| Abstract: |
With the goal of reducing the dependency on oil revenues, the Government of
Kazakhstan has recently increased its budget allocations to prop up the
domestic agricultural sector. Yet, many observers agree that it is less the
amount of public spending that induces long-term growth than the quality of
the regulatory environment. Against this background, the current paper
analyses the nature and effects of state regulation in the cotton sector. In
the early 2000s, it was considered to be the only example of private vertical
coordination in Kazakhstani agriculture, which contrasted sharply with the
state mandates imposed on producers in Uzbekistan and Turkmenistan. However,
in 2007, regulation in Kazakhstan forced ginneries to use a complex warehouse
receipt system without making sure that it was accepted by stakeholders and
without appropriate institutions for implementing it in place. At the same
time, it imposed financing restrictions on ginneries, which were major loan
and input providers to farmers. Further measures included the establishment of
a special economic zone to host a "cotton cluster". In the following years,
private producers and investors turned away from cotton, and cotton area and
output fell substantially. We argue that the cotton sector performance after
2007 shows how ill-designed regulation and government interference can turn a
promising economic sector into decline. As an unintended side effect, the
regulation promoted more diversified crop rotations based on high value crops. |