A Micro-Economic Analysis of Farm Restructuring in Khorezm Region, Uzbekistan

Abstract

Ever since its independence several reforms in agriculture of Uzbekistan have been taken as part of a gradual transition process towards a market-based economy. These processes include: market liberalization, reformation of land relations, structural changes, and creation of supporting market infrastructure. Furthermore, there has been considerable promotion of input market liberalization, abolishment of state procurement system, introduction of water charges and improvement of the livestock sector. The understanding of the effects of these reforms on the agricultural producers and consumers is very important for further decision making. This work is part of ZEF’s project in development research on the ’Economic and ecological restructuring of land and water use in Khorezm, Uzbekistan’. In order to formalize the key aspects of sectoral decision making, the major task of this research is to develop a model for policy analysis which reflects the unique features of the agricultural sector of Khorezm. The developed model integrates linear supply and non-linear demand modules at the point of partial equilibrium under observed values from 2003. The supply module consist of the regional crop and animal production activities over three farm groups. The demand module is based on a Normalized Quadratic – Quadratic Expenditure System which specifies both an Engel curve and relative price effects consistent with microeconomic theory. The demand module consists of food and manufactured commodities including leisure time with endogenous prices over two consumer types. A large amount of aggregated and micro-economic data on the regional agriculture sector is used for providing the necessary information to understand the construction of the model and the results. To ensure that the base solution of the model fits the observed values of modeled activities and that the model simulations include the characteristics of regional demand and supply, the model parameters both for demand and supply modules are adjusted separately. This study contributes to the field of known calibration techniques for positive mathematical programming models. The developed method solves the overspecialization problem, maintains model flexibility, and allows the model exactly replicate the observed situation by recovering its original specification. The model results eventually show that, despite higher input prices and water pricing being introduced, positive effects of water use efficiency and market liberalization may dominate. Furthermore, it could be shown that the livestock sector serves as a security tool in rural households for maintaining their income level. Moreover, the improvement in livestock productivity shows the potential to decrease water consumption in the agricultural sector of the region. The market liberalization will not necessarily lead to an increase in the regional production of cotton. In general, the market liberalization has a positive effect on the regional rice sector which can be cultivated on land released from the procurement quotas in case the land is suitable for rice cultivation.

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