Government of Turkmenistan Increased Wheat and Cotton Purchasing Prices: What does this mean?

In February 2024, the government of Turkmenistan announced an increase in state purchasing prices for wheat and cotton with the aim of boosting agricultural productivity and incentivizing farmers. This move, which marks the first adjustment in purchasing prices in the last five years since 2019, entails raising the state’s  price for wheat from 800 manats to 2,000 manats per ton, equivalent to 2 manats per kilogram. Similarly, the purchase price for cotton will vary based on the harvest season.

In Turkmenistan the state dictates that farmers must sell 100% of their wheat and cotton harvest to the state at prices set by the government, therefore prohibiting sales to private entities. Furthermore, agricultural land is owned by the state, with farmers acting as tenants. State officials tightly control crop selection and planting schedules, often disregarding farmers’ concerns about soil quality or crop viability.

Corruption within the system exacerbates the situation, with farmers sometimes needing to pay bribes to access essential resources at subsidized rates. Theoretically, the Ministry of Agriculture must provide farmers with everything they need at low prices – from seeds and watering to harvesting equipment. In practice, there are consistent reports that the farmers are suffering from chronic shortages of water, fertilizer and technical equipment.

What is the situation in the neighboring countries?

In Kazakhstan, Food Corporation, a state-owned grain procurement and processing company, sets a market price to purchase wheat from Kazakh farmers. As of October 2023, the forward purchasing price was set in the amount of 120 thousand tenge (266 USD = 5187 manat) for class 3 wheat and 105 thousand tenge (233 USD = 4543 manat) for class 4 wheat. Unlike in Turkmenistan, the Kazakh Food Corporation sets the market price to purchase the wheat from farmers. Additionally, farmers are allowed to sell their wheat harvest to other private entities, which is not the case in Turkmenistan.

In Uzbekistan, the government no longer sets the price of cotton as of 2023. Minister of Agriculture Aziz Voitov emphasized that there is no government regulation in this area in Uzbekistan, and cotton prices are determined by clusters and farmers in accordance with the laws of a market economy. However, the government set a recommended minimal price for the cotton based on a formula that they set up and it was 8000 sums per kg for 2023 cotton harvest, which makes it 641 USD per tonne (12,500 manat). In Turkmenistan, the state purchase price per ton of cotton is 5000 manat at the start of the harvest.

Who benefits and who loses from this recent change?

Farmers stand to gain significantly from this change, particularly after enduring five years of stagnant prices. Many farmers struggle to repay debts owed to the state due to low harvest yields and minimal earnings resulting from government-set purchase prices. The adjustment provides a much-needed boost to their income.

For example, farmers cultivating cotton in the Mary region, as estimated by Chronicles of Turkmenistan, were earning approximately 650 manats per month (33$ per black market rate) before the recent changes in purchase price. However, Turkmennews reports that the state also increased the price for fertilizers, irrigation and the use of state equipment that they sell to farmers by several times. Thus, farmers might not gain a significant boost in their income as a result of the recent higher purchase price for wheat and flour.

Bread & butter issue

Low-income groups are likely to bear the brunt of this change. For the past six years, wheat flour prices at state-owned stores remained fixed at 1 manat per kilogram, albeit with restrictions on quantity (5 kg per person per month). However, following the adjustment in purchase prices from farmers in February 2024, state stores have increased the selling price of wheat flour to consumers to 4 manats per kilogram.

On average, households in Turkmenistan spend 52.9% of their monthly expenditure (the United Nations) on food products. This significant price hike on wheat flour places added financial strain on low-income households. According to the Palaw Index, the price of wheat flour in private stores ranges from 6 to 12 manats per kilogram based on quality and origin.

For the last 30 years international organizations have been issuing recommendations for urgent reform of the agricultural sector in Turkmenistan. The government has not showed political will to address the following structural issues:

  • Enable farmers to directly sell cotton to buyers of their choice at market prices. Currently, the state buys 100% of cotton harvest from the farmers at a price set by the government and sells them abroad for profit. Giving farmers more power and autonomy, a road map for reforms in agriculture in Turkmenistan had been recommended in the IMF paper 24 years ago, back in 2000.
  • Allow private ownership of the land. The World Bank paper argues that private ownership of the land provides incentives for farmers to invest in land, borrow money for agricultural inputs and improvements to their land, and ensures full utilization of land.
  • Implement price liberalization (IMF), allowing farmers to sell their crops to private entities at market-driven prices, fostering competition, which could potentially lower the prices in the long term.
  • Authorities should liberalize the foreign exchange market by unifying the official and black market rates as EBRD suggested in its report on Turkmenistan. This would allow farmers to engage in international trade without exchange rate barriers.
  • Remove forced labor in cotton fields to make it appealing for foreign brands to buy Turkmen cotton. The US has already banned the imports of Turkmen cotton and the EU legislators are considering its ban now… 
  • Abandon state-mandated production quotas for cotton and wheat, granting farmers autonomy in crop selection and cultivation practices to align with market demands and environmental concerns. This approach would empower farmers to make informed decisions about crop choices based on profitability and resource availability (for instance, cotton requires a lot of water).
  • Reduce the tariffs on imported wheat flour. Turkmenistan currently imposes a duty of $200 per tonne on imported wheat flour (both I and II types), resulting in a price increase of $0.20 per kilogram of wheat flour sold in Turkmenistan. According to the prevailing black-market exchange rate, the import duty per kilogram equates to 3.8 manat.

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