Kyrgyz Republic - Agricultural SectorKyrgyz Republic - Agricultural Sector

Overview

The agricultural sector is the largest employer in the Kyrgyz Republic and accounts for an estimated 11,7% of GDP[1], but is disorganized and undercapitalized.  Most agriculture is family-based on small plots of land.  Larger production, particularly in apples, apricots, cherries, sugar beets, beans, cotton, tobacco, and walnuts, is regional and still small-scale compared to Western standards.  Most families grow small amounts of fruits and vegetables that are consumed locally, though the Kyrgyz Republic did export more than $95,2 million of produce in 2018[2].

Several international donor projects, including USAID, focus on improving credit to the sector, though the results of such efforts are mixed.  There are opportunities for small-scale operations in a variety of areas:  orchards, dried fruits, improved seed, fertilizer, small-scale farm equipment, food processing equipment and slaughterhouses, improved storage, and packaging.

Leading Sub-Sectors

Food Processing/Packaging Equipment
The agricultural sector remains the primary source of employment in the Kyrgyz Republic, with over 23%[3][4] of the country’s labor force participating in agriculture.  The sector is also the second-largest component of national gross domestic product.  Despite its significance to the economy, most vegetable production is seasonal, and export markets are quite limited due to inefficiencies, regional barriers and packaging deficiencies that limit the amount of transport produce can endure.  Disorganization and limited capital not only hamper the fruit and vegetable industry, but also constrain cereal, dairy and meat production.  Many international donors assist the agricultural sector, but inefficient and inadequate processing, packaging, and marketing limit the transition from localized production and consumption to international competition.  Furthermore, many Kyrgyz dairy, meat, and fruit and vegetable producers are currently unable to meet the higher veterinary and phytosanitary standards of the EAEU necessary to export to other Union countries.

In general, the food processing industry of the Kyrgyz Republic remains underdeveloped.  Local companies often lack sophisticated management skills and productive equipment, and many of them operate only at 20-40% of capacity.  There is a demand for various types of food-processing equipment, including production lines for juice, ketchup, dried vegetables and fruits, potato chips, pasta products, meat products, and packaging.  Local firms have limited financial resources and therefore prefer to purchase semi- and non-automated equipment.  Refurbished and used equipment is popular for the same reason.  Potential clients are food businesses with plans to produce new products or upgrade the packaging or quality of current product lines.

Most small food processing companies use local or Chinese equipment, which is much cheaper than U.S. or European machines.  However, the largest and most successful companies use equipment from Italy, Germany, Austria and other European countries.  Medium-size companies tend to buy Russian food processing equipment.

There are local representatives several international food processing equipment companies.

Opportunities

Dairy:  The Kyrgyz Republic produces over 1.5 million tons of milk annually[5], but processes only 2.5%[6] of its production.  The cost of raw milk is lower in the Kyrgyz Republic than in neighboring Kazakhstan.  While foreign investors cannot own farmland, joint ventures with local partners who own land could further decrease production costs and guarantee a consistent supply of raw milk.  Milk yields can also be substantially increased from the current 2-4 liters per day to 15 liters per day.  Due to local inefficiencies, milk, butter, yogurt, cheese and other dairy products sold in the Kyrgyz Republic generally are sourced from more expensive producers in Russia and Kazakhstan, but Kyrgyz producers are catching up.  During the first 11 months of 2018, the export of dairy products compared to 2017 nearly doubled. In previous years dairy shipments were predominantly destined for the EAEU market, primarily to Kazakhstan and Russia.  However, 2018 dairy exports to Uzbekistan increased exponentiailly, reaching 500,000 tons of products between January andNovember.  [7].  Investment in the local dairy industry could present an opportunity to perpetuate this trend.

Meat:  The Kyrgyz Republic has an underdeveloped meat market.  Neighboring Kazakhstan provides a market for Kyrgyz beef and lamb products, but the Kyrgyz Republic lacks most of the processing capability for value-added production.  Foreign investment is making improvements in meat processing; USAID helped establish a modern slaughterhouse in Naryn region, which has the largest number of cattle in the country.  A joint Kyrgyz-Chinese company plans to launch what may become the largest meat-processing plant in the country in Balykchy in 2019.  Also, there is an increasing demand for chicken quarters which is largely satisfied by EAEU member-countries, predominantly Kazakhstan and Russia[8], as well as U.S. exports.  U.S. poultry transiting Russia and Kazakhstan and destined for the Kyrgyz Republic faces a number of bureacratic hurdles, but the Kyrgyz Ministry of Agriculture is taking steps to resolve the situation.

Fruit & Vegetable Processing:  Similar to the dairy industry, processed fruits and vegetables amount to slightly more than 2% of total production, but the export of dried fruits has been steadily increasing since 2016.  Potential U.S. investors may be interested in establishing a factory to produce Western-quality processed fruits and vegetables.  Possible products include marinated products, canned vegetables, and dried or preserved fruits.