1. Cotton in Central Asia Curse or Foundation for Development? MAX SPOOR Institute of Social Studies Centre for the Study of Transition and Development The Hague, The Netherlands

2. White Death or White Gold? The Soviet Planners View versus the outcomes: –Environmental Degradation –Forced/and even Child Labor –Dependency and monoculture The opportunities to develop the cotton sector as an engine or foundation for development and growth

3. An Overview The History of Cotton and its Legacy The Macroeconomics of Cotton in the Transition The changing institutional framework and land reform & social relations The environmental impact of cotton production

4. The History of Cotton and its Legacy Cotton was already produced as cash crop in the 19 th century With Russian empire, and American civil war: Middle Asia became the Russian cotton belt USSR even intensified this role, and Moscow order more cotton to be produced Cotton nomenklatura/cotton barons emerged Cotton was exported to the Center without processing: Forced cultivation in the periphery

5. Table 1: Cotton in Uzbekistan

6. The Macroeconomics of Cotton in Transition Cotton played an important role in avoiding a supply shock (see Uzbek Puzzle) Hard currency access in world markets to pay for necessary imports Taxation of cotton sector was high in the 1990s finance for energy independence and important substitution model Since 2000: Clear reduction of Net Outflow

7. Cotton Taxation and Subsidies: Net Outflow

8. State Procurement for Cotton and Wheat in Uzbekistan

9. ISI and Taxation of Cotton Net Taxation went down to 1.5% of GDP Income share of gross output for farm enterprises reversed (from 20% in 1993 to 80% in 2003) The Net Outflow was (at least in part) used to finance Uzbekistans energy dependence The ISI-model and Consumer-led growth avoided the dramatic contraction of other FSU countries

10. Cotton/Wheat Development

11. The changing institutional framework and land reform & social relations (1) Land Reform in Central Asia with different pace and various forms Kazakhstan and Kyrgystan more advanced, Uzbekistan gradual process Uzbekistan: –Land distribution (plots) households –Sovkhozy and Kolkhozy Shirkats –Formation of individual (peasant) farms

12. The changing institutional framework and land reform & social relations (2) In Uzbekistan: Peasant Farms Commercial Farms (not re-distributive)

13. Abandoning the Shirkats: Private Farms Formation of medium-sized individual lease-hold farms They remain still (at least in part) within the planned system and central procurement (for wheat and cotton) Input markets gradually to be liberalized with private agents Forced harvest labor still remaining Rural incomes to rise?

14. The Environmental Impact of Cotton (1) Drying up of the Aral Sea Salinization of soil and rivers Changing climate (less frost-free days) Pollution of soil and air with particles from exposed Seabed Fishery nearly disappeared

15. However: Down with cotton, long live the orchards is no realistic option Central Asia, in particular Uzbekistan is dependent on cotton for FOREX and employment Drastic reduction of cotton is not the solution, as it creates other problems (unemployment for example) The Environmental Impact of Cotton (2)

16. Conclusion Cotton will remain fundamental part of CA economies, it is not a curse The challenge is to improve the social conditions and productivity rural incomes and livelihood improvement Cotton can become engine of agro-industry led growth. First signs of increased FDI in textile industry Importance to give to practical measures to reduce water losses, improve drainage and quality