fruits to consumers. With the larger retailer Consequently, the retailer share of direct imports role in direct produce imports, the chain of interme- of table grapes, which have lower levels of perish- diaries has been reduced, while wholesalers are ability, has been growing. In 2018, major Russian re- turning into packing and logistical service providers tailers imported 19.4 percent,20 or 52,000 tons, of to- for retailers. In such an environment, preference has tal grape imports. Tander and X5 Retail Group were been given to suppliers that are able to meet retail leading table grape importers in Russia. According quality requirements in terms of commercial quality to expert estimates, in 2018  they jointly imported (caliber, shape, mechanical defects), packaging, and 16  percent of total Russian grape import volumes, predictable supply volumes. or roughly 43,000  tons. Tander imported 10  per- cent of the total Russian grape volume, or roughly 27,000  tons. X5  Retail Group imported six percent 2.2. Central Asian Fruit in Russian of the table grape volume, or 16,000  tons. Since Retail Markets: The Case grapes are also traditional Central Asian exports to of Table Grapes Russia, this market offers an interesting case study on the benefits and challenges of entering Russia’s Major retailers’ import shares vary across different formal retail chains. types of fresh produce, depending on the degree of perishability. The perishability characteristics of In 2018, Russia was the fourth-largest global im- different fruits may determine the degree of retailer porter of fresh table grapes (HS080610), after the involvement in their direct import. Retailer direct im- United States (585,000  tons), the Netherlands port logistics do not allow produce sorting upon de- (417,000  tons), and Germany (311,000  tons). In livery to a retailer’s distribution center, so the prod- 2018, Russia imported 295,679  tons of fresh ta- uct needs to arrive in perfect condition with minimal ble grapes, worth $319  million. Russian imports waste. If the number of defective items exceeds the recovered in 2017  from the sharp downturns of limit specified in the instructions when the goods 2014–2016, reaching a  five-year peak of nearly are received in a  retail chain’s distribution center, 363,000 tons. Grape market volume (including wine the delivery is not accepted. If products are declined grapes and raisins) was at a peak as well, reaching by surveyors at a retailer’s warehouse, it is illegal to 923,000  tons, which was reflected in price levels change the consignee and sell the products through that dropped to a record low in terms of U.S. dollars.   The share represents only direct imports by the largest retailers and is not representative of the share of table grapes sold via mod- 20 ern retail. 20 © 2020 The World Bank Group Russia 2030: New Trends in the Central Asian Traditional Market Domestic production has a limited effect on import Kyrgyz export statistics, in 2018 the Kyrgyz Republic dynamics, as the country remains dependent upon exported 2,351  tons of table grapes to Russia, up imports for grapes. from 1,783 tons in 2017. Based on statistics available from the Russian Interviews with Tajik exporters confirmed that Customs Committee, Central Asian countries had both grapes and plums are largely exported to 19.5  percent share of the Russian table grape Russia through unofficial channels and re-export- market in 2018—but that share is significantly un- ed as Kyrgyz or Kazakh products. Importers from derestimated due to re-exports via the Eurasian the Kyrgyz Republic or Russia directly negotiate with Economic Union (Table 2.2). According to Russian farmers with the support of consolidators who help import statistics, Central Asian countries exported organize the harvest and packing brigade and col- 57,755 tons of table grapes in 2018, worth $39.5 mil- lect the required volume. Most grapes and plums are lion. Uzbekistan is by far the largest supplier of table loaded onto a refrigerated truck without pre-cooling grapes to Russia; in 2018, it supplied 47,679  tons or proper sorting and grading, which affects their of grapes, valued at $38.2  million. However, the shelf life and eventually the product’s competitive- imports from Central Asia may be significantly un- ness, resulting in the low prices Tajik exporters re- derreported due to unrecorded re-exports via ceive for their product. the Eurasian Economic Union (EEU). For example, Tajikistan in 2018 exported 5,700 tons of fresh table Unofficial exports may enjoy simplified and cost- grapes to Kazakhstan and 10,700 tons to the Kyrgyz effective conditions compared to legitimate ex- Republic. Based on market information, a significant ports but prevent Central Asian exporters that share of this volume was re-exported to Russia, use these channels from entering formal retail making Tajikistan the second-largest Central Asian chains. One key benefit of unofficial exports is that exporter of table grapes to Russia. According to the change in the country of origin from Uzbekistan/ Table 2.2. Russian Imports of Table Grapes, Tons21 Exporters 2011 2012 2013 2014 2015 2016 2017 2018 World, total 399,998 379,318 358,822 328,279 252,240 193,160 362,866 295,679 Uzbekistan 64,343 46,794 446 338 13,440 24,534 38,422 47,932 Kazakhstan  -  - 1,026 1,095 19 8,137 843 9,653 Tajikistan 287 101 222 148 113 73 450 170 The Kyrgyz Republic 442 24  - -  183 72 632  - Central Asia total 65,072 46,919 1,248 1,581 13,755 32,816 40,347 57,755 Share of total imports, % 16.3 12.4 0.3 0.5 5.5 17.0 11.1 19.5 Source: International Trade Center (2018).   Colors are used to differentiate world and regional aggregates vs. national estimates. 21 © 2020 The World Bank Group 21 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Tajikistan to Kazakhstan/the Kyrgyz Republic saves imported directly from Central Asia. Tander imported up to eight percent in VAT payments. The VAT rate an additional 450  tons of grapes from Uzbekistan. in Kazakhstan and the Kyrgyz Republic is 12 percent, About 130  tons were imported by retailers from while the VAT in Russia is 20  percent. In addition, Tajikistan. truck drivers are not subject to international safety regulations when the fruit is exported, which may One of Turkey’s factors of success has been its shorten the transportation time by 50  percent be- ability to provide the quality, assortment, and cause drivers do not have to make stops on the way. packaging of produce in accordance with retailer Cash payments bypassing the bank system also al- needs and volumes. Mainstream suppliers depend low exporters to save on taxation, which increases on a  long-term, reliable supply of fresh produce. profitability. At the same time, gray export channels Establishing a  supply chain requires a  high-quality often remove the country of origin on the product, audit of the supplier’s premises and other adminis- which becomes a  major stumbling block for trace- trative procedures, resulting in expenditures on the ability and reduces opportunities for branding prod- retailer’s side. Therefore, retailers prefer to deal with ucts of higher quality, which Central Asian fruits are. the exporters that can supply commercial volumes In addition, existing gray channels prevent produc- of grapes for an extended period of time. Turkish ers/consolidators from adopting clear financial plan- supply starts in July and is at its maximum during ning and accounting practices, which reduces their the August–November period, with more limited credibility with financial organizations and prevents volumes available during the December–February them from obtaining credits for capital asset invest- period (Table 2.3). In contrast, close to 80  percent ments. Overall, exporting through the gray export of the total export volume from Uzbekistan and channels makes it impossible to enter Russia’s for- Kazakhstan arrives in Russia between August and mal retail markets, resulting in low-price premiums October. for the exporters. Another advantage of Turkish suppliers is that Turkey is Central Asia’s main grape export compet- they have maintained a  competitive advantage itor, with a  strong presence in the retail markets. through product differentiation, supplying both Turkey has been Russia’s main supplier of grapes, traditional and modern varieties that cater to dif- accounting for 40  percent (or 162,000  tons) of the ferent market segments. This is an important con- Russian grape market in 2018. Specifically, Turkey’s sideration for Central Asian grape exporters. While share of Russian retailer direct imports ranged from table grapes from Central Asia have been on the 35 percent to 65 percent of total grape imports per summer menus of Russian consumers for decades, retailer. India’s share was between 15  percent and changing taste preferences may be affecting this 35 percent. In comparison, Central Asian direct sup- trend. Central Asian natural and climatic condi- plies of grapes to modern retail were limited to three tions—including the region’s soil quality and sunny percent of the total export volume (or 1,490  tons). climate—are recognized as ideal for table grape pro- Siberian retailer Maria-Ra imported 1,100  tons of duction among the consumer audience. Most of the fresh table grapes from Uzbekistan in 2018, setting fruit is also produced with minimal use of chemicals, a record for Russian retailers in the volume of grapes resulting in high potential for increasing exports of 22 © 2020 The World Bank Group Russia 2030: New Trends in the Central Asian Traditional Market Table 2.3. Russian Monthly Imports of Table Grapes from Top Exporting Countries, Tons22 Exporters Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Total Turkey 8,522 27,263 37,246 44,578 30,604 12,667 1,730 102 162,712 Moldova 0 1,355 3,961 11,604 14,922 11,233 6,027 2,800 51,903 Uzbekistan 844 6,773 12,728 11,926 4,817 773 92 84 38,038 Kazakhstan 1,376 5,843 5,548 4,574 2,589 55 620 497 21,102 Others 10,382 4,639 4,408 6,959 4,907 7,723 7,345 9,346 55,709 Total 21,124 45,873 63,891 79,642 57,839 32,451 15,815 12,830 329,464 % of imports from 11 28 29 21 13 3 5 5 - Uzbekistan and Kazakhstan % of imports from 40 59 58 56 53 39 11 1 - Turkey Source: International Trade Center (2018). organic produce. All told, the reputation of Central kilo, while retail paid between 67 and 71 rubles/kilo. Asia’s crops works in favor of sales of table grapes. For Tajikistan grapes, the average invoice price was The variety of table grapes grown in Central Asia 85 rubles/kilo, while retail paid from 86 to 109 rubles/ is traditional for the region and includes Taifi (over kilo. Turkish grapes were sold at 62  rubles/kilo on 30  percent of Uzbek exports), Huseini, KishMish, average, while retail paid from 68 to 82 rubles/kilo. Pobeda, and Damskie Palchiki. This grape assort- It should be noted, however, that the comparison is ment is indigenously Central Asian and appreciated not fully accurate due to the ability of wholesalers by Russian consumers. At the same time, modern to understate invoice prices in order to lower VAT varieties, including Red Globe, Crimson Seedless, payments. The comparison in Table 2.4  illustrates and Thompson Seedless, often achieve higher prof- its for exporters and are demanded by retailers year- Table 2.4. Average Import Prices, Overall Imports round. These varieties are not produced in Central Versus Retail Imports Asia. This trend is expected to continue, which push- es seeded grape prices downward. Average Import Price, Average Import Price, Origin rubles/kilo Retail, rubles/kilo Turkey 62.3 53.1–82.0 Retail pays up to 30  percent above the average Uzbekistan 49.6 67.7–71.1 invoice price, benefiting Turkish suppliers. The av- Moldova 21.4 67.2 erage import price per kilo from different exporters India 173.2 95.2–140.1 paid by the retailers was up to 30 percent higher than Tajikistan 85.9 109 the average import price. For instance, the average 2018  price for Uzbekistan grapes was 49.6  rubles/ Source: Interviews with the stakeholders.   Colors are used to present the shares of monthly fruit imports from different exporters to the Russian markets to highlight their sea- 22 sonality patterns. Red colors represent higher shares, while yellow—lower shares. © 2020 The World Bank Group 23 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Box 2.2. Turkish Fruit Exports: Factors of Success Turkish fruit exports have grown in quantity and value in recent years, becoming competitive in Russian and European Union (EU) markets (Günes et al., 2017; Larson et al., 2014). Fruits of interest, like apricots and cherries, have seen considerable export growth since 2000. Turkey’s success in exporting fruits stems from a number of factors driven by both the private and public sectors. Research and development on fruit varieties and growing techniques have improved product quality, mak- ing fruit more attractive in foreign markets. The Turkish government funds research and development for fruit cultivation. With financing from the government, the Ministry of Food, Agriculture and Livestock and research universities have carried out studies on the adaptation of new species and high-quality fruit breeding. These studies have yielded new cultivars which fetch high prices in domestic and international markets, such as the sweet cherry 0900 Ziraat cultivar. The government and research institutes spread knowledge of new fruit variet- ies and growing techniques through promotional studies and demonstrations (Günes et al., 2017). Advanced growing techniques, especially greenhouse cultivation, have contributed to increased fruit pro- duction in Turkey. In the country’s southern regions, apricots, plums, and bananas can grow in greenhouses. In 2015, Turkey produced 728 tons of apricots and 110 tons of plums in greenhouses. The government reimburses 50 percent of greenhouse insurance premiums, which incentivizes farmers to invest in greenhouse production (Günes et al., 2017). The Turkish government incentivizes high-quality fruit production by subsidizing the use of government-cer- tified saplings. The Ministry of Food, Agriculture and Livestock supports registered farmers who plant new or- chards with standard dwarf fruit saplings, paying 1,500 Turkish lira (TL)/ha. To incentivize planting of high-quality fruit trees, farmers who buy government-certified dwarf saplings instead can receive 4,000 TL/ha. If farmers with existing orchards want to upgrade their orchards by grafting, they can receive 2,500 TL/ha. In total, the govern- ment allocated 28 million TL ($8 million) in 2017 for certified fruit sapling support (USDA Foreign Agricultural Service, 2017). Günes et al. recorded different levels of financial support for the 2017 season: between €72 and €103 in cash (about 460–660 TL at the 2019 exchange rate) for farmers starting new orchards using dwarf root- stocks. Regardless of the rate, subsidizing certified saplings spurs Turkey’s fruit production by enabling denser orchard growth. Government support also improves export potential by reducing the transport of soil-borne diseases and fostering high-quality fruit production. Low-interest credit from public sources, as well as increased private lending, has improved access to inputs and the adoption of new technologies. The Ministry of Food, Agriculture and Livestock administers long-term, low-interest loans directly and through Agricultural Credit Cooperatives (ACCs) (Özdemir, 2005); these loans are discounted by 25 percent to 100 percent (Kusek et al., 2017). Ziraat Bank is another traditional public lender. These institutions give low-interest credit for “greenhouse cultivation, use of certified nursery plant[s], certi- fied plant production, organic agriculture, good agricultural practices, etc.” The Rural Development Investment Support Program provides grants for establishing processing and packing facilities. Other supports include an insurance program for orchards and a 50 percent grant for companies establishing new plant nursery facilities for fruit tree saplings. Besides subsidized public sector credit, more commercial banks are providing agricultural lending. The share of private sector involvement in agricultural lending rose from 28 percent in 2010 to 37 per- cent in 2014.23 Eighty-eight percent of producer loan applications went toward input purchases. (Box continued next page)   Commercial banks that have expanded their agricultural lending include Sekerbank, Denizbank, Anadolu Bank, Finansbank, 23 Vakifbank, Halkbank, Is Bank, Garanti Bank, Akbank, Yapi Kredi, and Turkey Economy Bank. 24 © 2020 The World Bank Group Russia 2030: New Trends in the Central Asian Traditional Market (Box 2.2. continued) Cold storage space and post-harvest processing capacity expanded, in part due to the Ministry of Economy’s financial support. The Turkish government allocated €453 million to develop 488,628 square meters of cold storage between 2001 and 2014. Its investments contributed to an expansion of cold storage capacity in Turkey, which grew from 17 facilities in 1970 to 1,861 facilities (encompassing 7 million cubic meters of space) in 2015. On the processing side, the government supported 83 packaging houses at a cost of €47.2 million between 2001 and 2014. Gul et al. note that the existing food processing infrastructure has contributed to growth in cherry exports (Gul et al., 2016). Improved fruit storage and processing has extended product shelf life, generated higher market prices, and decreased post-harvest food waste—all of which incentivize fruit production. the difficulty that legal importers (including retailers) Central Asian producers. However, to be successful face as they compete against other market players in the formal retail chains, Central Asian exporters with the ability to underpay taxes and fees. need to address several existing constraints. Central Asian suppliers are mostly detached from 2.3. Opportunities and Constraints modern value chains in Russia, as they struggle to for Central Asian Fruit Exporters deliver the quality, safety, and consistent fruit sup- in Russian Modern Retail ply expected by modern retail chains. Interviews Markets conducted with Russian retailers and Central Asian exporters during the study suggested that Central Several factors point to the strong potential that Asian suppliers often lack the capacity to ensure Central Asian fruit exporters have, to take advan- a consistent, high-quality product that complies with tage of Russia’s growing demand for fruit. Central the regulatory requirements of modern retail chains. Asian countries have a comparative advantage in the Several factors contributing to this were identified, production of export horticultural commodities due including: to favorable climatic conditions and low production costs. Central Asian republics—namely Uzbekistan, 99 Informality and non-transparency of Central Tajikistan, and the Kyrgyz Republic—have unique Asian fruit supply chains. Existing fruit sup- soils that are ideal for orcharding. More fully real- ply chains in Central Asia are to a large extent izing this production potential would allow Central based on personal relationships, which in many Asian exporters to satisfy an anticipated growth in cases results in the acceptance of low-quality Russian demand for fruits as its consumers become produce at pack houses and its further export wealthier and more nutrition-sensitive. Long-term to Russia. During the interviews several retail- connections with Russian buyers, including cultural ers pointed out quality issues in the product and communication connections, make it easier delivered to their distribution centers, which for Central Asian exporters to operate in Russia’s meant that the quality of the product prior to market. A  growing interest in healthy living among shipment was questionable. Such unsuccessful final consumers and demand for organics create deliveries to retail ruin the region’s reputation. additional opportunities in modern retail chains for In addition, the local modern retail sector in © 2020 The World Bank Group 25 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Central Asia is in its infancy. The market is still the warehouse to exceed five hours (the maxi- dominated by bazaars and traditional stores. mum allowed period in Chile is three hours, for As a result, local producers lack experience in example). There is also limited understanding of supplying Central Asian as well as Russian re- the importance of cold-chain and its influence tail chains. on produce durability. With monitored storage temperature and relative humidity, for instance, 99 Fragmented production and long value table grapes can be stored for seven to eight chains. A large portion of the produce grown months up to the spring, which allows Central in Central Asia is highly fragmented and origi- Asian grape suppliers to extend supply win- nates in dekhan plots and smallholder farms, dows with Russian retailers and promises higher which results in multiple middlemen involved in margins during midseason periods. domestic and export sales. Diverse sources of supply prevent shipment traceability. Growers 99 Short supply window. Formal markets require also don’t receive feedback on necessary a  long-run period of supply in consistent vol- changes in production and post-harvest prac- umes. The current Central Asian produce sup- tices in order to reduce future quality claims. ply window is shorter than that of successful Such claims provide practical observations on competing countries, including Turkey. Small- the influence of harvest and post-harvest pro- scale production, as well as multi-variety or- cesses on quality issues for each delivery of chards for each fruit category, create obstacles fruit: berry preservation capacity (firmness, skin for consistent, solid supplies, which formal mar- damages, rot); physiologic quality (mineral bal- kets demand. For example, produce for each ance, ripeness); and commercial quality (size, retail delivery needs to be of the same batch coloring, taste, shape). and botanical sort (pomology or ampelograph- ic) packed in the same container type. 99 Lack of knowledge about and compliance with retail requirements. Modern Russian retailers 99 Lack of branding. Central Asian fruits are of- make food safety and phytosanitary standards ten sold as commodities without any branding. their priorities in order to address risks to pub- Moreover, the fruit’s country of origin is often lic health and protect their reputation. To meet lost due to the multiple middlemen involved retail requirements, exporters need to be up-to- in Central Asian fruit distribution, making it dif- date on Russian legislation related to pesticides, ficult to promote produce under a  particular residue levels, and food safety. Central Asian country flag. General recognition of Central producers often lack knowledge of acceptable Asian produce is low among final consumers. production and handling requirements, such as optimal fruit maturity measurement, harvesting 99 Limited human capacity. Based on interviews within minimal Brix levels, and optimum tem- with Russian retailers, the human factor is perature and humidity conditions for fruit stor- among the issues that affect collaboration with age. For example, it is not uncommon for the Central Asian exporters. Education and work- period between harvesting and placement in force training are essential with the introduction 26 © 2020 The World Bank Group Russia 2030: New Trends in the Central Asian Traditional Market of modern technologies. Personnel have mul- administrative knowledge is lacking. A key fac- tigenerational experience in growing and har- tor in successfully supplying modern retailers— vesting fruits, which sometimes hinders the apart from fruit quality and price—is transpar- implementation of new regulations. In addition, ency and accurate export documents. Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets 3. Competitiveness of Central data collection for at least four farms, analysis of cost Asian Horticulture Exports structure, and the selection of the best performing farms. The regions with the highest production vol- This section presents the results of the analysis ume were selected for the collection of production of Central Asian agri-food export competitiveness cost information for each of the products. used to identify value chains in which Central Asian countries have the potential to translate their com- parative advantage in production into a competitive 3.1. Country Findings: advantage in increasing and diversifying exports. Kyrgyz Republic The section also deep dives into cherries, fresh apri- cots, fresh plums and table grape value chains in the Kyrgyz Republic, Tajikistan and Uzbekistan to pres- Summary of Findings: ent key constraints for realizing their horticulture export potential in the Chinese horticulture import 99 Based on the results of the export competi- markets and Russian higher-end markets (i.e., super- tiveness analysis and interviews with stake- market chains). holders, the products with the most export potential from the Kyrgyz Republic to China Revealed Comparative Advantage (RCA) calcula- include cherries, walnuts, milk, fresh apricots, tions were performed for an extended list of agri- and plums (fresh and dried). food products for which China will likely exhibit strong import growth until 2030. These commodi- 99 According to ITC (2018), the export potential ties  included wheat, milk, beef, pork, lamb, sugar, 24 of fresh apricots, cherries and plums was es- soybean (seed, meal, and oil), sunflower (seed and timated at $17.1 million annually, however only oil), rapeseed (seed), and several horticulture prod- 21 percent of this potential had been realized ucts, including grapes, apricots (fresh and dry), as of 2018. plums (fresh and dry), cherries, walnuts (with shell) and watermelons. 99 Kyrgyz cherries are mainly exported to Russia (74.9 percent) and Kazakhstan (13.3 percent). Domestic Resource Cost (DRC) calculations were However, since 2015, exports to China have performed for a narrower list of the product value been growing and accounted for 11.3 percent. chains in which Central Asian countries have the potential to become competitive or increase their 99 In China, Kyrgyz cherries receive prices that competitiveness in the Chinese markets. The choice are less than those offered to the other main of such value chains was validated through expert suppliers of cherries, but these prices are still opinion, consultations with stakeholders and RCA re- higher than those in Russia and Kazakhstan, sults. DRC calculations consist of several steps: region even after taking into account transportation selection, identification of farms, cost of production costs.   In order of growth’ strength 24 28 © 2020 The World Bank Group Competitiveness of Central Asian Horticulture Exports 99 To increase its presence in the Chinese import capacities at the government level; weak ex- markets and Russian modern retail, a number port promotion capacity; poor agro-logistics of constraints along the selected horticulture infrastructure; cumbersome administrative value chains in the Kyrgyz Republic need to procedures associated with exports; limited be reduced or eliminated through sustained investment in research and development in and comprehensive policy support, including: the horticulture sector; and low internet pen- etration, resulting in the inability of exporters • Production/post-harvest/marketing level con- to take advantage of rapidly growing e-com- straints: limited production and aggregation merce opportunities in global fruit markets. volumes due to the smallholder nature of fruit production; low quality and/or insufficient Kyrgyz fresh apricots, walnuts, plums (fresh and quantity of inputs (irrigation, improved seeds, dried), cherries and milk were identified as the fertilizer and finance); high number of inter- products with high competitive potential to en- mediaries in the value chain, resulting in sig- ter the Chinese markets, based on the results of nificant value loss for fruit producers; under- the RCA and DRC calculations and expert opinion developed cold chain and storage systems, (Table 3.1; see annexes 6 and 7 for more detailed including on-farm; high levels of informality results). RCA results point to fresh apricots, walnuts and non-transparency along the value chain; and fresh plums as the products with the highest and limited knowledge among fruit producers comparative advantage. The Kyrgyz Republic is al- of production and post-harvest methods, on- ready one of the largest walnut exporting countries farm storage techniques, use of new technol- in the world. Walnuts are exported to several coun- ogy, fertilizers and agro-chemicals, standards, tries, including China. In the interviews, national and financial management. experts conveyed that the Kyrgyz Republic has the potential to increase walnuts exports, including to • Technical barriers/institutional constraints: China, under the condition that walnut plantations lack of adequate food safety and quality are expanded, and yields are improved. Apricots Table 3.1. Export Competitiveness Assessment, the Kyrgyz Republic Net Exports, USD RCA Product (2015–2017 average) (2013–2017 average) DRC (2018) Apricots (fresh) 2,605,524 78.7 0.77 Walnuts (with shell) 7,331,118 29.0 0.56 Plums (fresh) 637,057 13.4 0.72 Cherries 505,818 7.5 0.17 Plums (dried) 210,043 3.2 0.29 Milk 2,930,699 1.4 0.43 Source: UN COMTRADE (2018), World Bank calculations. © 2020 The World Bank Group 29 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets are one of the most popular fruits for cultivation and that currently exports of prunes from the Kyrgyz consumption in the Kyrgyz Republic. According to Republic are not as competitive as the other prod- different estimates, there are over 15,000  hectares ucts that were analyzed. Fresh cherries possessed of apricot plots/gardens in the country. Historically, the highest comparative advantage in accordance the Kyrgyz Republic has been a strong net exporter with the DRC results—the DRC coefficient is well be- of fresh apricots with Russia and Kazakhstan serv- low 1.0, at 0.17. Cherry yields have been increasing in ing as its major importers. However, the economic the Kyrgyz Republic since 2007, but still lag behind crisis in Russia and Kazakhstan in 2014  had a  sig- those of the major world exporters. This indicates nificant negative impact on Kyrgyz apricot exports. a potential for further increasing cherry production, As a  result, in 2017, apricot exports accounted for and exports, if yields are improved, particularly given 2,000  tons, down from 14,000  tons in 2013. Plums competitive production costs. are less popular stone fruits in the Kyrgyz Republic. Nevertheless, between 2013  and 2017, the country ITC export potential estimates25 also identify fresh exported an average of 4,000 tons of plums. Prunes apricots, cherries and plums as fresh fruits that have a  competitive advantage from the production have the highest export potential in the Kyrgyz point of view, as the costs of production are low in Republic (Figure 3.1). While the export potential of the Kyrgyz Republic. However, RCA results indicate these fruits was estimated at $17.1 million annually, only 21 percent of this has been realized as of 2018. In addition, the export potential of walnuts (shelled Figure 3.1. Export Potential of Kyrgyz Fresh Fruits and in shell) is estimated at $18.1 million and is also mln USD largely unrealized. While only 13.5  percent of the . export potential of Kyrgyz dried apricots and plums . has been met, ITC estimates that the total export potential for these fruits is relatively low—$2.6 mil- lion for dried apricots and $1.9  million for dried prunes. . . . . Reaching this potential would require not only in- . . creasing export volumes, but also diversifying ex- . . port destinations so that higher values can be ob- tained for Kyrgyz fresh fruits. Currently, the export Apricots, Cherries, Plums Apples, Peaches fresh fresh and sloes, fresh fresh and nectarines geography for apricots, plums and cherries remains limited as these fruits are largely destined to Russia Current exports Export potential and Kazakhstan (Figure 3.2). On average, the Kyrgyz Source: International Trade Center (2018). Republic exports 2.6 million tons of fresh apricots an- nually, mostly to Kazakhstan and Russia. According 25   Export potential is estimated based on a structural model that identifies potential export values from supply capacities in the export- ing country, demand conditions in the existing and new markets, and bilateral linkages between each two pairs of analyzed countries. 30 © 2020 The World Bank Group Competitiveness of Central Asian Horticulture Exports Figure 3.2. Kyrgyz Export Geography for Apricots, Cherries and Plums, 201826 Russian Federation Kazakhstan Mongolia China Share of Kyrgyz Republic’s exports, % N.A. Source: International Trade Center (2018). IBRD 44976 | APRIL 2020 to market sources, large volumes of Kyrgyz apricots was officially admitted to the EEU. According to are unofficially exported to Tajikistan, where they 2018 data, the share of exports to Russia increased are processed into dried fruit, which are then re-ex- to 73 percent and keeps growing; the share of ex- ported back to the Kyrgyz Republic. Interestingly, af- ports to Kazakhstan decreased to 12.5 percent and ter the Kyrgyz Republic joined the EEU the structure keeps going down. of its export geography within the Union changed significantly. Before entering the EEU, in 2014, many Kyrgyz cherries are mainly exported to Russia Kyrgyz entrepreneurs preferred to do customs (74.9 percent) and Kazakhstan (13.3 percent) how- clearance at the border with Kazakhstan, and then ever, since 2015, exports to China have been grow- transfer exported products further to Russia. It was ing and accounted for 11.3  percent (2018  est.). simpler for them in terms of procedures and close Rising exports of Kyrgyz cherries to China are one proximity and also provided additional savings, of the outcomes of the growing trade cooperation since VAT rates in Kazakhstan were lower than in between the two countries (Box 3.1) and offers an Russia. Of the selected fruit exports, 93  percent insightful case study on the specifics of entering went through Kazakhstan. Only limited exports Chinese markets. In May 2015, China and the Kyrgyz were shipped directly to Russia in 2014. However, Republic signed an export protocol for cherry ex- the situation changed after the Kyrgyz Republic ports that aimed to ensure that Kyrgyz cherry exports   The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of the World Bank 26 Group, any judgement on the legal status of any territory, or any endorsement or acceptance of such boundaries. © 2020 The World Bank Group 31 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Box 3.1. Trade Cooperation Between the Kyrgyz Republic and China: Recent Developments The Kyrgyz Republic places importance on developing economic ties with China, including agri-food trade. Several national strategic documents,27 recently adopted in the Kyrgyz Republic, mention China mainly in the context of general socio-economic cooperation and the development of transit potential. However, the PKR Export Development Program for 2019–2022 sets goals to promote Kyrgyz dairy and processed fruits and veg- etables for the Chinese market. The Kyrgyz Republic is a party to the Agreement on Trade and Economic Cooperation between the EEU and China that was signed on May 17, 2018, because it is a member of the EEU. At present, the Agreement is be- ing ratified by all signatories. The Kyrgyz Republic has ratified the Agreement (the Law of the Kyrgyz Republic No. 26 dated February 19, 2019). The Agreement is non-preferential and provides for expanded cooperation in the area of non-tariff barriers, customs administration and trade facilitation, and has elements of regulatory convergence in the transport sector, industrial cooperation and investments. The Agreement references agriculture among several other sectors, where the parties have agreed to develop cooperation, namely in infrastructure, research, technology exchange, development of transport corridors, environment and financial regulation. In June 2018, President Sooronbay Jeenbekov signed a Declaration of Strategic Partnership with China, which among other things includes provisions regarding agriculture: 99 Both sides agreed to strengthen cooperation in the areas of inspection, quarantine and monitoring used during the import/export of livestock and produce; livestock and horticultural health through better disease prevention and treatment methods. 99 China welcomes the import of “high-quality, ecologically clean” produce from the Kyrgyz Republic and will work towards granting the Kyrgyz Republic the requisite allowances. 99 Both sides will work to spur investment in the agricultural sector. 99 Both sides also signed a protocol on the inspection, quarantine, and phytosanitary processes regarding the export of Kyrgyz cherries and melons into China. would adhere to Chinese phytosanitary require- (SPS) requirements, creating further potential to in- ments. After a test batch of 2.7 tons was shipped to crease exports of cherries and other horticulture China in 2015, exports have been consistently grow- products. ing. By July 2018, 14 cherry producers, most of which are located in the Batken region, had concluded According to the interviews conducted with Kyrgyz deals with Chinese partners for the export of cher- cherry exporters, Chinese buyers find orchards ries into China. During 2018, the Kyrgyz Republic in the Kyrgyz Republic themselves, check them exported a  total of 68.7  tons of cherries valued at for compliance with their quality requirements, $217,800. In addition, in the last three years, China and sign direct contracts with local farmers. The and the Kyrgyz Republic have been strengthening main suppliers of cherries to China are large or- their cooperation on sanitary and phytosanitary chards which usually sell the cherries they produce   National Strategy for Development of the Kyrgyz Republic for 2018–2040; Program for Development of the Kyrgyz Republic for 27 2018–2020 “Unity. Trust. Creation;” Program for Export Development of the Kyrgyz Republic for 2019–2022. 32 © 2020 The World Bank Group Competitiveness of Central Asian Horticulture Exports Table 3.2. Cherry Price Comparison with the Chinese counterparts. The interviewees in the Chinese Markets suggested that, as a  rule, Chinese importers stop working with enterprises that do not fulfill contract Exporter Unit price (USD/kg), 2018 requirements or falsify supplied products. Canada 6.82 United States 6.04 Turkey 5.33 Chinese markets offer greater demand for Kyrgyz Kyrgyz Republic 3.17 fruit exporters, as well as better prices than those Price received by Kyrgyz exporters 1.49 offered in Kyrgyz traditional markets—Kazakhstan in Russia and Russia. In China, Kyrgyz cherries receive prices Price received by Kyrgyz exporters 0.71 that are less than those offered to other main sup- in Kazakhstan pliers of cherries, but these prices are still higher Source: International Trade Center (2018). than those in Russia and Kazakhstan, even after tak- ing into account transportation costs. According to themselves. Only cherries produced in the orchards ITC estimates, in 2018, the price for one kilogram of that passed the inspection by the Chinese coun- Kyrgyz cherries in the Chinese markets was $3.17. For terparts are allowed for exports. On the Chinese comparison, other major suppliers in the same sea- side, companies that buy cherries from the Kyrgyz son, such as Canada, the United States and Turkey, Republic and import to China are usually small or received $6.82 per kg, $6.04 per kg and $5.33 per medium-sized enterprises with a  small local mar- kg, respectively. Such a  difference is presumably ket share not exceeding one percent. According attributable to lack of consumer knowledge about to Chinese legislation, imports can be done only Kyrgyz cherries, quality of post-harvest handling and by a Chinese enterprise. For this reason, local pro- packaging materials. ducers from the Kyrgyz Republic are not involved in customs clearance or the transportation of goods Apart from the lower value that Kyrgyz exporters exported to China. As a  rule, exported goods are receive for their fruit in Kazakhstan and Russia, procured directly from farms or storage areas or are excessive dependence on exports to these two delivered to the border. Most cherries are transport- countries makes Kyrgyz exports sensitive to any ed from Bishkek to China via air freight. The major macroeconomic or political shocks that may affect destination cities include Urumqi (on China’s west- these countries. For example, the Kyrgyz Republic is ern border) and Shanghai. Nonetheless, on June still experiencing the spillover effect of the Russian 14, 2019, the first ground shipment of cherries from economic crisis that caused currency devaluation in Bishkek arrived in Urumqi. An increase in the use of both Russia and Kazakhstan in 2014. As a result, the ground transportation is a result of the One Belt One value of fruit exports of interest decreased by 76 per- Road Initiative. Apart from the phytosanitary require- cent and the volume of such exports decreased by ments, Chinese importers put a strong emphasis on 59 percent in 2015, as compared to 2014. The level appropriate packaging and calibration of fruits. It of exports was still below the 2014  level in 2018: is crucial for exporters to ensure that there are no 37 percent less in value and 62 percent less in vol- mistakes and all requirements are fulfilled exactly ume. In addition, the increased frequency of import in accordance with all points of the signed contract bans and more stringent border checks on Kyrgyz © 2020 The World Bank Group 33 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets produce imposed by Kazakhstan in recent years diversify the varieties they grow. As a result, it is dif- have also had negative implications for Kyrgyz fruit ficult for packing houses to source large quantities exports. In May 2018, Kazakhstan announced that of cherries with a uniform variety and quality. Lack all agricultural products (including the target fruits) of appropriate on-farm storage techniques and fa- coming from the Kyrgyz Republic would undergo cilities to safeguard production further exacerbate a  more thorough check at the border. This caused the problem. A pre-cooling treatment is not normal- lengthy delays: the number of trucks checked per ly applied to the sourced cherries, and the grading day decreased from 40 to 4 causing long multi-kilo- process is usually done by hand. Most of the large meter lines and large volumes of transported prod- buyers surveyed in Russia complained that avail- ucts that spoiled. able production volumes were not sufficient, and they preferred dealing with producers from other Interviews with country experts and a  literature countries. Similarly, as noted above, Chinese im- review point to a  set of constraints that hinder porters only deal with large cherry producers in the the Kyrgyz Republic’s ability to realize its fruit ex- Kyrgyz Republic. Increasing levels of agricultural port potential to China and Russian higher-end cooperation can help raise export volumes and im- markets. Production and marketing problems tra- prove the competitiveness of Kyrgyz fresh fruits in ditionally associated with small-scale horticulture international markets. production serve as a  set of important constraints that prevent the Kyrgyz Republic from increasing its Kyrgyz yields for analyzed fruits are very low exports to higher value markets. These are further if compared to other major world producers exacerbated by limitations in institutional capacity (Figure 3.3). For example, average yield for apricots and existing infrastructure gaps. is 3.1 tons/ha, if compared to 12.3 tons/ha in France. Similar situation is also observed in plums and cher- The production of apricots, plums and cherries in ries. Increasing yields could boost production by up the Kyrgyz Republic is dominated by smallholder to 70 percent for fresh apricots, 64 percent for plums farmers, who have limited access to stable finan- and 39 percent for cherries. cial resources. Most of the fruit producers in the Kyrgyz Republic are small scale, resulting in a lim- In addition, the production of apricots, cherries ited capacity to increase export volumes. For ex- and plums is concentrated in one or two regions ample, there are more than 400,000  small farms, of the country. This increases the risks of produc- engaged in apricot production, with an average tion disruptions due to weather changes and/or size of less than two hectares. Small-scale produc- pest invasion; both are expected to intensify with tion translates into high levels of informality and low climate change. For example, 75  percent of all commercialization of producers, who have a limited Kyrgyz apricots are produced in three southern re- ability to reach the output volumes of consistent gions—Batken (55  percent), Osh (12  percent) and quality that export markets demand. As an exam- Jalal-Abad (8  percent). Close to 90  percent of all ple, while production volumes are in general con- plum production takes place in the Jalal-Abad re- strained by the number of trees available to small- gion. The main type/variety of plum produced is holders, to extend shelf life, cherry farmers typically called Hungarian—according to some research 34 © 2020 The World Bank Group Competitiveness of Central Asian Horticulture Exports reports, up to 90  percent of produced plums are Figure 3.3. Comparison of Kyrgyz Stone Fruit Yields to Main Comparator Countries, Tons/Ha, of this type/variety. Overreliance on only a few fruit 2017 varieties also contributes to the high seasonality of fruit exports, and the resulting low profit margins for France . producers. Italy . Apricots Uzbekistan . The fresh fruit supply chain in the Kyrgyz Republic Spain . is characterized by many intermediaries resulting Turkey . Kyrgyzstan . in a significant value loss for producers. As 55 per- cent to 80 percent of fruits are produced by house- Chile holds in small volumes, they are sold to village- Italy . level collectors who organize further transportation Turkey . Plums and distribution. At the producer level, fruits are Spain . usually sold in bulk without proper packaging or la- Uzbekistan . beling, resulting in low procurement prices (Pfeiffer Kyrgyzstan . et al., 2016). The distributors then sell the fruit to wholesalers at bazaars, retailers or exporters (JICA, USA . Cherries 2013). Multiple distributors exist with different roles Turkey . within the distribution flow. As a  result, different Kyrgyzstan . fruits must pass through up to seven different mar- MT/ha ket players on the way from a  primary producer/ farmer to the final consumer. Every market player Source: United Nations Food and Agricultural Organization (2017). marks up prices from 20 percent to 100 percent of the product’s procurement price; the largest price increase usually occurs during the final stages of largely take place based on a weight basis (JICA, a value chain. 2013). On the inside, the markets are cramped and unsanitary. The development of modern distribu- The limited development of infrastructure for tion infrastructure with fair and transparent trans- fruit distribution in the country leads to high lev- actions and well-established quality and safety els of informality along the value chain—an ap- standards is imperative for enabling the Kyrgyz parent roadblock for entering China and Russian Republic to enter markets that have more stringent higher-end markets that require full transparency quality requirements. along the value chain. The largest wholesale mar- ket for selling fruits in the Kyrgyz Republic, Dyikan Underdeveloped cold chain and storage systems Bazar, functions as a  key distribution center for result in high wastage of fruit and high season- fruits in the country. The transactions that take ality of exports (Figure 3.4). Lack of post-harvest place in the market are largely informal—no trans- treatment equipment and storage capacities, es- action data is recorded, quality/grade standards pecially freezers and refrigerators, result in up to are not officially established, and the transactions 25 percent of a harvest being wasted. Often, small © 2020 The World Bank Group 35 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Figure 3.4. A Quarter of All Apricots in the Kyrgyz to extreme temperatures, landslides, and mudslides. Republic is Wasted The country’s railway network is split geographically into north and south sections. For historical reasons, technical standards and track gauges are based on the Russian system. These are compatible with % the rail systems in Kazakhstan, Uzbekistan, and the % Russian Federation but not with the railway network in neighboring China. Effective transshipment fa- % cilities are therefore needed to facilitate the grow- ing international traffic of goods to and from China % through the Kyrgyz Republic. International and re- % gional airports are limited to major population cen- % ters and serve as hubs for air connectivity through smaller domestic companies serving secondary towns and remote areas of the country. Fallen fruits/abandoned fruits Consumed by households Low production volumes, fulfillment of packaging Sold fresh in the internal market requirements and finding partners in China were Exported fresh the main difficulties associated with exporting to Sold dried apricot in the local market China as mentioned by exporters during inter- Exported dried apricot views. Some exporters complained that there was a lack of appropriate high-quality packaging material Source: M-Vector, 2014. for a  reasonable price in the market; current avail- able packaging options increase the cost price of fruit producers look for the sales channel after the supplied products (for example, the cost of one unit fruits are already harvested. Any delays in selling of corrugated packaging in the local market was $5, their fruits results in an increased spoilage rate— according to respondents). up to 40 percent (JICA, 2014). The inability to store a  harvest for an extended period of time at either Fruit exporters to Russia pointed to cumbersome the producer or distributor level results in the high administrative procedures associated with exports seasonality of Kyrgyz fruit exports. as well as difficulties with transportation and lo- gistics as key constraints encountered during ex- Furthermore, poor transportation infrastructure ports. Of the respondents that exported to Russia, contributes to the quality deterioration of fruit. 41.2  percent complained of difficulties with paper- Some 33 percent of country roads are in poor con- work required for the export of fresh fruits from the dition and need rehabilitation or reconstruction Kyrgyz Republic to Russia; entrepreneurs from the (Government of the Kyrgyz Republic, 2012). The most remote areas particularly complained of the remaining 67  percent are in sustainable condition, need to go to oblast and rayon centers to receive requiring only routine or periodic maintenance due paperwork, which usually took them 2–3 days. This 36 © 2020 The World Bank Group Competitiveness of Central Asian Horticulture Exports observation was also confirmed by a  recent SLE instability of fruit supply make it currently nearly study (2016) that highlighted the cumbersome pro- impossible to provide the required volumes of cess of obtaining the necessary paperwork to export the specified quality within the specified time plums from the Jalal-Abad region to the EEU. Some frame; 17.6  percent of respondents mentioned difficulties with transportation and logistics, primarily related 99 The length of time needed to review a  com- to delays and bureaucratic procedures at the bor- mercial proposal/supply application. As a rule, der with Kazakhstan. One of the main conditions of a  retail network reviews commercial propos- the EEU was the creation of a single customs to sim- als only once per year, and it signs an annual plify customs clearance and promote export growth. contract; However, this innovation did not bring significant changes to perishable goods with a short shelf life. 99 Very strict contract requirements that incur In order to speed up the customs process, drivers large fines for noncompliance; still had to pay customs brokers; the cost of services was from KGS 60,000 to KGS 100,000 per truck. The 99 Deferment of payments from 30  to 180  days. interviews highlighted that entrepreneurs that did Since local enterprises are short on funds not use a customs broker and tried to clear customs (working capital), they are more eager to make and register by themselves, usually encountered quick sales ensuring faster turnover of avail- various problems and delays at the border. able funds. Because of the large number of requirements by During the interviews, exporters identified sev- the Russian retail networks, and the limited ca- eral areas where government assistance would pacity of local producers in the Kyrgyz Republic be useful in realizing their fruit export potential to adhere to them, most producers are not able to (Figure 3.5). As an example, it was noted that as- supply their products directly to retail networks. sistance with pre-export financing would be help- According to the findings of the interviews, specific ful to increase the volume of products supplied to constraints that limit Kyrgyz fruit exports directly to export markets. The enterprises also cited the need the retail chains include: for access to funding for hazard analysis and criti- cal control points (HACCP) certification, which re- 99 Limited number of large enterprises in the quires building modernization and procurement of Kyrgyz Republic capable of producing the nec- new equipment. Additional assistance would also essary commodities in the volumes that are re- be required to promote Kyrgyz enterprises in foreign quired by the retail networks; markets: respondents mentioned that support was needed for participation in trade fairs and forums, 99 Limited capacity of most enterprises to fulfil which could help to establish relations with buyers in all the requirements posed by the retail net- foreign markets. Some businessmen mentioned that works due to limited management capabili- they needed assistance with receiving necessary ties, a shortage of financial resources, and lack certificates and solving problems with transportation of value chain transparency; remoteness and and customs delays. © 2020 The World Bank Group 37 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Figure 3.5. Areas for Export-Related Public for dry apricots is estimated at $25.1 million and Support as Identified by Kyrgyz Fruit Exporters for prunes at $5.2 million. As of 2018, this po- tential has been realized by only 29  percent, Pre-export financing . on average. Assistance with obtaining quality certificates . Participation in exhibitions, 99 To increase its presence in the Chinese import trade fairs . markets and Russian modern retail, a number State support . of constraints along the selected horticulture value chains in Tajikistan need to be reduced Workshops and training . or eliminated through sustained and compre- Market research . hensive policy support, including: Percent • Production/post-harvest/marketing level con- straints: limited production and aggregation Source: Interviews with the stakeholders (2019). volumes due to the smallholder nature of fruit production; low quality and/or insufficient quantity of inputs (irrigation, improved seeds, 3.2. Country Findings: Tajikistan fertilizer and finance); significant gap in skills and capacity along the entire value chain; and underdeveloped cold chain and storage sys- Summary of Findings: tems, including on-farm. 99 Based on RCA results and interviews with • Technical barriers/institutional constraints: in- stakeholders, the products with the most ex- accessible and costly certification and quality port potential from Tajikistan to China include assurance services; poor agro-logistics; cum- apricots (dry and fresh), plums (fresh) and bersome administrative procedures associated grapes (fresh). with exports; lack of export promotion capacity; limited investment in research and develop- 99 According to ITC (2018), the export potential ment in the horticulture sector; and low internet of fresh apricots, cherries and plums was es- penetration, resulting in the inability of export- timated at $2.3 million annually. However, this ers to take advantage of rapidly growing e-com- remains largely unrealized. merce opportunities in global fruit markets. 99 Dry fruits, including apricots and plums, offer Tajik exports that exhibit high export competitive- the most promising export opportunity for Tajik ness based on the RCA analysis28  include apricots exporters. For example, the export potential (dry and fresh), plums (fresh) and grapes (fresh) 28   DRC analyses were not conducted for Tajikistan. 38 © 2020 The World Bank Group Competitiveness of Central Asian Horticulture Exports (Table 3.3; see annex 6 for more detailed results). Table 3.3. Export Competitiveness Assessment, Tajikistan Overall, stone fruits, such as apricots, plums and cher- ries, represent 92 percent of all fruit trees in the coun- Net Exports, USD RCA try (Fintrac Inc, 2014). Apricots are the main fruit in the Product (2015–2017 average) (2012–2016 average) country and are widespread all over Tajikistan. The Apricots (dry) 6,086,562 287.3 average productivity is 15-20  tons/ha among small Apricots (fresh) 833,364 35.5 farmers. However, with improved agriculture practices Plums (fresh) 889,636 19.5 and transition to intensive gardens, the potential to in- Grapes 2,655,497 5.7 crease yields is very high. Plum and cherry production Source: UN COMTRADE (2018), World Bank’s calculations. in Tajikistan is not as diverse, but it is significant in that orchard farmers generally cultivate apricots, cherries and plums in conjunction with apricots (Fintrac Inc, Figure 3.6. Export Potential of Tajik Fresh 2014). Grape production has also been increasing— and Dried Fruits between 1992 and 2017, it grew by 129 percent from mln USD 100,000 tons to 228,000 tons, primarily due to the re- . habilitation projects of large vineyards in the Khatlon region and a number of technical assistance projects that targeted increased productivity. Among fresh fruits, fresh apricots, cherries and plums have the highest export potential, accord- . ing to ITC estimates (Figure 3.6). Their total export . potential is estimated at $2.3  million. However, dry . . . . . . . fruits—apricots and plums—offer the most promising Apricots, Prunes, Cherries, Plums Apricots, export opportunity for Tajik exporters. The export po- dried dried fresh and sloes, fresh fresh tential for dry apricots is estimated at $25.1 million and for prunes at $5.2  million. As of 2018, this potential Current exports Export potential has been on average realized by only 29 percent. Source: International Trade Center (2018). Historically, Tajikistan was one of the largest pro- ducers of fruits in the Soviet Union. However, fol- of Tajikistan signed Decree No. 683 “On Additional lowing its dissolution and the civil war, the produc- Measures for the Development of Horticulture and tion of stone fruits decreased as many farmers cut Viticulture in the Republic of Tajikistan for the period down their orchards and marketing channels col- 2010–2014”. During this period, orchards and vine- lapsed. After reaching its lowest in 1999, production yards were built on an area totaling 53,232 ha, which has started to recover. The government of Tajikistan ensured the implementation of the area planned in has made an effort to diversify agricultural produc- the decree. Some 21,192 ha are apricot orchards and tion by encouraging farmers to produce more fruits. 4,376 ha are vineyards. To further develop the sector, On August 29, 2009, the President of the Republic the Government of Tajikistan extended the program © 2020 The World Bank Group 39 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets for the development of horticulture and viticulture Taklamakan Desert serve as geographic obstacles for the 2016–2020 period. Decree No. 793 was is- for rail and truck shipments, while the capacity of air sued with the aim of developing 46,901  ha of or- transportation is currently limited. chards and vineyards during the five-year period, including 16,714 ha of apricot orchards and 5,015 ha Overall there are certain characteristics of of vineyards. Tajikistan’s horticulture sector that provide an opportunity to be competitive in international To reach its export potential, Tajikistan needs to markets, but certain constraints hinder competi- not only increase production volumes, but also to tiveness. The early season for Tajik fruits is one of diversify export destinations toward the ones that the characteristics that can foster competitiveness. offer higher value for Tajik fruit. While Tajik fresh Relatively low labor and electricity costs is another fruit exports have been growing in recent years, such characteristic. In addition, favorable climatic the export markets remain undiversified with al- conditions with long growing periods and numerous most all exports of apricots, plums and grapes go- sunny days result in special flavor and high sugar ing to Russia, Kazakhstan and the Kyrgyz Republic content. However, there are a number of interrelat- (Figure 3.7). ed constraints that prevent fresh fruit exports from reaching their full potential. China is an attractive market for Tajik fresh and dried fruit exports—the two countries share a bor- Just as in case of the Kyrgyz Republic, the pro- der and a  relatively large share of the expatriate duction of fresh fruit in Tajikistan is dominated by ethnic Tajik population lives in the Xinjiang region. smallholders/households that tend to have higher However, Tajikistan’s Pamir Mountains and China’s yields, but lower capacity to market their fruit. Figure 3.7. Tajik Export Geography for Selected Fruits, 2017 Apricots, fresh Grapes, fresh Plums, fresh % % % % % % % % Kyrgystan Kazakhstan Kyrgystan Kazakhstan Kyrgystan Ukraine Russia Russia Source: International Trade Center (2018). 40 © 2020 The World Bank Group Competitiveness of Central Asian Horticulture Exports Box 3.2. Trade Cooperation Between Tajikistan and China: Recent Developments In recent years, the governments of China and Tajikistan have signed several documents to strengthen trade cooperation between the two countries, including: 99 Memorandum of Understanding between the Ministry of Agriculture of Tajikistan and the General State Administration of Technical and Quarantine Quality Control of China on cooperation in the field of inspec- tions and plant quarantine (March 2, 2013, No. 74); 99 Protocol on phytosanitary requirements for exporting fresh fruits—sweet cherries from Tajikistan to China, between the Ministry of Agriculture of Tajikistan and the General State Administration of Technical and Quarantine Quality Control of China (May 16, 2013, No. 235); 99 Memorandum of Understanding between the Ministry of Economic Development and Trade of Tajikistan and the State Committee for Development and Reforms of China on the joint creation of the Silk Road Economic Belt (January 30, 2015, No. 24); 99 Agreement between the Ministry of Economic Development and Trade of Tajikistan and the Ministry of Commerce of China on strengthening cooperation in the field of infrastructure. The parties agreed to pro- mote and support cooperation in the field of infrastructure (railways, highways); and promote both the import and export of goods and the circulation of funds (August 26, 2017, No. 384); 99 Memorandum of Understanding between the Ministry of Agriculture of Tajikistan and the Ministry of Agriculture of China on joint construction of the Model Agricultural Cooperation Park (August 26, 2017, No. 369); 99 On Exchanging Notes between the Government of Tajikistan and the Government of China to share customs inspection equipment (October 12, 2018, No. 497); 99 Agreement between the Government of Tajikistan and the Government of China on cooperation and mutual assistance in customs affairs (December 25, 2018, No. 590). Small farmers are believed to produce 80  percent Figure 3.8. Stone Fruit and Table Grape Yields, of the apricot crop, followed by 15 percent produced 2018 by collective farms and five percent produced Centners/ha . non-commercially in backyards. The production of . grapes in Tajikistan is highly decentralized—only 25 percent of the grapes produced in Tajikistan are . . produced on collective farms, while 75 percent are produced by small growers (Microfinance Center, 2011). Smallholders tend to have significantly higher . . yields for stone fruit and table grapes (Figure 3.8) but face a number of capacity challenges for marketing their products and entering the formal supply chain. Farm enterprises Collective farms Households In particular, the smallholder nature of fruit pro- Stone fruit Table grapes duction in Tajikistan poses two primary challenges. Source: National statistics (2018) First, small production volumes on each plot lead to © 2020 The World Bank Group 41 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets a large number of intermediaries involved in volume that is applied to high-value crops results in signifi- aggregation to deliver the product to the final des- cant economic benefits for the producers through tination. This results in farmers not only losing profit improved water efficiency, reduced labor require- margin share because of increased transaction ments, increased yields and soil texture improve- costs, but also not getting enough feedback about ments, resulting in long-term productivity. All these the existing market requirements and opportunities. benefits outweigh the initially high investment costs associated with drip irrigation. Second, smallholder farmers often do not have the capacity, knowledge or sufficient financial incen- It is also not uncommon for nursery operators to tive to handle their harvest in a way that would al- sometimes mix the varieties of apricot trees they low for the highest yields. Interviews with the rele- plant without keeping track. This limits their capac- vant stakeholders highlighted that small producers in ity to guarantee the consistency of their stone fruit Tajikistan typically mix together produce of different variety and serves as a major constraint for dealing sizes, maturity and quality, which shortens the shelf with former retailers who require consistency in the life of the fruit and results in significant losses for quality and variety of supply. In addition, there is exporters when they arrive to their final destination. a need for more education on proper cold storage In addition, poor pest management, irrigation strat- practices such as pre-cooling fruit before loading it egies, improper planting of trees too close to each onto refrigerated trucks. Without this initial pre-cool- other and lack of proper pruning negatively affect the ing, the fruit will spoil faster since the middle of the quality of the fruit. Over 90 percent of fruit producers fruit doesn’t cool quickly enough. As a result of these in the country do not train their fruit trees and neglect different factors, about 80 percent of fresh apricots to annually prune the trees during the winter. In ad- are exported to Russia from Tajikistan through indi- dition, many of the orchards were established more vidual exporters to open markets or small shops as than 15  years ago and contain older, aging trees they do not meet the requirements of retail chains, with poor yield rates. Tree replacement is costly, and which include reliable (a) quality, (b) certification, (c) farmers lack access to high quality planting material guarantees on volume, and (d) on-time delivery. As (Fintrac Inc, 2014). As a  result, Tajik fruit yields are interviews showed, among retailers, Tajik fresh fruits much lower than other comparator countries. For ex- are associated with poor quality when it comes to ample, cherry yields are quite low compared to world food safety and packaging. In addition, one of the averages (only 3-4 tons/ha in Tajikistan compared to key constraints is small producers’ inability to access neighboring Uzbekistan’s 11.4 tons/ha). financial resources to invest in new materials. In addition, Tajikistan lags behind the Kyrgyz Unofficial fruit export channels prevent fresh fruit Republic and Uzbekistan when it comes to drip ir- exports from Tajikistan from entering formal retail rigation development (Euromonitor International, channels, resulting in lower export value. Since 2017). Drip irrigation systems have started to de- the inclusion of the Kyrgyz Republic and Kazakhstan velop in recent years. However, progress has been in the Eurasian Customs Union, most Tajik grape slow and has done little to boost the country’s fresh exports transit through these countries without fruit export potential. The drip irrigation method proper registration. The vast majority is exported 42 © 2020 The World Bank Group Competitiveness of Central Asian Horticulture Exports “unofficially”, in particular through the porous bor- cold chain capacity in Tajikistan increases the sea- der in the Sughd region. Grapes are not pre-cooled sonality of fresh fruit exports, resulting in lower pric- or transported in refrigerated trucks; mostly they es during the peak season. As an example, the farm are loaded into mini vans with a  carrying capacity gate price for table grapes of standard quality during of 3  tons and are then re-packed and re-exported the peak season is 6 TJS. For the new year holiday from the Kyrgyz Republic. As a result, only a few Tajik season, prices increase to 8–10 TJS and during the companies which officially export grapes to open spring holiday of Navruz prices reach 15 TJS. Every markets or retail chains in Russia appear in official summer, during harvest time, fresh fruit floods rural statistics. Without the proof of the country of origin, and urban markets around the country—as food and it is impossible for the formal retail chains to sell Tajik processing demand is not high enough to absorb produce in their stores. In fact, Tajik apricots are not the supply, a substantial portion of it goes to waste. known in Russian markets as they are mostly sold as Kyrgyz products. In addition, Tajik apricots are gen- Limited export infrastructure and high transporta- erally shipped in big bags via truck. As such, they tion costs serve as a  constraint to increase fresh can only fit into the wholesale process since they are fruit exports from Tajikistan. Due to the high trans- not individually packaged or certified. portation costs of transiting goods from landlocked Tajikistan to Russia (or China), high-value dried or Fresh fruit that enters the country through official processed goods are preferred. Dried fruit exports export channels often lacks recognizability among tend to be more stable and larger in volume than Russian consumers due to the limited professional fresh counterparts. For example, due to the lack and systematic promotion of Tajik products. The of cargo freight between Tajikistan and Urumqi in main agencies that are in charge of export promo- China or Tajikistan and Moscow, cherries are trans- tion are the Chamber of Commerce and Industry ported by passenger airlines which only allows for (CCI) and Tajinvest which support the participation limited export volumes. The carrying capacity varies of exporters in various trade fairs. However, both between 600  kg and 3  tons, and flights are avail- agencies have budget limitations and often rely on able from Monday to Saturday. Overall, the loading international projects for financial support. Through capacity for such planes depends on the number CCI and international projects, the Tajik national of passengers they have, resulting in inconsistent pavilion is presented annually at the biggest trade transport volumes. Improved rail and/or road net- fairs in Moscow, such as Prodexpo and World Food. works could improve access to Chinese markets in However, their presentation lags behind that of the future (Fintrac Inc, 2014). In addition, improved Tajikistan’s key competitors, such as Turkey, Armenia rail links through the Kyrgyz Republic or Afghanistan and Uzbekistan. This is one of the reasons why par- into China and through southern Tajikistan into ticipation in trade fairs has not resulted in sustain- Turkmenistan could provide access to markets in the able business relations with retail chains. Caucasus, the Middle East and Europe, boosting the country’s export capacity. Lack of cold storage and refrigerated trucks result in a shorter shelf life for Tajik fresh fruit and profit Inaccessible and costly certification and quality margins that are cut by more than half. The lack of assurance services. The prevalence of small-scale © 2020 The World Bank Group 43 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets producers in the fresh fruit production structure for the period of 2015–2020. By 2020, fruit limits their ability to afford certification services. At exports are expected to reach $383  million. the government level, the lack of technological ca- Nevertheless, there are still many constraints pacities does not allow the corresponding bodies to along the value chain that need to be addressed perform all the required inspections and tests. Local to realize the existing potential, including: laboratories lack the equipment to run all the tests required by importers from the developed countries. • Production/post-harvest/marketing level con- straints: limited production and aggregation volumes due to the smallholder nature of 3.3. Country Findings: Uzbekistan fruit production; low quality and/or insufficient quantity of inputs (irrigation, improved seeds, fertilizer and finance); significant gap in skills Summary of Findings: and capacity along the entire value chain; underdeveloped cold chain and storage sys- 99 Based on the results of the export competi- tems, including on-farm; high levels of infor- tiveness analysis and interviews with stake- mality and non-transparency along the value holders, the products with the most export chain; and underdeveloped cold chain and potential from Uzbekistan to China include storage systems, including on-farm. cherries, apricots (dry and fresh), plums (fresh), grapes (fresh) and walnuts. • Technical barriers/institutional constraints: limited ability to comply with international SPS 99 Table grapes, cherries and peaches have the requirements and maximum residue levels; highest potential, estimated at $486  million limited adoption of the private standards of (2018 est.). Fresh apricots and plums account food safety; cumbersome and non-transpar- for another $115 million. Currently, the poten- ent administrative procedures associated with tial for these target fruits (excluding peaches) exports; weak export promotion capacity; lim- is realized by only 32 percent on average. ited investment in research and development in the horticulture sector; poor agro-logistics; 99 Currently, Uzbek exports are largely undi- and limited development of e-commerce. versified and are targeted towards the EEU members—the Kyrgyz Republic, Kazakhstan In accordance with the export competitiveness and Russia—where they receive a lower price analysis, products that have the potential to cap- when compared to other markets. Uzbek cher- ture Chinese markets and grow in the Russian ries are sold for only $1.77/kg in Kazakhstan as markets include cherries, apricots (dry and opposed to $3.07/kg in China and $3.6/kg in fresh), plums (fresh), grapes (fresh) and walnuts the Republic of Korea. (Table 3.4; see annexes 6 and 7 for more detailed results). Table grapes are the largest fresh produce 99 The Uzbek government has set ambitious tar- category exported from Uzbekistan. Thanks to its gets to increase the export potential of fruits climatic conditions, Uzbekistan can export table 44 © 2020 The World Bank Group Competitiveness of Central Asian Horticulture Exports Table 3.4. Export Competitiveness Assessment for Selected Agri-Food Products Product Net Exports, USD (2015–2017 average) RCA (2012–2016 average) DRC (2017) Cherries 44,733,333 172.0 0.20 Apricots (fresh) 20,396,311 109.1 0.17 Apricots (dry) 9,594,508 57.1 - Walnuts 39,208,645 37.5 0.20 Plums (fresh) 10,665,391 28.5 0.41 Grapes, including table 78,195,406 22.1 0.22 (table) 0.65 (wine) Plums (dried) 11,261,431 7.3 - Source: UN COMTRADE (2018), World Bank’s calculations. grapes almost all year round. Production has been ITC (2018) export potential estimates also identify steadily increasing since 2008, primarily driven by many Uzbek fresh fruits as having high, and still improved yields. Uzbekistan has strong pre-condi- unrealized, export potential (Figure 3.9). Table tions for the production of cherries due to its good grapes, cherries and peaches have the highest po- climatic conditions, early crop maturing and inex- tential, estimated at $486  million annually. Fresh pensive labor. Upgrading cherry production tech- apricots and plums account for another $115  mil- nologies has the  potential to further boost cherry lion. Currently this potential for the target fruits yields. For example, there are opportunities to use (peaches excluded) is realized by only 32 percent technology to further extend the cherry season to on average. allow for larger harvests. Uzbekistan has a  strong potential to increase both production and exports Figure 3.9. Export Potential of Uzbek Fresh Fruits of walnuts. Walnut production has been rising since mln USD 2012  due to growing planting areas and yields. . In  2017  the President of  Uzbekistan signed a  de- cree “On creation and organization of activities of the Association of producers and exporters of wal- . nuts” that established the Association and allocated . an additional $50 million and 10,000 ha for new wal- nut plantations. However, the effects of these chang- . . es are yet to be seen. Similar to other horticultural . . products, the production of plums has been increas- . . . ing in Uzbekistan in recent years. Finally, the pro- duction of apricots has drastically increased since Grapes, Cherries, Peaches Apricots, Plums fresh fresh and nectarines fresh and sloes, fresh 2000, reaching over 660,000  tons in 2016  (from 68,000 tons in 2000), making Uzbekistan the third Current exports Export potential largest producer of apricots in the world behind only Turkey and Iran. Source: International Trade Center (2018). © 2020 The World Bank Group 45 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets To realize this potential, Uzbekistan needs to in- and are targeted towards the EEU members—the crease the production of fresh fruits and diversify Kyrgyz Republic, Kazakhstan and Russia (Figure 3.10). the geography of its export destinations. Currently, In 2017, an average of 70 percent of the exports of just as in the case of the Kyrgyz Republic and fresh apricots, plums, cherries and table grapes Tajikistan, Uzbek exports are largely undiversified were exported to Kazakhstan, while 29.5  percent Figure 3.10. Uzbek Export Geography for Selected Fruits, 2017 Cherries Table grapes Total exports value = . million USD Total exports value = . million USD % % % <% % % % % Kazakhstan Russia Kazakhstan Russia Kyrgyzstan Other Kyrgyzstan Other Plums, fresh ( ) Apricots, fresh Total exports value = . million USD Total exports value = . million USD %< % % <% % % % % Kazakhstan Russia Kazakhstan Russia Kyrgyzstan Other Kyrgyzstan Other Source: UN COMTRADE (2018). 46 © 2020 The World Bank Group Competitiveness of Central Asian Horticulture Exports were shipped to the Kyrgyz Republic and Russia. The Uzbek horticulture sector has the potential to According to the interviews with market stakehold- be competitive in international markets, and the ers, official trade numbers do not reflect large vol- Uzbek government has been aggressively reform- umes of fruit that are exported unofficially to the ing the sector to make it more market oriented EEU countries. Lack of rules enforcement on border and to create the preconditions for increasing crossings by Uzbek authorities result in the informal- export potential. Excellent agroclimatic conditions ity of Uzbek exports, which has a detrimental effect in Uzbekistan are favorable for the production of on their competitiveness, as exporters have limited high-quality fruits. The Uzbek government has set incentives to modernize. Not surprisingly, all these ambitious targets to increase the export potential of markets offer lower values for Uzbek products com- fruits for the period of 2015 – 2020 – by 2020 ex- pared to other markets. For example, according to ports of fruits are expected to reach $383  million. a recent IFC study, Uzbek cherries are sold for only Nevertheless, there are still many constraints along $1.77 per kg in Kazakhstan as opposed to $3.07/kg the value chain that need to be addressed to real- in China and $3.6/kg in the Republic of Korea. ize the existing potential. A  recent analysis by the IFC (2018) identified the key constraints that exist In terms of fruit exports to China, 2018 was a suc- for producers and exporters of fresh fruits, including cessful year for Uzbekistan. For the first time, cherries, table grapes and apricots. Key constraints Uzbekistan supplied sweet cherries on the Chinese highlighted in this study are presented here. market. According to Uzagroexport, in 2018, Uzbekistan exported 10,000 tons of sweet cherries, Fresh fruit production in Uzbekistan is dominated 3,000  tons of raisins and 2,000  tons of walnuts to by smallholder farms that tend to have limited China. In 2019, the exports of sweet cherries were financial and knowledge capacity and engage expected to rise to 20,000 tons. At the same time, in low cost traditional methods of production, an increase in the range of Uzbek agricultural prod- albeit larger farms and agro-enterprises have ucts to 12 products was under consideration. China been recently emerging. There is a  limited num- is completing procedures for the permission of ber of large fruit producers in the country that use Uzbek melons, lemons, pomegranates, and grapes modern technologies, adopt global certification, to its market. The permission was obtained to ex- and partner with entrepreneurs around the world. port fresh pepper and sweet cherry to China pro- Nevertheless, inefficiencies among smallholders, vided two methods of disinfection are used: cold and lack of value chain linkages have an impact processing and fumigation. China is also develop- on the export potential of larger firms. Because of ing a mechanism to assist Uzbekistan in improving the fragmented and generally low-quality produc- its laboratories. To create more convenient logistics tion, large export-oriented firms seek to vertically export routes, Uzbekistan proposed exporting agri- integrate to mitigate the risk of unreliable supply. cultural products, including sweet cherries to China Interviews with firms suggest that at the moment, from Uzbekistan, via Khorgos border check points the sourcing is done with aggregators who buy (on the Chinese-Kazakh border), Irkeshtam (on the from smaller farmers and firms. In some cases, Chinese-Kyrgyz border) and Alashankou (on the there are no written contracts, but verbal agree- Chinese-Kazakh border). ments based on trust due to repeated business. © 2020 The World Bank Group 47 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Such fragmentation also adversely impacts the po- farmer pays. Further, water associations are not tential for realizing economies of scale, cost shar- well-established, and those that are charge annual ing, and knowledge spillovers. fees for their services which are insufficient to cov- er even maintenance. Recovery is also only about While productivity has been increasing, additional 40–50  percent. Interviews with stakeholders also improvements can be made to reach the levels highlighted the scarcity of a trained labor force that of global players through the use of wider vari- could work with the modern equipment that needs etal crops, and increased knowledge and use of to replace the old. modern production technology and methods. With regard to exports, for example, Uzbekistan needs A critical constraint faced by Uzbek fruit exporters earlier cherry varieties and seedless grape variet- is the need for improvements in cold chain capac- ies. Some of these need to be localized to become ity. According to the most recent estimates (Global suitable for specific country conditions. This requires Cold Chain Alliance, 2018), current cold chain stor- investment in local research institutes, which while age capacity in Uzbekistan is 4.5 million cubic me- established, lack the capacity and training to employ ters, which is significantly below the demand for new varieties. Uzbekistan spent less than 0.5  per- storing horticultural produce. As a result, suboptimal cent of the national budget to cover their R&D re- cold chain storage conditions contributed to post quirements, which is the equivalent of a  0.13  R&D/ harvest annual losses of 40 percent.29 Recognizing GDP ratio. Further, an international nursery which this gap, the government of Uzbekistan has been has recently set up business in Uzbekistan states heavily investing in the country’s cold chain stor- that the regulations required to register new variet- age, however, additional investments are needed if ies of seeds and rootstock are expensive, time in- Uzbekistan is to reach its fruit export potential. tensive and cumbersome. Uzbekistan’s inability to comply with internation- While the basic infrastructure for the efficient al SPS requirements and maximum residue level functioning of the sector has been in place due (MRL) requirements poses the most serious con- to investments from the Soviet era, it is outdated straint to reaching its horticulture export potential. and requires modernization, including the skill Uzbekistan is one of only 14 countries in the world set necessary to operate it. For example, irrigation that is not a  signatory to the International Plant systems are old and energy-inefficient. Old irriga- Protection Convention, which results in distrust of tion pumps account for about 70  percent of agri- the country’s phytosanitary certificates. In addition, cultural production (IFC, 2018). Water use efficiency an IFC (2018) analysis of the Uzbek horticulture sec- is about 30 percent less efficient than it should be, tor shows that the current procedure for responding although in some regions, it is even lower. Part of to discoveries of excessive MRLs on Uzbek prod- the reason is that there is no incentive to use it ef- ucts in export markets is not clear, leaving Uzbek ficiently. Water costs are not tied to use of water; exporters vulnerable to sudden and protracted mar- rather, they are part of the overall land tax that the ket closures in the event of MRL events. The lack   IFC PPP Prospectus. 29 48 © 2020 The World Bank Group Competitiveness of Central Asian Horticulture Exports of appropriate infrastructure, regulations that are in- able to operate modern technology and production complete or confusing, and a general lack of aware- methods is scarce. ness among the exporters about the importance of adherence to food safety standards for successful Lack of transparency along the value chain, includ- exports are the key constraints that need to be ad- ing inefficient cross-border and customs clearance dressed for the country to improve its food safety procedures, serve as significant barriers to real- system. izing Uzbekistan’s horticulture export potential. Interviews undertaken by IFC (2018) showed that As mentioned above, an important precondition cumbersome administrative procedures at customs for doing business with retailers and distributors can significantly delay border crossing. For example, in many countries around the world has been the trips to Russia which should take only 7-8  days of adoption of nongovernmental standards of food transit typically require 10-11 days when border and safety. Because Uzbekistan has largely exported customs delays are factored in. ‘Unofficial’ charges its horticulture products to Kazakhstan and Russia, for truck passage are also not uncommon on the where food quality standards are lower, the country border with Kazakhstan and Russia. Failure to pay is currently not equipped to support its exporters in can lead to delays of several days before crossing is meeting most of these certification requirements. For allowed. Such delays at the border can be detrimen- example, it has yet to harmonize its standards with tal for the quality of the horticulture produce and for Global Good Agricultural Practices (GAP). Currently, the establishment of a  long-term relationship with there is very little infrastructure in the country (both retail chains in Russia. public and private) to support roll out and compli- ance with these requirements. 3.4. Food E-Commerce There is a significant gap in the skills and capac- in Central Asian Countries ity needed for the functioning of a modern horti- culture subsector across the entire value chain. Rapidly developing food e-commerce in both According to the recent analysis by IFC (2018), China and Russia create new opportunities for farmers, small farm enterprises, service providers, fruit exporters. To take advantage of these opportu- and even large firms, are unaware of modern pro- nities, Central Asian countries need to boost digital duction methods, the use of appropriate fertilizers development of the agriculture sector. This section and agrochemicals, or the importance of SPS re- presents an evaluation of the state of digital devel- quirements and food safety standards. Important opment in the Central Asian countries with a specific public-sector agencies such as UzStandard have focus on food e-commerce. no trained auditors or inspectors to support imple- mentation and enforce compliance with standards. About one third of the Uzbek population has ac- The two large horticulture research institutions cess to the internet although 90 percent of internet have scarce capacity and knowledge of the lat- users are expected to be in Tashkent. Like the oth- est R&D needed to produce high-yielding, export- er Central Asian countries, the underdevelopment of oriented local varieties. Technically qualified labor online payment methods poses a large obstacle to © 2020 The World Bank Group 49 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets the development of this sector. In Uzbekistan, follow- (ii) a perception that items purchased online are of ing the adoption of the presidential decree “On ad- lesser quality, (iii) the inability to negotiate prices on- ditional measures to increase the export of fruit and line, and (iv) concern that recourse might be compli- vegetable products”, government ministries were cated in the event of a bad e-commerce purchase. tasked with creating an e-commerce application Nevertheless, the Kyrgyz Republic has a host of meal where horticultural producers could sell their goods and food delivery players. B2B seller, Prodsklad, to both domestic and international markets. This provides wholesale delivery of agricultural prod- initiative was grafted onto the Uzbek e-commerce ucts to businesses, hotels, restaurants, cafes, and platform TradeUzbekistan.com  — the platform that supermarkets throughout the country. The Kyrgyz had been established in March 2016  with the mis- customer-facing grocery delivery industry already sion of facilitating the export of Uzbek goods into has several players including aMart.kz, alliance.kg, foreign markets. The agriculture-focused addition zakuponline.kg, and bishtao.kg. The meal delivery includes information about domestic producers and service also features multiple players including eda. exporters of horticultural goods; foreign importers of kg and NambaFood.kg. horticultural goods along with types and quantities desired; providers of plants, seeds and fertilizer; and Internet penetration remains low in Tajikistan. an outline of the export process. Online trade is conducted through the national pay- ment system — Korti Milli. Somon.tj serves as the most Foreign e-commerce platforms continue to domi- popular online retailer in Tajikistan. Underdeveloped nate the market — aliexpress.com, eBay.com, and e-infrastructure including the fact that many stores Amazon.com. Most online food delivery platforms have limited email accounts and check them in- service just the Tashkent area. Popular domestic frequently coupled with low internet literacy, inse- sites that offer grocery delivery services include cure online payment systems, incomplete internet arba.uz and gomart.uz. Uzbekistan also features access (only 46  percent of Tajiks have regular ac- websites that allow bulk deliveries of food products cess to the internet), and low levels of consumer including flagma.uz and mybazar.uz. The online plat- trust in the e-commerce sector have contributed to form “Flowering Gardens” (Цветущие сады) works this industry’s slow growth. The low use of credit to connect farmers’ produce with domestic and in- cards in Tajikistan (purportedly only 166,000  Visa, ternational markets. Lastly, the Uzbek meal delivery MasterCard or American Express cards are regis- market is growing but with almost all of that growth tered in the country) introduces yet another hurdle centered in the Tashkent area. Current market play- to internet purchasing. ers include express24.uz, ranfood.uz, and bringo.uz. Overall, the impediments to food e-commerce In the Kyrgyz Republic, internet penetration is in Central Asia can be summarized as follows: estimated to be only 34  percent with 20  percent of the population considered to be regular users. 99 Deliveries are generally purchased using Severe impediments to the Kyrgyz e-commerce sec- cash since credit cards are not yet ubiquitous. tor for agricultural goods include (i) consumer pref- In general, online payment functionality is erence for the traditional way of grocery shopping, underdeveloped. 50 © 2020 The World Bank Group Competitiveness of Central Asian Horticulture Exports 99 Many stores’ existing e-commerce platforms 99 Cyber legislation in some areas of Central Asia are poorly managed and lend a  negative im- (Uzbekistan, the Kyrgyz Republic and Tajikistan) pression to the sector. is not yet robust, inhibiting consumer trust in the e-commerce system. 99 Low internet penetration in parts of Central Asia as well as underdeveloped internet liter- 99 Paper-based customs systems can be eas- acy obstruct customer access to online retail. ily overwhelmed by shipments of small par- cels and the adjudication of duties by deliv- 99 E-commerce growth is centered around the ery method (in which postal service couriers populous cities and capitals of Central Asia. receive preferential treatment compared to express service providers) can be difficult. 99 Slow internet speeds can make shopping on- This inhibits cross-border sales of goods via line an arduous and inconvenient process. e-commerce. Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets 4. Success Story: Determinants cities but also in markets located in smaller cities of Chile’s Competitiveness throughout the country and away from the coast. in the Chinese Horticulture During this period, Chile’s food exports to China have grown strongly and more rapidly than to Markets other destinations, such as Europe and the United States, the traditional importers of Chilean fruits. Despite being a  relatively small country, over In 2018, Chile accounted for 24  percent of total the past ten years Chile has become one of the Chinese fruit imports, closely followed by Thailand main fruit exporters to China. The significant in- (23.9  percent), the Philippines (10.5  percent), and crease in China’s purchasing power and a growing Vietnam (10.4 percent), among others. penetration of food e-commerce throughout the country have drastically increased Chinese de- Cherries ($953.5 million), grapes ($203.8 million) mand for fruit, resulting in the dramatic growth of and plums ($64.4 million) are among the top five fruit imports. Chile was one of the countries that fruits exported from Chile to China. The remain- took advantage of an existing opportunity, and ing two are blueberries and peaches. Between between 2008  and 2018, its total fruit exports to 2010  and 2018, exports of cherries grew from China grew from $47 million to $1.41 billion (Figure $7.9 million to almost $1 billion (Figure 4.2). Exports 4.1). Temperate fruits account for 96 percent of to- of plums and grapes to China experienced similar, tal fruit exports to China. Operating mostly through but less impressive, growth. In the case of plums, Chinese wholesale distributors, Chilean exporters exports to China have gone from around $2 million have increased their presence not only in large in 2000  to almost $66  million in 2018. Exports of Figure 4.1. Chilean Temperate Fruit Exports (HS 0806, 0808, 0809, and 0810) , million USD , , , , Total Exports to China Source: UN COMTRADE (2018). 52 © 2020 The World Bank Group Success Story: Determinants of Chile’s Competitiveness in the Chinese Horticulture Markets Figure 4.2. Chilean Exports of Cherries, Grapes and Plums to China30 , million USD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cherries Grapes Plums Source: International Trade Center (2018). grapes increased ten-fold between 2010 and 2018, In terms of its structure, the Chilean horticulture from $21.5  million to $210.1  million. Grapes have sector is represented by a relatively large number always been an important part of Chilean exports, of small producers and a few exporters, although while exports of other fruits, such as plums and their concentration has been decreasing in recent cherries, are a more recent phenomenon. years. In the case of cherries, for example, there are more than 12,500 plantations, 88.7 percent of which In 2018, Chilean cherries, plums and grapes ac- are less than 5 ha. Nonetheless, the ten largest ex- counted for 86, 79 and 43 percent (or $1.1 billion, porters export more than 50 percent of the annual $93.5 million and $274.5 million), respectively, of production of cherries (40 percent of the grape pro- the value of Chinese imports of these fruits, and duction), with Garces Fruit and Copefrut S.A. export- remain very competitive vis-à-vis other exporters ing around 14 percent and 10 percent, respectively, (Figure 4.3). When comparing Chile’s relative per- of the country’s national production in any given formance with respect to the United States, its main year (López, 2019). Despite this, the fruit sector has competitor in the Chinese fruit market, Chilean cher- become less concentrated over the years, allowing ry exports between 2013 and 2016 were eight times for more and more small producers to participate higher than those of the United States. Similarly, in directly in exports. If during the 1992–1993  period, the case of grapes, Chilean exports are more than 65  percent of all fruit exports belonged to the top five times the value of US exports of grapes in 2018, ten exporters, in 2017–2018 this share was less than and the gap continues to grow. 34 percent (Parodi, 2019).   Note: includes HS codes 080610, 080620, 080920, 080921, 080929, 080940, 081210, and 200860. 30 © 2020 The World Bank Group 53 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Figure 4.3. Share of Chilean Fruit in Total Chinese Fruit Imports, Percent Cherries Grapes Plums .% .% .% .% .% .% .% .% .% .% .% .% .% .% .% .% .% .% Chile United States Chile Australia Chile United States Canada Australia Peru United States Canada Australia New Zealand Others South Africa Uzbekistan New Zealand Others Others Source: UN COMTRADE (2019). There are several factors that have contributed to increase in Chilean agricultural exports to China Chilean success in the Chinese horticulture mar- in addition to slowing trade with the European kets that can serve as a  lesson for other coun- Union. The FTA offered immediate duty-free access tries. While some of the initial success of Chilean to 37 percent of the Chilean tariff list (2,805 out of fruit exporters in China can be attributed to external 7,550 products), and 2,947 products entered the du- global macroeconomic trends and the seasonality of ty-free regime in the following year. By 2009, exports Chilean fruit production, it is also important to note to China paid an average tariff of 0.1  percent. The that consistent, liberal trade and agricultural policy Agreement established for both countries a tariff re- reforms enabled the environment for agri-food sec- duction calendar of one, five and ten years before tor development and prepared the country for suc- reaching duty free status. As a result, in 2007 China cess in the Chinese market. The lessons learned was Chile’s third-largest export destination, and by from these reforms can be used by the Central Asian 2010  it had become the largest. The global finan- countries that would like to diversify the geography cial crisis of 2007–2008  and the ensuing euro cri- of their exports and increase their presence in the sis generated a slowdown in demand for imported Chinese market. goods in the European Union, traditional markets for Chile, and created additional pre-conditions for The free trade agreement signed between Chile Chilean exporters to explore new trade opportu- and China in 2005—the first of its kind in Latin nities. Notably, while during 2003–2007  Chilean America—was a  determining factor behind the agricultural exports to the European Union were 54 © 2020 The World Bank Group Success Story: Determinants of Chile’s Competitiveness in the Chinese Horticulture Markets growing at an annual rate of 23.7 percent, between others. Interestingly, China’s FTA with Chile was the 2008–2015 this growth rate had slowed to a much first bilateral agreement for China; it was signed in lower annual rate of 3.6 percent. The slow progress 2005  and became applicable in 2006. Since then, in the modernization of the EU-Chile FTA served as within the Latin America and Caribbean region, another contributing factor for Chile to explore other China has signed FTAs with Peru (2009) and Costa markets. Rica (2010). Overall, China’s FTA was the outcome of a  liber- From the perspective of Chilean agriculture, the al and predictable approach to agricultural trade bilateral FTA commitments have been particularly policy that had existed in Chile for decades. Since important due to the country’s comparative advan- the early 1980s, Chile has unilaterally reduced tage in fresh and processed fruits and vegetables, a  uniform tariff (eventually six percent MFN), with- wine and aquaculture. Compared to commodity out quantitative restrictions on imports or exports. products (standardized, bulk commodities) such as Complementing that unilateral policy and making wheat and soybeans, the prices of which are almost it more credible was a  sequence of bilateral FTAs, independent of where the products are sold, dif- which reduced effective tariffs to about one percent. ferentiated product prices depend more on export This process of accumulating commitments to trad- market standards and restrictions, such as sanitary ing partners at the same time unilaterally reducing all and phytosanitary controls. Negotiating market ac- import restrictions has been referred to as “additive cess for these types of products is less amenable regionalism.” Trade liberalization, which eliminated to multilateral, one-size-fits-all agreements, requir- almost all non-tariff barriers on imports and exports ing instead sometimes intense bilateral negotiations and applied a  drastic reduction in the level of im- with respect to inspection regimes, traceability, and port tariffs, adopting a uniform-tariff approach on all often the adoption and enforcement of importer imports has been considered by economists as an quality controls in the home market. In addition, essential reform for trade growth, and is particularly Chile’s bilateral FTAs have improved market access beneficial for agriculture. Currently, any tariff chang- to more processed goods which would have other- es must be approved by the Chilean Congress, re- wise been subject to the well-known tariff escalation sulting in highly predictable trade policy. effect. While all protection on Chilean processed food exports has not been eliminated (e.g., the EU’s The commitment of the Chilean government to slowly increasing import quotas on Chilean beef and international integration has resulted in trade edible oil), the bilateral FTAs have helped diversify agreements with countries accounting for 80 per- food products down the value chain. cent of the world’s population and 85  percent of global value added. Chilean FTA negotiations Rapidly growing demand for imported fruit in began regionally, with Mercosur and other Latin China and the lack of a  supply in winter months American partners in 1996 and gradually expanded were additional factors for Chilean success in the north to agreements with Canada, the European Chinese markets. Chilean counter seasonal produc- Union and the United States, and eventually in- tion provides the Chinese market with fresh fruit dur- cluding the Republic of Korea, Japan, China and ing winter in the northern hemisphere. The time of © 2020 The World Bank Group 55 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets the year in which Chilean cherries arrive to Chinese exports of cherries totaled $676 million, whereas in markets coincides with the Spring Festival (Chinese January 2019 this value was $787 million. Grapes, on New Year). During this time, it is customary to give the other hand, are exported over a more extended presents, and cherries are one of most appreciated period (December to June) with a peak in April when gifts by Chinese families as they symbolize love and more than 30  percent (around $400  million) of the affection. This also explains the high prices received total production is exported. A  similar situation is by Chilean producers during that time of the year. observed for plums, with the annual export peak in March. From Figure 4.4  it is interesting to see how Chilean fruit export volumes in the Chinese mar- Chilean exports fall off during the months of June to kets are highest between November and May, November. Chilean exporters have been increasingly depending on the type of fruit (Figure 4.4). For investing in marketing to stimulate the consumption example, all cherry exports from Chile are concen- of cherries both before and after the Spring Festival. trated in just four months: November, December, According to exporters, this has had a positive effect January, and February. Considering the 2017/18 and as off-Spring-Festival consumption of cherries has 2018/19  season, between 62  percent and 71  per- increased by more than 20 percent. In addition, the cent of the total value exported in a regular season “Enjoy your Red Moment” marketing campaign aims occurred only in January. In January 2018, Chilean to expand the year-round consumption of cherries.31  Figure 4.4. Monthly Exports of Chilean Fruit million USD November December January February March April May June July August September October November December January February March April May June July August September October November December January February March April Cherries Grapes Plums Source: Central Bank of Chile (2019). 31   Latin America-China Trade and Investment Amid Global Tensions. 56 © 2020 The World Bank Group Success Story: Determinants of Chile’s Competitiveness in the Chinese Horticulture Markets Agricultural sector reforms and domestic agricul- was implemented for nearly a decade. The econom- tural policies created an enabling environment for ic reforms included the privatization and deregu- agricultural development and prepared Chile to lation of airlines, ports, and telecommunications, take advantage of the opportunities in the Chinese which contributed to cost reduction and better ser- markets in the early 2000s. Chile’s present agricul- vices, soon to become particularly important for an tural and rural strategy have their roots in a  series export sector that emphasized fruits and vegetables. of major reforms to national economic policy that began in the late 1970s. After a  lengthy period of The signing of FTAs, such as those with the significant government intervention in the economy European Union (2003) and the United States since the 1940s, which included a massive land re- (2004), had a  further effect on the level of gov- form between 1965 and 1973, Chile began a series ernment interventions in the domestic agricul- of radical structural policy changes focused on the tural markets. Specifically, price bands on politi- security of property rights on land, economic dereg- cally sensitive products were eliminated as part of ulation, privatization of formerly state-run enterpris- implementing the FTAs. Effective tariffs on goods es, and a  move toward open trade. Sector-specific from most trading partners now hover in the range policy reforms complemented these broader policy of one or two percent, net of a uniform value-added shifts, more closely linking agricultural investment tax (19 percent), which is non-discriminatory with re- and production decisions to incentives determined spect to origin, applying to both domestic and im- in domestic and international markets. Specifically, ported products. Currently, the overall value-weight- during the mid-1970s the government halted farm- ed average effective tariff rate is near one percent. land expropriations, re-established secure private property rights on land, and began redistributing The key principles of Chilean state support in ag- land away from large, de facto state-controlled op- riculture have included: i) transparent and efficient erations (called asentamientos) to small-scale pri- policy development for the industry; ii) large invest- vately-owned farms. ments in food safety and quality compliance; iii) sup- port for innovations; iv) support for small and medium Direct government interventions in the product, in- enterprises; v) support for private initiatives in export put and credit markets were gradually phased out promotion; and vi) liberalization of trade policies and to strengthen competition in the agricultural input negotiating the best possible conditions with current markets. Early in the reform process, agencies in and potential trade partners (Khidirov et al., 2015). charge of price controls and marketing boards were These principles are reflected in the budgetary out- eliminated, and price controls themselves were lays allocated to agriculture. phased out, albeit slowly. For some politically sensi- tive farm products (e.g., wheat, milk, and oilseeds), Chile has been gradually decreasing its agricultural a  price stabilization program in the form of “price producer support and use of market price support bands-variable import taxes” on wheat and sugar measures,32  making Chilean farmers contingent   Market Price Support (MPS) is an indicator of the annual monetary value of gross transfers from consumers and taxpayers to agri- 32 cultural producers arising from policy measures creating a gap between domestic producer prices and reference prices of a specific agricultural commodity measured at the farm-gate level. © 2020 The World Bank Group 57 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets on world prices and over time more resilient to and on-farm services has been increasing to substi- the volatility of foreign markets. Since 2003, the tute market price support (MPS) measures. Larger country’s OECD agriculture producer support esti- farms receive little direct government support, al- mate   has been decreasing, and currently consti- 33 though some subsidies are accessible to commer- tutes 0.24 percent ($38.25 million) of the aggregate cial farmers, including small-scale irrigation support value of agricultural production (Figure 4.5), which is and a limited scale fertilizer subsidy program. much lower than the corresponding European Union and United States shares of 4.4 percent ($21 billion) The Chilean government heavily invests in public and three percent ($10  billion), respectively. Within goods that support overall agricultural sector devel- Producer Support Estimate (PSE), market price sup- opment. One distinguishing characteristic of Chile’s port measures account for three percent, while the approach to agricultural policy is that is does not have rest of the support is primarily distributed in the form a selective trade, tax, or price policy meant to stimu- of input subsidies (credit and fertilizer) targeted at late specific activities and associated value-added small famers, as well as support for irrigation invest- sectors. Trade and domestic policies have followed ments (particularly drip irrigation and construction an approach of uniform treatment within and across of small-scale farm-level reservoirs) and recovery of various sectors, specifically with respect to border tar- degraded soils. Overall, the share of governmental iffs, domestic support measures, and VAT. Instead, the support for variable input use, fixed capital formation government allocates a  large share of public funds Figure 4.5. Agricultural Producer Support as a Share of the Aggregate Value of Agricultural Production percent Chile European Union United States Source: OECD (2018a). 33   PSE is an indicator of the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers, measured at the farm-gate level, arising from policy measures, regardless of their nature, objectives, or impacts on farm production or income. 58 © 2020 The World Bank Group Success Story: Determinants of Chile’s Competitiveness in the Chinese Horticulture Markets to general services’ support expenditures (GSSE), primarily, because of the government’s increased such as research and development, inspection and focus on the provision of public goods. In 2017, this health services, export promotion, and large-scale share accounted for 2.6 percent, and exceeded cor- infrastructure, which are mainly investments in irriga- responding shares in Argentina, Brazil, New Zealand tion (Figure 4.6). In 2017, the Chilean government allo- and the European Union. The United States is the cated $422 million to GSSE. The largest share within only country in the sample with a higher GSSE value GSSE was allocated to infrastructure investments than Chile. Its GSSE share in the aggregate value of (55.6  percent). Allocations to inspection and control agricultural production was 2.81 percent. services accounted for 21.5 percent, R&D for 19.1 per- cent, and marketing and promotion for 3.8  percent. Sustained public investments in food safety and Chile has in place a robust R&D program to develop quality control systems have ensured the competi- and adopt new varieties and growing techniques. tiveness of Chilean agricultural products in world The private and public sectors cooperate closely in markets, including in China. Between 2003  and this area, although private funding has been growing 2017, budgetary support for inspection and quality much faster than public funding (Khidirov et al., 2015). control services grew by 1,017 percent, from $8.1 mil- lion to $90.5  million, and in 2017  accounted for Overall, Chile’s budgetary allocations, measured 20  percent of total GSSE allocations. The largest as a  share of the aggregate value of agricultural budgetary shares are allocated to the Agricultural production, are among the highest of its competi- and Forestry Export Inspection Program (54  per- tors and some benchmark countries (Figure 4.7), cent of total GSSE) and Border Control Inspections Figure 4.6. General Services’ Support Expenditures percent Infrastructure Inspection & Control Innovation Marketing & Promotion Other GSSE Source: OECD (2018a). © 2020 The World Bank Group 59 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Figure 4.7. General Services’ Support to Agriculture Relative to the Aggregate Value of Agricultural Production percent Argentina Brazil Chile European Union United States Source: OECD (2018a). (29 percent). Notably, in accordance with OECD es- standards have been internalized and adopted by timates, all the key fruit exporters to China, includ- commercial Chilean growers and exporters. In ad- ing the United States, Australia, New Zealand, South dition, the Fruit Exporters Association of Chile AG Africa and Philippines, allocate a significant share of (ASOEX) has initiated the Chile G.A.P. program to their budgets to inspection and control services. help Chilean producers and exporters of fruits and vegetables comply with the many private require- Driven by foreign supermarket standards in ments set out by various foreign retailers. Europe, Japan, the United States and China, third- party (private) certification has also become a nec- A strategic focus on China and strong export pro- essary practice for Chilean exporters. Exporters motion are important factors that bolster Chile’s must obtain certification from different private certi- success in conquering China’s fresh fruit market. fications agencies such as British Retail Consortium, China is a  priority market for the Chilean govern- Global G.A.P., Global G.A.P. Risk Assessment on ment. Its two public agencies, ProChile and DirEcon, Social Practice (GRASP), Hazard Analysis and Critical promote Chile’s agri-food exports in the Chinese Control Points (HACCP), Rainforest Alliance, Tesco markets (Figure 4.8). For example, to build a lasting and Walmart retailers, among others, which test their relationship with China, ProChile works on the ba- compliance with good agricultural practices, which sis of a long-term strategy centered on introducing include not only quality and safety conditions of the a new product every year, learning from past expe- product, but also aspects of the production process riences and expanding contracts (Gonzalez, 2018). such as labor and environmental conditions. These Chile has four trade offices in China—in Shanghai, 60 © 2020 The World Bank Group Success Story: Determinants of Chile’s Competitiveness in the Chinese Horticulture Markets Figure 4.8. Chilean Public Institutions Involved in Export Promotion Guangzhou, Beijing, and Hong Kong, SAR—as well heavily in standardization and packaging of fruit in as an agricultural counselor based in Beijing. A num- response to the sensitivity of Chinese consumers ber of promotional and marketing activities regu- to high quality and packaging that the brand con- larly take place to increase the presence of Chilean veys. Investments in modern equipment have given fruits in the Chinese market. In addition, ProChile is Chilean fruit growers a  more competitive edge in closely aligned with private associations of export- the Chinese markets as they automate and perfect ers to improve quality, strengthen market position- the packaging process, while also separating fruit by ing, and finance intelligence to identify trends and color and size. opportunities. Establishing a  strong relationship with Chinese The Chilean government and the private sector counterparts is another reason for Chilean suc- both recognize the market potential of Chinese cess in China. China establishes specific require- fresh fruit e-commerce and have cooperated ments for every product imported from Chile. Only with Chinese e-commerce companies to promote certain origins (areas and specific producers) within Chilean products. In 2015, Direcon signed an agree- Chile are allowed to export. The strategy followed ment with Alibaba to promote Chilean products by Chilean producers has been to create direct from small to medium-sized enterprise exporters. links with Chinese importers in order to meet their In the same year, ASOEX reached a special agree- ment with Alibaba to facilitate direct online sales of Figure 4.9. Unified Brand of Chilean Fruit Chilean fruits, especially blueberries and cherries, in China. Earlier in 2019, ASOEX organized a  promo- tional campaign in Hema, the offline supermarket of Alibaba, featuring a display of cherries, blueberries, and avocados from Chile. The Chilean fruit industry also realized early on the importance of a recognizable brand and high-qual- ity packaging for Chinese consumers (Figure 4.9). In addition, Chilean exporters have also invested Source: FruitsfromChile.com (2019). © 2020 The World Bank Group 61 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets specific requirements and to speed up the export in shorter periods of time and to maintain the fresh- process. Several Chinese exporters are now based ness of the produce. While more expensive than reg- in farming areas in Chile during harvest time, buying ular contracts, they tend to pay off as they can put the directly from small-scale firms who buy from farmers, fresh produce in the Chinese markets earlier than be- organizing and processing the shipment and distrib- fore, improving quality and timing.34 These so-called uting it in China. Similar to the Chinese presence in Cherry Express ships, that started their operations Chile, an increasing number of Chilean exporters just recently,35  sail directly from Valparaiso to Hong have established themselves in China as a  way to Kong without intermediate stops but charge consid- reduce costs and improve their control over prices, erably higher freight rates. The cost of shipping using negotiating directly with local buyers at the port of this type of ship is $1.3 per kg, more than 17 times the entry but also in an explicit effort to reach the deep- cost of a regular shipment of fruits to Asia, but despite er markets in the interior. the higher cost it now dominates among exporters. An alternative way is to fly cherries to China during Close cooperation between Chinese and Chilean November and December and to take advantage of counterparts have allowed for the creation of spe- the higher prices during that period. Shipping cher- cial contracts to transport cherries in ships that ries by air costs around $3.6  per kg, but only takes move faster across the ocean. Now Chilean export- four days to get to China.36 This method is used by ers and ships can go straight from the coasts of Chile only a  handful of exporters who aim to take advan- to Hong Kong in about 22 days, in contrast to 40 days tage of the higher prices observed in the Chinese a  few years ago. The purpose of this contract is to markets in December. The bulk of the exports is still guarantee the arrival of Chilean fruit to its destination transported during January by ship.   These contracts also include transport insurance to reduce the risks of food mismanagement, losses, and late deliveries. 34 35   Both Hapag-Lloyd and Hamburg Sud started their ‘Cherry Express’ operations in the 2016/17 season in Chile.  Information retrieved from: https://www.mundomaritimo.cl/noticias/china-se-convierte-en-el-mercado-mas-importante-de-la-cereza- 36 chilena, and http://impresa.lasegunda.com/2018/11/28/A/VG3GNDCH/all. 62 © 2020 The World Bank Group Policy Recommendations 5. Policy Recommendations are predominantly small scale, face difficulties in ac- quiring financial resources that would allow for the procurement of higher quality inputs, modernization The findings of the report point to the need to in- of production methods, improved irrigation or ex- crease the quantity, quality, sophistication and pansion of operations. While banks have developed sustainability of Central Asian fresh fruit exports products for agricultural borrowers, interest rates for them to be competitive in Chinese fruit mar- remain high, and the requirements to obtain financ- kets and other evolving global fresh fruit markets. ing are complicated and unclear to most small-scale To realize their export potential, the Central Asian producers. Limited access to finance is one of the countries would need to overcome a number of con- primary reasons behind the current high level of in- straints that can be grouped as follows: formality of Central Asian fruit exports to the Russian markets—since local producers are short on working The supply of large volumes of fruit of a consistent capital, they are more eager to make quick, and less quality required by the large and sophisticated im- formal, sales to ensure the fast turnover of available port markets, such as in China and in the formal re- funds. tail sector in Russia, can only be achieved by inte- grating Central Asian smallholder fruit producers To ensure that Central Asian fruit producers are into the value chain. To enter both the Chinese and competitive in world horticulture markets, they higher-end Russian markets, Central Asian export- need to be up-to-date with the latest knowledge ers need to be able to supply large volumes of fruit on fruit production and handling. Horticulture is of consistently high quality and in a timely manner. a highly technical and knowledge-dependent indus- Such a  requirement is in line with evolving global try. Stakeholders across all the surveyed countries fruit markets that are becoming more concentrated pointed to the lack of up-to-date technical knowl- at the retail level with the key players preferring edge among small scale fruit producers in Central to deal with fewer, larger suppliers to cut down on Asia. As such, to sustain growth of the fruit sector transaction costs. Central Asian producers will be in the country, Central Asian governments need to able to supply large volumes of quality fruit by im- invest in human capacity building and knowledge proving the cooperation of small-holder producers. generation to ensure research findings, best prac- The role of the government in this case could be to tices and technologies are delivered to the fruit introduce different forms of government support to producers. Extension services need to offer edu- farmers that engage in cooperation and to educate cational programs for farmers on plant care, high- producers on the benefits of cooperation and knowl- yield varieties of fruits, post-harvest handing of the edge sharing. fruit, and necessity of fruit calibration. With this they need to raise awareness and recognition among Access to high quality inputs—irrigation, seeds, the producers about the problems created by tra- fertilizer and finance—is a prerequisite for Central ditional approaches to the production and handling Asian farmers to obtain yields comparable to of fresh fruit that have limited consideration for the world leading horticulture producers. The study food safety and quality requirements of international showed that across the region, fruit producers, who markets. © 2020 The World Bank Group 63 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Post-harvest, an efficient cold chain is critical urgently need to invest in establishing internation- to ensure a  steady and reliable supply of quality ally recognized laboratories equipped with modern fruit. The lack of sufficient and efficient cold chain equipment and to develop educational programs to infrastructure is a  major contributor to fruit losses train food quality experts. Increasingly, strict food in Central Asian countries, undermining the com- safety and quality requirements for fruit imports are petitiveness of exporters in the export markets. In not unique to China or Russia but serve as a reflec- all three analyzed countries, current cold chain stor- tion of the ongoing changes that have been shap- age capacity is insufficient to meet the demand ing the global horticulture trade, creating an urgency for storing horticultural produce. For example, in for the Central Asian government to adapt. Growing Uzbekistan, existing storage is enough to store less and increasingly more affluent middle-class consum- than 3 percent of planned fruit and vegetable output ers around the world are shifting their dietary prefer- by 2020. And while Uzbekistan has been heavily in- ence to more diverse, healthier and higher quality vesting in cold chain capacity, the Kyrgyz Republic foods, stimulating an increased public awareness and Tajikistan need to more actively stimulate in- with regards to food safety. In developed and mid- vestments in this area. dle-income countries these trends have been ac- companied by a tightening of existing requirements The ability of Central Asian governments to imple- and standards for food quality and safety. Similar ment sophisticated, internationally recognized trends are observed in the formal retail chains that food safety and quality control systems would be are expanding in both developed and developing a determining factor to reach their horticulture ex- countries. As such, horticulture chains around the port potential. At the government level, the quality world are becoming increasingly more formal, trans- and capacity of customs control and inspection bod- parent and concentrated, necessitating reforms in ies do not meet the requirements of modern horti- the Central Asian horticulture sectors for them to culture markets, putting Central Asian exporters at stay relevant in the global fruit trade. a  disadvantage vis-à-vis their global competitors. For example, Central Asian food testing laborato- Investment in R&D has proven to be critical in en- ries are not recognized by Chinese markets as they suring the competitiveness of the world leading lack modern technology and up-to-date training of horticulture exporters—without such investments personnel (Euromonitor International, 2017). Current Central Asian countries will not be able to realize fruit exporters from Central Asia are ‘hand-picked’ their horticulture export potential. Examples from by Chinese counterparts, which limits overall export both Turkey and Chile show that investments in R&D volumes from the region. Moving forward this would (both public and private) have played a critical role remain the most important constraint for increas- in ensuring the success of horticulture exports from ing horticulture export potential from the Central these two countries in Chinese and Russian markets. Asian countries to China or other higher-end mar- Until Central Asian governments recognize the im- kets. While the Central Asian governments already portance of investing in R&D to increase overall fruit understand the problematic food safety and quality production and varieties grown in the region, their control areas and are developing plans to improve exporters will remain less competitive in internation- these, much remains to be done. Governments al markets. As the report shows, the development of 64 © 2020 The World Bank Group Policy Recommendations early varieties of fruits can immediately give Central field for Central Asian exporters in world markets. Asian countries a competitive boost in their destina- While the Kyrgyz Republic and Tajikistan are already tion markets. R&D spending becomes even more World Trade Organization (WTO) members and ben- important in the context of climate volatility that efit from MFN treatment, Uzbekistan needs to speed Central Asian countries are prone to and the need up WTO accession negotiations and finalize acces- to develop varieties that are more resilient to cli- sion. This will enable Uzbekistan to take greater ad- mate variability. The private and public sectors need vantage of the multilateral trading system. In addition, to closely cooperate in this area. Funding for these all the Central Asian countries concluding FTAs with centers should be driven largely by the commercial additional trading partners, including China, would applicability of their research. give them greater access to these markets. As the Chilean-Chinese trade relationship shows, signing Strengthening the digitization of the agriculture an FTA was a  key success factor for the increased sector can provide new ways to solve the existing Chilean presence in Chinese fruit markets. constraints to the participation of Central Asian exporters in new export markets. Digital technolo- Strengthening export promotion and marketing gies, such as new digital platforms and applications, will facilitate Central Asian penetration in new can reduce the existing transaction costs and mar- export markets. The results of the study highlight ket failures that prevail in the Central Asian horti- the competitive advantage of Central Asian fruit culture sector, improving its efficiency. Specifically, exports that is grounded in their competitive cost digitalization of the sector can provide various structure. However, Central Asian countries also stakeholders along the value chain with direct ac- have a  strong potential to increase their competi- cess to information about input and product mar- tive advantage based on product differentiation. kets, including international markets, reducing their Such a strategy is a more secure route for captur- reliance on traditional intermediaries, and better ing higher-end markets and maintaining margins. aligning production with demand. Digital solutions, Product differentiation may involve more skill in such as digital advisory services, can also be used production and processing, greater capital inputs, to improve the knowledge base of the horticulture greater innovation capabilities, or simply an im- producers by offering information on production and proved approach to marketing and export promo- post-harvest methods, on-farm storage techniques, tion (Labaste, 2015). The Chilean example present- use of new technology, fertilizers and agro-chemi- ed in the report highlights the role that governments cals, standards, and financial management. Digital can play in marketing and promoting horticulture technologies also have the potential to improve the exports. Central Asian apricots, especially Tajik and delivery of public policies and services. For example, Uzbek produce, are believed to have higher nutri- digitization can increase the efficiency and reliability tional qualities than competitive offerings, howev- of traceability systems, customs management and er, international buyers and consumers, including trade logistics (OECD, 2018b). Chinese ones, are not aware of their quality, taste and nutritional value. A similar situation is observed Expanding participation in multilateral and bilateral for Central Asian grapes. Central Asian govern- trade agreements will create a more level playing ments can support their exporters by facilitating © 2020 The World Bank Group 65 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets and promoting their participation in international While the region faces similar general constraints trade expositions and other trade promotional along the value chain, the urgency to tackle specif- events, particularly in the priority markets. Central ic bottlenecks varies across countries. Addressing Asian governments also need to strengthen or cre- some of these constraints are already part of ongo- ate a  presence for their trade representatives in ing programs/projects undertaken by governments, the target export countries. In addition, improving or by international organizations. In these cases, producer access to market information is needed there is a need to ensure that these activities remain to improve transparency of the value chain. To stay on track and/or are expedited. In other cases, gov- competitive in international markets, fruit produc- ernments have introduced a limited effort to address ers need to have easy access to up-to-date mar- the existing constraints and doing so would require ket information. Governments need to target public a  coordinated effort in terms of implementation. In spending on increasing market research and data line with the report findings, based on the stake- collection to better understand end markets and holder interviews and literature review, areas for the costs associated with production. This will help government involvement across all three countries Central Asian producers to better adjust to existing in the short-, medium- and long-run are presented in global demand and any evolving trends. Tables 5.1, 5.2, and 5.3. 66 © 2020 The World Bank Group Table 5.1. Policy Recommendations—Kyrgyz Republic 1. Production & Marketing 2. Food Safety & Quality 3. Skills & Knowledge 4. Trade & Export Promotion 5. Regulatory Environment ƒƒ Strengthen linkages in the ƒƒ Upgrade equipment, testing and ƒƒ Provide capacity building to ƒƒ Continue developing eco- ƒƒ Enforce higher transpar- value chain to help integrate certification methods of food farmers on production and nomic and trade cooperation ency along the horticulture smallholder farmers into the safety laboratories post-harvest methods, on-farm with China, including for value chains to ensure better horticulture value chains: storage techniques, use of horticulture trade traceability along the fruit • Promote producer coop- ƒƒ Establish and disseminate quality new technology, fertilizers and value chains eration in the country and grading standards for fruits agro-chemicals, standards, and ƒƒ Prepare export promotion • Strengthening market financial management, through programs and initiatives as ƒƒ Remove cost and time redun- linkages between produc- ƒƒ Facilitate adoption of HACCP advisory and extension services, they relate to horticulture dancies at border crossings ers and aggregators/fruit systems by the private sector including digital ones buyers ƒƒ Provide information on ƒƒ Simplify administrative • Explore cluster approach ƒƒ Provide technical and financial ƒƒ Set up market information the import requirements procedures associated with for fruit cultivation support for exporters to adopt systems on horticulture markets, in trade-partner countries, fruit exports global quality standards domestic and international including those of the retail ƒƒ Improve access of the horti- chains culture producers to finance: ƒƒ Strengthen food safety training • Provide information programs ƒƒ Encourage and support about available financial the participation of Kyrgyz instruments ƒƒ Educate exporters on: horticulture exporters in • Develop new financial • Analyzing and identifying international trade fairs tools, particularly those market opportunities in global targeting smallholder horticulture markets, including Short-term priorities producers opportunities for exporting organic horticulture products ƒƒ Promote an increase in • Meeting requirements for the private investments in cold markets/supermarket chains, chain storage and post-har- including those in China and vest processing capacity Russia • Dealing with export paperwork • Customs procedures and regulations • Establishing direct contacts with importers in new mar- kets, including China © 2020 The World Bank Group • Financial mechanisms and risk reduction strategies to facilitate the start-up of export operations to new markets Policy Recommendations (table 5.1. continues next page) 67 68 (table 5.1. continued) 1. Food Safety & Quality 2. Production/Marketing 3. Digital Solutions 4. Transport Support development of modern Support development of service co- Equip related government agencies Address high rail and air trans- means for disease and pest operatives and private procurement with ICT systems to improve service portation costs monitoring companies that supply farmers with digitization inputs Improve road infrastructure Strengthen efficiency of the Create enabling environment for SPS inspection offices at border Improve access to fertilizer/planting private sector to introduce digital points material for smallholder farmers solutions in the horticulture sector Provide training and capac- Develop modern distribution Provide digital literacy training for Medium-term priorities ity building among govern- centers in the proximity of fruit farmers and exporters ment agencies to implement production © 2020 The World Bank Group standards Upgrade existing wholesale markets 1. R&D 2. Digital Solutions 3. Regulatory Environment Increase investment and capac- Continue investments in e-com- Continue efforts to create a more ity among R&D institutes for merce infrastructure enabling regulatory environment to development of local varieties attract domestic and foreign invest- priorities Long-term of horticulture crops Develop digital agriculture innova- ment into the horticulture sector tion hubs Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Table 5.2. Policy Recommendations—Tajikistan 1. Production & Marketing 2. Skills & Knowledge 3. Regulatory Environment 4. Trade & Export Promotion 5. Food Safety & Quality ƒƒ Strengthen linkages in the ƒƒ Provide capacity building to ƒƒ Enforce higher transparency ƒƒ Continue developing eco- ƒƒ Establish and disseminate value chain to help integrate farmers on production and along the horticulture value nomic and trade cooperation quality and grading stan- smallholder farmers into the post-harvest methods, on-farm chains with China, including for dards for fruits compatible horticulture value chains: storage techniques, use of horticulture trade with international markets • Promote producer coop- new technology, fertilizers and ƒƒ Strengthen formalization of eration in the country agro-chemicals, standards, and export channels ƒƒ Prepare export promotion ƒƒ Establish and enforce mini- • Strengthen market link- financial management, through programs and initiatives as mum residue level standards ages between producers advisory and extension services, ƒƒ Remove cost and time redundan- relates to horticulture and protocols per interna- and aggregators/fruit including digital ones cies at border crossings tional norms buyers ƒƒ Provide information on im- • Explore cluster approach ƒƒ Set up market information ƒƒ Abolish unnecessary administra- port requirements in trade- for fruit cultivation system on horticulture markets, tive procedures for exporters partner countries, including domestic and international those of retail chains ƒƒ Strengthen market linkages between producers and input ƒƒ Strengthen food safety training ƒƒ Encourage and support suppliers programs the participation of Tajik horticulture exporters in ƒƒ Improve access of the horti- ƒƒ Educate exporters on: international trade fairs culture producers to finance: • Analyzing and identifying • Provide information market opportunities in global about available financial horticulture markets, including Short-term priorities instruments opportunities for exporting • Develop new financial organic horticulture products tools, particularly those • Meeting requirements for targeting smallholder markets/supermarket chains, producers including those in China and Russia • Customs procedures and regulations • Dealing with export paperwork • Establishing direct contacts with importers in new markets, including China © 2020 The World Bank Group • Financial mechanisms and risk reduction strategies to facilitate the start-up of export operations to new markets Policy Recommendations (table 5.2. continues next page) 69 70 (table 5.2. continued) 1. Production/Marketing 2. Food Safety & Quality 3. Digital Solutions 4. Transport 5. Trade & Export Promotion ƒƒ Accelerate investment in ƒƒ Modernize and strengthen food ƒƒ Equip related government ƒƒ Address high rail and air ƒƒ Negotiate new trade modern irrigation systems safety surveillance in the country agencies with an ICT system to transportation costs agreements improve service digitization ƒƒ Reduce import barriers for ƒƒ Upgrade equipment, testing and ƒƒ Improve road infrastructure ƒƒ Strengthen trade diplomacy quality and performance- certification methods of food through Tajik embassies enhancing machinery and safety laboratories equipment ƒƒ Provide training and capacity ƒƒ Promote an increase in building among government Medium-term priorities private investments in cold agencies to implement standards chain storage and post-har- © 2020 The World Bank Group vest processing capacity ƒƒ Facilitate adoption of the HACCP systems by the private sector 1. Production/Marketing 2. R&D 3. Digital Solutions 4. Regulatory Environment ƒƒ Assess land ownership rules ƒƒ Increase investment and capac- ƒƒ Invest in e-commerce ƒƒ Continue efforts to create to allow greater flexibility of ity among R&D institutes for infrastructure a more enabling regula- land use and stronger land development of local varieties of tory environment to attract tenure security horticulture crops ƒƒ Create enabling environment for domestic and foreign invest- private sector to introduce digital ment into the horticulture ƒƒ Develop modern distribution solutions in the horticulture sector centers in the proximity of sector Long-term priorities fruit production ƒƒ Develop digital agriculture in- novation hubs Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Table 5.3. Policy Recommendations—Uzbekistan 1. Food Safety & Quality 2. Trade & Export Promotion 3. Skills & Knowledge 4. Regulatory Environment 5. Production/Marketing ƒƒ Accelerate International Plant ƒƒ Speed up WTO accession nego- ƒƒ Provide capacity building to ƒƒ Remove cost and time ƒƒ Strengthen linkages in the Protection Convention (IPCC) tiations to finalize Uzbekistan’s farmers on production and redundancies at border value chain to help integrate signatory procedure accession post-harvest methods, on-farm crossings smallholder farmers into storage techniques, use of the horticulture value chain ƒƒ Develop a Pest Risk Analysis ƒƒ Continue strengthening export new technology, fertilizers and ƒƒ Enforce higher transparency through cooperatives and capability that is credible to promotion programs and initia- agro-chemicals, standards, and along the horticulture value productive partnerships IPPC and its members tives as relates to horticulture financial management, through chains advisory and extension services, ƒƒ Promote an increase in ƒƒ Establish minimum residue ƒƒ Provide information on import including digital ones private investments in cold level standards and protocols requirements in trade-partner chain storage and post-har- per international norms countries, including those of the ƒƒ Educate exporters on: vest processing capacity retail chains • Analyzing and identifying ƒƒ Facilitate adoption of the market opportunities in global HACCP systems by the private ƒƒ Encourage and support the horticulture markets, including sector participation of Uzbek horticul- opportunities for exporting ture exporters in international organic horticulture products ƒƒ Provide technical and financial trade fairs • Meeting requirements for Short-term priorities support for the exporters to markets/supermarket chains, adopt global quality standards ƒƒ Open data availability for global including those in China and consumption by becoming sig- Russia natories to globally recognized • Dealing with export paperwork systems like UNCOMTRADE, ITC, • Establishing direct contacts and INTRACEN with importers in new mar- kets, including presentation and negotiation skills • Financial mechanisms and risk reduction strategies to facilitate the start-up of export operations to new markets (table 5.3. continues next page) © 2020 The World Bank Group Policy Recommendations 71 72 (table 5.3. continued) 1. Food Safety & Quality 2. Production/Marketing 3. Trade & Export Promotion 4. Transport 5. Digital Solutions ƒƒ Support establishment of ƒƒ Improve access to fertilizer/ ƒƒ Make use of the full range of ƒƒ Address high rail and air ƒƒ Provide digital literacy train- local branches of international planting material for smallholder WTO transparency mechanisms transportation costs ing for farmers and exporters certifying agencies farmers ƒƒ Negotiate new trade agreements ƒƒ Improve road infrastructure ƒƒ Create enabling environ- ƒƒ Provide training and capacity ƒƒ Improve access to finance for ment for private sector to building among government different types of producers ƒƒ Expand the network of Uzbek introduce digital solutions in agencies to implement trading houses the horticulture sector standards ƒƒ Accelerate investment in modern irrigated systems ƒƒ Strengthen trade diplomacy ƒƒ Develop digital agriculture ƒƒ Establish a network of SPS through Uzbek embassies innovation hubs inspection offices at border ƒƒ Reduce import barriers for qual- © 2020 The World Bank Group points ity and performance-enhancing ƒƒ Equip related govern- Medium-term priorities machinery and equipment ment agencies with an ICT system to improve service ƒƒ Develop a modern agro-logistics digitization network through the creation of multimodal trade-logistics centers in the proximity of fruit production 1. 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Agri-Food Trade Between Central Asia and China The Kyrgyz Republic: Export, Import, and Balance of Trade with China (2016–2018), Million USD37 2016 2017 2018 Code Name Export Import Net Export Import Net Export Import Net 01 Live Animals 0.16 0.02 0.14 1.26 0.00 1.26 2.36 0.00 2.36 02 Meat 0.02 8.67 -8.65 0.00 0.12 -0.12 0.00 0.00 0.00 03 Fish 0.00 0.11 -0.11 0.00 0.07 -0.07 0.00 0.27 -0.27 04 Dairy 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 05 Animal products 0.02 0.01 0.01 0.62 0.12 0.50 0.02 0.01 0.01 06 Live plants 0.00 0.09 -0.09 0.00 0.04 -0.04 0.00 0.05 -0.05 07 Vegetables 0.02 8.12 -8.10 0.00 3.11 -3.11 0.00 0.99 -0.99 08 Fruits and nuts 0.56 15.12 -14.56 1.10 8.05 -6.95 1.32 13.65 -12.33 080929 Other Cherries 0.03 0.00 0.03 0.15 0.00 0.15 0.22 0.00 0.22 080610 Fresh Grapes 0.00 0.82 -0.82 0.00 0.02 -0.02 0.00 0.02 -0.02 080620 Dried Grapes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 080231 Walnuts, in shell 0.00 0.00 0.00 0.00 0.41 -0.41 0.00 3.18 -3.18 080232 Walnuts, shelled 0.34 0.00 0.34 0.13 0.35 -0.21 0.00 0.98 -0.98 080940 Plums and sloes 0.00 0.05 -0.05 0.00 0.02 -0.02 0.00 0.00 0.00 081320 Prunes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 080910 Fresh Apricots 0.00 0.07 -0.07 0.00 0.00 0.00 0.00 0.00 0.00 081310 Dried Apricots 0.16 0.77 -0.61 0.76 0.04 0.73 0.95 0.00 0.95 09 Coffee, tea, spices 0.00 1.17 -1.17 0.00 0.93 -0.93 0.00 0.97 -0.97 10 Cereals 0.00 0.03 -0.03 0.00 0.07 -0.07 0.00 0.04 -0.04 11 Flour and cereal products 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 12 Oilseeds and fruits 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 13 Lac, gums, resins 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 14 Other plant materials 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 15 Fats and oils 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 16 Prepared meats and fish 0.14 0.11 0.03 0.05 0.28 -0.23 0.02 0.19 -0.18 17 Sugars and sugar confectionery 0.00 0.80 -0.80 0.04 0.29 -0.26 0.00 1.10 -1.09 18 Cocoa and cocoa preparations 0.00 0.04 -0.04 0.04 0.13 -0.09 0.03 0.10 -0.06 19 Flour preparations 0.16 0.13 0.03 0.22 0.05 0.17 0.30 0.06 0.25 20 Vegetable, fruit, nut preparations 0.00 1.11 -1.11 0.01 1.34 -1.33 0.01 1.20 -1.19 21 Miscellaneous edible preparations 0.01 3.17 -3.16 0.00 3.78 -3.78 0.00 4.31 -4.31 22 Beverages, spirits and vinegar 0.63 0.11 0.52 0.39 0.46 -0.07 0.18 0.13 0.05 23 Food waste and animal fodder 0.00 0.14 -0.14 0.08 0.14 -0.06 0.01 0.14 -0.13 24 Tobacco and substitutes 10.07 1.16 8.91 21.92 0.72 21.20 10.30 0.01 10.30 Total: Product groups 1-24 11.79 40.11 -28.32 25.73 19.70 6.03 14.56 23.21 -8.65 5201 Cotton, not carded or combed 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.40 5202 Cotton waste 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5203 Cotton, carded, combed 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total 11.79 40.11 -28.32 25.73 19.70 6.03 14.56 23.21 -8.65   UN COMTRADE. 37 © 2020 The World Bank Group 77 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Tajikistan: Export, Import, and Balance of Trade with China (2016–2018), Million USD38 2015 2016 2017 Code Name Export Import Net Export Import Net Export Import Net 01 Live Animals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 02 Meat 0.00 2.35 -2.35 0.00 1.01 -1.01 0.00 5.36 -5.36 03 Fish 0.00 0.01 -0.01 0.00 0.00 0.00 0.00 0.00 0.00 04 Dairy 0.06 0.00 0.06 0.00 0.00 0.00 0.00 0.20 -0.20 05 Animal products 0.05 0.07 -0.02 0.09 0.10 -0.01 0.10 0.09 0.01 06 Live plants 0.00 0.00 0.00 0.00 0.01 -0.01 0.00 0.01 -0.01 07 Vegetables 0.00 0.23 -0.23 0.00 0.22 -0.22 0.00 0.03 -0.03 08 Fruits and nuts 0.20 2.16 -1.95 0.15 0.54 -0.39 0.12 0.18 -0.06 080929 Other Cherries 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 080610 Fresh Grapes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 080620 Dried Grapes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 080231 Walnuts, in shell 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 080232 Walnuts, shelled 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 080940 Plums and sloes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 081320 Prunes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 080910 Fresh Apricots 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 081310 Dried Apricots 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 09 Coffee, tea, spices 0.00 2.24 -2.24 0.00 3.32 -3.32 0.00 2.64 -2.64 10 Cereals 0.00 0.47 -0.47 0.00 0.28 -0.28 0.00 0.39 -0.39 11 Flour and cereal products 0.00 0.05 -0.05 0.00 0.04 -0.04 0.00 0.21 -0.21 12 Oilseeds and fruits 0.03 0.32 -0.29 0.03 0.43 -0.39 0.00 0.76 -0.76 13 Lac, gums, resins 0.02 0.03 -0.01 0.00 0.01 -0.01 0.00 0.02 -0.02 14 Other plant materials 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 15 Fats and oils 0.00 0.43 -0.43 0.00 0.00 0.00 0.00 0.02 -0.02 16 Prepared meats and fish 0.00 0.02 -0.02 0.00 0.01 -0.01 0.00 0.00 0.00 17 Sugars and sugar confectionery 0.00 0.03 -0.03 0.00 0.20 -0.20 0.00 0.18 -0.18 18 Cocoa and cocoa preparations 0.02 0.00 0.02 0.03 0.02 0.01 0.00 0.03 -0.03 19 Flour preparations 0.00 0.25 -0.25 0.01 0.08 -0.07 0.00 0.07 -0.07 20 Vegetable, fruit, nut preparations 0.00 0.41 -0.41 0.00 0.72 -0.72 0.00 0.63 -0.63 21 Miscellaneous edible preparations 0.04 1.43 -1.39 0.00 0.95 -0.95 0.00 1.64 -1.64 22 Beverages, spirits and vinegar 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 23 Food waste and animal fodder 0.00 0.02 -0.02 0.00 0.02 -0.02 0.00 0.02 -0.02 24 Tobacco and substitutes 0.00 0.00 0.00 0.09 0.00 0.09 0.00 0.00 0.00 Total: Product groups 1-24 0.42 10.52 -10.09 0.39 7.96 -7.55 0.22 12.48 -12.26 5201 Cotton, not carded or combed 1.48 0.00 1.48 1.52 0.00 1.52 0.50 0.00 0.50 5202 Cotton waste 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5203 Cotton, carded, combed 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total 1.90 10.52 -8.61 1.91 7.96 -6.03 0.72 12.48 -11.76   National statistics. 38 78 © 2020 The World Bank Group Annex 1. Agri-Food Trade Between Central Asia and China Uzbekistan: Export, Import, and Balance of Trade with China (2016–2018), Million USD39 2016 2017 2018 Code Name Export Import Net Export Import Net Export Import Net 01 Live Animals 0.00 0.00 0.00 0.01 0.00 -0.01 0.00 0.00 0.00 02 Meat 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 03 Fish 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 04 Dairy 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 05 Animal products 2.33 3.57 -1.24 1.52 3.96 -2.44 1.70 5.56 -3.86 06 Live plants 0.00 0.00 0.00 0.00 0.10 -0.10 0.00 7.95 -7.95 07 Vegetables 0.00 0.46 -0.46 0.00 0.25 -0.25 24.45 0.52 23.93 08 Fruits and nuts 28.15 8.94 19.21 17.37 3.18 14.18 21.75 4.66 17.09 080929 Other Cherries 0.00 0.00 0.00 0.00 0.00 0.00 0.60 0.00 0.60 080610 Fresh Grapes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 080620 Dried Grapes 27.71 0.00 27.71 16.36 0.00 0.00 20.50 0.00 20.50 080231 Walnuts, in shell 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 080232 Walnuts, shelled 0.18 0.00 0.18 0.00 0.00 0.00 0.00 0.00 0.00 080940 Plums and sloes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 081320 Prunes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 080910 Fresh Apricots 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 081310 Dried Apricots 0.00 0.00 0.00 0.01 0.00 0.01 0.13 0.00 0.13 09 Coffee, tea, spices 0.00 51.53 -51.53 0.00 35.47 -35.47 0.00 36.02 -36.02 10 Cereals 0.00 0.00 0.00 0.00 0.01 -0.01 0.00 0.06 -0.06 11 Flour and cereal products 0.00 0.47 -0.47 0.00 0.26 -0.26 0.00 0.59 -0.59 12 Oilseeds and fruits 4.40 1.72 2.68 2.55 2.29 0.26 2.16 2.03 0.13 13 Lac, gums, resins 18.71 0.70 18.01 20.35 1.18 19.17 18.56 1.13 17.43 14 Other plant materials 11.20 0.01 11.19 1.32 0.01 1.31 0.00 0.01 -0.01 15 Fats and oils 0.00 0.53 -0.53 0.00 0.40 -0.40 0.00 0.20 -0.20 16 Prepared meats and fish 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.03 -0.03 17 Sugars and sugar confectionery 0.03 0.82 -0.79 0.05 0.95 -0.90 0.04 1.13 -1.08 18 Cocoa and cocoa preparations 0.04 0.31 -0.28 0.03 0.25 -0.22 0.08 0.20 -0.12 19 Flour preparations 0.06 0.03 0.03 0.11 0.06 0.05 0.04 0.00 0.04 20 Vegetable, fruit, nut preparations 0.06 0.41 -0.35 0.22 1.32 -1.10 0.05 0.29 -0.24 21 Miscellaneous edible preparations 0.00 2.97 -2.97 0.00 2.89 -2.89 0.00 0.92 -0.92 22 Beverages, spirits and vinegar 0.54 0.00 0.54 0.20 0.00 0.20 0.22 0.00 0.22 23 Food waste and animal fodder 2.01 0.14 1.87 2.20 0.21 1.99 2.01 0.27 1.73 24 Tobacco and substitutes 0.00 2.49 -2.49 0.00 1.77 -1.77 0.00 0.28 -0.28 Total: Product groups 1-24 67.53 75.10 -7.57 45.93 54.56 -8.63 71.06 61.85 9.21 5201 Cotton, not carded or combed 61.36 0.00 61.36 109.62 0.00 109.62 71.00 0.00 71.00 5202 Cotton waste 1.89 0.00 1.89 1.48 0.00 1.48 0.14 0.00 0.14 5203 Cotton, carded, combed 11.00 0.00 11.00 159.12 0.00 159.12 258.06 0.00 258.06 Total 141.78 75.10 66.68 316.15 54.57 261.58 400.26 61.89 338.37   National Statistics Agency of the Republic of Uzbekistan. 39 © 2020 The World Bank Group 79 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Annex 2. Agri-Food Trade Between Central Asia and Russia The Kyrgyz Republic: Export, Import, and Balance of Trade with Russia (2016–2018), Million USD40 2016 2017 2018 Code Name Export Import Net Export Import Net Export Import Net 01 Live Animals 0.00 0.10 -0.10 0.00 0.33 -0.33 0.08 0.05 0.03 02 Meat 0.00 10.87 -10.87 0.00 19.99 -19.99 0.00 18.00 -18.00 03 Fish 0.00 2.02 -2.02 0.11 2.19 -2.08 0.38 2.66 -2.28 04 Dairy 11.66 5.52 6.14 13.59 8.04 5.55 15.66 8.53 7.13 05 Animal products 0.00 0.02 -0.02 0.00 0.11 -0.11 0.00 0.10 -0.10 06 Live plants 0.00 0.03 -0.03 4.79 0.03 4.77 0.20 0.04 0.16 07 Vegetables 10.83 0.08 10.75 19.96 0.23 19.73 7.29 0.19 7.10 08 Fruits and nuts 9.34 0.05 9.29 18.17 2.93 15.24 14.69 3.01 11.68 080929 Other Cherries 0.00 0.00 0.00 0.17 0.00 0.17 1.45 0.00 1.45 080610 Fresh Grapes 0.23 0.00 0.23 1.08 0.00 1.08 1.03 0.00 1.03 080620 Dried Grapes 0.00 0.00 0.00 0.00 0.00 0.00 0.48 0.00 0.00 080231 Walnuts, in shell 0.07 0.00 0.07 0.24 0.00 0.24 0.22 0.00 0.22 080232 Walnuts, shelled 0.00 0.00 0.00 0.08 0.00 0.08 0.55 0.00 0.55 080940 Plums and sloes 0.56 0.00 0.56 0.49 0.00 0.49 0.25 0.00 0.25 081320 Prunes 0.01 0.00 0.01 0.57 0.00 0.57 2.36 0.00 2.36 080910 Fresh Apricots 0.39 0,00 0.39 1.25 0.00 1.25 1.77 0.00 1.77 081310 Dried Apricots 0.00 0.00 0.00 1.60 0.00 1.60 1.43 0.00 1.43 09 Coffee, tea, spices 0.00 3.17 -3.17 0.15 6.64 -6.49 0.49 7.05 -6.56 10 Cereals 0.11 1.34 -1.23 0.06 0.78 -0.72 0.09 3.80 -3.70 11 Flour and cereal products 0.00 4.49 -4.49 0.00 7.10 -7.10 0.00 7.65 -7.65 12 Oilseeds and fruits 0.06 0.03 0.03 0.27 0.08 0.19 0.31 0.22 0.09 13 Lac, gums, resins 0.00 0.01 -0.01 0.00 0.06 -0.06 0.00 0.12 -0.12 14 Other plant materials 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 15 Fats and oils 0.00 36.04 -36.04 0.01 39.75 -39.74 0.02 37.30 -37.28 16 Prepared meats and fish 0.00 1.93 -1.93 0.00 4.89 -4.89 0.00 2.78 -2.78 17 Sugars and sugar confectionery 0.03 9.04 -9.01 0.45 21.31 -20.86 0.07 17.45 -17.38 18 Cocoa and cocoa preparations 0.00 29.49 -29.49 0.14 35.56 -35.42 0.02 33.12 -33.10 19 Flour preparations 0.01 27.15 -27.14 0.44 31.76 -31.33 0.14 33.70 -33.56 20 Vegetable, fruit, nut preparations 0.26 10.15 -9.89 0.46 13.43 -12.97 0.85 15.28 -14.43 21 Miscellaneous edible preparations 0.93 7.33 -6.40 13.08 1.73 11.36 1.74 15.01 -13.27 22 Beverages, spirits and vinegar 0.06 11.31 -11.25 15.07 0.35 14.72 0.11 17.35 -17.24 23 Food waste and animal fodder 0.00 1.40 -1.40 1.41 0.00 1.41 0.00 2.30 -2.30 24 Tobacco and substitutes 1.11 19.15 -18.04 13.74 0.22 13.52 0.22 13.00 -12.78 Total: Product groups 1-24 34.39 180.73 -146.34 101.91 197.50 -95.59 42.37 238.71 -196.34 5201 Cotton, not carded or combed 5.71 0.00 5.71 0.00 0.00 0.00 14.48 0.00 14.48 5202 Cotton waste 0.09 0.00 0.09 0.00 0.00 0.00 0.00 0.00 0.00 5203 Cotton, carded, combed 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total 40.19 180.73 -140.54 101.91 197.50 -95.59 56.85 238.71 -181.86   UN COMTRADE. 40 80 © 2020 The World Bank Group Annex 2. Agri-Food Trade Between Central Asia and Russia Tajikistan: Export, Import, and Balance of Trade with Russia (2016–2018), Million USD41 2015 2016 2017 Code Name Export Import Net Export Import Net Export Import Net 01 Live Animals 0.00 0.26 -0.26 0.00 0.34 -0.34 0.00 0.53 -0.53 02 Meat 0.00 2.97 -2.97 0.00 2.31 -2.31 0.00 4.35 -4.35 03 Fish 0.00 0.66 -0.66 0.00 1.45 -1.45 0.00 3.24 -3.24 04 Dairy 0.00 6.69 -6.69 0.00 8.09 -8.09 0.00 5.86 -5.86 05 Animal products 0.02 0.01 0.01 0.00 0.00 0.00 0.00 0.01 -0.01 06 Live plants 0.00 0.34 -0.34 0.00 0.08 -0.08 0.00 0.13 -0.13 07 Vegetables 0.07 1.25 -1.17 0.04 2.25 -2.21 0.11 0.88 -0.77 08 Fruits and nuts 1.33 0.22 1.11 1.79 0.14 1.64 2.37 0.05 2.32 080929 Other Cherries 0.09 0.00 0.09 0.19 0.00 0.19 0.17 0.00 0.17 080610 Fresh Grapes 0.08 0.00 0.08 0.66 0.00 0.66 0.30 0.00 0.30 080620 Dried Grapes 0.10 0.00 0.10 0.00 0.00 0.00 0.01 0.00 0.01 080231 Walnuts, in shell 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 080232 Walnuts, shelled 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.00 0.01 080940 Plums and sloes 0.02 0.00 0.02 0.00 0.00 0.00 0.00 0.00 0.00 081320 Prunes 0.12 0.00 0.12 0.07 0.00 0.07 0.11 0.00 0.11 080910 Fresh Apricots 0.23 0.00 0.23 0.02 0.00 0.02 0.22 0.00 0.22 081310 Dried Apricots 0.51 0.00 0.51 0.66 0.00 0.66 0.91 0.00 0.91 09 Coffee, tea, spices 0.00 0.52 -0.52 0.02 0.91 -0.89 0.00 1.46 -1.46 10 Cereals 0.00 0.44 -0.44 0.00 0.08 -0.08 0.00 0.63 -0.63 11 Flour and cereal products 0.00 6.28 -6.28 0.00 5.68 -5.68 0.00 5.39 -5.39 12 Oilseeds and fruits 0.00 0.11 -0.11 0.02 0.28 -0.26 0.08 0.52 -0.44 13 Lac, gums, resins 0.00 0.01 -0.01 0.00 0.00 0.00 0.00 0.00 0.00 14 Other plant materials 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 15 Fats and oils 0.00 43.19 -43.19 0.00 63.68 -63.68 0.00 47.70 -47.70 16 Prepared meats and fish 0.00 0.79 -0.79 0.00 1.02 -1.02 0.00 1.24 -1.24 17 Sugars and sugar confectionery 0.00 19.36 -19.36 0.00 18.65 -18.65 0.00 6.00 -6.00 18 Cocoa and cocoa preparations 0.00 18.73 -18.73 0.00 18.21 -18.21 0.00 16.77 -16.77 19 Flour preparations 0.00 23.56 -23.56 0.00 23.36 -23.36 0.00 20.98 -20.98 20 Vegetable, fruit, nut preparations 0.15 2.97 -2.82 0.11 3.50 -3.39 0.27 5.32 -5.05 21 Miscellaneous edible preparations 0.00 6.25 -6.25 0.00 8.96 -8.96 0.00 11.13 -11.13 22 Beverages, spirits and vinegar 0.00 8.02 -8.02 0.03 8.55 -8.52 0.00 11.27 -11.27 23 Food waste and animal fodder 0.00 3.63 -3.63 0.00 3.30 -3.30 0.00 3.04 -3.04 24 Tobacco and substitutes 0.06 4.82 -4.77 0.00 4.82 -4.82 0.00 4.74 -4.74 Total: Product groups 1-24 1.64 151.09 -149.45 2.01 175.67 -173.66 2.83 151.25 -148.43 5201 Cotton, not carded or combed 20.50 0.00 20.50 16.31 0.00 16.31 24.82 0.00 24.82 5202 Cotton waste 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5203 Cotton, carded, combed 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total 22.14 151.09 -128.95 18.32 175.67 -157.35 27.64 151.25 -123.61   UN COMTRADE, mirror statistics. 41 © 2020 The World Bank Group 81 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Uzbekistan: Export, Import, and Balance of Trade with Russia (2016–2018), Million USD42 2016 2017 2018 Code Name Export Import Net Export Import Net Export Import Net 01 Live Animals 0.80 0.22 0.58 1.57 0.85 0.71 0.77 1.16 -0.39 02 Meat 0.00 0.08 -0.08 0.00 1.04 -1.04 0.00 0.97 -0.97 03 Fish 0.00 0.29 -0.29 0.00 0.34 -0.34 0.00 0.90 -0.90 04 Dairy 0.03 1.86 -1.83 0.00 4.15 -4.15 0.00 4.21 -4.21 05 Animal products 0.03 0.25 -0.22 0.08 0.04 0.04 0.58 0.31 0.27 06 Live plants 0.43 0.11 0.32 0.57 0.05 0.52 0.38 0.04 0.34 07 Vegetables 27.41 1.35 26.07 34.95 3.26 31.69 56.71 4.34 52.37 08 Fruits and nuts 60.87 0.26 60.61 84.00 0.08 83.92 114.00 0.09 113.91 080929 Other Cherries 9.55 0.00 9.55 13.62 0.00 13.62 11.50 0.00 11.50 080610 Fresh Grapes 17.27 0.00 17.27 28.31 0.01 28.30 38.17 0.00 38.17 080620 Dried Grapes 1.11 0.00 1.11 2.27 0.00 2.27 5.38 0.00 5.38 080231 Walnuts, in shell 0.00 0.00 0.00 0.01 0.00 0.01 0.01 0.00 0.01 080232 Walnuts, shelled 0.01 0.00 0.01 0.66 0.00 0.66 2.02 0.00 2.02 080940 Plums and sloes 2.63 0.00 2.63 3.59 0.00 3.59 4.65 0.00 4.65 081320 Prunes 0.19 0.00 0.19 0.73 0.00 0.73 2.39 0.00 2.39 080910 Fresh Apricots 10.48 0.00 10.48 5.02 0.00 5.02 12.00 0.00 12.00 081310 Dried Apricots 0.34 0.00 0.34 0.71 0.00 0.71 1.21 0.00 1.21 09 Coffee, tea, spices 2.08 0.26 1.83 2.07 0.69 1.38 2.91 1.51 1.40 10 Cereals 0.00 9.49 -9.49 0.00 1.47 -1.47 0.00 8.80 -8.80 11 Flour and cereal products 0.00 9.72 -9.72 0.01 10.20 -10.20 0.00 13.09 -13.09 12 Oilseeds and fruits 0.66 1.37 -0.71 0.55 1.92 -1.37 2.57 2.00 0.57 13 Lac, gums, resins 0.00 0.12 -0.12 0.00 0.11 -0.11 0.00 0.47 -0.47 14 Other plant materials 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 15 Fats and oils 0.00 160.07 -160.07 0.01 134.70 -134.69 0.06 137.95 -137.89 16 Prepared meats and fish 0.00 0.18 -0.18 0.00 0.32 -0.32 0.00 0.63 -0.63 17 Sugars and sugar confectionery 0.08 1.67 -1.59 0.20 51.65 -51.45 0.14 54.59 -54.45 18 Cocoa and cocoa preparations 0.88 17.36 -16.48 2.02 22.49 -20.47 1.95 25.04 -23.09 19 Flour preparations 0.25 21.01 -20.75 0.37 24.82 -24.45 0.32 26.57 -26.25 20 Vegetable, fruit, nut preparations 9.70 3.14 6.56 14.42 3.90 10.52 10.29 7.93 2.36 21 Miscellaneous edible preparations 0.00 16.00 -16.00 0.13 21.71 -21.58 0.21 35.93 -35.72 22 Beverages, spirits and vinegar 8.24 8.64 -0.40 12.57 5.30 7.27 9.57 1.24 8.34 23 Food waste and animal fodder 0.00 29.71 -29.71 0.00 14.93 -14.93 0.00 24.77 -24.77 24 Tobacco and substitutes 2.77 1.26 1.51 2.97 0.75 2.22 0.56 1.23 -0.67 Total: Product groups 1-24 114.25 284.41 -170.16 156.49 304.77 -148.29 201.03 353.77 -152.74 5201 Cotton, not carded or combed 14.87 0.00 14.87 5.15 0.00 5.15 3.45 0.00 3.45 5202 Cotton waste 3.23 0.00 3.23 10.00 0.00 100.00 7.74 0.00 7.74 5203 Cotton, carded, combed 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total 132.34 284.41 -152.07 171.63 304.77 -133.14 212.22 353.77 -141.56   UN COMTRADE, mirror statistics. 42 82 © 2020 The World Bank Group Annex 3. Export Competitiveness Analysis—Description of Methods Annex 3. Export Competitiveness Analysis— Description of Methods Revealed comparative advantage may have high exports and RCA, but greater produc- tion would make society as a whole worse off. In addi- The revealed comparative advantage index is de- tion, RCA is “static”—it does not demonstrate whether fined as the relative weight of exports of a commod- or not the current level of specialization is above or ity in a nation’s total exports, relative to the share of below the long run equilibrium optimal level. If the that commodity in total world exports (Balassa, 1965) current trade patterns represent an equilibrium, then the fact that a  country has a  high RCA in a  product x ij does not imply that further specialization in that prod- RCA = ∑ i xij , uct would improve its welfare. Rather, the inference ∑ j xij from a high RCA that the country should expand its ∑ x i, j ij production of that commodity (relative to the expan- sion of production in the world at large), requires the where Xij stands for net exports of product j  from assumption that the current trade patterns are not al- country i. ready at some equilibrium state. In the case of coun- tries that are still in a state of transition from a previ- The RCA denotes relative efficiency indirectly, ous highly distorted trade environment, such as those based on trading patterns that emerge from actual in Central Asia, this is probably a reasonable assump- trade transactions. It indicates the extent to which tion. Nor do the traditional RCA calculations take suf- an exporting country captures world market share ficiently into account the key role of transport avail- for a  particular product relative to the degree with ability and cost. As long as these imperfections and which it captures the export market share for all trad- limitations are recognized, RCAs can be helpful as an ed goods. When RCA > 1, the country has a compara- analysis tool, as trade data is usually easily available, tive advantage in that commodity (and the higher the and the results of the analysis can provide a good in- RCA, the stronger the advantage), or a comparative dication of comparative advantage. disadvantage when RCA < 1. A negative value for the RCA indicates that the country is a  net importer of Domestic resource cost coefficient the product, which would not be considered a posi- tive indicator of competitiveness. Domestic resource cost coefficient compares the cost of domestic production with world prices: There are several limitations associated with the RCA d methodology. Specifically, RCA is based on actual cij DRCij = , patterns of trade, which may be strongly affected by pij − cij f a number of factors related to present or past policies that may distort markets. For example, if production where cd ij and cfij represent, respectively, domestic of a good is heavily subsidized by public funding, it and foreign input costs for country i’s production of © 2020 The World Bank Group 83 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets good j. The denominator of this fraction is the price are also often not readily available for many com- of a unit of the output (its undistorted border price, modities. It is also difficult to estimate shadow prices measured in foreign exchange) minus the cost of im- for non-tradables, such as labor, capital, and land, ported inputs needed to produce it—the net foreign given the absence of some of the required data and exchange generated (if the good is an export) or other issues. There are also complications in making saved (if it is an import substitute) by producing one empirical adjustments for tradable products. Border unit of product j domestically. prices must be adjusted by transport costs to make them comparable to farmgate prices. In addition, for DRCij < 1 is an indication that country i has a “com- products that are not traded in the same form in which parative advantage” in producing good j, that is, it they are produced on the farm, calculating a border costs less to produce a unit of the commodity than price equivalent to compare to the farmgate price it is worth. The smaller the DRCij is, the greater the requires an adjustment for processing costs. Finally, advantage would be. In DRC methodology all values policies induce shifts in production decisions that af- are “economic” values, that is, the value to society fect the coefficients of input use that are used in the as a  whole. Tradable goods prices are adjusted empirical calculation of the DRCs. For example, if fer- for taxes/tariffs/effects of quantitative trade restric- tilizer prices are artificially subsidized, farmers adopt tions/subsidies. Non-tradable goods are adjusted to more fertilizer intensive production technologies. So, “shadow prices.” Financial profitability is based on these distortions affect DRC calculations in a way that market prices, so will result in a “false” indication. cannot be fully corrected by simply adjusting prices. In recognition of the shortcomings of the objective in- There are several empirical difficulties associated with dicators of comparative advantage and competitive- estimating DRC. DRC is highly dependent on select- ness, the assessment of export competitiveness was ed costs and other assumptions that, when changed, guided by expert opinion from interviews with actual can affect outcomes. Data required to calculate DRCs market participants. 84 © 2020 The World Bank Group Annex 4. Chinese Fresh Fruit Import Requirements Annex 4. Chinese Fresh Fruit Import Requirements First time market access fruits that can be imported into China and from which requirements countries. The procedures involved in this process are detailed below (Figure A4.1): A set of procedures is required before any type of a) The competent quarantine authority of the ex- agricultural produce can be exported to China for porting country shall, according to the trade in- the first time.  The State Administration for Market 43 terest, submit an official application in written Regulation (SAMR) maintains a  list of permissible form to the General Administration of Quality Figure A4.1. AQSIQ Fresh Fruit Market Access Procedure LEGEND Exporting Country Responsibility Submission of official application with all necessary technical documents by AQSIQ competent authority of exporting country Responsibility Combined Responsibility Purpose: Conduction of Pest Risk Conduction of Pest Risk Purpose: Formation Management (PRM) Assessment (PRA) Establishment of a list of measures for pest of quarantine pests risk mitigation in concern including AQSIQ on-site visits during harvest season Communication between all involves parties on the proposed mitigation measures Drafting of protocol based on the results of the PRA and PRM To include visit Arrangement of protocol by Ministers, scheduling signing ceremony of exporting season Conduction of conformity audit Preparation and distribution Purpose: at production areas to AQSIQ of list of recommended To ensure satisfactory of exporting countries orchards and packaging houses implementation of protocol requirements Official announcement published on AQSIQ website and final approval letter issued Source: Produce Marketing Association (2016).   Legal basis: 43 1. Administrative Measures on Import and Export Food Safety Management 2011 (http://www.aqsiq.gov.cn/xxgk_13386/jlgg_12538/ zjl/2011/201210/t20121015_235120.htm) 2. Quarantine Access Procedures for Agricultural Products to be Imported to China for the First Time (http://www.aqsiq.gov.cn/ xxgk_13386/ywxx/dzwjy/201406/t20140626_416136.htm) © 2020 The World Bank Group 85 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Supervision, Inspection and Quarantine of the facilities and packaging companies. The regis- People’s Republic of China (AQSIQ), part of tration is carried out in accordance with relevant SAMR, for exporting agricultural products to AQSIQ regulations. In addition, according to Art. China with the name, variety, use and informa- 19  of the Administrative Measures on Import and tion of importers and exporters. Export Food Safety Management 2011, the inspec- b) AQSIQ will, according to the application, de- tion and quarantine institutions also implement the liver a  questionnaire concerning the Import record management of the importers of imported Risk Analysis (IRA) to the exporting country for food. reply. c) After receiving the reply to the questionnaire, Additional registration requirements could be re- AQSIQ will organize the relevant specialist to quested based on bilateral agreements with the initiate the IRA process. countries. For example, according to the phytos- i. If necessary, AQSIQ will ask the exporting anitary quarantine requirements on cherries from country for more information during the Uzbekistan and Tajikistan, the cherry orchards, evaluation period. packaging plants and cold treatment facilities that ii. Based on the assessment of the above export to China must be registered with the Ministry information, AQSIQ will decide whether of Agriculture and Water Resources of Uzbekistan/ it is necessary to send a  specialist group Ministry of Agriculture of Tajikistan and jointly ap- to the exporting country to have on-site proved by both China and Uzbekistan/Tajikistan. inspections. Registration information must include name, ad- d) After finishing the IRA, AQSIQ will take ac- dress, origin and identification code. Before the count of whether or not to submit a  draft of export season in the first year, the Ministry of the quarantine protocol or sanitary require- Agriculture of Uzbekistan/Tajikistan and AQSIQ ments for the product to be imported from the jointly reviewed the registered orchards, packag- country to China, which will be discussed by ing plants and cold treatment facilities. Thereafter, both sides. each year before the export season, the Ministry of e) After having reached agreement on the pro- Agriculture of Uzbekistan/Tajikistan will provide in- tocol or sanitary requirement, the trade of this formation on registered orchards, packaging plants product will commence, according to the re- and cold treatment facilities to AQSIQ. AQSIQ pub- quirements specified in the protocol. lishes the registration list on an official website. Exports, agents and importers need to register with AQSIQ. According to Art. 9 of Administrative Per-shipment quarantine Measures on Import and Export Food Safety and customs clearance Management 2011: The General Administration of requirements Quality Supervision, Inspection and Quarantine implements a  registration system for overseas Once preliminary permission for the import of food production enterprises that export food to quarantined agricultural products is obtained, China, including fresh fruit orchards, cold treatment importers need to comply with inspection and 86 © 2020 The World Bank Group Annex 4. Chinese Fresh Fruit Import Requirements quarantine procedures at the point of entry. Packaging and labeling Specifically, importers are responsible for the cus- requirements toms clearance of all processed fruits and vege- tables imported to China; as a rule, they delegate Labeling requirements. Importers have to certify all all customs clearance procedures to customs bro- labels in advance, before the first shipment is made. kers. Additional costs, such as document submis- Suppliers can register labels themselves or apply to sion fees, inspection, quarantine, and the cost of customs brokers providing them with all necessary services and agent fees, are the responsibility of documents translated into Chinese. Suppliers have importers. to provide original labels and their translation into Chinese. After supplied products are registered in The following documents should be provided for a customs storage facility, the Chinese labels should customs clearance: be attached to each product unit for a certain fee. 99 A certificate on plant quarantine (phyto- sanitary certificate) issued by an exporting All goods in China, must be labeled in Chinese with country; the following content: 99 A quarantine permission or a  special permis- 99 Name, specification, net content and date of sion quarantine form; production; 99 A trade contract; 99 Table of composition with ingredients and their 99 A certificate of origin; amounts; 99 An invoice; and 99 Producer name, address and contact 99 A packing list. information; 99 Shelf life; 99 Code of product standard(s); Product quality requirements 99 Storage requirements; 99 Generic name of the food additives as used in The following standards exist to guide the maximum the national standard; allowed level of pesticides and other contaminants 99 Production license number. in food (Table A4.1): The importer must register the label of goods and Table A4.1. China’s State Standards on Pesticides obtain the appropriate certificate: Label Verification and Other Contaminants in Food Certificate for Imported Food. This should be done in advance and can be done independently or Effective Date Standard # Title through a customs broker that can help with docu- 06.18.2017 GB 2763-2016 Standard for Maximum Residue Level of Pesticides ment translation. To get the certificate, the importer 10.20.2011 GB 2761-2011 Standard of Maximum Levels should submit the necessary documents according of Mycotoxins in Foods to the standards on the labels shown in Table A4.2. 06.01.2014 GB 2762-2012 Standard of Maximum Levels of Contaminants in Foods 06.01.2014 GB 29921-2013 Standard of Pathogen Limits According to the interview of a  representative of for Food agriculture organizations in Bishkek, the biggest © 2020 The World Bank Group 87 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets problem related to the certification is that there is storage, transportation and loading/unloading of no organization issuing the compliance certificates food products should be safe, harmless preserving in the Kyrgyz Republic. The local organizations products in pure form to prevent food contamination must send product samples to Kazakhstan or the (Table A4.3). European Union and pay a  high fee to get the ap- propriate certificates. Table A4.3. China’s State Standards on Food Packaging Table A4.2. China’s State Standards on Product Effective Date Standard # Title Labeling 25.10.2012 GB 14930.2-2012 Disinfection Standard Effective Date Standard # Title 09.21.2015 GB 31603-2015 Standard “The general situation of hygiene materials and prod- 20.04.2012 GB 7718-2011 Standard on the labels of pack- ucts in contact with food” aged food products 09.22.2016 GB 31604.1-2015 General rules for conducting 01.01.2013 GB 28050-2012 Standard for labeling the tests on materials and their nutritional value of packaged migration products that come food products into contact with food 06.01.2015 GB 29924-2013 Common standards on the 19.10.2017 GB 4806.1-2016 General safety requirements of labeling of food additives materials and parts in contact with food 19.10.2017 GB 9685-2016 Standards for the use of ad- Packaging requirements. According to the Law ditives in food containers and packaging materials of China “On Food Safety,” foods should be pack- 04.19.2017 GB 4806.7-2016 Plastic materials and parts in aged in the following non-toxic, clean and small contact with food packaging materials and containers: articles of pa- 04.19.2017 GB 4806.8-2016 Paper and cardboard materials and parts in contact with food per, bamboo, wood, metal, porcelain, plastic, rubber, 04.19.2017 GB 4806.10-2016 Coatings and coating layers natural fiber, chemical fiber or glass. Containers for were in contact with food 88 © 2020 The World Bank Group Annex 5. Russian Fresh Fruit Import Requirements Annex 5. Russian Fresh Fruit Import Requirements First time market access requirements: None for the necessary import tariffs or adjudicate eligi- fresh fruits. bility for import tariff preferences. It is issued by the relevant authority from the exporting coun- Per-shipment quarantine and customs clearance try, usually a Chamber of Commerce. requirements: Importers are responsible for the cus- toms clearance of all processed fruits and vegeta- Customs authorities must inspect the relevant docu- bles imported to Russia. The following documents ments and approve the shipment of goods for entry should be provided for customs clearance: into the Russian Federation. Relevant documents in- clude: (1) Sales contract/agreement with annexes and 99 Declaration of Conformity:   This document product specifications; (2) Invoice; (3) Packing list; (4) 44 must be drawn up by the Russian importer СMR (Cargo Movement Request)/AirWayBill/Railroad and certified with the Ministry of Economic invoice/Consignment; (5) Contract details (a unique Development. To receive certification, docu- number assigned to the contract by a bank, usually mentation must include a  record of product assigned to contracts exceeding RUR  6,000,000); testing, any additional documents required for and (6) Customs import declaration. In addition, all the product, and certificates confirming the horticultural goods imported into Russia need to un- system of quality assuring the products’ con- dergo quarantine and phytosanitary inspection at formity with existing requirements. This docu- regional Rosselkhoznadzor inspection points. mentation must be obtained for product pack- aging, as well, and should comply with pack- Product quality requirements: Products imported aging standards set out in the Customs Union into the Russian Federation must comply with the Technical Regulation “On Safety of Packaging.” individual product requirement specified in the GOST (State Standards) Standards as determined by 99 Phytosanitary Certificate:  All fruits in question 45 Rosstandart. The following GOSTs are in place for fall under the category of “high phytosanitary the fruits of interest for this study: risk” and require a Phytosanitary Certificate in order to enter the Russian Federation. These Cherries GOST 33801-2016 certificates are obtained by the exporter from Plums for Retail GOST 32286-2013 the relevant authority in the exporting country. Plums for Processing GOST 21920-2015 Table Grapes GOST 32786-2014 Fresh Apricots GOST 32787-2014 99 A certificate of origin:46 This certificate must be Dried Apricots (Dried Fruits) GOST 32896-2014 presented to Russian Customs so they can levy   Russian Federal Law No. 184-FZ, 2002; Russian Government Resolution No. 982, 2009; Customs Union Commission Decision No. 44 319, 2010; Customs Union Technical Regulation TS 005/2011, 2011.   Customs Union Commission Decision No. 318 – “Regulation on the Procedure of Phytosanitary Quarantine Control at the Customs 45 Border of the Customs Union”. 46   Law of the Russian Federation No. 809 on the Federal Customs Service, 2013. © 2020 The World Bank Group 89 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets With the creation of the EEU, its members are over- Packaging and labeling requirements seeing the alignment of product standards and the creation of new Technical Regulations (TR). As of Packing of food items should comply with sanitary- August 2019, there is only one TR related to fruit hygienic requirements.47 This includes metal, poly- products—TR TS-023-2011 “For juice products from mer, carton, wood, glass, and composite packing. fruits and vegetables”. Packing materials and transport containers must have completed sanitary and epidemiological in- In addition, exporters are required to present docu- spections and have a certificate of conformity. mentation specifying the type of pesticide used dur- ing growth or storage, date of last treatment and res- Packaged food must contain the following informa- idue levels in these products to Rosselkhoznadzor. tion in Russian on its labels:48 product name, manu- Rospotrebnadzor sets tolerance levels for pesti- facturer information, weight or volume, composi- cides, veterinary drugs and other contaminants in tion of ingredients, information about genetically food. The Ministry of Agriculture maintains a  data- engineered components, nutritional value, recom- base of registered pesticides and agrochemicals. mended storage conditions, expiration date, date of Any foodstuffs containing the residue of any agro- production/packaging, recommendations or imita- chemical not included on the list are not permitted tions of usage, and the “Eurasian Conformity” mark to enter the country. (EAC).49   CU Technical Regulation TR TS 005/2011 “On Safety of Packaging” (as amended through November 15, 2016). 47 48   Technical Regulation of the Customs Union “Food Products Labeling” (TR TS 022/2011). 49   Decision of the CU Commission No. 711 of July 15, 2011. 90 © 2020 The World Bank Group Annex 6. RCA Results Annex 6. RCA Results Kyrgyz Republic 2017 2016 2015 2014 2013 Average, 2013-2017  Apricots (fresh) -31.8 -10.3 38.1 182.9 215.0 78.7 Walnuts (with shell) 11.1 7.6 27.4 51.4 47.2 29.0 Plums (fresh) -15.7 -0.2 4.2 39.8 38.9 13.4 Cherries -11.8 0 2.4 47.1 0 7.5 Plums (dried) 11.8 0.3 2.5 0.1 1.3 3.2 Milk -3.9 1.8 3.1 3.3 2.8 1.4 Strawberries -0.5 0.8 1.1 1.8 3.2 1.3 Watermelons -1.5 0.4 0 2.5 3.2 0.9 Sunflower seed -2.3 1.2 0.7 -0.1 1.6 0.2 Rapeseed seed 0 0 0 0 0 0 Soybean seed 0 0 0 0 0 0 Soybean oil 0 0 -0.2 0 -0.6 -0.1 Apricots (dry) 47.8 -22.6 -34.2 3.3 2.8 -0.5 Soybean meal -0.4 -0.3 -1.8 -0.6 -0.9 -0.8 Lamb 0.7 0.5 0 -7.4 0 -1.2 Beef 0 0 0 -10.5 -0.1 -2.1 Grapes -7.6 -4.0 -2.7 -1.3 -0.7 -3.3 Pork -0.6 -0.4 -1.8 -25.1 -1.9 -5.9 Peaches -12.5 -26.8 -6.0 -5.3 9.0 -8.3 Wheat -7.0 -9.5 -17.7 -30.8 0 -13.0 Sugar -6.9 -16.1 -19.4 -25.5 -22.3 -18.0 Sunflower oil -20.9 -42.1 -54.9 -69.3 -63.9 -50.2 © 2020 The World Bank Group 91 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets Uzbekistan 2017 2016 2015 Average, 2015-2017 Cherries 248.0 203.0 64.8 171.9 Apricots (fresh) 106.2 154.0 67.1 109.1 Apricots (dry) 46.0 54.6 70.6 57.1 Walnuts, with shell 40.0 33.0 39.4 37.5 Plums (fresh) 36.5 35.7 13.4 28.5 Grapes 25.6 18.8 21.8 22.1 Peaches 21.7 27.6 14.7 21.3 Plums (dried) 9.3 6.1 6.5 7.3 Watermelons 0.1 0 0 0 Lamb 0 0 0 0 Rapeseed seed 0 0 0 0 Soybean seed -0.1 0 -0.1 -0.1 Pork 0 0 -0.5 -0.2 Milk 0 0 -0.6 -0.2 Beef 0 -0.5 -1.2 -0.5 Sugar -5.8 -0.9 -0.2 -2.3 Soybean oil -3.1 -3.4 -4.9 -3.8 Soybean meal -1.4 -3.4 -24.3 -9.7 Wheat -9.3 -11.9 -13.4 -11.5 Sunflower seed -26.4 -19.1 -21.7 -22.4 Sunflower oil -18.0 -23.9 -30.2 -24.0 Tajikistan 2017 2016 2015 Average, 2015-2017 Apricots (dry) 159.1 337.5 365.0 287.2 Apricots (fresh) 60.5 43.7 2.4 35.5 Plums 22.5 11.8 24.3 19.5 Grapes 7.9 4.1 5.2 5.7 Peaches 0.3 0.2 0.1 0.2 Pork 0 0 0 0 Soybean seed 0 0 -0.3 -0.1 Lamb 0 0 -1.0 -0.3 Rapeseed seed -0.3 -0.7 -1.3 -0.8 Beef -1.4 -1.4 -5.0 -2.6 Milk -1.0 -4.1 -3.1 -2.8 Soybean oil -0.5 -5.6 -8.9 -5.0 Soybean meal -2.5 -4.0 -10.0 -5.5 Sunflower seed -13.1 -7.4 -6.0 -8.9 Sugar -16.3 -24.7 -4.7 -15.3 Sunflower oil -65.6 -51.2 -49.8 -55.6 Wheat -60.2 -86.0 -82.9 -76.4 92 © 2020 The World Bank Group Annex 7. DRC Results Annex 7. DRC Results KYRGYZ REPUBLIC Product: Apricots Year: 2017 Exchange rate: 69.23 KGS/USD Farm location: Batken Oblast Rate as of 01/01/2017 Yield: 3.1 t/ha Item  Unit Financial costs Inputs VAT Tariff and excise Economic costs Non-tradable Land KGS/ha 10,000.0 10,000.0 Labor KGS/ha 43,750.0 43,750.0 Irrigation KGS/ha 1,250.0 1,250.0 Organic fertilizer KGS/ha 12,500.0 12,500.0 Taxes KGS/ha 2,750.0 Services KGS/ha 12,500.0 12,500.0 Other costs KGS/ha 0.0 0.0 Tradable inputs Mineral fertilizers KGS/ha 10,000.0 1,071.4 580.4 8,348.2 Saplings KGS/ha 37,500.0 4,017.9 1,674.1 31,808.0 Crop protection KGS/ha 3,700.0 396.4 165.2 3,138.4 Packaging KGS/ha 2,500.0 267.9 200.9 2,031.3 Fuel KGS/ha 500.0 53.6 26.3 420.1 Non-tradable total KGS/ha 82,750.0 80,000.0 Tradable total KGS/ha 54,200.0 45,746.0 Total costs KGS/ha 136,950.0 125,746.0 Revenue KGS/ha 150,000.0 150,000.0 DRC 0.77 © 2020 The World Bank Group 93 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets KYRGYZ REPUBLIC Product: Cherries Year: 2017 Exchange rate: 69.23 KGS/USD Farm location: Jalal-Abad Oblast Rate as of 01/01/2017 Yield: 3.63 t/ha Item Unit Financial costs Inputs VAT Tariff and excise Economic costs Non-tradable Investments KGS/ha 30,000  1,607  - 28,393  Land preparation KGS/ha 15,000  1,607  - 13,393  Planting saplings KGS/ha 10,000  - - 10,000  Mounting wire KGS/ha 5,000  - - 5,000  Operational KGS/ha 87,250  777  - 86,473  Land KGS/ha 10,000  - - 10,000  Labor KGS/ha 45,000  - - 45,000  Irrigation KGS/ha 1,000  107  - 893  Organic fertilizer KGS/ha 25,000  - - 25,000  Services KGS/ha 6,250  670  - 5,580  Tradable inputs Investments KGS/ha 32,500  3,482  1,116  27,902  Saplings KGS/ha 25,000  2,679  1,116  21,205  Wire KGS/ha 7,500  804  - 6,696  Operational KGS/ha 29,500  3,161  1,511  24,828  Mineral fertilizers KGS/ha 10,000  1,071  580  8,348  Crop protection KGS/ha 12,000  1,286  536  10,179  Packaging KGS/ha - - - - Fuel KGS/ha 7,500  804  395  6,302  Non-tradable total KGS/ha 90,250  938  - 89,313  Tradable total KGS/ha 32,750  3,509  1,623  27,619  Total costs KGS/ha 123,000  4,446  1,623  116,931  Revenue KGS/ha 555,713  59,541  - 496,172  DRC 0.19  94 © 2020 The World Bank Group Annex 7. DRC Results KYRGYZ REPUBLIC Product: Milk Year: 2017 Exchange rate: 69.23 KGS/USD Farm location: Chui Oblast Rate as of 01/01/2017 Yield: 6,000 liters/cow/year Item Units Financial costs Inputs VAT Tariff and excise Economic costs Non-tradable Land KGS/cow 14,571 - - 14,570.80  Labor hired KGS/cow 10,501 - - 10,501.47  Labor family KGS/cow 7,876 - - 7,876.11  Veterinary services KGS/cow 2,188 234  - 1,953.40  Electricity KGS/cow 1,531 164  - 1,367.38  Transportation KGS/cow 1,094 117  - 976.70  Water KGS/cow 0 - - - Depreciation KGS/cow 6,563 - - 6,563.42  Calculated depreciation KGS/cow 656 - - 656.34  Tradable inputs Feed purchased KGS/cow 3,282 352  146.50  2,783.59  Feed produced KGS/cow 26,254 2,813  1,172.04  22,268.75  Drugs/vaccines KGS/cow 4,376 469  117.20  3,789.59  Fuel KGS/cow 2,243 240  118.05  1,884.18  Packaging KGS/cow 547 59  43.95  444.40  Non-tradable total KGS/cow 44,981  516  - 44,466  Tradable total KGS/cow 36,700  3,932  1,598  31,171  Total costs KGS/cow 81,682  4,448  1,598  75,636  Revenue KGS/cow 133,500  - - 133,500  DRC 0.43  © 2020 The World Bank Group 95 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets KYRGYZ REPUBLIC Product: Plums Year: 2017 Exchange rate: 69.23 KGS/USD Farm location: Jalal-Abad Oblast Rate as of 01/01/2017 Yield: 6.0 t/ha Item  Unit Financial costs Inputs VAT Tariff and excise Economic costs Non-tradable Land KGS/ha 10,000.0 10,000.0 Labor KGS/ha 70,000.0 70,000.0 Irrigation KGS/ha 750.0 750.0 Organic fertilizer KGS/ha 12,500.0 12,500.0 Taxes KGS/ha 1,250.0 Services KGS/ha 5,000.0 5,000.0 Other costs KGS/ha 1,666.7 1,666.7 Tradable inputs Wire KGS/ha 461.5 49.5 20.6 391.5 Saplings KGS/ha 576.9 61.8 25.8 489.4 Crop protection KGS/ha 12,500.0 1,339.3 558.0 10,602.7 Fuel KGS/ha 500.0 53.6 26.3 420.1 Non-tradable total KGS/ha 101,166.7 99,916.7 Tradable total KGS/ha 14,038.5 11,903.6 Total costs KGS/ha 115,205.1 111,820.3 Revenue KGS/ha 150,000.0 150,000.0 DRC 0.72 96 © 2020 The World Bank Group Annex 7. DRC Results KYRGYZ REPUBLIC Product: Walnuts Year: 2017 Exchange rate: 69.23 KGS/USD Farm location: Jalal-Abad Oblast Rate as of 01/01/2017 Yield: 0.3 t/ha Item  Unit Financial costs Inputs VAT Tariff Economic costs Non-tradable Land KGS/ha 1,200.0 1,200.0 Labor KGS/ha 8,400.0 8,400.0 Tradable inputs Packaging KGS/ha 240.0 25.7 21.4 192.9 Fuel KGS/ha 4,335.0 464.5 193.5 3,677.0 Non-tradable total KGS/ha 9,600.0 9,600.0 Tradable total KGS/ha 4,575.0 3,869.9 Total costs KGS/ha 14,175.0 13,469.9 Revenue KGS/ha 21,000.0 21,000.0 DRC 0.56 © 2020 The World Bank Group 97 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets UZBEKISTAN Product: Apricot Farm location: Namangan region, Turakurgan district Exchange rate: 8,099.41 UZS/USD Year: 2018 Rate as of 01/01/2018 Yield, tons/ha: 15 Distributor Item Units Financial costs Excise tax Inputs VAT profit margin Tariff Economic costs Non-tradable Land UZS/ha 900,000 900,000 Labor UZS/ha 5,430,000 5,430,000 Services UZS/ha 600,000 600,000 Taxes UZS/ha 500,000 500,000 Irrigation UZS/ha 150,000 150,000 Organic fertilizer UZS/ha 750,000 750,000 Other costs UZS/ha 2,360,938 2,360,938 Tradable Inputs Mineral fertilizers UZS/ha 2,020,000 0.0 336,666.7 420,833.3 0.0 1,262,500 Saplings UZS/ha 3,200,000 0.0 533,333.3 0.0 0.0 2,666,667 Crop protection UZS/ha 1,525,000 0.0 254,166.7 317,708.3 0.0 953,125 Packaging UZS/ha 100,000 0.0 16,666.7 0.0 0.0 833,333 Non-tradable total UZS/ha 10,690,938 10,690,938 Tradable total UZS/ha 6,845,000 4,965,625 Total costs UZS/ha 17,535,938 15,656,563 Revenue UZS/ha 67,500,000 67,500,000 DRC 0.18 0.17 98 © 2020 The World Bank Group Annex 7. DRC Results UZBEKISTAN Product: Grapes (table variety) Farm location: Ferghana region, Altiarik district Exchange rate: 8,099.41 UZS/USD Year: 2018 Rate as of 01/01/2018 Yield, tons/ha: 20 Distributor Item Units Financial costs Excise tax Inputs VAT profit margin Tariff Economic costs Non-tradable Land UZS/ha 700,000 700,000 Labor UZS/ha 6,410,000 6,410,000 Irrigation UZS/ha 100,000 100,000 Organic fertilizer UZS/ha 2,250,000 2,250,000 Taxes UZS/ha 600,000 600,000 Services UZS/ha 0 0 Other costs UZS/ha 5,589,922 5,589,922 Tradable Inputs Mineral fertilizers UZS/ha 6,320,000 0.0 1,053,333.3 1,316,666.7 0.0 3,950,000 Saplings UZS/ha 2,812,500 0.0 468,750 0.0 0.0 2,343,750 Crop protection UZS/ha 1,900,000 0.0 316,666.7 395,833.3 0.0 1,187,500 Packaging UZS/ha 0.0 0.0 0.0 0.0 0.0 0.0 Non-tradable total UZS/ha 15,649,922 15,649,922 Tradable total UZS/ha 11,032,500 7,481,250 Total costs UZS/ha 26,682,422 23,131,172 Revenue UZS/ha 80,000,000 80,000,000 DRC 0.23 0.22 © 2020 The World Bank Group 99 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets UZBEKISTAN Product: Peaches Farm location: Samarkand region, Samarkand district Exchange rate: 8,099.41 UZS/USD Year: 2018 Rate as of 01/01/2018 Yield, tons/ha: 10 Distributor Item Units Financial costs Excise tax Inputs VAT profit margin Tariff Economic costs Non-tradable Land UZS/ha 1,300,000 1,300,000 Labor UZS/ha 3,420,000 3,420,000 Irrigation UZS/ha 105,000 105,000 Organic fertilizer UZS/ha 950,000 950,000 Taxes UZS/ha 350,000 350,000 Services UZS/ha 250,000 250,000 Other costs UZS/ha 2,313,125 2,313,125 Tradable Inputs Mineral fertilizers UZS/ha 4,105,000 0.0 684,166.7 855,208.3 0.0 2,565,625 Saplings UZS/ha 3,500,000 0.0 583,333.3 0.0 0.0 2,916,667 Crop protection UZS/ha 3,300,000 0.0 550,000 687,500 0.0 2,062,500 Packaging UZS/ha 0.0 0.0 0.0 0.0 0.0 0.0 Non-tradable total UZS/ha 8,688,125 8,688,125 Tradable total UZS/ha 10,905,000 7,544,792 Total costs UZS/ha 19,593,125 16,232,917 Revenue UZS/ha 30,000,000 30,000,000 DRC 0.46 0.39 100 © 2020 The World Bank Group Annex 7. DRC Results UZBEKISTAN Product: Plums Farm location: Tashkent region, Yangiyul district Exchange rate: 8,099.41 UZS/USD Year: 2018 Rate as of 01/01/2018 Yield, tons/ha: 20 Distributor Item Units Financial costs Excise tax Inputs VAT profit margin Tariff Economic costs Non-tradable Land UZS/ha 1,050,000 1,050,000 Labor UZS/ha 7,560,000 7,560,000 Irrigation UZS/ha 30,000 30,000 Organic fertilizer UZS/ha 640,000 640,000 Taxes UZS/ha 550,000 550,000 Services UZS/ha 0 0 Other costs UZS/ha 2,827,188 2,827,188 Tradable Inputs Mineral fertilizers UZS/ha 3,400,000 0.0 566,666.7 708,333.3 0.0 2,125,000 Saplings UZS/ha 6,600,000 0.0 1,100,000 0.0 0.0 5,500,000 Crop protection UZS/ha 2,750,000 0.0 458,333.3 572,916.7 0.0 1,718,750 Packaging UZS/ha 0.0 0.0 0.0 0.0 0.0 0.0 Non-tradable total UZS/ha 12,657,188 12,657,188 Tradable total UZS/ha 12,750,000 9,343,750 Total costs UZS/ha 25,407,188 22,000,938 Revenue UZS/ha 40,000,000 40,000,000 DRC 0.46 0.41 © 2020 The World Bank Group 101 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets UZBEKISTAN Product: Walnut Farm location: Samarkand region, Jomboy Exchange rate: 8,099.41 UZS/USD Year: 2018 Rate as of 01/01/2018 Yield, tons/ha: 12.8 Distributor Item Units Financial costs Excise tax Inputs VAT profit margin Tariff Economic costs Non-tradable Land UZS/ha 1,500,000 1,500,000 Labor UZS/ha 4,280,000 4,280,000 Services UZS/ha 400,000 400,000 Taxes UZS/ha 300,000 300,000 Irrigation UZS/ha 100,000 100,000 Organic fertilizer UZS/ha 500,000 500,000 Electricity UZS/ha 240,000 240,000 Other costs UZS/ha 3,396,875 3,396,875 Tradable Inputs Mineral fertilizers UZS/ha 3,120,000 0.0 520,000 650,000 0.0 1,950,000 Saplings UZS/ha 14,400,000 0.0 2,400,000 0.0 0.0 12,000,000 Crop protection UZS/ha 1,350,000 0.0 225,000 281,250 0.0 843,750 Packaging UZS/ha 640,000 0.0 106,667 0.0 0.0 533,333 Non-tradable total UZS/ha 10,716,875 10,716,875 Tradable total UZS/ha 19,510,000 15,327,083 Total costs UZS/ha 30,226,875 26,043,958 Revenue UZS/ha 70,000,000 70,000,000 DRC 0.21 0.20 102 © 2020 The World Bank Group Annex 8. Retail Chain Product Requirements for Imported Fresh Fruit (Example of X5 Retail Group, Russia) Annex 8. Retail Chain Product Requirements for Imported Fresh Fruit (Example of X5 Retail Group, Russia) Minimum requirements include: 99 No foreign odor and/or taste; 99 For quality evaluation, fruits and vegetables 99 Sufficient degree of growth (ripeness accord- shall be of the same batch and botanical sort ing to the product category). (pomology or ampelographic) and packed in the same type of container. Additional standards and regulations may be devel- 99 Good quality (product that is not rotten or dete- oped for specific product categories. riorated in any way that makes it unsuitable for consumption); If the number of defective products exceeds the 99 Clean, almost without any visible foreign sub- limit specified in the instructions during the receipt stances (except for root crops); of goods in the distribution center of the retail chain, 99 No insect pests or insect injuries of pulp; the products shall not be accepted. 1. Apricots Extra quality First grade Second grade is not allowed Allowed minor defects in shape or development, color defects, scuffs, light sun scorch, minor skin defects (not more than 1 cm2 for elongated skin defects, and not more than 0.5 cm2 from the total area for other defects), minor cracks, 1-2 hailstone spots. Not allowed mechanic damages (punctures, hailstone spots more fruit diseases bruises from the packaging) than 1-2, pest damage pest damage rot, fungus damage from high / overripe underripe low temperatures © 2020 The World Bank Group 103 Central Asia’s Horticulture Sector — Capitalizing on New Export Opportunities in Chinese and Russian Markets 2. Grapes Extra quality First grade Second grade is not allowed Allowed insignificant shape defects, slightly scattered insignificant color defects berries on the vine sun-caused insignificant insignificant pigmentation brown spots skin defects Not allowed signs of sulphur dioxide treatment anthracnose oidium black rot shriveled withered, gray mold pollution by split grapes mealy bug secretion 3. Plums Extra quality First grade Second grade is not allowed Allowed minor surface defects in shape, scrapes, healed cracks, insignificant browning. It is covered by allowed not more than 10% (by quantity or its bloom weight) of the fruits of the second grade, in the batch of the first grade fruit 104 © 2020 The World Bank Group Annex 8. Retail Chain Product Requirements for Imported Fresh Fruit (Example of X5 Retail Group, Russia) Not allowed mechanical damage of the berry hailstone spots (extracted stem, cracks, bruises, pressure marks) damage caused rot by low temperature dry and mealy fruit flesh inner damage signs of chemical treatment 4. Sweet Cherries For the first grade, there may be berries with slight deviations in shape and color, with light, but firm pressure marks which do not affect the saleable condition of the fruit Allowed dry scuffs, light healed cracks and medium sized cracks which do not affect the saleable condition and shelf life, small larvae holes (as part of a special limit), in total no more than 10% of the account and 4% (as a special limit for cracked berries and berries with small larvae holes) Not allowed damaged by pests, overripe, crushed, mechanical damage of the berry flesh, cracked, but not healed, rotten, moldy, wormy, with chemical residues, with significant hailstone spots, punctures, soft berries with sun scorch, effecting the retail display © 2020 The World Bank Group 105