The Asian Development Bank (ADB) will help restore the productivity and profitability of Tajikistan’s cotton industry through a loan and grant package totalling US$12mn.

The cotton industry is the country’s main source of farm income, agricultural exports, and rural employment. However, it has been underperforming, with yields and profitability on the decline, largely due to the substantial and increasing cotton farm debt.

This debt, estimated at US$292mn in early 2006, was incurred by cotton farms under a complex system of production credit from intermediaries outside the formal banking system. The government has responded by developing a comprehensive Cotton Farm Debt Resolution Strategy, and the project will complement this effort.

“An unprofitable cotton industry is inextricably linked to poverty,” says Lourdes Adriano, an ADB senior rural development economist. “Thus, there is an urgent need to support the recovery of the sub-sector. Its turnaround is the agriculture sector’s path to equitable pro-poor growth.”

The project will first resolve cotton farm debt on a pilot scale in four selected districts in the two main cotton-producing regions – Sughd and Khatlon – where three quarters of the country’s extremely poor live.

A team will analyse the debt level and operations in each farm, then work to restructure and settle the debt. Realistic business plans for each farm will also be prepared.

At the same time, the project will make policy recommendations and farm debt resolution options to the government, and support education and awareness measures to provide suitable financing products and services to the restructured pilot cotton farms, the government will re-lend US$3mn of ADB’s loan to participating commercial banks.

The project will help develop the cotton market by promoting the adoption of internationally recognised quality standards for fibre cotton. It will also help establish two bonded warehouses to be operated by the private sector that meet international standards to expedite the export of baled cotton.

“Through this project, ADB will support the government’s commitment to genuine development change by addressing the crucial and immediate concerns affecting the agriculture sector,” says Neeraj Jain, ADB’s country director for Tajikistan.

ADB’s support comprises a US$5.5mn loan and a US$6.5mn grant from its concessional Asian Development Fund. The loan carries a 32-year term, including a grace period of eight years, and an interest rate of 1% per year during the grace period and 1.5% per year after.

The government and private sector will shoulder the balance of US$3.29mn, to meet the project’s total estimated cost of US$15.29mn. The Executive Office of the President is the executing agency for the project, which is due for completion in 2010.