Uzbekistan and the Central Asia Food Trade The possibilities in complementary regional trade Background The Central Asian republics of Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan have shared a long history highly intertwined in economic and political fortunes, largely driven by complementary trade patterns. Central Asia as a geographical collective has always benefited from its strategic location between the steppes of Russia and the hills of the Himalayas, representing the easiest route from China to the Caspian Sea and the Urals. The region was an integral component of the Silk Road, with modern Uzbekistan's Tashkent region existing as a major trading center from the time of the Western Roman empire and the region providing a nexus from intra-regional transmission of goods ranging from horses to porcelain. Central Asia was first organized in their modern borders and administrative identities by the Soviet Union, with much of their trade infrastructure including railways and road networks built by the Soviet Union to form a cohesive economic bloc. It was also during the Soviet era that a centrally planned economy and the Virgin Lands campaign to increase Soviet agricultural yields led to the development of the foundations of Central Asia's agricultural infrastructure. Uzbekistan, the focus of our analysis within the region, also has a modern form largely defined by the Soviet Union. Since independence in 1991, Uzbekistan has passed through three phases of economic growth. From 1991-94 the economy shrunk by an average of about 7% per annum as linkages with the Soviet economy were severed. From 1995-99 a degree of stability was achieved although economic growth, on average, remained at a very modest 1.1% per annum. And since 2000, the economy has grown at an average rate of over 5% per annum. Consequently, Uzbekistan inherits a Soviet agricultural production base which had a two-fold structure where large state firms produced key cash crops cotton and cereals on collectivized state farms while significant small-holder farmers, known as dekhkans, controls production of fruits, vegetables, and other non-commodity crops. After the collapse of the Soviet Union in 1991, Uzbekistan experienced significant challenges in food production across both state farms and smallholder dekhans, having lost much of the Soviet distribution systems and upstream food processing infrastructure along with the Soviet planned agricultural support in irrigation, technology and fertilizers. In particular, Uzbekistan has suffered over a 25% decline in irrigated arable land per capita and a decimation of its fertilizer production capacity after the collapse of the Soviet Union due to underinvestment and under maintained infrastructure. Situation Uzbekistan today is a leading producer of many fruits and vegetables, being the 2nd largest producer in the world of carrots and apricots, 7th largest producer of cucumbers, and 8th largest producer of cotton. Historically, it has suffered from a significant self-sufficiency gap in food production, and has been import dependent on a few key trading partners. This primarily arises from its inability to produce enough grains and cereals for domestic consumption given both its limited irrigation as well as limited trade infrastructure. Uzbekistan has seen a significant rise in moderate to severe food insecurity, as defined by the United Nations Human Rights Council in a joint note1 with the Food and Agriculture organization, from 11.2% of its population to 23.5% of its population between 2015 and 2020 per the Food and Agriculture Organization of the United Nations. This food insecurity has been exacerbated by the 2022 Ukraine conflict, as 30% of Uzbekistan's food is imported from the Russian Federation, 4% from Belarus and about 2% from Ukraine. These exports have been challenged by sanctions and resulting export bans from Russia, as well as a breakdown of connectivity in the region. The disruption to domestic supply has been significant as imports from these countries consist primarily of staple foodstuffs that Uzbekistan imports predominantly from one single partner, such as sugar where Russia accounts for over 60% of total Uzbekistan import supply. The data on the supply of food from Russia to Uzbekistan may even be underestimated, as significant volumes of Russian products pass through such intermediaries like Kyrgyzstan and Kazakhstan before import into Uzbekistan. Furthermore, the geopolitical conflict has also severely constrained Uzbekistan's ability to export its fruits and vegetables. Despite a significant weakening of the Uzbek sum, Uzbekistan's food products have not become more competitive in international markets as its principal export markets are the Russian, Kazakh and Kyrgyz markets whose currencies have also suffered significant devaluations in the aftermath of the conflict. While there is expected to be opportunities for export in countries further afield with a more affordable currency, Uzbekistan has not been able to develop additional export markets for its food produce due to the lack of connectivity infrastructure especially for perishable goods. This lack of infrastructure is further worsened by the limited capacity for processing and packaging products in dekhkan farms, which produce the bulk of exported fruits and vegetables, leading to significant losses since access to processing plants in other countries have been interrupted by COVID19 and the Russia-Ukraine conflict. As such, there is a need for Uzbekistan to find new trading partners from which they can import to resolve food insecurity and to which they can export agricultural produce, preferably without having to make significant expenditures in capital that the country cannot afford. A possible solution will be to re-leverage the network with its Central Asian neighbors, and build out a complementary food trade network between the 5 countries. Complication Uzbekistan has historically been protective of its agriculture sector due to its political importance and has made a slow transition away from state intervention and control in the sector. Uzbekistan's agricultural reforms only started in earnest during the 2017-2018 economic reforms. These consisted of the removal of many market-distorting policies for the horticulture subsector, initial reforms in the cotton and wheat subsectors, and a repurposing of some agricultural public expenditures. Moving forward, agriculture continues to be a key economic engine for Uzbekistan. Despite the COVID-19 pandemic in 2020, the agricultural sector was a driver of the overall economy's growth, growing by 3.0 percent and an estimated 3.1 percent in 2021. This outstrips overall GDP growth of 1.6 percent in 2020. Uzbekistan's agriculture sector (including cotton) represents about 28% of GDP and employs 25% of its total labor force. In terms of public expenditures, between 2016 - 2018, agricultural budget expenditures accounted for 2.1 percent of GDP and 7.1 percent of total public expenditures, without including the debt relief for farmers in 2017 and 2018. In 2019-2020, agricultural public expenditures increased as a proportion of both GDP and total public expenditures to 2.3 percent and 8.9 percent, respectively. Although expenditure in 2020 declined due to COVID, the share of expenditures is expected to increase in the next 5 years. Furthermore, agricultural development, particularly for fruits and vegetables, remains an important source of developmental funding from organizations including the UN Food and Agricultural Organization as well as the Asian Development Bank. Consequently, there are strong popular and political lobbies in agriculture that might be resistant to the idea of increased trade in agricultural products, particularly the foodstuffs that are grown by smallholder farmers. Therefore, as a policymaker, one needs to establish new trade targets and treaties that not only minimizes the impact on these stakeholders, but also benefits them. Annex 1: Database Guide To investigate the trade patterns between the Central Asian nations, you are encouraged to use the trade database at https://www.trademap.org/ to explore trade statistics in our countries of interest. Two key trade statistical categories of interest for investigating the Heckschler-Ohlin and intra- industry trade models to determine your trade policy are the cumulative international trade volumes and bilateral trade volumes by product category. To generate a cumulative measure of trade between an individual country and the world, which would be informative to deducing its factor endowment and comparative advantage, the settings to use are as follows. The product categories here are classified the HS4 product codes, which is a harmonized numerical method2 for classifying trade goods; classifying at the 2 digit Group level category would be informative enough for our purposes, but you are welcome to investigate at the 4 digit Single level as well. By clicking on Trade Indicators, we will generate the latest annual record of the trade volumes between Uzbekistan and the World as well as the world's total trade volumes in the corresponding goods, as below. To view bilateral trade, we simply need to change the partner from World to the specific country. In the below example, we are viewing Turkmenistan. This would allow us to analyze the relative trade patterns between both nations as well as how their trade works as a proportion of total world trade, which would provide informative insights into potential expansion of existing trade relationships. Once we are in the results segment, we can easily toggle our results using the other criteria drop down selection menus. Students are especially encouraged to change the Exports criteria to view other indicators including import and trade balance. It is also possible to download this data to excel using the download options to aid you in making charts required for submission. Annex 2: Other fun resources: Central Asia podcast program: https://centralasiaprogram.org/cap-podcast-series Answer these questions with detailed responses: 1. Putting yourselves in the shoes of an Uzbek policymaker, based on your review of the trade data from our source in Annex 1, which of the five Central Asian economies (Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan) would you prioritize trading with and what goods should you target in your trade policy? Provide graphical analysis and data to support your reasoning. 2. Is the current pattern of trade observed between Uzbekistan and Tajikistan highlighted below more reflective of the HO model or the intra-industry trade model, and why? 3. What are the benefits to Uzbekistan in improving agricultural trade with its neighbors? What are some potential costs? 4. Why might Uzbekistan derive greater benefits from trade with its neighbors as compared to the rest of the world in aggregate? Can we substantiate this using either the HO model or the intra-industry trade model