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August 2013

Uzbekistan remains one of the world’s largest flour importers

Source: The Times of Central Asia, 23.08.2013

Last week Uzbekistan President Islam Karimov ordered to lower the excise duty for imported flour from 15 to 11 percent.

According to official statistics, flour production in Uzbekistan in 2012 decreased by 7.6 percent, to 1.42 million tons, 95 percent of which is low-grade flour used for baking the so-called “social” bread for low-income citizens. At the same time, Uzbekistan remains one of the largest flour importers in the world, having increased flour imports from one million tons to almost 1.5 million tons over the past five years.

In Soviet times neighboring Kazakhstan supplied Uzbekistan with grain and flour in exchange for Uzbek fruit and vegetables. But from the early 1990s Tashkent has sought grain independence. This year Uzbekistan’s grain harvest grew 12 percent compared with 2012 and reached 7.61 million tons, 90 percent of which is wheat.

Last year, however, Uzbekistan imported 1.2 million tons of flour from Kazakhstan. In the first half of this year, flour imports from Kazakhstan reduced 1.45-fold compared with the same period last year, and amounted to 709,000 tons.

Due to the high excise duty in Uzbekistan almost 25 percent of Kazakhstan’s flour mills have been standing idle because 75 percent of Kazakhstan’s flour export goes to Uzbekistan, said Yevgeny Gan, head of Kazakhstan’s Union of Grain Processors.

There are proposals in Astana to introduce similar measures against Uzbekistan which the Kazakh side says has introduced discriminating excise duties for Kazakh flour.

“Uzbekistan’s excise duty for imported flour is unreasonably high,” said Mr. Gan. “Initially, the excise duty was 10 percent, but later it was raised to 15 percent. All this happened after Tashkent had signed documents on Uzbekistan’s entry to the CIS Free Trade Zone.”

“Tashkent’s decision to lower the excise duty for flour was probably negotiated on the top level,” says Ilkhat Tushev, analyst at Central Asia Investments. “In addition, flour is a staple food whose deficit may cause social tension in Uzbekistan.”

Uzbekistan, a country of 30 million, needs 4.5 million tons of grain a year. The country has a wheat reserve of 500,000-600,000 tons.

At the same time, experts believe that the problem of Uzbekistan’s grain provision lies not in the size of harvest but the quality of grain. “The matter is that, unlike for cotton, the Uzbek climate does not allow growing high-grade wheat sorts used for baking bread,” says local analyst Anvar Jumayev.

Wheat grown in Uzbekistan can only be used for baking the cheap, “social” bread whose price is regulated by the state. “Production of the ‘social’ bread is loss-making,” says Tushev. “The bread business is profitable only because producers compensate for losses with high prices for bread baked from higher-grade flour.”

Domestic wheat and flour does not allow raising the quality of products, making the Uzbek government either increase flour imports or restrict local consumers with a narrow choice of cheap bread whose prices will inevitably grow.