United States Department of Agriculture 2023 (USDA) report shows that Uzbekistan's cotton sector is undergoing notable changes in production, consumption, and industry practices. For the marketing year 2023/24, cotton production is estimated at 621,000 metric tons, while consumption is forecasted to be slightly lower at 599,000 metric tons. The reduction in cotton consumption is attributed to decreased demand for cotton yarn and fabric from importing countries like Turkey and Russia, aligning with a global decline in ready-to-wear apparel demand,.
The government's decision not to enforce a minimum price for raw cotton, coupled with the ability for farmers to choose the cluster to sell their cotton within their region, reflects a shift in market dynamics. The introduction of a cotton exchange for surplus raw cotton further emphasizes a move towards a more flexible and market-driven approach.
The Uzbek Association of Cotton-Textile Clusters (UACC) reports the existence of 142 cotton clusters, eight more than the previous year, indicating a growing trend in vertically integrated private companies involved in cotton production, ginning, and spinning.
Market Dynamics and Government Policies
Government policies, such as the advisory minimum price for raw cotton and the new regulation requiring certified seeds, demonstrate efforts to streamline the cotton industry and improve crop yields. However, the profitability of cotton farming faces challenges, with some farmers and clusters reporting minimal profits during the 2023/24 harvest. Mechanical cotton picking is on the rise due to labor scarcity and cost concerns, with expectations for increased mechanization in the future. Rising input costs for fertilizer and fuel contribute to narrowing profit margins, although Uzbekistan's domestic production of 85% of its fertilizer needs helps mitigate some cost increases.
The introduction of initiatives like the Better Cotton program and efforts towards organic cotton production indicate a commitment to sustainability and meeting global market preferences.
In the consumption sector, despite increased investments in Uzbekistan's textile industry, cotton consumption for the marketing year 2023/24 is anticipated to decrease to 599,000 metric tons. The contraction is attributed to low demand for cotton yarn and fabric, impacting textile and garment factories operating at reduced capacity.
Challenges in Profitability and Mechanization Trends
Ongoing geopolitical challenges and a downturn in global apparel demand contribute to uncertainties in the cotton market. However, continued investments in Uzbekistan's yarn and fabric manufacturing capacity suggest potential future increases in cotton demand, possibly leading to the country importing more cotton lint as the ready-to-wear garment market improves.
The decline in cotton exports is attributed not only to the government's policy but also to reduced demand from importing countries like Turkey, reflecting a global trend of decreased interest in raw cotton. Conversely, Uzbekistan has witnessed a considerable surge in cotton yarn and fabric exports, showcasing the country's ambition to ascend the value chain and become a major producer and exporter of finished textile products.
Table 1 highlights the major importers of Uzbek cotton, with Turkey, the European Union, and China being significant destinations. The shift towards value-added exports is further evident in Table 2, showcasing the substantial increase in cotton yarn exports to various countries, including the USA, Turkey, China, and the EU.
On the consumption front, cotton imports for MY 2023/24 are anticipated to be 15,000 metric tons, reflecting a decline from the previous year. This decrease is attributed to a global slowdown in yarn demand, aligning with market sources indicating that Uzbek yarn production facilities are currently operating under capacity. As demand for ready-to-wear garments is expected to rise in the future, Uzbekistan may face the need to import more cotton to meet the growing demand from its spinning industry.
Table 3 illustrates the growth in cotton fabric exports, with Kazakhstan and the EU being notable recipients. Despite challenges such as the global decline in demand for ready-to-wear apparel and garment in 2022 and 2023, Uzbekistan's focus on fabric and yarn exports indicates a long-term strategy to establish itself as a prominent player in the textile and apparel market.
One of the pivotal aspects of the government's strategy is the financial backing provided to cotton and textile clusters. A presidential decree in January 2023 allocated $200mn in loans over three years to enterprises engaged in exporting fabrics, knitted fabrics, knitwear, and finished garments. This financial infusion is a clear indication of the government's dedication to boosting export potential and fostering growth in the textile sector.
Labor Reforms and International Collaboration
In addition to financial support, the government has undertaken significant steps to empower cotton-textile clusters in determining the purchase price of raw cotton. This market-oriented approach allows clusters and farms to engage in mutually beneficial agreements, promoting a flexible and dynamic marketplace. Farmers are now granted the flexibility to enter futures contracts, enabling them to sell surplus cotton and access preferential loans, particularly advantageous during periods of low demand.
Uzbekistan's commitment to labor reforms and international collaboration is evident in the launch of the Better Work Program by the International Labor Organization (ILO) and the International Finance Corporation (IFC). This program, initiated in June 2023, seeks to enhance working conditions and drive competitiveness in the country's key textile and garment industry. The successful eradication of systemic child labor and forced labor has garnered positive declarations from the ILO, signaling a positive shift in global perception and potentially opening avenues for increased exports.
The government's responsiveness to challenging market conditions is highlighted by the allocation of $250mn to postpone loan repayments for cotton-textile clusters. This measure, introduced in June 2023, aims to ease financial burdens during times of low demand for apparel in developed countries.
Moreover, adjustments in value-added tax (VAT) payment terms and the integration of information systems with tax authorities demonstrate Uzbekistan's commitment to streamlining processes and ensuring financial stability within the cotton clusters.
The government's forward-looking approach extends to technological advancements and diversification. The establishment of a centralized digital agricultural platform, introduced in August 2023, emphasizes the country's commitment to modernizing agriculture and ensuring transparency in lending processes. Initiatives such as the creation of specialized industrial zones, a technopark for textiles, and the redistribution of land for horticultural production underscore Uzbekistan's efforts to diversify crop production, promote food security, and support smallholder farmers.
On the international trade front, Uzbekistan's inclusion in the EU's Generalized Scheme of Preferences (GSP+) has significantly benefited its textile and ready-to-wear garment exports to the EU. This policy, providing duty-free access to approximately 66% of EU tariff lines, resulted in a notable surge in exports, growing by 70% in 2021 and an additional 28% in 2022.
On December 11, Better Cotton reported how they implemented enhanced monitoring aligned with International Labour Organization (ILO) on child labor in cotton production in Uzbekistan. The objective was to ensure farms adhere to standards centered on freedom from child and forced labor, establishing a dual monitoring strategy to tackle labor-related issues.
Recent monitoring efforts in Uzbekistan included in-depth interviews with over 1,000 workers across 12 farms, providing a nuanced understanding of the labor situation. The assessment went beyond mere compliance, covering aspects such as fair wages, working conditions, and workers' rights, offering a thorough evaluation of labor practices. The monitoring outcomes indicated an absence of systematic forced or child labor, with a comprehensive examination of various aspects of decent work. Challenges like delayed wages and safety issues were promptly addressed through direct discussions with farm management, demonstrating Better Cotton's dedication to proactive measures and ongoing enhancements.
Earlier Daryo reported that President Shavkat Mirziyoyev led discussions on December 12 focused on improving Uzbekistan's cotton production system. The meeting explored strategies to tackle current challenges and introduce advancements for enhanced efficiency and sustainability in the cotton sector
The United States Department of Agriculture (USDA) is an executive department of the United States federal government that aims to meet the needs of commercial farming and livestock food production, promotes agricultural trade and production, works to assure food safety, protects natural resources, fosters rural communities and works to end hunger in the United States and internationally.
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