*4.3. Matching 3: Sustainability of Agricultural Value Chains and Policy Implications of Competitiveness and Trade Potential Assessment*

Despite the growing volume of joint agricultural projects, China's investment in the region primarily focuses on mining and construction with limited involvement in agricultural value chains [140]. Kurmanalieva and Parpiev [2] think that it would be difficult for Central Asian economies to diversify their value chains away from primary commodities towards processed goods, including agricultural. Nevertheless, the authorities in all countries of the region expect China to invest more in food production. The use of agricultural land by foreigners, however, remains a controversial topic across social groups in Central Asia. People are becoming concerned that China's growing investment in agricultural sector could result in land grabbing by Chinese companies and the influx of Chinese workers. For instance, in Kazakhstan, the protests forced the government to postpone the extension of the farmland lease period for foreigners from 10 to 25 years until December 2021. Along with economic, infrastructural, environmental, and climate challenges that confront food sector in Central Asia, emerging social issues pose new threats to the sustainability of agricultural value chains in the region and call for adequate policy responses.

Many of earlier studies, including Adriano [109], Pirmatov et al. [38], Akter et al. [30], Foggin [141], and Akramov [31], among others, found that policy efforts aimed at the fostering, coordination, and integration of agricultural value chains in Central Asia would lead to the improved performance of agricultural sectors and more stable food supply. Following on from the results of this study, we propose policy measures to be differentiated in such a way as to support and promote the advantages in C and CC groups and establish and protect those in MC and NC groups (Table 10).


**Table 10.** Policy measures to improve the sustainability of China–Central Asia agricultural value chains.

Source: Authors' development.

For C group products, the competitive environment can be improved by reducing administrative barriers to export and implementing customs and tariff regulations of export. Currently, trade policy regimes in Central Asia vary from fairly liberal in Kyrgyzstan and Kazakhstan to quite restrictive in Uzbekistan and Turkmenistan [142]. According to Raballand and Andresy [143] and Jha [144], the variability of export regimes across the countries in Central Asia very much depends on the membership in the WTO. Kyrgyzstan (the most liberal trade regime among the five economies, WTO member since 1998), Kazakhstan, and Tajikistan have made extensive efforts to improve export regulations and facilitate the development of core automation of trade procedures. Uzbekistan and Turkmenistan (both are still out of the WTO framework of trade regulations), on the contrary, lack transparency and stability in their trade policies. Mogilevskii and Akramov [13] found that Uzbekistan and to a lesser degree other countries in the region extensively introduced export duties and even export bans to reduce or prevent the exports of raw agricultural products which might be processed domestically. These include oilseeds, cereals, fodder crops, vegetable oil, live animals, meat, and sugar. Our study, however, demonstrates lower competitiveness of food processing industries across Central Asia compared to crop production which means such export restrictions favor "managed" trade but distort real competitive advantages and bring instability to value chains.

For a value chain to gain sustainability, it is imperative to develop production, logistics, and supply infrastructure. The potential solutions include the reduction of export transaction costs and the improvement of the access of Central Asian producers to the Chinese market. All countries of the region currently rank low in the Trading Across Borders Indicator of the World Bank's Doing Business Index (Kyrgyzstan ranks the highest among the five, 89th out of 189 economies in 2019) [145] due to the high number of documents and procedures required to conduct an export delivery. Even for high-competitive C group products, these barriers reduce competitiveness and call for a pro-active removal of export constraints for efficient trade facilitation. This agrees with White [146], who demonstrates that lowering the number of documents required to export would yield shorter export times, decrease the opportunity for corruption and other uncertainties along the value chains, and increase the advantage of Central Asian products in the global market.

As this study demonstrates, some of the competitive sectors lack Chinese investments, while in some cases, Chinese companies invest to the sectors where the advantages are marginal or negligible. The BRI as an umbrella initiative aimed at the development of connectivity on the macro level may allow agribusiness to concentrate around major infrastructure investment, potentially, in a form of

the economic corridor, a complex of production, logistics, and trade arrangements. A concept of the economic corridor approach to the development of agricultural value chains in Central Asia is advocated by Rillo and Nugroho [43] and Nogales [147]. Due to the landlockedness and low intraregional and international transport connectivity, economic corridors have been central to the agenda in most of the Central Asian countries. Specifically, Central Asian Regional Economic Cooperation (CAREC) program has laid the groundwork for economic corridor development in Central Asia by mobilizing over \$34.5 billion investments in the establishment of multimodal transportation networks [148]. Concerning economic corridor approach, CAREC supports simplification and harmonization of customs procedures, information and communication technology development and data exchange, risk management and post-entry audit, joint customs control, and regional transit development [148]. In relation to C group value chains, the economic corridor approach may allow to attract more investment in the most competitive sectors and stimulate economic activities along the territories in which the corridor is established.

For CC group products, it would be rational to affect the demand side of the value chains. The efforts should be focused on the promotion of CC products outside and creating demand on the Chinese market. Among CC products, the most demanded in China are oilseeds, wheat, and other cereals. In Central Asia, the major hindrances to the stability of value chains in crop production are large distances and high storage and transportation costs due to the scarcity, fragmentation, and deterioration of infrastructure. Kazakhstan is developing its railway and road infrastructures, including in the framework of Nurly Zhol initiative, a national plan to develop and modernize roads, railways, ports, and IT infrastructure, in an attempt to establish a network of multimodal transport hubs and integrate them with China's BRI economic corridors [149]. In other countries of the region, capital stocks devoted to infrastructure development are lower, while the obsolesce of infrastructure appears to affect export-oriented agricultural value chains in a negative way [142]. This is especially relevant for C and CC group products, including such key export items as fruits and vegetables which are perishable and sensitive to delays in transportation [13].

Crop producers may benefit from the investment in grain market infrastructure, subsidized loans, and export insurance programs. These measures correlate with the recommendation of Svanidze et al. [150] to complement trade and infrastructure-enhancing policies with the support of domestic producers in order to bring more stability to value chains in crop production. The establishment of tax incentives along with the allocation of preferential credits for agribusiness are recommended by Pirmatov et al. [38] among the measures to support competitive advantages. Pomfret [42] also advocates technological improvements of grain production and supply infrastructure and financial support of farmers as the conditions of increasing efficiency in the grain sector. Technological improvements, for instance, are required to help to overcome technical barriers for trade established in China and other export markets. They include compliance with health, veterinary, and phytosanitary requirements. Due to the overall underdeveloped veterinary and phytosanitary systems and quality infrastructure in Central Asia, agricultural producers encounter difficulties to comply with safety regulations applied internationally.

For MC products, the aim of policy measures is to protect vulnerable and eroding competitive advantages. This task demands the application of indirect economic measures focused on the increase of competitiveness, for instance, income support or reduction of production costs in agriculture. Measures to prevent and offset the impact of the increases in agricultural imports should be introduced, including anti-dumping measures, countervailing and safeguard measures, and a mechanism to cope with agricultural subsidies. On China's side, there should be a support of agricultural production in Central Asia in the form of agricultural research. It agrees with earlier findings of Babu and Reidhead [37], who propose the investment in information generation and building capacity in farming technologies and knowledge as fundamental aspects of long-term sustainable development of value chains in Central Asia. Along the same line goes the argumentation of Danabayeva [151] who observes

that a major challenge to sustainability and performance of the agricultural sector faced by Central Asian economies is the transformation of existing value chains into the knowledge-based ones.

As regards those value chains which involve non-competitive food and agricultural products, they should be focused on the domestic market in order to improve food security along the availability pillar and increase farmers' incomes through a system of agricultural support policies, including direct payments for the production of major crops, subsidies for agricultural inputs, subsidies for farm machinery purchases and improved crop varieties, minimum purchasing prices for crops and other staple foods, and temporary storage options. Such measures aimed at the support of both non-competitive and marginally competitive agricultural products will establish the conditions for the strengthening of competitive advantages in the long run, improve the performance of agricultural producers, drive them to expand their production facilities, and thus contribute to the improvement of food security and sustainability of agricultural value chains in the countries of Central Asia.
