Central Asia Is Corrupted by Cotton

Though many developing countries are cheering a recent WTO ruling declaring US agricultural subsidies illegal, indigent farmers in Central Asia will never know the difference. Since the dismantling of the Soviet regime, the cotton industries in Uzbekistan, Turkmenistan, and Tajikistan have been hijacked by wealthy insiders. Working with international traders, middlemen sell expensive inputs to farmers, who must then sell their harvests at depressed prices. The result: In Tajikistan, for instance, cotton farmers Tajik cotton farmers are now US$220 million in debt. Though international financial institutions are developing plans for agricultural reform, the effects are minimal. And without US and UK intervention, columnist Quentin Peel concludes, "The prospects for reform seem grim." – YaleGlobal

Central Asia Is Corrupted by Cotton

Quentin Peel
Thursday, March 10, 2005

The World Trade Organisation ruling last week that billions of dollars in US subsidies to cotton farmers were illegal amounts to a big moral victory for developing countries trying to compete on the world market.

If sanity and fairness were to prevail in both the US and the European Union, scrapping subsidy systems that guarantee wealthy farmers prices far above the world market level should curb unfair competition. In Africa alone, such market distortion is estimated to cost producers more than $400m a year. Yet even if change comes - and that depends on facing down some formidable lobbies in Washington and Brussels - hundreds of thousands of cotton farmers in central Asia, the source of more than 15 per cent of world cotton exports, would not benefit. For most of them, a chronically corrupt farm system at home means they are so far removed from the world market that its price fluctuations have no impact on their daily lives.

Cotton is a vital industry in what is an increasingly unstable but strategic part of the world. It is a crop that dominates the economies and the politics of Uzbekistan, Tajikistan and Turkmenistan, autocratic post-Soviet states bordering Afghanistan. They are big routes for heroin smuggling to Europe and the west. All face potential threats to their undemocratic systems from underground groups, including those inspired by radical Islam.

The problem is that cotton in those countries is not a source of stability but a curse, as a graphic new report from Crisis Group*, the non-profit conflict resolution group, declares. It is a monoculture "more destructive to central Asia's future than the tons of heroin that regularly transit the region", it says. Yet while the international community has invested millions of dollars in trying to curb drug running, practically nothing has been done to counteract the negative impact of the cotton industry.

The sorry story of cotton growing in central Asia is an extraordinary combination of blind Soviet ambition, Stalinist compulsion, post-Soviet corruption and utter disregard for the environment. Although the region has an ideal climate for cotton, it relies on massive irrigation for its cultivation, causing chronic salinisation of farmland, desertification, and destruction of the Aral Sea, which has shrunk by three quarters and turned into two small inland lakes.

The political and social consequences of the industry have been just as destructive as the ecological ones since the collapse of the Soviet Union. The crisis stems from a common failure to reform the old collectivised agriculture system and its domination by state buying and supply agencies. Instead of the state exploiting the farms, however, a system has developed in each republic where well-connected middlemen, closely related to the ruling dynasties, perform that role.

In Tajikistan, for example, they are known as "investors" or "futures companies" - fancy names for a form of usury that combines a monopoly on credit, inputs and purchasing in each region. Financed by international traders, they advance credit to farmers to buy inputs, against future sales of cotton. The prices of the inputs are inflated while the cotton purchase price is depressed. The consequence is that Tajik cotton farmers now owe an estimated $220m to the middlemen.

The state gets a 10 per cent sales tax from cotton but the private "investors" earn the big profits, supported by government pressure on the producers. The state still owns the land and sets production quotas. Collective farms are now called "collective peasant farms", with no real independence for the farmers. In their desperation, they grow more and more cotton at the expense of food crops. Tajikistan was never able to feed itself but now imports about half its needs, relying increasingly on food aid.

Tajikistan is the least oppressive of the three main cotton-growing republics of central Asia, described by the US State Department's annual human rights report as having "an authoritarian government [with] some democratic institutions". Elections in 2000 were "neither free nor fair". The recent democratic revolts in Georgia and Ukraine have caused the government to clamp down on any signs of serious opposition.

Uzbekistan and Turkmenistan have far worse human rights records. In both, cotton plays a central role in the system of corrupt exploitation and rural poverty. Forced labour during the cotton harvests is widespread, including child labour. "All three countries outlaw child labour," says the Crisis Group report. "Yet during any given harvest the cotton fields will be full of children, some very young."

The combination of state compulsion to grow cotton and miserable incomes in return has caused widespread flight from the land, both to the cities and out of the country (mainly to Russia). The young unemployed rural labourers are a prime source of recruitment for radical Islamic movements.

Although the international financial institutions, such as the World Bank and the Asian Development Bank, have invested in model projects of agricultural reform, they have barely dented the system. The international cotton traders may express concern privately at the social conditions but offer little hope of change. After all, they deal with state organisations and middlemen, not farmers.

The prospects for reform seem grim. It is a post-Soviet world that in many ways is more oppressive and corrupt than the one that used to exist. But it is not a priority in Washington or Brussels. It probably will remain that way until the revolution comes.

© Copyright The Financial Times Ltd 2005