Washington, D.C., April 10, 2002—
The International Finance Corporation (IFC), the private sector arm of the World Bank Group, signed today a US$250,000 loan to help establish a joint stock company owned by Tajik cotton farmers that will help increase cotton yields and reduce debt levels. The new company, Sugd Agro Serv, will be the first of its kind in Tajikistan and will work to overcome key obstacles to the growth of cotton farming, which supports thousands of Tajik families.
In the Soviet era, the production of raw cotton in Tajikistan averaged 800,000 tons annually, providing the majority of employment and welfare of the country. After the fall of the Soviet Union and the country’s subsequent civil war, production more than halved as farmers were left with little technical assistance and no means to maintain their equipment. Consequently, farmers sold crops at large discounts to foreign cotton buyers, which resulted in heavy debt burdens on farms that hindered profitable operation. Additionally, outdated equipment and a crippled irrigation system posed problems, reducing crop yields from 3.5 tons per hectare in the Soviet era to a present average yield of 1.2. Today, the majority of cotton farmers are unprofitable and account for most of the poverty in Tajikistan, Central Asia’s poorest country.
To remedy this situation, IFC
after two years of intensive, on-the-ground research and numerous meetings with farm associations and government authorities—determined that a private sector approach could be developed to help farmers reduce their debts by helping them increase cotton yields. To this end, 365 farmers incorporated on April 4th, 2002, the first joint stock company entirely owned by themselves. Coined by IFC as the “Farmer’s Ownership Model,” the financing plan will provide Sugd Agro Serv’s farmers with the required working capital to procure and supply farm machinery and implements for improved cotton yields. The funding will also enable Sugd Agro Serv to recruit and hire an experienced team that can operate a profitable cotton collection and marketing business on behalf of the farmers. As farmers start making profits, they can accelerate debt repayments and purchase newer equipment using the backing of their joint stock company.
Participating farmers were selected based on the availability of their land for cotton production. Most of the farmers are from the Zafarabad Mcht Association in the Zafarabad province and the Andarasoy Association of Nov Farmers in the adjacent Nov Province in Northern Tajikistan.
Khosrow K. Zamani, IFC’s Director for Southern Europe and Central Asia Department, expressed satisfaction with this groundbreaking project in Tajik agriculture. “This is an innovative pilot attempt to help alleviate the acute poverty of cotton farmers in Tajikistan by empowering them to take control of their own commercial activities,” Mr. Zamani said. “This pilot project can eventually be implemented on a more substantial scale as more than a thousand farmers expressed interest to participate.”
In addition to farmers’ capital, Sugd Agro Serv is being financed by a $248,000 gift from the Swiss State Secretariat for Economic Affairs (SECO) and by IFC on a commercial basis with a $250,000 loan. SECO is granting the farmers an additional $2,000 to help them pay for their shares.
SECO is also providing trust funds of up to $850,000 to provide technical assistance to farmers. The technical assistance is being managed by IFC’s Private Enterprise Partnership (PEP) who will train the farmers in proper production, irrigation, fertilization and financial management. PEP has hired since early 2002 an experienced general manager and supporting team to help select farmers and establish Sugd Agro Serv.
IFC’s Private Enterprise Partnership delivers donor-and IFC-funded technical assistance to help lay the groundwork for sustainable private sector investment, support the growth of small and medium-sized enterprises, and improve the business enabling environment throughout the former Soviet Union.
The government of Sweden through the Swedish International Development Cooperation Agency (SIDA) funded technical assistance that comprised preparatory and advisory services required to implement a Farmers Ownership Model (FOM) project on a pilot basis, targeting a selected group of cotton growers in southern Tajikistan. TA activities included: (i) a needs assessment in cooperation with the targeted farmers; (ii) complete business and financial analysis and forecasting; and (iii) determining the potential profitability of the FOM project.
IFC’s mission (www.ifc.org) is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses. Since its founding in 1956 through the close of the last fiscal year on June 30, 2001, IFC committed more than $31 billion of its own funds and arranged $20 billion in syndications for 2,636 companies in 140 developing countries. IFC’s committed portfolio at the end of FY01 was $14.3 billion.