The Rupp Report: Cotton, The Cash Cow For Uzbekistan

Cotton was the cash crop in Uzbekistan for many years, providing employment and foreign exchange to
a considerable degree. But over the past few years, Uzbek cotton production has been beset with
serious problems. Reasons, among others, included inadequate production incentives, low-quality
inputs and deteriorating infrastructure. But the country remains a primary supplier of cotton to
Asia, with major markets in Bangladesh, China and South Korea.

Great Significance

Sources including the U.S. Department of Agriculture Foreign Agricultural Service’s Global
Agricultural Information Network, Germany Trade and Invest, and the Bremen Cotton Report mention
that light industry, including textiles and apparel, has traditionally played a highly significant
role in the Uzbek economy. That sector’s production totaled $2.26 billion in 2009, up by 6 percent
compared to 2008, representing 12.2 percent of the country’s industrial production.

The textile and apparel industry employs more than 100,000 people. Thanks to the cotton
resources and low production costs, conditions are favorable for the textile industry to expand.
This sector for years has been Uzbekistan’s most investment-intensive industrial sector.

Domestic and export demand, particularly for cotton yarn, increased marginally over the last
year. Yarn production totals approximately 220,000 metric tons, of which more than 50 percent is
exported. Cotton exports are forecast to continue a slow decline. For the 2009-10 year, lint
exports are projected to total 3.2 million bales.It also is reported that the existing local
logistics system comprises 23 specialized cotton terminals with a storage capacity of 400,000
metric tons, and also offers a good transportation infrastructure and shipment corridors, which
will help to facilitate timely deliveries.


Uzbek government officials recently reported that 2009 domestic cotton consumption totaled
300,000 metric tons. This is in contrast to 2009-10 forecasts of domestic consumption totaling only
1.1 million bales, or 240,000 metric tons. According to estimates, effective ginning capacity is
considerably below the installed capacity owing to problems with equipment. Based on these and
other production problems; the government initiated a modernization and reconstruction program for
some cotton gins during 2007-2011, with the expectation of rebuilding an additional 27 ginning
mills by 2011.


Most of the textile and apparel production capacities are concentrated in enterprises
belonging to O’zbekyengilsanoat, the governmental public company for light industry. The
association includes approximately 150 textile and apparel manufacturers, including several joint
ventures. These manufacturers have installed production capacity for more than 300,000 metric tons
of cotton fibers, 250,000 metric tons of cotton yarns, 5,000 metric tons of wool yarns, 410 million
meters of cotton fabrics and 110 million apparel pieces. Their exports of goods totaled $385
million in 2009, mainly cotton yarns and fabrics. Five years ago, exports were valued at $280


Every year, more and more land is sown with faster-maturing varieties of cotton. Over the
last five years, the government has conducted a major reform program, with the primary goal of
improving fiber quality. In addition, improving profitability over the same period has enabled
significant investment within the spinning and weaving industries to install new equipment and
refurbish existing equipment.

Currently, almost 90 percent of the export value is generated by companies that have received
foreign capital investment. Between 2006 and 2009, foreign investors staked some $280 million in
Uzbek textile companies, including cotton fiber producers.

O’zbekyengilsanoat expects an additional $615 million to be invested in the sector from 2008
to 2012. The completion of 79 projects should increase the processing quota of cotton fibers
produced within Uzbekistan from 30 percent in 2007, when some 330,000 metric tons were processed,
to some 50 percent by 2012, when 510,000 metric tons are projected to be processed. According to
market experts, this program is long overdue. For many product categories, production data have
shown a downward trend for some time.


Expansion opportunities for the industry still exist. The Uzbek government expects permanent
large capital inputs and other investment promises from abroad will continue in the future.
Projects for the production of finished products have increasingly come into focus.

Looking to the future, experts predict that in order for the local textile industry to remain
competitive globally, it must aggressively improve quality and produce more value-added products,
and not depend primarily on cheap yarn-based exports.

June 16, 2010