Caspian Business Journal

Bringing the Food to Markets: Tajikistan’s Processing Industries

Every year a significant percentage of Tajikistan’s fruit and vegetable harvest goes to waste. Kathryn Critchell takes a look at the progress that is being made to bring this produce to external markets.

By tweak of historical geography, the five countries that comprise Central Asia have ended up with unequal distributions of natural resources. Tajikistan does not have the oceans of hydrocarbons of Turkmenistan and Kazakhstan. What it shares with many other countries, however, is the unemployment endemic to the region.

But unemployment also means a large available labor pool.  The challenge, therefore, is finding the kind of investment opportunities that are competitively advantageous for Tajikistan.  One possible solution: the food processing industry.  Tajikistan is largely a mountainous country, of course, so investors may be surprised to hear that there is a significant amount of agricultural output with the potential for export opportunities. Yet food processing has historically been a source of work and revenue in Tajikistan and is one area that may show promise for steady growth well beyond 2010. From the perspective of the foreign investor, there is profit. From the perspective of the government and development, investment into the food processing industry provide the twin benefits of local employment and a steady income for families.  It may even allow for greater mobility within the country and small-business development.

Then there is the demand side. There is a trend among consumers in the U.S. and Europe for “exotic” tastes and produce. Chefs compete among themselves to find flavors and spices hitherto unknown – from Himalayan pink salt to the mangosteen.  Few places are as exotic as Central Asia, and thus it presents a largely untapped market for these kinds of goods.  Pomegranates – now seen as a major source of antioxidants – are a Central Asian original, and continue to thrive in its microclimates.

Consider, therefore, this except from a report by the European Bank for Reconstruction and Development (“EBRD”): “Currently, 40 to 50 per cent of fruits and vegetables harvested are wasted because of the lack of preservatives and of technology for producing smaller packaging” [1].  This number – staggering on its face – can actually be typical of developing countries. Richard Tracey, International Director at the Global Cold Chain Alliance [2] stated that while “general emerging markets tend to have losses of 12 to 30%, in some extreme cases that can get as high as 50% during the peak of the harvest seasons” [3]. This is why, the EBRD reports, that “Food processing and packaging is a promising area for investors.” Because “[a]lthough Tajikistan has good potential for growing fruit and vegetables, their processing requires investment in technology and packaging, as do sales and distribution, which are still underdeveloped” [4].

Providing the historical context for food processing is Mubin Rustamov, Programme Analyst/Poverty Reduction & MDG at UNDP Tajikistan. “Tajikistan mainly produces the canned vegetables and fruits and also the dry fruits and vegetables, other products like jam, tomato paste, juices etc.” Rustamov states.  “The products from Tajikistan are competitive due to their high quality, especially tomato paste for ketchup, fruit jams, and the like.”  Tajikistan is also embracing industry-standard innovations, such as the tetrapack.

To solve spoilage, cold storage is needed. Unofficial data obtained by the CBJ shows that around 30-40% of products are spoiled because of inadequate technology for packaging and storage. Richard Tracey of GCCA agrees that Tajikistan – and Central Asia generally – is an “interesting” place for expansion in cold storage. “Kyrgyzstan and Tajikistan are the prime because of their agricultural base and the need for the cold chain to start on farm,” Tracey says.  “The region has historical market ties as well as being a pipeline for products to go into the Russian market. The cold chain could play an important role in economic development for all countries especially for Kyrgyzstan and Tajikistan” [5].  Currently, cold storage facilities available in Tajikistan, according to GCCA,  are as follows:

Just as Soviet history shaped the national outlines of Tajikistan, and therefore its geography, so does it continue to shape the challenges and opportunities for investment. The food processing industry was the part of the Soviet agroindustrial complex, explains Rustamov. The area which produced Tajikistan’s coveted agricultural products in the past was in the north, where Tajikistan’s borders include part of the fertile Ferghana valley. That part of Tajikistan was famous for its canned and processed fruits and vegetables [6]. In addition to the northern areas, however, Rustamov reports that the Tajik Government is trying to spur investments to southern part of Tajikistan.

There are challenges, of course, chief among them the procedural burdens for establishing and maintaining the legal right to do business in Tajikistan. The Tajik Government appears, however, to be aware of the burdens on entrepreneurs and has made some moves to lighten them. Recently, the Tajik Government started an initiative on easing business registration procedures.  Moreover, reports Rustamov “there is a moratorium on inspections and checking of businesses in Tajikistan, besides that government is working on overcoming the export related issues.” “The main markets are Kazakhstan [and] Russia,” says Rustamov. “Currently, however, it is too problematic due to the export and transport barriers to market it abroad.” While the export barriers are burdensome, however, the Tajik Government is looking to efforts remove or reduce those barriers, and points to its “Doing Business 2010″ initiatives. “UNDP recently started Wider Europe: Aid for trade project funded by government of Finland,” says Rustamov, and this has provided the kind of information that investors need to know to get into industries like food processing in Tajikistan.

Transportation is another challenge, as prices for rail transport are too high for local investors. Curiously, most food products are unadvertised. Rustamov says that “the products are not advertised at all, however, the big Soviet enterprises still use their linkages and contacts from the past and market their products through this channel.” As is true throughout Central Asia, there is a state corporation at the center of much of this industry.

In Tajikistan, investors will need to acquaint themselves with state corporation Khurokvori and its branch companies such as Assor, Khujand Packaging and individual canning factories. Tracey says that “[t]he issues of quality and reliable delivery have to be addressed for any product that would be considered . . . the pomegranate is the most popular right now however it is becoming a commodity product with more of the value added activity being conducted further down the chain.”

In sum, investment in the development of the canned foods industry holds great potential for success within Tajikistan. The Tajikistan Embassy in the United States currently has 12 investment pilot projects focusing on agricultural development and the canning of fruits and vegetables. While the Tajik Embassy currently has a small outlined plan for many of these projects, there is the demonstrated interest. With the right investment plans and coordinated approach linking supply to demand, the canned food industry may be a place for explosive growth in 2010 and beyond.

Foreign investors also need to pay attention to the wheat industry, where the potential for substantial profit may lie. Within Tajikistan, wheat consumption accounts for nearly 3/5 the total calorie intake[7] and a suggested investment for the food processing industry would be the development of small mills.  But not all wheat flour is equal, and where the flour is produced makes a difference.  Consider this except which all but summarizes the current state of flour production:

“Wheat flour produced by domestic mills is estimated at about 333 000 tonnes. As much as 80% of domestic flour output is produced by small “Chinese mills” which, with a limited capacity of only 1mt/d, produce mostly second/third grade quality flour. Higher quality flour is produced only by larger mills, mostly run by the State Unitary Enterprise (company) “Galla”, which produce about 75 000 tonnes, of which 76% is considered to be fortified flour. This is considered an extremely low ratio, given the importance of wheat in Tajik’s staple and that per caput consumption of bread and bread products in Tajikistan exceed the recommended norms by a notable margin. Based on information provided by Galla, currently less than 50% of the State’s owned mills throughout the country are producing flour. In the capital city, Dushanbe, for example, only 20% of the Galla owned mills are currently in action [8].”

Wheat mills would allow for more production and could ideally be placed in the Sugd region since 20% of wheat production comes from this region. Tajikistan would greatly benefit from the investment of wheat mills because it could produce a higher quality flour and would not be reliant upon importing wheat. Aside from wheat, other food products to focus investment on would be tomato and milk. Currently, the International Finance Corporation (IFC) is helping to diversify the agricultural base in Southern Tajikistan to move away from cotton and to strengthen tomato and milk supply chains in the region [9] and has seen much success in its projects and investments within these two food products.

The IFC’s approach is structured and comprehensive, linking supply (farms, households) to demand (processors, fresh markets) in a commercially sustainable manner. It will work with farms and processors to develop contract models that provide incentives for quality, volume and timely delivery, and with local banks to develop systems of managing farm risk and mentoring farms to create a sustainable farm credit system. Just some of the developments to date as of July 1, 2008 are: (1) Facilitated more than $26,000 in investments from anchor company Dushanbe Dairy and MFIs to local suppliers; (2) Trained or consulted 114 tomato and dairy farms on improved farm technologies and management practices; (3) Helped 10 pilot dairy farms increase milk production by 8%; 6 farms adopting new management techniques. [10]

Further development within the tomato and milk industries allow for increased privatization of farms and the potential for more small business development. And, a more efficient market develops that encourages these farms to function with banks and other food processing facilities further developing the economy of Tajikistan. There are, of course, the macroeconomic benefits, which in turn create the kind of local consumer demand within the borders.  The success of the food processing industry is a success for Tajikistan and its people, as it helps Tajikistan rise from poverty and unemployment. A cautionary note: corruption within the country is not only serious, but pervasive. Any sort of investment within Tajikistan will have to address this internal problem, but the food processing industry holds much potential for profit growth within Tajikistan, and can and should currently be the primary focus of internal development within the country.

Footnotes:

[1] EBRD, Tajikistan Investment Profile. Business Forum, London 22-24 April 2001. P. 12. Available online at http://74.125.47.132/search?q=cache:fq5KpwU8srgJ:www.fifoost.org/tadschikistan/taji.pdf+tajikistan+food+investment&cd=1&hl=en&ct=clnk&gl=us&client=safari [2] Comprised of its Core Partners, including the International Association of Refrigerated Warehouses, the World Food Logistics Organization, the International Institute of Ammonia Refrigeration, the International Refrigerated Transportation Association, and the International Association for Cold Storage Construction, the Global Cold Chain Alliance (GCCA) represents all major industries engaged in temperature-controlled logistics. GCCA unites partners to facilitate communication, networking, and education for the perishable food industry. [3]  GCCA reports that it is currently conducting research in Sub Saharan Africa and in India about post harvest losses for lessons to be applied in other places, including potentially Tajikistan. [4] Id. [5] Tracey further states that “The most logical areas to build [cold storage] in are Kazakhstan, Uzbekistan because of the relative size of their markets.  Turkmenistan offers excellent growth potential due to its access to the Caspian as well as it borders with Kazakhstan and Afghanistan.” [6] Interview with Mubin Rustamov. [7] Tajikistan: Market Profile for Emergency Food Security Assessments. December 2005. United Nations World Food Programme, Emergency Needs Assessment Branch. p.17. Available online at: http://74.125.93.132/search?q=cache:0aTpKYnwK9IJ:documents.wfp.org/stellent/groups/public/documents/ena/wfp085164.pdf+Tajikistan:+Market+Profile+for+Emergency+Food+Security+Assessments.+December+2005&cd=1&hl=en&ct=clnk&gl=us&client=safari [8] Tajikistan: Market Profile for Emergency Food Security Assessments. December 2005. United Nations World Food Programme, Emergency Needs Assessment Branch. pp. 17-18. Available online at: http://74.125.93.132/search?q=cache:0aTpKYnwK9IJ:documents.wfp.org/stellent/groups/public/documents/ena/wfp085164.pdf+Tajikistan:+Market+Profile+for+Emergency+Food+Security+Assessments.+December+2005&cd=1&hl=en&ct=clnk&gl=us&client=safari [9] IFC Europe and Central Asia 2007. Advisory Projects in Tajikistan. Southern Tajikistan Agribusiness Supply Chains Development Project. http://www.ifc.org/ifcext/eca.nsf/Content/Tajikistan_AdvisoryProjects?OpenDocument&ExpandSection=3#_Section3 [10] IFC Europe and Central Asia 2007. Advisory Projects in Tajikistan. Southern Tajikistan Agribusiness Supply Chains Development Project. http://www.ifc.org/ifcext/eca.nsf/Content/Tajikistan_AdvisoryProjects?OpenDocument&ExpandSection=3#_Section3