The return of the regulator: Kazakhstan’s cotton sector reforms since independence

ABSTRACT

What would a ‘good’ industrial policy in the realm of cotton production look like? This article seeks to address this question through a focus on reforms to the cotton sector in Kazakhstan. In contrast with neighbouring Uzbekistan and Turkmenistan, administrators in Kazakhstan had widely freed the cotton sector from government control as early as 1998. Agricultural collectives had been replaced by small private farms, and commercial cotton processors and traders entered the sector. However, in 2007, regulation tightened again and forced ginneries to use a complex warehouse receipt system without making sure that it was accepted by stakeholders and without appropriate institutions for implementing it in place. Moreover, it imposed financing restrictions on ginneries, which were major loan and input providers to farmers. In the following years, private producers and investors turned away from cotton, and cotton area and output fell substantially. We position our analysis in the broader debate about the right approach to industrial policy and argue that the cotton sector performance after 2007 shows how ill-designed regulation and government interference can turn a promising economic sector towards decline.

KEYWORDS:

• Cotton
• Kazakhstan
• public regulation
• industrial policy
• commodity finance

JEL-CODES:

• O13
• O25
• P23
• Q15

Acknowledgements

A previous version of this paper was presented at the IAAE Inter-Conference Symposium, Agricultural Transitions along the Silk Road: Restructuring, Resources and Trade in the Central Asia Region, in Almaty (Kazakhstan), 4–6 April 2016. The authors wish to thank the conference participants, Nozilakhon Mukhamedova, and the three anonymous reviewers for Central Asian Survey for helpful comments. Support by Sayin Baktybayev in arranging the interviews and providing background information is gratefully acknowledged.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. See the original legal text at http://adilet.zan.kz/rus/docs/Z070000298_ in Kazakh, Russian and English.

Additional information

Funding

This paper was written in the framework of the project AGRIWANET – Agricultural Restructuring, Water Scarcity and the Adaptation to Climate Change in Central Asia: A Five-Country Study. Financial support by the German Federal Ministry of Education and Research (BMBF) under FK 01DK14018 is gratefully acknowledged. Some of the research included in this paper was conducted while the first and second authors were consultants for the Asian Development Bank (ADB) or the United Nations Food and Agricultural Organisation (FAO). However, the views presented here are solely those of the authors and should in no way be attributed to either ADB or FAO.