Agricultural Incentives in the Kyrgyz Republic under the Influence of Changing Macroeconomic Conditions

Together with the rest of the economy, the agricultural sector in Kyrgyzstan has undergone crucial reforms during the transition period following the collapse of the Soviet Union. The policies influencing agricultural incentives, i.e. farmgate prices, have also changed substantially. Recent macroeconomic developments, such as the booming gold mining sector and an increasing inflow of workers' remittances on the one hand, and increasing import prices on the other hand, are also likely to have an impact on agricultural incentives through the influence on the exchange rate. This paper aims at investigating the impact of both direct agricultural policies and changing macroeconomic conditions on agricultural incentives for the case of Kyrgyzstan. Nominal Rates of Assistance (NRAs) are estimated in order to quantify direct distortions of agricultural prices resulting from the policies in the agricultural sector. NRA estimates show that domestic prices for major food crops in Kyrgyzstan are raised beyond world market prices due to a general encouragement of food-crop production based on food self-sufficiency goals. Relative to food crops, export crops tend to be penalized by lower and less stable NRAs as well as by poor market integration. In the second step, the True Protection Concept is employed in order to analyse relative incentives between importable, exportable and nontradable sectors in the Kyrgyz economy. The true-protection analysis shows that around half of the burden of the price increase for importables is shifted to the exportables sector, including agricultural exportables. This means that if prices in the importable sector increase in response to exogenous factors or certain trade policies, domestic exporters, both agricultural and non-agricultural, would be taxed implicitly. Since the Kyrgyz government seeks to promote exports, findings from the present study may serve as a background for future trade and agricultural policy development