Download Initiates file download

Trends of Agro-industry
• Economic Development
KYRGYZ REPUBLIC
Kyrgyzstan is a landlocked and low income country with GNI per capita as of US$ 870 in 2009. Total number of
population is 5.3 million inhabitants, of which 64 percent live in rural area, and the annual population growth is 0.82
percent. The socio-political crises of April and June 2010 hampered the recovery of the Kyrgyz economy from the
global economic crisis and affected agriculture, trade, construction and banking system. Real GDP grew by 2.3
percent in 2009, down from 8.4 percent in 2008. The economy was, and remains highly dependent on gold mining
and agriculture. The agricultural sector contributed with 22 percent of value added in GDP and employed around 39
percent of the total labour force in 2008 compared to 38 percent of GDP share in 2004. Manufacturing industry
generated about 13 percent of GDP with a decline of annual growth by 8 percent in 2009 after a sharp growth by 23
percent in 2008. Steadily small and medium businesses share are increasing and sharing 44% in GDP producing
27% of manufacturing output. Farmers (households) own 50% of agricultural output sharing 93% in total
agricultural production. Investments into agriculture decreased almost twice in 2009 since 2005 and shared only
2% in total investments and it has been increasing in manufacturing and shared 11% in 2009.
• Food and Beverages Demand
The government’s priority is to develop the clusters approach in agro-industry by regions as well as to increase production
of meat, dairy, sugar and oil products in order to exclude import dependence from some products, especially vegetable oil
and sugar, and to increase production of export-oriented products like dairy. The highest share in food consumption refers
to bakery & macaroni and dairy products, but fish consumption is at very low level presenting only 0.2 percent in domestic
retail value. Since 2006 organic food production began to be developed sharing 0.11% of total agricultural land in 2009.
Food and Agriculture Organization of the United Nations
Regional Office for Europe and Central Asia
Agro-industry Outlook
The food, beverages & tobacco industry forms a large part of the economy, generating KGS15.3 billion (US$ 0.34 bln), that
represents about 19 percent of manufacturing output and employing 20.4 thousand people (or 12 percent of manufacturing
labor force) in 2009. There are 412 enterprises (or about 25 percent of total number of manufacturing enterprises)
operating, 65 percent of which are private small or medium-scale enterprises employing 14 percent of people involved in
F&B production. There is an increase of production by 10.6 percent in 2009 in spite of the decline by 7.8 percent in overall
manufacturing production. Labour productivity is growing over time but the number of employees has declined by 20
percent in 2009 to the level of 2005. Investments in R&D represent about 19 percent of total F&B output. Important
subsectors include dairy and beverages. The F&B industry performance is stable since 2003 after a sharp decline and it has
not reach the level of 2002 yet. The number of enterprises has been decreasing over time. Domestic retail market is
underdeveloped and fragmented across the country and it has been slowly emerging mainly in the capital. Retail trade of
food products generated KGS69bn (US$1.5bn) in 2009 sharing 53 percent of the total retail turnover, where flower and
bakery products generated 26%, meat products – 15% and alcoholic products – 14%.
Chart 1: Food and Beverages Industry Performance
Chart 2: Products Output Share, 2007
Key Economic Indicators
2009
2011
Food, Beverages & Tobacco
2009
GDP, US$ billion
4.58
Output, % of manufacturing
18.9
Manufacturing VA, % of GDP
14.2
Value Added, % of manufacturing
n/a
Agriculture VA, % of GDP
22.1
Enterprises, % of manufacturing
24.8
Employment in Agric., % of total
38.5
Employment, % of manufacturing
12.02
Gross Fixed Capital F., % of GDP
21.2
Investments, % of manufacturing
n/a
FDI net inflows, % of GDP
4.14
FDI inflows, % of inflow in indust.
4.2
R&D, % of GDP
0.23
R&D, % of Output
Merchandise Trade, % of GDP
97.8
Net Trade, US$ billion
Merchandise Exports, US$ billion
1.44
Exports, %of merchandise exp
5.28
Merchandise Imports, US$ billion
3.04
Imports, % of merchandise imp
10.6
Global Merchandise Exports rank
138
Exports annual growth, %
18.9
-0.25
-16.9
Agro-industry National Policy Framework
National Development Programme. The key documents setting out the Government policies for
the country, agriculture, rural and agro-industry development include: (i) the Country Development
Strategy for 2009-2011 that provides a complex solution for social and economic problems; (ii) the
Resolution of the Government on Plan of Activities “Economy and Security” for 2011 in order to
stabilize social and economic situation in Kyrgyzstan and enable environment for entrepreneurial
development due to the crisis in the governmental politics and ethnic conflicts in the South part of the
country in 2010; (iii) the Food Security Programme of Kyrgyzstan for 2009-2015 that includes
measures to increase the volume of agricultural and food products and diminish the importdependence of the country in foodstuff by 2015; (iv) the Programme of Fisheries development in
Kyrgyzstan for 2008-2012; (v) the Programme for Scientific Support development for Agro-industrial
Complex in Kyrgyzstan; (vi) National Strategy on Integrated Rural Development.
Legal Framework. Kyrgyzstan adopted a number of laws to encourage a growth of agriculture and
agro-industry and rural development, passing the land (2000) and tax (2008) codes, the Presidential
Decree on “Development and Support of Enterprises involved in harvesting, processing and
marketing of agricultural products” (2000); the law on Food Security (2008); the law on Agriculture
development (2009), the law on Cooperatives (2005); the Resolution on establishment of the open
joint stock company “Kyrgyz Agro Food Corporation” (2009) that will be transformed from the State
Enterprise Center of sales and marketing under the Ministry of Agriculture and will ensure stable
functioning of the food market in the interests of producers and meeting public demand for food. The
recent amendments to the Tax Code in 2009 are providing for exemption of VAT of technological
equipment, imported as a contribution to share capital as well as for exemption of profit tax for three
years for agro-processing enterprises (except processing of excisable products) based on the annually
approved list of agro-enterprises by the nominated commission under the Ministry of Economic
Development and Trade. The Government adopted the law On State regulation of manufacturing and
trade of ethyl alcohol, liquors and spirits in 2007. A number of relevant laws were drafted for further
approval, namely: a law on Competition, a law on Consumer’s Protection and a Presidential decree
"On state regulation of prices for certain goods”.
Tr ad e L i be r al i z at i o n , W TO A c c e ssi o n an d Tr ad e Per fo r m anc e
Foreign Direct Investments
F o od S afe t y , C e r t i fi c at i o n & Qu al i t y C on t ro l
Regulation. Attracting FDI is a priority of
Trade Regulation. Kyrgyzstan has the most liberal trade regime among countries in the region since
acceding to the WTO in 1998. The adopted Custom Code (2004) with the law On Custom Duties
(2006) comply with most international standards and takes into account the regulations of the Kyoto
Convention on Simplification and Harmonization of Customs Procedures. The Government made
major liberalizing commitments, such as binding tariffs at relatively low ceiling levels, other import
charges and agricultural export subsidies at zero; eliminating discriminatory excise taxes; and
applying the customs valuation provisions. Kyrgyzstan has trade relations with 123 countries and
has signed free-trade agreements with 10 countries. The impact of the new Custom Union
established among three countries Belarus, Kazakhstan and Russia in 2009 could be considerable on
Kyrgyzstan’s trade flows. In case of accession of the CU Kyrgyzstan will have to adopt the common
external tariff, the average rate of which amounts to 10.6% in the CU, whereas the average rate of
Kyrgyzstan’s custom duties for 2009 was 5.1 %. Due to growing prices for important foodstuffs like
flower, oil, sugar, rice and buckwheat the Government is planning to eliminate import tariffs and to
increase export tariffs for such groups of products.
WTO accession. Kyrgyzstan, the first of CIS countries, has been a member of WTO since Dec 1998
and an observer to the Agreement of Government Procurement (GPA) accession with 0.15 percent of
contribution to WTO budget in 2011. Simple average of imports duties for agricultural goods applied
in 2009 were 7.7 percent. The latest Trade Policy review by the WTO was in Oct 2006.
Trade Performance. Exports of merchandise goods accounted for around 26 percent of Kyrgyzstan’s GDP, but
imports made up 65 percent of GDP in 2009. In 2009 Kyrgyzstan had a negative trade balance of F&B as of
US$0.24bn that has been steadily increasing over time. Processed F&B products accounted 9.5 percent of total
merchandise imports and 4 percent of total merchandise exports in 2009 with an average annual export growth as
of -21 percent in 2009 after an exports growth by 26 and 5 percent in 2007 and 2008, respectively. Kyrgyzstan is
an import-dependent country in F&B products, except dairy products that represent about half of the total exports
and tomato products, especially tomato paste. The major imports are of sugar (21%), vegetable oil (17%),
beverages (16%) and cocoa and its preparations (15.5%).
Top destinations for F&B products: Kazakhstan (80%), Tajikistan (9%) and Russia (5.4%) in 2009;
Top origins for F&B products: Russia (38%), Kazakhstan (21%), Ukraine (16%) and Belarus (11%) in 2009
Chart 3: Food and Beverages Trade Performance over time
Kyrgyzstan. As a practical step the Law on
Investments (2003) was adopted and the
Advisory Council for Foreign Investment was
established for identification of key areas,
eliminate
administrative
barriers
and
strengthening the marketing policy.
FDI inflows. In 2009 Kyrgyzstan’s FDI
inflows accounted 4.1 percent of GDP that
was almost twice less to the levels of in 2004
and 2008 when the FDI were highest. The
vast majority of FDI is directed to trade,
transport and communication as well as
manufacturing. FDI in manufacturing have
decreased almost twice in 2009 to the level
2005 and shared 25% of total country FDI as
the second after investments in financial
institutions. Manufacturing employed 38% of
total labor force and counted 520 enterprises
in 2009 that is in 1.4 times more than was
registered in 2005. Major country-investors
of total FDI are Kazakhstan (32%),
U.K.(17%), Canada (12%), China (8%),
Russia (7%) and Turkey (6%). The F&B&T
industry counted 99 enterprises with foreign
investments making more than third of the
total manufacturing output and employing
5’228 people. It produces mainly wheat
flower, macaroni, packed tea, mineral water,
non-alcoholic beverages and tobacco
products (Reemtsma company).
Chart 4: Share of Exported Product Groups of
F&B in total exports, in 2009
Food Safety regulation. Kyrgyzstan is a member of the Codex
Alimentarius Commission and a correspondent member of the
International Organisation of Standardization (ISO). Issues of protection of
human health in general and in particular from food-borne risks, which
come under the SPS Agreement, are dealt with by the Law on Sanitaryepidemiological Safety of Population (2003) and the Law On Veterinary.
The country’s existing system for regulating the safety of foods and related
production processes is not in a full compliance with internationally
accepted regulations and WTO requirements yet. A draft of a law On
Requirements for the safety of food products and processes of their
manufacturing, storage, transportation, marketing and utilization” was
elaborated by the Ministry of Health. A number of projects of international
organizations (WB, ITC, GTZ) were conducted in order to streamline the
compulsory standards requirements for business, develop systems to
enhance product quality and safety and to support Kyrgyzstan becoming a
member of the International Laboratory Accreditation Cooperation and
establishing a national information body and national reference centers on
technical barriers to trade and sanitary and phytosanitary measures
within the WTO framework.
Certification. In accordance with the Laws On the Fundamentals of Technical
Regulation (2004) certification is only required for products that can potentially
endanger consumer health (like alcohol, tobacco products, equipment etc.) that
reduced obligatory standards coverage from 70 to 22 percent. Other goods can be
certified on a voluntary basis, but only to confirm product quality. There are 172
Kyrgyz state standards as well as over 1’500 CIS intergovernmental standards for
foodstuffs. ISO standards have begun to be adopted. The Government’s resolution
(2006) on procedures for the importation of products subject to mandatory
conformity certification regulates the standards for imports.
Business Environment and Competitiveness
Business Environment. According to the Doing Business Report 2011
Kyrgyzstan is considered as one of the top 10 economies that made the largest
strides in making their regulatory environment more favorable to business by
implementing more than a dozen reforms over the 5 years, and being ranked (out
of 183 economies) as 44 in 2011 (up 3 points to 2010). Trading across the
borders is ranked as of 156, paying taxes – 150 (up 6), protecting investors – 12,
getting credit – 15, and starting business - 14. However, closing business and
registering property were made more difficult.
Taxation Relieving. The tax burden on companies was eased by reducing a
number of payments and lowering the corporate income tax from 20 to 10
percent and abolishing social security contribution (2006). The new Tax Code
(2009) has flattened personal income tax to 10% and VAT from 20 to 12%.
Kyrgyzstan is also a party to 30 double tax treaties as of 2011. Agriculture is
exempt from VAT. Certain goods that are imported temporarily are fully or
partially exempt from payment of customs duties and taxes. Excise taxes are
imposed on locally produced and imported goods: alcohol, beer, tobacco, wines,
coffee and cacao, raw materials for wines.
Competitiveness. According to the Global Competitiveness Report 2010-2011
Kyrgyzstan is at the first stage of development, it got 121 overall Global
Competitiveness Index among 139 countries, having the most five problematic
factors of doing business as follows: corruption, policy instability, government
instability/coups, access to financing and tax regulation.
Agr o- indu str y Br ief