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Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis | Peer-reviewed and Open access journal ISSN: 1804-1205 | www.pieb.cz

BEH, January 2011

BEH - Business and Economic Horizons Volume 4 | Issue 1 | January 2011 |pp. 81-87

Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis

Shavkat Hasanov1, Ahmed Mirza Nomman2 Agricultural economics and management department, Samarkand Agricultural Institute 2 Agricultural Policy and Market Research Institute, Justus Liebig University of Giessen, Giessen, Germany. e-mails: [email protected]; [email protected]

1

Water scarcity and land degradation increases led to a sharp rise in input resource's costs. These developments make it increasingly difficult for agricultural farms to produce according to the demand for food and other commodities, especially owing a rapid population growth. The present study aims to focus on scarce resource use in the agricultural production of the Zarafshan valley by means of the efficiency analysis. A DEA model is estimated to investigate the farm level efficiency levels with respect to the use of the limited resources available to the farmers. By the application of linear programming methods a `best practice frontier is estimated', classifying farms on the frontier as efficient and others as inefficient with respect to different scales. Technical and allocative efficiencies are calculated relative to the frontier. Results shows input resources are not used efficiently and a great majority of farms could effectively reduce considerable amounts of input use by still producing the same output.

JEL Classifications: C81, D24, Q12 Keywords: Efficiency, Zaravshan valley, household survey, scarce resources, DEA model.

Agriculture is an important sector for the economy of Uzbekistan. The country has some distinctive economic features, such as about 17.0 million or 60 percent of the population of the country living in rural areas, with 34 percent of them involved in the agricultural production (MAWR, 2008; Djalalov, 2006). Therefore, agriculture remains the principal income source for the rural people. Since its independence in 1991, Uzbekistan's agriculture is having gradual structural changes. The main challenges the country regarding agricultural reforms include the transformation of the state and collective farms in cooperative and private farms. Production share and land occupation of cooperatives (shirkats) in agriculture has decreased gradually, making them almost disappear. Instead, private farms (farmer) and household (dehqon) farms have considerably increased number. The main crops that have state order procurement prices are cotton and wheat, almost entirely produced by private farms. Other high value cash crops - are vegetables, potatoes and fruits, produced by household farms. The state allocates cotton and wheat areas to private farms, where cotton is the main export crop, and contributing around 25 percent of foreign exchange revenues, as well as a significant source of tax revenues (Guadagni, et al., 2005; Ahrorov, 2010). Wheat is considered as a crop to provide food self-sufficiency and it also offers an easy rotation with cotton. Households play a significant role to produce cash crops of which they are producing 84% of potato, 67% vegetables, 52% of fruits which is almost equal to the whole share of meat and milk in the country (SCS Uz., 2009). Agricultural production in the country is increasingly becoming a field for concern, especially with regard to the efficient use of input resources, such as land, water, labor and capital. Due to economical and ecological unsustainable agricultural systems, water scarcity and land degradation, the costs of these resources in the past years have rapidly increased and are expected to rise furthermore in the near future. These developments make it increasingly difficult for agricultural agents to produce according to the demand for food and other commodities, especially owing to a fast population growth.

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Business and Economic Horizons

Introduction

Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis |

BEH, January 2011

The present study aims at focussing on scarce resources use in the agricultural production of the Zaravshan valley of Uzbekistan. Additionally, issues related to the agricultural enterprises' profit maximisation shall be addressed. Secondary data is hardly available in the post-soviet countries. To this effect, the initial methodological approach was to collect primary data and employ it according to research tasks, for this purpose a questionnaire covering nearly all aspects of agricultural production has been developed. This study is the first part of an ongoing research carried out in the framework of the Climate Change Network for Central Asia (CliNCA).

Study site - Primary data survey and methods

The Zaravshan valley is one of the biggest intermountain areas of Central Asia and is situated between the mountain ridges of Turkistan and Zeravshan. Historically, irrigated agriculture has well developed nearby the Zaravshan River. Nowadays, Uzbekistan's part of the valley occupies mainly 3 regions Samarkand, Navoiy and Bukhara and partly the southern areas of Jizzakh and the northern areas of Kashkadarya, which are main agricultural producers of fruit, vegetables, cotton, grain and other agricultural commodities for the country. The valley occupies around 1/5 of the country's irrigated land and produces 1/3 of the total agricultural commodities of Uzbekistan. A key role of the Zaravshan valley's agriculture is playing Samarkand region, which has land for conducting agricultural activity is exceeds 402.9 thousand hectares or about 10% of the irrigated land of the country. Agricultural sector is prevail in the region, which share is 51.8% of total GRP, and 41% of the region's agricultural land occupied by grains, 38% vegetables, 13% cotton, and 8% others. Navoi region's 10 million ha of land used as pasture lands, irrigation areas only 91.6 thousand ha or 0.9% of the total area and share of agriculture at GRP is 14.3%. Bukhara region is the last region of the valley and agricultural products share at GRP consists 8.7%, which used lands for agriculture occupies 8% of the region's territory (SCS Uz., 2009). In early 2010 a survey was carried out among private (farmer) and household (dehqon) farms mainly of the Samarkand and partly of the Navoiy region's counties. The survey was conducted in the framework of the German foreign ministry funded project CliNCA (Climate Change Network for Central Asia) through the Giessen University (JLU) and the Samarkand Agricultural Institute (SAI) in Uzbekistan. The survey covered 102 farms and households, random selection was insured. The main questions included the types and modes of input resources use, off-farm income sources, questions related to farm management and other socio-economic questions. The efficiency of recourse use in different organizational farm types is evaluated and an economic assessment of yields from main agricultural crops on different land and farm types is conducted. The average farm size in the area surveyed amounted to 49 ha for the 76 private farms and on average 0.45 ha for the 26 household farms. The survey area can be divided into 4 zones, based on weather, water sufficiency and land use conditions. First zone includes 3 upstream counties (Urgut, Bulungur and Taylak), characterized by mountains and semi-mountains and having sufficient water and noncotton cropped areas. The total respondent for this zone were 19 farmers, 2 of them being females, with an average farm size of 12.7 ha. The crop areas are smaller in comparison with other zones, but have the advantage of growing high value crops. The main crops of this zone are wheat, tomato, potato, tobacco and fruits. The second zone includes 3 counties (Akdarya, Jambay and Payarik) with good provision of surface and ground water, plain land areas, located north and north-east of Samarkand city. 22 farmers are surveyed from this zone, with an average farm size of 57.6 ha and the main crops cotton, wheat and tomato. The third zone is characterized by larger farm sizes and severe issues of land salinity resulting from dreadful drainage systems. The total farm respondents were 28 with an average farm size of 59.4 ha. The main focus in the third zone primarily lies on cotton and wheat cultivation. A lot of farmers are using pump irrigation systems, with maintenance of these pumps being a key concern. The fourth zone of the surveyed area is

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Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis |

BEH, January 2011

located in the Navoiy region (Karmana and Hatrichi), located downstream the Zaravshan river. The main crops grown are wheat and cotton, whereas in the upland areas of the Hatirchi County grapes and safflower also cultivated. 7 farms from this zone were surveyed, with an average farm size of 75.8 ha. The study aims at finding answers for the following questions: What is status quo in the agriculture of Zaravshan valley? How do agricultural enterprises perform in a situation of input resource shortages and price increases? The study evaluates the efficiency of recourse use in different organizational farm types; an economic assessment of yields from main agricultural crops on different land and farm types is carried out to develop a profit maximisation function. Data Envelopment Analyse (DEA) approach is used to investigate trends in the agrarian sector, including the maximisation of economic value of agricultural production within the framework of scarce resources use. The non-parametric DEA model builds a linear piecewise function from empirical observation of inputs and outputs. By the application of linear programming methods "best practice frontier is estimated", classifying farms on the frontier as efficient and others as inefficient with respect to different scales. The first for CRS (constant returns to scale) conditions input oriented model proposed by Charnes, Cooper, and Rhodes (1978), which we used in this paper to calculate technical efficiencies relative to the frontier. To introduce DEA a ratio form of survey data are used that suggested by Coelli et al. (2005):

maxu,v (uyi / vxi ),

St: uyi / vxi 1, j 1, 2,...N

u, v 0

One output and 6 inputs are used in the model. Output is represented by gross yield of for each crop in a sample. Input resources variables are contributed as follows: - Land, area of each crop; - Water: water payment and cleaning interfarm channels fee; - Seed cost; - tractor and machinery cost; - Fertilizers (includes, fertilizer, organic manure, pesticides and herbicides use) cost; - Labor cost: fixed salary of farm workers, seasonal and part-time workers wages, family members work calculated as shadow price. Based to this data and by using the duality in linear programming, it is intended to solve the following envelopment problem (Coelli et all 2005):

Business and Economic Horizons

min ,

St: -yi +Y 0

xi - X 0

0

where is a scalar and is N*1 vector of constant. The value taken at the results is efficiency score of each farm. It will satisfy the condition 1, with a value of 1 indicating a point on the frontier and hence a technically efficient farm (Farrell, 1957) definition. A number of software exists for solve the efficiency problem, like DEA Solver (SAITECH, 2003), EMS (Scheel, 2000), DEAP 2.1 (Coelli, 1996) and so on. In this study we used DEAP 2.1, which is a freeware program and calculates projected values of inputs.

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Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis |

BEH, January 2011

Efficient use of scarce resources - Results and discussion

The analysis of farm performance is carried out using the net crop revenue as an indicator. The findings clearly indicate that input resources are not used efficiently, es especially in the case of cotton growing farms, where the farm performance is clearly negative.

FIGURE 1. PRODUCTION SHARES IN TOTAL AREA SURVEYED, 2009

Tomato Watermel 3.5% on Potato 11.6% 1.6% Wheat 45.6% Grapes 2.6% Onions 0.2% Cotton 35,0% Fruits 0.04%

Source: own illustration based on Household survey, 2010

FIGURE 2. AVERAGE YIELD OF CROP IN SELECTED SURVEY AREA, 2009 CROPS

35 30 25 tons/ha 20 15 10 5 0

Cotton Wheat Tomato Watermelon Potato Grapes Onions Fruits

29.61 26.00

16.67

17.00

9.10 4.69 2.63

8.12

Source: Own illustration based on Household survey, 2010.

The analysis as a novelty also addresses the use of voluntary assistance labor (hashar) based on a shadow-price framework and also incorporates household family labor. In price household-or terms of technology use, a trend towards demechanisation could be seen, which is found

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Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis |

BEH, January 2011

to be driven by unemployment outside the agricultural sector. Two crops, namely cotton and wheat are leading the agriculture of the country, the same being the case for the area at study. Wheat has the largest share in the cropped area, which mainly is grown under the food self sufficiency scheme of the country. Cotton is the main export crop, strengthening the state budget with foreign currency. Other commodity shares remain rather small in total, but are considerably higher in terms of yield (see Figure 2). In terms of yield per hectare, tomato, potato, onion and fruits are the major cash crops to the rural dwellers.

FIGURE 3. AVERAGE REVENUE OF CROPS IN SELECTED SURVEY AREA, 2009

9000 8000 7000 6000 USD 5000 4000 3000 2000 1000 0 Cotton Wheat Tomato Watermelon Potato Grapes Onions Fruits 817.5 678.5 Business and Economic Horizons - 85 2 752.2 2 544.8 2 193.5 4 631.1 4 051.6 7 821.0

Source: Own illustration based on Household survey, 2010.

TABLE 1. TECHNICAL EFFICIENCY OF COTTON IN RAYON LEVEL IN SURVEYED AREAS(2009)

Rayon Akdarya Ishtihon Pastdargom Jambay Payarik Karmana TE 0.917 0.879 0.877 0.915 0.912 0.971 Possible Input Reduction(same output level) in % 8.3 12.1 12.3 8.5 8.8 2.9

Source: own illustration base on Household survey, 2010.

Average revenue per hectare in the survey area is higher for potato, grapes and tomato, which makes them a first choice for farmers. In the surveyed area the average revenue of wheat is rather low, owing to the fact that farmers are getting high quality wheat seeds for high prices and that during the harvesting time they have to hire combines and machinery from MTP (Machinery-Tractor Stations), which is rather cost intensive. Therefore, although the wheat yields in the surveyed area high, wheat production remains a costly undergoing. Farmers with big and medium size farms mostly have their own tractor or farm machinery, nevertheless they have reported having hired additional machinery during

© 2011 Prague Development Center www.pieb.cz

Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis |

BEH, January 2011

the harvesting season. Machinery overuse in some cases has been observed, clearly indicating the inexperience of farmers in certain areas. High profit crops for the Zaravshan Valley are potato, watermelon and onion. However, the state order forces farmers to grow cotton and wheat, leaving them with no choice. This leads to huge losses for the farmers and for the government, as the losses of the farmers at times have to be compensated for by the state. Compensation is provided by the state in form subsides. Subsidies can be indirect, i.e. tax reductions and credits at lower interest rates.

TABLE 2. TECHNICAL EFFICIENCY RESULTS OF FARMS BY CROPS IN SURVEYED AREAS (2010)

Farm ID FR1 FR2 FR3 FR4 FR5 FR6 FR7 FR8 FR9 FR10 FR11 FR12 FR13 FR14 FR15 FR16 FR17 FR18 FR19 FR20 FR21 FR22 FR23 FR24 FR25 FR26 FR27 FR28 FR29 FR30 FR31 FR32 FR33 FR34 FR35 FR36 Cotton TE Grain TE Veget. TE Farm ID Cotton TE Grain TE Veget. TE 1.000 1.000 FR37 1.000 0.884 0.742 0.576 FR38 1.000 0.863 0.886 0.704 FR39 1.000 1.000 0.643 0.901 1.000 FR40 0.831 0.538 0.964 1.000 FR41 0.917 0.494 0.886 0.667 FR42 0.715 0.566 0.870 1.000 FR43 1.000 0.546 0.900 1.000 FR44 0.639 0.567 0.736 0.550 FR45 0.860 0.681 1.000 1.000 0.958 FR46 0.667 0.550 1.000 1.000 FR47 0.688 0.536 0.794 0.912 0.831 FR48 0.730 0.554 0.950 0.952 1.000 FR49 0.706 0.540 0.818 0.956 0.926 FR50 0.728 0.566 0.839 0.956 0.859 FR51 0.636 0.576 1.000 0.957 FR52 1.000 0.778 0.799 0.956 FR53 1.000 0.697 0.761 0.947 1.000 1.000 FR54 0.874 0.530 0.328 1.000 1.000 0.758 FR55 0.767 0.543 1.000 1.000 FR56 0.870 0.742 1.000 1.000 1.000 1.000 FR57 0.772 1.000 1.000 FR58 1.000 1.000 1.000 FR59 0.537 1.000 0.927 1.000 FR60 0.677 1.000 0.971 0.616 FR61 1.000 1.000 0.965 1.000 FR62 0.856 0.491 0.740 0.328 1.000 FR63 0.795 0.435 1.000 1.000 FR64 0.876 0.346 0.989 0.697 FR65 0.839 0.474 0.802 0.989 FR66 0.831 0.731 0.554 0.890 FR67 0.986 0.772 0.677 0.064 FR68 0.946 0.754 0.594 FR69 0.868 0.659 0.507 0.467 FR70 0.985 0.803 0.248 FR71 0.688 0.680 0.758 0.699 0.965 FR72 1.000 0.881 0.745

Source: own illustration base of Household survey, 2010

Conclusions and outlook

In the surveyed area, the input resources are not used efficiently. The inexperience of newcomers to the agricultural sector makes it an extremely challenging task to be efficient and use the agricultural input resources in a sustainable manner, in soviet times the

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Agricultural efficiency under resources scarcity in Uzbekistan: A Data Envelopment Analysis |

BEH, January 2011

"kolkhoz" (large state farms) used to take care of all matters related to the farm, thus making the farmer a mere executer of orders. Today the farmer has to manage his farm on his own, making it increasingly difficult for the farmer to be economically and ecologically efficient at the same time. Furthermore, the incentives for being efficient are not provided by the state, as control of land property remains in state hands. The analysis as a novelty also addressed the use of voluntary assistance labor (hashar) based on a shadow-price framework and also tried to incorporate household labor. The use of voluntary assistance for some crops is found to be not economically viable. In terms of technology use, a trend towards demechanisation could be seen, which is found to be driven by unemployment inside and outside of the agricultural sector. Climate change, which drives water scarcity, aggravates issues of land degradation will be another key aspect to deal with efficiency in the long run. In a next step the idea is to extend the survey to other parts of Uzbekistan and Central Asia to develop adaptive strategies for a new challenging era of farming in Uzbekistan.

References

Ahrorov, F., 2010. "Land degradation from agricultural activities in Uzbekistan: A review of evidence," In: Challenges of Education and Innovation, Proceedings of the Fourth Green Week Scientific Conference, IAMO, Vol.56, pp.131-39. Charnes, A., Cooper, W., and Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Vol.2, pp.429-44. Coelli, T., 1996. "A Guide to DEAP Version 2.1: Data Envelopment Analysis (Computer) Program," CEPA, University of New England, Armilade, No8/96. Coelli, T., Prasada Rao, D., O'Donnnel, Ch., Battese, G., 2005. An Introduction to efficiency and productivity analysis, 2nd ed., NY USA, Springer. Djalalov, S., Gemma, M., 2006. Impact of policy reforms on farm production in Uzbekistan, Policy reforms and agriculture development in Central Asia, London, Springer. Farrell, M., 1957. "The measurement of Productive Efficiency," Journal of Royal Statistical Society, Series A, Vol.120, pp.253-90. Guadagni, M., Raiser, M., Crole-Rees, A., Khidirov, D., 2005. "Cotton taxation in Uzbekistan. Opportunities for reform," ECSSD Working Paper, No.41, Washington, USA: The World Bank. MAWR, 2008, 2009. Ministry of Agriculture and Water Resources of the Republic of Uzbekistan, www.agro.uz SAITECH, Inc., 2003. Introduction to DEA-Solver-Pro Professional Version 7.1, SAITECH, Inc., Hazlet, New Jersey. Scheel, H., 2000. EMS: Efficiency measurement system users manual, Version 1.3, Universität Dortmund, Dortmund, Germany. SCS Uz, 2009. The State Committee of the Republic of Uzbekistan on Statistics.

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