Quality falls from Kyrgyz trees! Do consumers know?
This report describes the SLE study concerning quality infrastructure in three value chains and its potential to contributing to economic growth in southern Kyrgyzstan. In the context of GIZ's Sustainable Economic Development Programme in Kyrgyzstan, the German development agency tasked SLE to perform the study out its Jalal-Abad office, with the following subtasks: - Studied three value chains (apple, tomato and plum) partly; - Has interviewed companies producing and processing those commodities and - Has analyzed the national quality infrastructure (NQI) serving the three. Following a similar task in Ghana, SLE developed a qualitative research methodology with a five week stay in Kyrgyzstan. Through 60 interviews mainly with food processors, but also including farmers, quality infrastructure (QI) service providers and GIZ partners, the three staff SLE team prepared recommendations after verifying them in workshops. Three recommendation groups were developed: 1. Strengthen utilization of formal market demands as driver for improved Food Safety and QI 2. Widen scope of Kyrgyz QI services and increase clients' satisfaction in order to boost QI utilization 3. Flank intervention in quality management through facilitating investment climate Background and Task This summary condensates the SLE study on how quality infrastructure in three value chains can contribute to economic growth in southern Kyrgyzstan. In the context of GIZ's Sustainable Economic Development Programme in Kyrgyzstan, the German development agency operates an office in the rural South Fergana Valley. Based out of that office in Jalal-Abad, this research consultancy has: • Studied three value chains (apple, tomato and plum) partly; • Has interviewed companies producing and processing those commodities and • Has analyzed the national quality infrastructure (NQI) serving the three. These steps were taken in order to come up with recommendations how to support economic growth in rural Kyrgyzstan through specific interventions. The Kyrgyz national economy is still much depending on Russia, 27 years after Soviet Union's breakup. Yet, many young Kyrgyz people migrate to Russia instead of farming on their families' properties with the consequence of them not being available in the Kyrgyz national labor market. Stemming from Soviet's era, the Quality Infrastructure (QI) subsector serves companies and their customers alike through Metrology, Standardization, Testing, Certification and Accreditation. The -mostly governmental- NQI operates on the policy level out of the capital, the regional hubs such as Osh being relevant to Jalal Abad and on the county level (oblast). Besides supplying national Kyrgyz markets, exports play a particular role as they are relevant to apple and plum products. Since the accession of Kyrgyzstan to the Eurasian Economic Union (EAEU) with Russia, Belarus, Armenia and Kazakhstan, export regulations are expected for summer 2017. In light of this the client defined the main research questions as to how to improve food safety and how quality infrastructure services can contribute to creating job opportunities, especially for youth. Methodology Having completed a study of Ghana's national quality infrastructure in 2015, the Seminar Ländliche Entwicklung (SLE) has been commissioned by GIZ to perform this task, replicating partially the methods and partly in personal union. Given the explorative character of the Kyrgyzstan study, and in coordination with the client during the inception phase, a qualitative approach was adopted. Given the results of the research in Ghana showing the best chances of QI utilization on the medium size company level, the Kyrgyzstan study focused on food processors. The three expatriate SLE consultants designed a five week field phase, flanked by two national Kyrgyz experts. Supported by GIZ's logistics, the SLE team spent a week in each value chain. The interviews covered 20 food processing companies; three farmers and one retailer were interviewed. 18 interviews were conducted with service providers in the quality infrastructure sector. The total of sixty interviews included also six with development agencies, partly in GIZ partnership. During the final stages, recommendation workshops were hold in Jalal Abad and Bishkek with the purpose of verifying the results and recommendations. Findings and Observations Some out of many observations shall be reflected here: The interviews with producers revealed that EAEU markets, especially Russia are highly relevant to them and will become even more once compliance with customs regulations become obligatory, foreseen in 2017. Looking at the type of producer and processor, the research found a "dual-economy" existing with informal markets for fresh products and formal markets requiring certifiable quality management. Given the formal markets concluding contracts between producers, processors and their clients also concerning quality characteristics, it results in a higher chance of quality management and QI services playing a role. Pondering obligatory and voluntary use of QI, this research applied the assumption that formal markets impose quality regimes sparing the authorities from obligating farmers, processors and exporters as well as policing compliance. On paper, Kyrgyz NQI should function, but in reality this is barely in position to check compliance of products being exported to EAEU countries. While the EAEU is supposed to equip Kyrgyz QI providers even in regions, much is left to be done. Since soviet past, the line ministries for agriculture and health shared the task of maintaining QI services. However, given the nowadays' involvement of the state inspectorate, exporters have to check compliance for each authority the same characteristics. This duplication withholds willing QI customers and frustrates them, instead of facilitating their work. With 28'000 out of the total 150'000 tones annual apple production, apple products are subject to export regulations. In so far, EAEU's customs union is very relevant, which can even become restrictive, like it was observable with potatoes evading quality infrastructure. Apple juice, which is examined by health authorities additionally for sanitary reasons, requires quality infrastructure services, but does lack inspection. Given this situation, Kyrgyz apples or products more generally do not reach lucrative markets. Like apple, the pomicultures plum is growing in orchards typically planted back in Soviet times. The up to 20'000 tons of Plums produced annually, are dried in order to conserve them with the few micro-drying facilities. However, even more is sold to intermediaries who partly export them to more lucrative markets, through Uzbekistan and Tajikistan. Hardly any QI service utilization was observed. Tomatoes are produced on some 10'000 ha of fields in Southern Kyrgyzstan. 60% of these tomatoes are processed to juices and paste, where hygiene and quality regimes apply. On the fields, fertilizer is applied leading to a necessity to analyze Nitrate concentrations, yet hardly any QI utilization has been observed. In all three value chains, it would be required using Hazard Analysis and Critical Control Points (HACCP) because it is the most effective and economic way to combat food safety problems. Nevertheless, HACCP is not mandatory in the EAEU quality management and training has been too theoretical. While organic products do not play any role on Kyrgyz national markets, there is an opportunity for European markets. Already now, Kyrgyz Walnuts, plums and other are exported to Turkey, and partly re-dispatched onwards to the EU. A few European processors even invest directly, such as in Kyrgyz nuts. However, in order to do so, they utilize their own company based quality management. Nevertheless, given the growing EU organic market, an opportunity arises for Kyrgyz plums, dried apples, herbal spices and more. This is even more relevant, given the national quality infrastructure contributing. Looking at job opportunities, income generation and youth's migration, the youth's multitude of motives for leaving the country presented itself. Youth also leaves rural South in order to be in reach of urban opportunities from mobile phone access to training opportunities. The research concludes that in order to influence migration, the necessary condition is an integrated program offering job opportunities Results and recommendations Summarizing all three value chains, quality infrastructure is utilized rarely by farmers and micro-scale processors, also because National QI is concentrated in Bishkek. In order to solve this, QI services need to be offered on the producer level in relevant villages. Extending services on village level also involves consultancy as to how translating the QI results in a proper HACCP management. Already now, Quality infrastructure is not utilized sufficiently to access profitable markets. The reason is partly the high cost, the unawareness by producers and partly the poor presence in relevant fields and area. Given the poor scope of tests and compliance checks, farmers and processors risk having to check twice quality properties. Consequently, and in order to comply with EAEU regulations already during 2017, the rejection risk of Kyrgyz products grows. In light of this, it is recommended to stimulate QI utilization, widen the scope of QI services and facilitate general economic conditions as follows: 1. In order to use formal market demand as driver for improved Food Safety and QI – service utilization in selected value chains (VC) it is necessary to: a. improve the linkage of local VC actors with formal markets b. facilitate compliance of local VC actors with market requirements 2. QI utilization should grow through fulfillment of two recommendations. a. In order to increase QI service utilization, the necessary condition is to increase its scope. b. The sufficient condition is customers satisfied with easy access, speed and precision of service. 3. Besides these two main recommendations, general conditions should augment room for change.