Afghanistan - Horticultural subsector survey (Vol. 1 of 2) : Main report

Report No. 1324-AF FLE COPY Horticultural Subsector Survey A ghanstan (In Two Volumes) Volume I May 5, 1977 Agricultural Credit and Agroindustries Division Projects Department Europe, Middle East and North Africa FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Average Free Market Rate) Year Afghanis (Afs) per US$1 1971 85.28 1972 84.73 1973 80.00 1974 60.98 1975 56.10 May 1976 52 August 1976 46 1976 Average 45 Conversion Rate used in this Report: Afs 50 = US$1 MEASURES 1 beswa 0.05 jerib 1 jerib 0.2 ha 1 ha 2.47 acres WEIGHTS 1 man 4 kg 1 seer 7.66 kg While the same terms (man and seer) are used throughout the country their metric equivalents varv between regions. The above values are those most commonly used.  FOR OFFICIAL USE ONLY AFGHANISTAN HORTICULTURAL SUBSECTOR SURVEY TABLE OF CONTENTS VOLUME I Page No. SUMMARY AND CONCLUSIONS . ....................... i-il INTRODUCTION ...................................1 1. HORTICULTURE'S ROLE AND RESOURCE BASE. 2 A. Place in the Economy. 2 B. Resource Base . . 2 1. Climate . . 2 2. Soils . . 3 3. Soil Fertility .. 3 4. Soil Capability .. 4 5. Irrigation . . 5 6. Crops Cropping Pattern . . 6 7. Yields . . 8 2. TECHNICAL CONSTRAINTS ANID POLICIES AFFECTING OUTPUT AND PRODUCTIVITY. 9 A. Land Use... 9 B. Land Tenure ...10 C. Access to Irrigation Water . . .12 D. Credit ...12 E. Extension Service and Training . . .14 F. Research . ...... ..15 G. Other Inputs - Seed and Fertilizer . .15 H. Income Tax Policy . . .17 3. TRADE POLICIES, AGREEMENTS AND REGULATIONS .19 A. Agreements .19 B. Afghan Customs and Export Duties .22 C. Vegetable Export Policies .22 D. Foreign Import Policies Affecting Afghan Exports 23 This report, which is in two volumes, is based on the findings of a horticulture subsector survey mission which visited Afghanistan in May 1976. The mission was composed of R. Hunt, R. Hing and P. Fauntleroy (IDA), and W. Mott and P. Gallagher (Consultants). This document has restrictod distribution and may be used by rcipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authoriztion.   Page No. 4. TRADE AND MARKETING ACTIVITIES .......................... 24 A. Domestic Marketing and Regulation ....... .. ......... 24 1. Role of Government ............................ 24 2. Promotion of Cooperatives ..................... 24 3. Market Information ............................ 25 4. Price Policy .................................. 25 5. Licensing ..................................... 25 B. Export Marketing System ............ .. .............. 25 1. Financing Exports ............................. 26 2. Export Promotion Bank ......................... 26 3. Export Promotion and Grading .... .............. 27 C. Horticultural Export Analysis ...................... 27 1. Contribution of Fruit and Nuts to Export Sector 28 2. Principal Afghan Horticultural Exports ........ 28 3. Direction of Horticultural Exports ............ 28 4. Recent Trends in Horticultural Exports ........ 28 a. Fresh Fruit .............................. 28 b. Dried Fruit .............................. 29 C. Nuts ..................................... 29 D. Summary of Afghanistan's Export Marketing ....... ... 29 1. Competitive Position ........... .. ............. 29 2. Constraints to Export Development ............. 30 a. Fresh Fruit .............................. 30 b. Dried Fruit .............................. 30 c. Tree Nuts ................................ 32 3. Demand Prospects for Fruit Exports ............ 32 4. Vegetable Export Prospects ........ .. .......... 34 5. PLANNED TARGETS AND PROBABLE IMPLEMENTATION .... ........ 36 A. Irrigation Targets ................................ 40 B. Probable Implementation of Production Targets and Resulting Exports ............................... 40 6. TRANSPORTATION ......................................... 45 A. Domestic Transportation ........................... 45 B. Surface Transport to Distant Markets .... .......... 47 C. Truck Transport to Europe ......................... 47 D. Air Freight ....................................... 48 E. Organization of Export Transportation .... ......... 48  Page No. 9. INVESTMENT NEEDS AND PROJECTS ........................... 69 A. Competitive Position ............................... 69 B. Future Export Market Opportunities ... ............... 70 C. Organizational Needs of the Subsector .. ............ 71 D. Projects Identified ................................. 73 E. Summary of Project Components .................... 73 F. Investment Needs ....... ............................. 79 G. Viability of Projects *........... ......*so..*...... 82 MAPS IBRD 1079OR AFGHANISTAN IBRD 12904. AFGHANISTAN - Agriculture and Rural Development - Elevation and Precipitation  AFGHANISTAN HORTICULTURAL SUBSECTOR SURVEY SUMMARY AND CONCLUSIONS i. Horticulture is an important part of the Afghan economy as it con- tributes over 40% to total export earnings. Nonetheless it only utilizes 6% of total cultivated land and about 12% of permanently irrigated land. Horti- cultural exports are limited to fresh and dried fruits and nuts. As a result of a poor harvest and domestic shortage vegetable exports were completely em- bargoed 5 years ago. ii. For agriculture in general, precipitation and the availability of suitable land for cultivation are major constraints to increased production. But, because of the relatively small area of land devoted to horticulture these constraints do not apply; low yields and very slow growth in productivity are the principal restrictions. The area of land cropped by fruit and vege- tables has remained quite constant despite the superior returns to these crops. A number of factors appear responsible for this; principally the lack of market access particularly for fresh produce. This has the effect of negating the potentially higher returns to horticultural production and causing the actual returns to alternative crops to favor wheat in many areas. Sharecropper and tenant farmer access to irrigated land, unequal distribution of water rights and uncertain availability of irrigation water during the summer also have an effect but more marginally so. iii. The low yields and slow growth in productivity are due to the general low level of soil fertility, the low level and poor quality of inputs used, a poor extension service and poor management ability. Some of these factors are virtually unrecognized in Afghanistan, such as the soil fertility issue, the need for pest controls, and the use of trace elements. Others, such as vegetable seed quality, the lack of adequate extension effort and poor management are individually recognized but neither the extent of the deficit nor the need for an optimum input balance is perceived. iv. Access to institutional credit is a major reason for the low level of inputs in horticulture. It is believed that most of the horticulturally cropped land is operated by sharecroppers and tenant farmers whose only source of credit are the private money-lenders in the bazaar. Since these charge 25 to 30% interest for short-term credit, much of which is in the form of poor quality inputs, the outlook for improving productivity is not good. The Agricultural Development Bank (AgBank) is responsible for supplying credit to the agricultural sector, including horticulture. But, the present types of collateral which it may legally accept, together with the lack of development of the cooperative system almost totally prevent it from ex- tending any type of credit to these groups. v. The Afghan 7 Year Plan targets, for production and export of fruit and production of vegetables, are notably ambitious. When compared with past performance, the projected increases, in both area cultivated and yields, appear overly optimistic when viewed in the light of the production  - ii - constraints and the continued absence of any programs to overcome them. A more realistic assessment of probable achievement levels for production of fruit set against projected domestic demand suggests that the volumes available for export will level off and may decline from present levels thus leaving a shortfall in the export target. The same analysis shows that a surplus of vegetables may occur causing a real price decline domestically if access to the export market is not achieved. The general conclusion is that, with respect to fruit production, substantial investment and effort will be neces- sary to maintain exports at their present level without any curtailment in domestic consumption. The 7 Year Plan targets are unlikely to be realized. In order to generate increased export availabilities, additional investment and effort, in both production and research, should be undertaken immediately. With respect to vegetables the Plan targets are achievable if the necessary investment and effort is made, an exporting system is rapidly developed and access to export markets is permitted. vi. Preliminary estimates of the absorptive capacity of Afghan fruit export markets indicate that this is not a limiting factor to expansion. Existing export levels fail to fulfill agreed quotas negotiated in trade agreements. But many of the institutional arrangements established under bilateral trade agreements are inhibitory. The major problems are the delay in payment and the unilateral adjustment of prices by the importer (mainly by the USSR). These cause Afghan traders to market domestically where returns are faster. The effects of these on trader exports combined with the domestic allocation of the bulk of export quotas to private traders, as opposed to fruit cooperatives, has caused much raisin production to remain unsold in recent years. The wide variation in quality due to lack of grading and poor or no packaging is also a very significant limitation, as also appears to be the continued appreciation of the Afghan currency. Many of the trade agree- ments are now due for renewal and the authorities should take this opportunity to reduce payment times and arrange for final price determination before the goods leave the country. The authorities should also provide access to export markets for vegetables, and give further consideration to the exchange rate issue. vii. Grading, processing and packaging of Afghan fruit exports is sparse and inferior. The income tax system is such as to cause discouragement to private investment in fixed assets and is considered to be substantially re- sponsible for the low level of value added to fruit exports. The discouraging private investment climate has also affected the storage and transportation system, which, although adequate in volume capacity, is poor in terms of re- liability and quality. Since no refrigerated transport or storage now exists the volume and quality of fresh produce exports is restricted and the ability to manage the market is almost non-existent. At present the Government is actively involved in trying to establish joint ventures with international firms (Western European and USSR) to provide improved truck transport for exporters, incorporating tax protocols to avoid the tax difficulties. How- ever, there is need for rationalization of the entire income tax system to provide a climate which will encourage the needed investment, particularly in grading, processing and packaging and which will broaden the tax base to offset any loss in tax revenue.  - iii - viii. The investment needs to develop the Afghan horticultural subsector's opportunities are estimated to total US$132 million of which about US$37 mil- lion will be foreign exchange. A number of specific projects are outlined with the aim of improving the fruit export industry's performance and capital- izing on the projected possible vegetable surplus. The immediate aim must be to improve the unit value of fruit exports by improving quality. This improve- ment should be applied to all exports in order to achieve a substantial income effect. Further, to increase production incentives and at the same time im- prove income distribution, the producers should be ensured of their share of the increased returns. To this end it is proposed that a Fruit and Nuts Trade Regulatory Commission be established; this regulatory body would need legal authority over all fruit exports; to the extent that, at a minimum, it could reject and prohibit substandard exports. In view of the existing adequate (in terms of volume) export system for most fruits (raisins excluded) it is not necessary that the body actually trade either on its own behalf or on behalf of producers. In fact, in view of its regulating nature, it would better execute its function if separated from trading. A Fruit Marketing Corporation should also be established to undertake needed marketing services not presently carried out, particularly in reference to fresh fruit exports. This is seen as a commercial private enterprise suitable for a joint venture between an experienced international firm and an Afghan firm. The international firm might be North American, European, Indian, or other domicile. Since this survey could only generally identify the subsector's needs, details of the structure and activities of the proposed organization await the outcome of a consultant project feasibility study. Two proposed ancillary activities, concentrated juice processing and fruit tree nursery rootstock production could be undertaken by the Corporation or operate independently. Juice concentration is aimed at utilizing the present high level of culled fruit, while quality root stock production is required for improved productivity and to increase the area cropped by fruit as required in the 7 Year Plan. ix. The Government appears willing in principle to permit vegetable exports and the establishment of a corporation to engage in exporting vege- tables is proposed. As there is presently no existing trade structure coor- dination and cooperation is not paramount and a private concern would probably be well suited to this activity. It is envisaged that it would contract for production with farmers, and process it in Afghanistan; and market the output principally in Iran. x. The Afghan Government is predisposed to the concept of participa- tion by foreign firms in any or all of these ventures in the form of joint venture partners or as contractually supplying management and technical serv- ices and/or export marketing services. A possible organizational structure is proposed here (Chart 9-1) but a further feasibility study is seen as needed in order to refine the concepts and detail the specifics of the iden- tified investments particularly the volume, which should be determined from an investigation and assessment of the export market possibilities.   INTRODUCTIOIi By comparison with general agricultural production horticultural output has a relatively high unit value, a far greater return per unit area and is capable of providing substantial employment in production and pro- cessing. Being the single largest contributor to export earnings in the Afghanistan economy, the future development of this subsector is of great importance to the economy. However, due to the underdeveloped nature of the production base and the often severe competition in international fruit and vegetable markets, such development should be carefully planned based on the competitive advantages of the country and taking into consideration the export market prospects and the absorptive capacity of the domestic markets. This in-depth survey of the subsector was required to identify these factors and to determine the volume and direction of incremental investment needed to develop the subsector's potential. The report endeavors to complement the recent Bank Agricultural Sector Survey by concentrating on issues and areas of crucial interest to the development of the subsector, which were too narrow in scope for inclusion in the broader sector wide study. Since it is intended that this report be read in conjunction with the sector study, it does not cover in detail other factors, notably irrigation, whose impact, while sector wide, has less direct affect in the subsector than other factors such as processing, transportation, marketing and government services, for which the needs of the subsector are specifically differentiable from those of the entire sector. In this respect, the aim of the report is to review the existing situation of such factors, assessing strengths and weaknesses and making recommendations for development in view of the advantages of and opportunities available to the subsector.  - 2 - CHAPTER 1 HORTICULTURE'S ROLE AND RESOURCE BASE Place in the Economy 1.01 Agriculture is estimated to account for 50 percent of national income, 85-90 percent of exports and 85 percent of the active labor force. Because of the nature in which the horticultural subsector is integrated with the rest of the sector, it is not possible to distinctly assess its contribu- tion. But, fruit and vegetables account for 6 percent of the total cultivated area, 10 percent of irrigated land and about 10 to 15 percent of permanently irrigated land, while fresh and dried fruits, nuts and medicinal herbs make up 40-45 percent of total exports. Exports of fresh vegetables have been completely embargoed for the past 5 years. Due to their relatively high labor intensity, both fruits and vegetables do provide substantial employ- ment within the sector. The Resource Base Climate 1.02 Afghanistan's climate is continental, located in the low latitude desert and steppe belt of the Asiatic Climatic System. The climate is arid with hot summers and cool or cold winters. Maximum precipitation occurs from December to March. The climate readily lends itself to the production of a wide range of horticultural crops. It varies from a cool temperate zone such as Bamyan (137 frost days per year), where only potatoes and other such cool season vegetables can be grown, to a sub-tropical zone such as Nangarhar, where citrus is grown. Crop distribution has naturally followed this varia- tion in the temperature. 1.03 Although summer temperatures are high, the incidence of winter frosts which can be severe and frequent in some places, defines the climate as temperate, with definite seasons for cool and warm season crops. Fruit production possibilities are also limited by the range of temperatures expe- rienced. 1.04 Availability of water is a major factor limiting total crop produc- tion, and it is for this reason that less than 10% of the total land area in Afghanistan is cropped. Rainfall, which varies from a low of 75 mm in Farah to 1,168 mm in South Salang, occurs mostly in the winter months and particu- larly in the February/April period. At other times of the year rain seldom, if ever, occurs. The heavy winter rainfall on steeply-sloping over-grazed and sparsely vegetated land leads to considerable soil erosion. In flood periods all the rivers carry large silt charges, reaching to 8 to 10 kg/m3 water. Much of the precipitation occurs as winter snows, which are the major sources of river and hence irrigation water in the summer months. The skewed distri- bution of precipitation accounts for the very irregular seasonal distribution  - 3 - of river flows. This creates much uncertainty as to the availability of summer irrigation water and explains why much of the cultivated land is only partially irrigated. Severe spring flooding also damages much of the older irrigation networks leading to temporary reductions in irrigation, often at a crucial period. Soils 1.05 The soils of Afghanistan have been developed under dry conditions. The lack of moisture permits very little leaching. Salts of calcium and mag- nesium accumulate within the soil profile and the soil becomes base saturated. In many areas, the continued use of irrigation water laden with silt, etc., and the combined application of a mixture of farmyard manure and soil has led to the formation of man-made agro-irrigation soils often up to 1 m. deep. 1.06 The soils are generally light in texture since physical disinteg- ration dominates over chemical weatherage. In many areas, the texture remains more or less uniform throughout the soil profile. Organic matter levels (at less than 1%) are very low. Consequently, soils, particularly those intens- ively cultivated, have a poor cloddy structure or no structure at all. Soils with such structure are friable when moist, but hard to very hard when dry. As a result, the formation of hard crusts has a serious effect on germination and seedling emergence of small seeded vegetable crops. 1.07 The soils are highly calcareous. Most soils have 8-10% calcium carbonate in them, while some soils have up to 20% in them. Extreme cases show calcium carbonate levels of 30-40%. pH values predominate in the 8.0-8.5 zone. The incidence of high calcium levels and high pH leads to situations where many of the minor elements are not available. Deficiency symptoms of iron and managanese are endemic, and the probability of copper, zinc and boron deficiency is extremely high. 1.08 Since organic matter is low, nitrogen levels are also low, being 0.5% or less nitrogen on average. Low phosphorous levels combined with the highly calcareous soil results in a large part of the applied phosphorus being fixed by the soil, leading to some inefficiency in phosphorus fertilizer use. Potassium levels are low, and with increased use of phosphorus and nitrogen fertilizers, more and more potassium will also be taken up from the soil, causing rapid development in the need for potassium fertilizer. Soil Fertility 1.09 The lack of fertilizer use is a major factor limiting Afghan agriculture. Soils are deficient in all plant nutrients, and especially nitrogen in view of the very low organic matter levels. Nutrient depleting crops such as wheat, corn, rice and barley have been grown for many years without replenishing the nutrients removed. Some farmyard manure has been used, but the nutrient inputs obtained in this way are totally insufficient to meet crop demands and maintain nutrient levels in soils at a satisfactory level.  - 4 - 1.10 Fertilizer use is relatively new in Afghan agriculture. Fertilizer application since 1966 has increased tremendously from 8,500 tons in 1966 to an estimated 60,000 tons in 1975. This is equivalent to 9.6 kg (N, P205) per ha in 1975. Indications are that optimum fertilizer use on wheat and corn varies between 60 and 150 kg/ha. The very great difference highlights the need for a much greater use of fertilizers in Afghan agriculture. 1.11 Fertility needs in horticultural crops are much greater than in field crops due to higher nutrient requirements. Ministry of Agriculture recommendations for vines indicate the need for 470 kg/ha N, P205 and K20. For vegetable crops approximately 500 kg/ha of N, P205 and K20 are required to maximize yields given the low fertility of Afghan soils. Farmyard manure is most generally used on both fruit and vegetables. In vegetable crop produc- tion, 50-100 tons of farmyard manure per ha are often used, while 100 tons of farmyard manure per ha are applied every second or third year to vineyards., Fertilizer use is quite low, namely 25-50 kg of N, P205 per ha for vegetables and 90 to 120 kg N, P205 per ha in vineyards. These rates of fertilizer application and use of farmyard manure are obviously much higher than the general average but again far short of the optimum rates recommended. 1.12 Apart from the major nutrients, minor nutrients, because of the very high pH conditions in these soils, should be applied routinely for many crops. In particular, iron deficiency is endemic (and probably manganese and zinc also). Crops of pomegranates, citrus and apples seen were very chlorotic, showing advanced symptoms of iron deficiency. Growers and exten- sion agents are generally unaware of the problem, and no control measures are used to correct these deficiencies. Soil Capability 1.13 Although Afghan soils are very low in plant nutrients and being calcareous, prone to various nutrient deficiencies, soil fertility problems once recognized should not limit crop production capacity. It will mean however that crop husbandry programs should involve both major and minor element use as routine. However, soil physical characteristics are not so easily managed and considerable care needs to be taken to ensure the best management practices used are on them. Except for the tendency to crust, the soils have good porosity and water holding capacity. The crusting tendency can be lessened by good management. Where an intensive system of cultivation is used, considerable quantities of farmyard manure are required to maintain soil physical condition. Otherwise, crop rotations based on alfalfa or clover breaks must be considered. Soil physical condition in calcareous soils can also be improved by cultivating those soils at the correct moisture content (about 8%) and the use of the appropriate equipment in cultivating them. Seedling emergence could also be improved by proper timing of irrigation and the right planting technique and depth.  -5- Irrigation 1/ 1.14 Approximately 3.3 million ha of the land area is irrigable, but only 2.4 million ha of this area is cultivated each year, and even then much of this receives an inadequate supply of water. The main sources of irriga- tion water are as follows: Sources of Water Area (ha) Canals 2.10 million Springs 0.19 million Karezes 0.17 tmillion Wells 0.02 million 1.15 Canals are the main means of irrigation water distribution. These are based on primitive stones and brush intakes with gravity flow conveyance canals. In many places, these traditional intakes are unable to divert sufficient water into the canals when river levels are low, and both intakes and canals together with irrigated lands and crops are frequently damaged by floods. 1.16 Groundwater has been traditionally utilized through springs and through the kareze system of distribution. However, many growers have shown interest in shallow and deep wells as sources of irrigation water. The groundwater potential has not been fully identified. Much of the surface water readily percolates into the coarse tallus deposits on the mountain slopes and the importance of groundwater as a source of water is evidenced by the fact that many rivers are fed by groundwater and the extensive use of the kareze system. 1.17 Classification of soils on the basis of their suitability for irrig- ation is based on six classes ranging from I - Very Suitable for Irrigation to VI - Non-irrigable. The major findings of some limited surveys using this classification were: (i) No land was in Class I: (Very suitable) because all suitable surveyed land still required levelling and was of low fertility. (ii) 42% of the surveyed land is in Classes II and III: (Moderately to marginally suitable for irrigation requiring levelling and additional tillage and much fertilizer). (iii) 27% of all land in Classes II and III was not cultivated due to lack of irrigation water. 1/ For greater detail on irrigation in Afghanistan, see Bank Report No. 848a-AF Afghanistan, Opportunities for Agricultural and Rural Development Sector Report Vol. II Annex 3 - Water Resources.  - 6 - The major implication of this is that availability of irrigation water is the single scarcest resource and greatest constraint to expanding Afghan agricul- ture. It is believed that considerable untapped ground water potential exists in many Class II and III lands, which if tapped could adequately irrigate much of the presently uncultivated but cultivable land. The extent of this possi- bility awaits a detailed groundwater survey. 1.18 Although the situation is far from satisfactory, irrigation is generally less of a constraint to horticulture than to the entire agricultural sector. Because so little of the irrigated land is presently devoted to fruit and vegetable production, expansion is always possible without requiring an increase in the total irrigated area. Equitable access to water for all pro- ducers, and its economical efficient allocation, are of greater significance, making water rights and water usage more important issues for horticulture than aggregate supply. Crops Cropping Pattern 1.19 An extensive range of fruit and vegetable crops are grown, the main items being asterisked in the following list: Vegetables Fruits Cool Season Warm Season *Asparagus *Beans *Apples *Brassica crops in general Corn *Apricots Carrots *Cucumber Cherries Cress *Eggplant Figs Fennel *Melons Peaches *Garlic *Okra Pears *Leek *Pepper Plums *Lettuce Squash Mulberries *Onion Sweet Potato *Pomegranates *Parsley *Tomato *Grapes Pea *Water Melon *Almonds *Potato *Pistachios *Radish Walnuts *Rhubarb *Oranges *Spinach Lemons *Turnip Grapefruit 1.20 Of the 232 thousand hectares cropped by fruit and vegetables, 60% is under fruit and nut orchards, half of which are vineyards. No such domi- nance exists in vegetables where, of the 90 thousand hectares cropped, the major crop is potatoes which only occupies 15% of the total. 1.21 In vegetable crop production, rotation and the extent of multiple cropping varies according to location. Some examples of these for important locations are given in Table 1.1. In Jalalabad, nearly three crops are ob- tained each year, whereas in Kandahar due to the shorter growing season an  - 7 - average of two crops per year only can be obtained. In Parwan and in other areas too, a quick growing and a slow growing crop are sown at the same time but harvested at different times, e.g. spinach and carrots are sown together in July, the spinach is harvested September/October and the carrots in December. In these areas. approximately one and a half crops can be obtained each year by double cropping. In Bamyan, due to the short season, only one zvop per year is possible. Table 1.1 - Crop Rotations in Various Climatic Areas in Afghanistan Length of growing Frost free Typical Rotation season days p.a. Region Crops/vear Crop Crowing Period Long 315 Jalalabad 2-3 crops W) Wheat Oct/May Rtce June/Oct ii) Onion Dec/May Eggplat.t May/Aug Cauliflow. Aug/Feb Medium long 270 Kandahar 2 crops i) Wheat Oct/June Corn June/Oct ii) Green Onion Oct/Apr Eggplant/'. Mar/July Spinach -July/Dcc Medium 210 Kabul, Herat 1-1/2 crops i) Wheat Oct/July Carrot July/Dec ii) Radish + Eggplant Mar/July Spinach + Turnip July/Dec Short 140 Bamyan 1 crop i) Wteat Oct/Aug ii) Potatoes May/Sept /1 Eggplant undersown with onions in March. 1.22 It is seen that Afghanistan can produce some fresh vegetables all the year around. But there is nothing very unique in these crop patterns in terms of time of production, and so Afghanistan does not possess a seasonal advantage in producing early exotic vegetables and in fact imports early vegetables from Pakistan. It can only produce common vegetables, attracting negligible inter- national demand during winter.  1.23 In fruit and nut production timing of production depends on locality and variety. For instance, in grape production, the first grapes are available in June in Kandahar, from Khalchini and Rancha varieties, while the variety Katta of Kohdaman-matures in late October. Thus fresh grapes are available in major markets from June to December. Yields 1.24 Details of crop yields are given in Table 1.2, where they are com- pared with Californian yield. The crop growing conditions of the main vege- table producing region in California (Bakersfield) are very similar to those in Afghanistan making the comparison very relevant. Table 1.2 - Yields for Selected Crops - Afghanistan and California Afghanistan California metric tons/ha Wheat (dryland) 0.7 1.2 Wheat (irrigated) 1.4 8.5 Sugarbeet 11.6 6.5 Carrots 13.3 13.5 Cucumbers 9.2 20 Eggplants 7.2 10.4 Leeks (multicul) 7.1 n.a. Melons 7.5 17 Onions 10.3 50 Peppers 2.6 19 Potatoes 4.6 47 Spinach 6.8 25 Tomatoes 10.6 65 Watermelons 11.1 30 Apples 4.3 45 Grapes 6.0 10.0 Pomegranates 10.4 15.0 1.25 As can be seen, the Afghan yields are substantially below those of California for virtually all crops. The main source of difference between the two is the quantity and quality of inputs used and the management skills. But since these can be supplied, the potential for increasing yield in Afghanistan is seen as enormous. But, due to current lack of effort to make available these improved inputs, this potential is not likely to be realized in the foreseeable future.  - 9 - CHAPTER 2 TECHNICAL CONSTRAINTS AND POLICIES AFFECTING OUTPUT AND PRODUCTIVITY 2.01 While there are no domestic policies specifically directed towards horticulture, the indirect effect of agricultural price policy (wheat and industrial crops support prices) does affect the subsector, principally at the production level, through its effect on land use, productivity, and land tenure systems. Restricted access to water and credit, and an underdeveloped extension service also affect production. At the marketing level, processing, packaging and grading, particularly for the export market, are restricted by the severe administration of the income tax system and certain trade policies. The official export trade policies for fruit are positive, but their imple- mentation and the organization of exports leaves room for much improvement. Vegetable export trade policy is completely negative. Among current develop- ment plans, only those connected with irrigation and education are likely to impinge upon the subsector. Land Use 2.02 The overall land use patterns is seen in Table 2.1. Table 2.1 - Estimated Land Use ha. mill % Total Land Area 63.0 100 Pasture 40.0 64 Forests 2.0 3 Arable 8.0 13 - cultivated 3.8 6 - uncultivated 4.2 7 Other 13.0 20 Source: IBRD estimates. The major phenomenon is the relatively low proportion of cultivated land - 6%. This is due mainly to the lack of water required to irrigate the land. 2.03 The cropping pattern, as seen in Table 2.2, has not varied over the past 15 years, and wheat is the dominant crop. One factor explaining this is that about 1 million hectares can only be partially irrigated, and thus their use is confined to winter crops, particularly cereals. This still leaves almost 50 percent of fully irrigated land cropped by wheat, but only about 6 percent by fruit and vegetables. Also, the fact that much of the country is without adequate storage and has no access to markets, particularly for perishable products, helps to explain the preponderance of cereal crops.  - 10 - Table 2.2 - Area of Crops YEAR 1340 1349 1354 (1960/61) (1969/70) (1974/75) Crop Thous ha. % Yield Thous ha. % Yield Thous ha. % Yield (tons/ha) (tons/ha) (tons/ha) Wheat 2230 61 1.02 2176 63 1.09 2350 61 1.21 Corn 500 14 1.40 451 13 1.48 484 13 1.61 Rice 210 6 1.52 202 6 1.81 210 5 2.07 Barley 350 10 1.08 315 9 0.98 320 8 1.20 Cotton 65 2 0.83 54 2 1.40 112 3 1.42 Sugar Beet 4 - 11.00 5 - 14.10 5 - 20.00 Oil Seeds 150 4 0.30 42 1 0.84 50 1 0.80 Vegetables 100 3 5.08 92 3 6.80 92 2 7.80 Fruits 60 2 5.00 136 4 5.58 148 4 6.23 Others 1 - - 2 - - 91 2 - Total 3670 3475 3862 Source: Ministry of Agriculture, Afghanistan. 2.04 However, these explanations are incomplete since net returns to fruit and vegetable crops are at least twice that of wheat; and yet in areas with ready access to markets, such as the provinces surrounding Kabul and those of Kandahar and Nangahar, despite favorable climates, the area cropped by fruit and vegetables averages only 13 percent. Further explanation lies in the combination of bread as the basic food with a high level of market isolation creating rigid conditions of self-reliance. Indications are that a gradual trend towards greater use of land in horticulture in these areas is underway, but the pace is slow probably due to insufficient public grain storage to facilitate transfer of wheat from surplus to potentially deficit areas. Land Tenure 2.05 Comprehensive data on farm size distribution is not available, but the average farm size is about 2.5 ha while very many are smaller. The settled rural population is estimated to be 11.9 million people, giving an average density of about 1 settled rural dweller per 0.3 ha of cultivated land 1/. The wide range of conditions prevailing in climate, topography, fertility and irrigation creates great variability in the productivity of arable land. This goes unrecognized by the simple average farm size but is very relevant in Afghanistan. Also, fragmentation, multiple ownership and share-cropping greatly inhibit productivity. These land tenure systems are all very wide- spread. Tenant farming is also present though not common. 1/ This is above the average for Asia, which itself is the highest density of all the regions in the world.  - 11 - 2.06 Fragmentation and multiple ownership commonly occur under Islamic law, while sharecropping is a function of the size of the rural population in relation to the skewness of land ownership. Fragmentation should assist in promoting the production of fruit and vegetable crops, but in Afghanistan it is offset by the strong feeling of necessity to produce wheat. Also, travel is difficult, militating against intensive cropping systems because of limited market access; while the fact that farmers must still build high walls around their irregularly visited fields, and guard them at harvest time, tends to limit establishment of fruit orchards on distant fragments of land. As a result, most land is cropped once a year by wheat. 2.07 Multiple ownership also creates extreme difficulty in adhering to cropping patterns, thus strengthening the status quo (wheat). In addition, it militates against investment in longterm improvements due to the diffi- culty of reaching a consensus, uncertainty as to the beneficiaries and to the difficulty in allocating and assembling the necessary investment. 2.08 Tenant farming is less common than sharecropping, but is its pre- cursor. Tribal lands gradually evolve to ownership by the tribal chief, and tribesmen become tenants. This tenancy developed into sharecropping which now appears the dominant form of land operation. 2.09 Sharecropping and tenant agreements are formalized but have no legal status, and may be voided at the landlord's wish. Several different arrange- ments exist in Afghanistan and are employed in different areas. Common among these arrangements are: Buzgar: share-cropper, paid 20%-50% of crop value. Note: the term "buzgar" can also be used to denote an area of wheat, namely 20 jeribs. Kustagar: the landlord's agent on larger farms. He is re- sponsible for employing labor (buzgars) and receives a percentage of the crop value (about 25%). Agaradar: a person who rents land and is entirely responsible for employing labor (usually at a daily rate) and arranging crop production. Rent amounts to approxi- mately 2,500 Af/jerib. No sharecropping is involved. 2.10 The buzgar system generally seems to be a reasonably successful system of labor management and control. However, it does mean that any real progress in the development and modernization of farming methods must come from the involvement of, and investment by, the landowner in land development and equipment. Most landlords live on their land or in nearby towns and manage their own sharecropping arrangements. Arrangements generally last for 1 crop or crop pattern where crops overlap. The seed cost is shared equally, initial cultivation and all water charges are the landlord's responsibility, but the sharecropper must pay for fertilizer. Where the landlord is absent, his place is taken by the Kustagar or an Agaradar who rents the land from the owner for 3 to 5 years; but, to the individual sharecropper, the situation remains unchanged.  - 12 - 2.11 The sharecropper has little incentive and even less ability to in- vest in long-term improvements due to a short insecure tenure, no access to suitable financing and having to share the proceeds of his investment. A decline in the presently ample supply of landless rural workers causing a decline in production and income brings about a situation requiring the landlord to take a more immediate role. This is now occurring in the western provinces. There, due to labor migration to Iran, the landlords are now beginning to invest in labor-saving mechanization and irrigation systems. 2.12 While a land reform program is underway, its progress is slow for political and administrative reasons. A land reform law promulgated in August 1975, sets out broad principles for acquiring and distributing land and established ceilings on the sizes of various types of holdings, for horticultural holdings this ceiling is 20 ha. This law is now enforceable. But, implementation awaits completion of a cadastral survey and development of detailed operations regulations 1/. Consequently, the overall effect of land tenure on output and productivity will not change greatly in the fore- seeable future, unless those actually working the land are given, inter alia, greater security of tenancy and access to profits. To this end, the Bank Agricultural Sector Survey (1975) recommended legal implementation of fixed rent tenancies for a minimum of 5 years. While this would theoretically provide a solution, implementation would be administratively difficult; and the individual tenant would have little bargaining power on the level of rent. More preferable would be the development of tenant producer coopera- tives to act as a countervailing power and bargaining unit and who would take over the roles of the Kustagar and Agaradar. As will be seen, these coopera- tives could also provide the necessary access to credit required by the share- croppers. The Government is encouraging farmers and new settlers to form cooperatives, but has not yet developed firm policies for their development. Access to Irrigation Water 2.13 On the matter of water rights, this report is in complete agreement with the analysis and recommendations of the Bank Agricultural Sector Survey (1975). Traditional water rights should be cancelled because of their in- equity, and the resource misallocation they lend themselves to. Water rights should be established on the basis of the area of land held by water users. However, while the recommendations are agreed to it must be conceded that for reasons of social and political stability implementation will be very slow even after the GOA commits itself to such an action. Credit 2.14 Two sources of agricultural credit are available to producers, the Agricultural Development Bank of Afghanistan (AgBank) which is a government institution, and the private money lenders of the bazaar. AgBank provides both 1/ The regulations are to be prepared by a special council under the chairmanship of the Prime Minister.  - 13 - short- and long-term credit while bazaar credit is generally restricted to the short-term. Although AgBank's short-term loan interest rate is only 10% as compared to 25-30% in the bazaar, very many farmers prefer to use the bazaar as a source of credit because of personal relationships, timeliness, and convenience. 2.15 Lack of collateral is the single most important barrier in access to AgBank credit faced by Afghanistan's farmers. Insufficient farmer funds, bureaucratic procedures, and isolated location are other, though relatively minor, barriers. The forms of collateral acceptable to AgBank and to which AgBank is legally constrained are: (i) Land guarantee - most widely used, but not feasible for multiple ownership and not possible for tenant farmers and sharecroppers. The bureaucratic legal procedures of actually acquiring a title document is the main problem here. Completion of the cadastral survey and subsequent land registration will help to alleviate these. (ii) Joint liability through a cooperative - up to now vir- tually no cooperatives exist, but this provides the best possibility for extending credit to those lacking in capital assets. (iii) Land guarantee by heirs - rarely operable due to large number of heirs, making consensus difficult. (iv) Confirmation of land ownership by a village elder and neighbors - inoperable due to a socially unacceptable requirement that the confirmors undertake to purchase the land to repay AgBank in the case of a default. (v) Joint liability of a group - commonly used for seasonal fertilizer loans for wheat but not used by vegetable share- croppers, as their initial demand is for farmyard manure, which consumes their available cash. Also having to bear risk of entire loss himself while only receiving 50% of incremental gain makes the risk/reward ratio unattractive to the vegetable sharecropper. This is also why bazaar credit for fertilizer is almost never used for horticultural production. 2.16 To date, AgBank has only extended 108 loans to the horticultural subsector. The total amount is approximately US$75,000. These are all long- term loans for establishment of fruit orchards and vineyards. The total number of loans approved in the period 1352-55 was 311, but only 108 have been disbursed. The most common reason for this is the extreme length of time it takes to establish title to land offered as collateral. Very often by the time this process is completed the farmer is no longer interested in the loan. Estimates of the volume of bazaar credit are not available, but it is likely to be much greater than AgBank's because of the widespread use for seasonal working capital by the very poor sharecroppers.  - 14 - Table 2.3 - AgBank Loans to the Horticultural Subsector ORCHARDS VINEYARDS TOTAL Year Number Amount (Afs) Number Amount (Afs) Number Amount (Afs) 1352 - - 2 575,000 2 575,000 1353 7 190,480 12 391,000 19 581,480 1354 15 643,960 41 1,168,870 56 1,812,830 1355 5 166,200 26 588,210 31 754,410 Total 27 1,000,640 81 2,723,080 108 3,723,720 Source: Agricultural Development Bank of Afghanistan. 2.17 The present collateral arrangements effectively place credit outside the reach of some of those who could use it productively. Two possible alter- native methods of inducing the use of short-term credit for fertilizers and plant protection do exist. The first possibility is by changing sharecropping arrangements to where the landlord shares the cost of fertilizer and supplies the needed collateral. In the rigid society of Afghanistan, such a possibil- ity seems remote. The second is to carry out the recommendation for altering land tenure to a fixed-rent medium length tenancy and establish producer cooperatives as input channels for credit. The credit can be in kind such as inputs purchased by the coop with the credit extended by them to AgBank. Extension Service and Training 2.18 The most important function of the rural extension worker is to arrange distribution of fertilizers and improved seeds (mainly wheat). This occupies the entire field staff for 6 months of the year. A secondary func- tion is to arrange for crop demonstration plots. These efforts are intended to be supplemented with regular radio broadcasts and the extensive use of simple illustrated pamphlets. The overall low literacy greatly restricts the usefullness of these. The very low level of training (virtually none in horticulture), the sparsity of coverage and the absence of back up specialty services combine to make the extension service totally ineffective and re- quiring a complete and intensive overhaul and upgrading. 2.19 In Kabul University's Faculty of Agriculture, horticulture is taken as one subject among some options, while the basic science training is in pure science with no practical applications to horticulture. The Plant Science option gives horticultural crops 11 hours or only 7% of the total course load while in the Extension Cooperative Programs option, horticulture amounts to only 5% of the course load. It is planned that from 1979 onwards horticul- ture will become a separate option. Also 7 new agricultural schools are planned to add to the existing 3 which take students through the 12th grade and emphasize training in agriculture, including horticulture. These schools will have fully operative fruit and vegetable units attached for practical  - 15 - training. Because of the large number of untrained and ill-trained workers presently in the extension service, it is recommended that the Extension Department rapidly increase the use and ability of its in-house training program. Initially, in view of its high value to the economy, training in horticulture should be emphasized. Advanced training abroad, particularly in analogue regions, is recommended as the best method of rapidly building a core of suitable instructors for in-house training program. Research 2.20 Research is mainly the responsibility of the Ministry of Agricul- ture. In the Ministry, research is carried out by the Research Department supported by the Soil and Plant Services Unit. In addition, the Water and Power Authority (WAPA) has a research unit covering hydrology and soil survey and classification. The Faculty of Agriculture of Kabul University has a research farm in Kabul in which different aspects of agricultural research are carried out. Included in its programs is work on agricultural crops, vegetable crops and orchard fruits. 2.21 Research is a relatively new development in Afghanistan. The re- search stations generally have poor facilities, are inadequately staffed and there is a constant staff turnover. Much of the work done is not research, but seed multiplication from imported seed, particularly for wheat, but also for some vegetables, principally onions. Development of foundation seed and production of fruit tree stocks are also now being undertaken, but the volume is very small and no significant development of new or adaptive varieties has taken place. 2.22 A basic problem is the fact that existing research staff are spread too thinly among the various research stations and research farms. This has the effect of minimizing much needed contact between researchers. It also causes costly duplication and under utilization or lack of access to equipment and facilities. It is recommended that research be concentrated in a few main stations stratified by climate and commodity research and that the remaining farms be used for extensive field trials and demonstration purposes. Other Inputs - Seed and Fertilizer 2.23 Seed. With the exception of industrial crops (sugar beet and cotton), most seed is supplied from the farmer's previous crop. Some pro- duction of foundation seed is carried out by the Ministry of Agriculture research stations, while multiplication of this and imported certified seed is undertaken both by these Research Stations and private farms. Due to the emphasis on self-sufficiency in wheat, almost all of this effort is devoted to wheat seed. Less than 1% of vegetable seed used is from research stations or imported. Most of this is onion seed. The result of this is that vegetable seed is generally impure and of low germination, yield, and disease resistance. All of Afghanistan's seed potatoes are of this type so that virus diseases are endemic in the seedstock.  - 16 - 2.24 There is a need to establish a potato seed production system in which farmers produce the seed under supervision. Similarly disease free root stock is often unavailable and there is little systematic effort to select and develop improved varieties. Thus there is also a need for a specialized effort to produce fruit tree nursery stock. It is hoped that these activities can be undertaken by the Afghan Seed Company, which has recently been established with the assistance of the Asian Development Bank. Although, the primary mission of the Afghan Seed Company is to produce im- proved certified wheat seed, its charter gives it a monopoly of seed produc- tion in the country, and with appropriate assistance and encouragement it should be able to undertake a valuable role in supporting the horticultural subsector. 2.25 Fertilizer. Artificial (chemical) fertilizer has only been in use in Afghanistan for the past 10 years, so that consumption is still extremely low by comparison with the surrounding countries and the average for develop- ing countries - Table 2.4. Almost all is applied to wheat. The recommended applications for horticultural crops are 5 times greater than those for wheat. Table 2.4 - Comparative Fertilizer Consumption Kilos per Hectare of Arable Land - 1974 Item N P205 K20 Total Country Afghanistan /1 3.8 0.9 0.0 4.7 Pakistan 17.6 3.0 0.1 20.8 China 30.0 10.9 4.2 45.1 Iran 10.9 7.1 0.1 18.1 USSR 27.0 11.6 15.5 54.1 Developing Countries 10.6 5.2 2.9 18.6 /1 Compared to estimates of usage for 1975 from country sources, this would indicate a 100% increase in fertilizer usage between 1974 and 1975 which is unlikely. Nonetheless, even assuming a usage of 10 kg/ha per annum, the relative paucity of fertilizer usage in Afghanistan still holds. Source: Annual Fertilizer Review - 1974 FAQ. 2.26 The land tenure system and sharecropping arrangements, the low level of cash income, high risk due to lack of control over the entire input package, particularly water level fluctuations, lack of access to credit and markets and ignorance as to the worth of fertllizer, all militate against its use. Since these factors loom large in Afghanistan, the record of growth of 25% p.a. since 1968/60 in fertilizer use (Table 2.5) is encouraging to say the least.  - 17 - Table 2.5 - Actual and Projected Fertilizer Sales 1967-76 ('000 tons) Year Urea Dap Total I9E7/68 n.a. n.a. 3.2 1968/69 n.a. n.a. 14.3 1969i'/ n.a. n.a. 17.5 1970/71 n.a. n.a. 27.5 1971/72 n.a. n.ao 48.0 1972/73 n.a. n.e. 33.0 1973/74 30.7 i3.9 44.6 1974/75 42.9 19.6 62.5 1975/76 /1 59.0 19.8 78.8 /1 Projected. Source: Afghan Fertilizer Company. 2.27 Because of the still very low level of use, the importance of further increases is enormous. The recommendations made with respect to land tenure, irrigation, credit and extension, if implemented, should give a rapid and substantial boost to fertilizer use. But it is important to note that in order to get maximum return from fertilizer or any other input, it is neces- sary to attack technical deficiencies on all fronts. Thus, maximum return from increased fertilizer use requires using it together with improved seed, irrigation, plant protection, cultivation methods and the best planting times - the entire input package. The suitability of DAP and urea to different locations and horticultural crops should be further investigated by the Ministry of Agriculture. Due to the relatively high pH value of soils (8-8.5 calcareous), fixation of phosphates and tie up of micronutrients should be avoided by monitoring levels of needed nutrients in plant tissues and soils. Foliar application of micronutrients including iron, binding of phosphates, use of nitrate form for nitrogen source and use of fertilizers with acidic reaction should be considered (for example ammonium nitrate sulphate). Income Tax Policy 2.28 Discussions with tax experts knowledgeable concerning the Afghan tax system revealed that the income tax law as administered (not as written) favors private businesses with no fixed assets, the handicrafter and the farmer. But once fixed assets are acquired, they automatically draw the attention of the tax inspectors who then have a basis for estimating income. But, deductible expenses are very vaguely defined and the detailed implementa- tion regulations are not available to the public. Viewed administratively the tax system is thus seen as capricious and arbitrary and appears to have the single general objective of maximizing tax collection. Since the income tax inspectors have little training in accounting, it is sometimes difficult for corporate management to communicate with them and their administration of the  - 18 - tax collection system is seen as quite severe. While the law provides for one, no tax court exists, consequently there is no court of appeal from decisions. Finally, there is a continued openendedness to tax liabilities, since there is no time limit on the reassessment of past tax returns and tax inspectors never accept any payment as final. Private individuals working in Afghanistan outside the protection of diplomatic, quasi diplomatic or contrac- tual protection also face this problem. 2.29 This situation was confirmed by all of the many private firms contacted by the mission and by all groups of traders, and it was generally advanced as substantially explaining the low level of private investment, both foreign and domestic, in Afghanistan.  - 19 - C.-APTEr 3 TRADE POLICIES, AGREEMENTS AND REGULATIONS Agreements 3.01 Bilateral agreements are an important component of Afghan fruit export trade policy. These are negotiated on a government to government basis. In 1974/75 exports under agreements accounted for 44% of the volume and 65% of the value of all exports of fruits and nuts. Afghanistan has protocols with twelve countries - Czechoslovakia, Romania, Poland, Hungary, Bulgaria, Yugoslavia, Iran, Iraq, Turkey, Egypt, India and Bangladesh. Excluded, however, are some of Afghanistan's major trading partners. As the agreement with the USSR has expired, negotiations are nuw in progress for a new 5 year agreement through 1980. An agreement with the P.R. of China which expired December, 1975 is now being negotiated. Only a transit agree- ment exists with Pakcistan. Finally, the Afghans have drafted a proposed agreement with the EEC, modelled partially after the Lome Convention, but no definitive protocol now exists. 3.02 Agreements are generally negotiated or renewed automatically to cover a one year period. Exceptions include the Yugoslav agreement, which is in effect between 1975 and 1977 and the proposed 5 year USSR agreement. 3.03 All bilateral agreements specify the rights and obligations of con- tracting parties. Ten of the twelve agreements include a list of permissible imports and exports. Fresh and dried fruit and nuts are the major Afghan exports in all of these agreements. In addition, the Indian, USSR (1974 agreement) Czechoslovakian, and Chinese (1975) agreements denote specific import quotas. Table 3.1 compares quota levels with actual Afghan exports to selected markets.  - 20 - Table 3.1 Actual and Quota Level of Afghanistan Exports in Selected Markets 1. China Item Raisins Dried Fruits Licorice Roots + Nuts Year (tons) (000 lbs) (tons) 1971 Quota 4,000 20-50 20 1972 Quota 4,400 20-50 20 Actual 3,912 0.456 - 1973 Quota 4,400 20-50 20 Actual 4,230 - 1974 Quota 4,400 20-50 20 Actual 4,240 .806 - 1975 Quota 4,400 20-50 20 Actual 4,470 - _ 2. Czechoslovakia Item Pistachios Raisins Walnuts Almonds + Other Pome- Garlic Medicinal Dried Fruit granates Herbs Year (tons) (tons) (tons) (tons) (tons) (tons) (tons) 1973/1974 Quota 400 450 100 100 50 50 - Actual 483 90 - - 20 - - 1974/1975 Quota 500 500 - 150 100 20 - Actual 234 152 - 25 - - - 1975/1976 Quota 500 500 - 150 50 20 - Actual 168 113 - - - - - 3. India Item Grapes Pomegranates Year (tons) (tons) 1972 Actual 19,308 6,406 1973 Actual 10,563 7,154 1974 Actual 17,119 5,482 1975 Actual 13,782 7,460 1974/1975 Quota 20,000 9,000 4. Russia Item Raisins Grapes Citrus Pomegranates Apricots Almonds Walnuts Pistachios Year (tons) (tons) (tons) (tons) (tons) (tons) (tons) (tons) 1974 Quota 25-23,000 500 4-5,000 2-3,000 800-1,000 1,000 7,000 - Actual 16,880 65 5,074 2,576 1,378 1,605 4,570 - 1975 Actual 16,240 - 1,067 3,256 NA 1,376 3,633 -  - 21 - The table illustrates that quota levels generally have not been a limitation on Afghan fruit and nut exports, at least for existing qualities and varieties. In the Chinese market, Afghan raisin exports were below quota levels until 1975, while dried fruit and nut exports have been negligible in the last five years. Czechoslovakian and Indian quotas have not been met. Despite favor- ably negotiated quotas with Russia in 1974, leading to a dramatic increase in Afghan exports to Russia, total exports to Russia fell considerably between 1974 and 1975. Quota levels have been met for almonds, dried apricots, pome- granates, and citrus in 1974 only, and other exports have been significantly below quota levels (mainly raisins and grapes). Failure to meet Russian quotas is to some extent due to the unilateral reduction of prices which the Russians impose when received produce is of lower quality than originally agreed. For this reason, traders are often reluctant to export to Russia. Failure to meet Indian quotas is probably due to the complicated trading mechanisms, and high Indian tax on imports from Afghanistan, which make commodities luxury items to the Indian consumer. An enforceable system of export grading is required to remedy this situation. 3.04 Although negotiated between governments, agreements generally authorize private Afghan traders and cooperatives to conduct trade with either private or governmental agents in partner countries. For trade with Russia, the Afghan Government or the resident Russian Trade Mission selects the Afghan exporters. Sales are handled through contracts specifying items of purchase and/or sale and determining prices and delivery points. These items are agreed upon prior to shipment. Export lists are negotiated simultaneously with equivalent import valued lists which can be later modified depending on class of trader. 3.05 The agreements also identify financial institutions in both coun- tries which will handle trade payments. For Afghanistan, the Da Afghanistan Bank is the usual designated clearing bank. Most payments are made in con- vertible currencies with varying systems spelled out in the agreements to ensure balanced accounts at the end of a specified period. As an exception, trade with India 1/ is financed in rupees through a "liberalized barter system." Virtually all Afghan exports are handled on a consignment basis. It was stated by Ministry of Commerce officials that, exporters of raisins are required to sell at least 20% of their raisins to hard currency markets even if this is on a consignment basis. In the case of India the rupee value of the goods is certified by the Indian customs, and forwarded to the State Bank of India which credits the account of Afghan traders opened by Indian agents working on their behalf. Rupees credited are available for purchase of Indian products within one year. Because the system is based on limited Afghan representation in India, ultimately the price of goods (valued in Indian customs houses) is based on India offers subject to Afghan acceptance. The system also has inherently long lags in payments which serves as a definite disincentive to Afghan exporters who can turn their capital over much faster in the domestic market. 1/ Trade with Pakistan is also conducted in rupees.  - 22 - Afghan Customs and Export Duties 3.06 Virtually all Afghan exports, including horticultural commodities, are subject to a duty. 1/ This nominal tax is assessed on the basis of a percentage rate (15-25%) applied to a fixed value (1-25 Afs) per unit (kg) exported. Average tariff rates are lower on dried fruits and nuts, higher on vegetables and fresh fruit. 3.07 There are several additional duties charged on Afghan exports. 2/ A 2% service charge is assessed on the duty. This tax and the export duty are intended to generate public revenue and represent about 3-4% of f.o.b. value of Afghan exports. Other taxes imposed, where relevant, are monopoly of luxury taxes and income taxes. Monopoly or luxury taxes are applied on a compound basis to the duty and service charge while the income tax is 4% of each goods value plus other taxes. The lower the duty rate, the greater the importance of these other taxes. Vegetable Export Policies 3.08 In 1971 a domestic supply shortage due to a poor harvest caused Afghanistan to impose an export ban on fresh vegetables. Adequate data are not available to assess quantitatively the impact on domestic production and prices as a result of the embargo. However, discussions with producers and traders in the principal production areas, and major wholesale markets, in- dicate that there was a substantial decline in area cropped by vegetables in the west and southwest while the fluctuation in prices increase. Since the autarkic demand curve is more inelastic this is the theoretically expected result of such a policy measure. Although the total area cropped by vegetables declined only slightly, discussions indicated that there was a transfer of area cropped by vegetables from the Western and Southwestern to the Eastern and Southeastern provinces. This was in response to the needs of the Kabul market located in the eastern part of the country. Since Iran would be the main vegetable export market it is obviously necessary that the embargo be repealed in the western half of the country to permit investment there for the export of vegetables. 3/ 1/ See Annex 3, Appendix 2 for list of specific export duties. 2/ See Appendix 2 in Annex 3 for tariff structure. 3/ A somewhat similar situation arose in connection with the ban on the export of sheep meat from Afghanistan. Under Section 3.03 of IDA Credit 375-AF dated May 1973, the Afghan Government covenanted to ensure export without restrictions from the project slaughterhouse.  - 23 - Foreign Import Policies Affecting Afghan Exports 3.09 India has a sizeable tax on raisin imports from Afghanistan, causing them to be luxury items in terms of the low income level of its national populace. India also restricts imports of Afghan commodities by the limited granting of licenses to Indian dealers acting on behalf of Afghan exporters. The whole Indian mechanism, as outlined earlier, seriously complicates trade with Afghanistan. 3.10 Pakistan also has a tax on fresh fruit (oranges) imported from Afghanistan, and Iran bans the import of grapes, pomegranates and raisins to protect its own production. On the positive side, Most Favored Nation treat- ment is granted on a reciprocal bases with Turkey, Yugoslavia, Bangladesh, and Egypt, but none of these countries are significant markets for Afghan horticultural products. 3.11 The conclusion of the mission is that the regulations of Afghanistan and its foreign trade partners are not critical obstacles in absence of a solution to the problems of storage, lack of uniform quality standards and their enforcement, and high transport costs are unsolved. As production, transport, and quality are improved, regulations will assume increased im- portance. All these factors are the subject of a UNDP financed consultant study due to be completed in April 1977. This study will (1) analyze export markets, (2) propose appropriate export marketing activities, (3) prepare feasibility studies for physical investments necessary, (4) propose organiza- tional structures for implementation, and (5) identify international firms that may cooperate in various component ventures.  - 24 - CHAPTER 4 TRADE AND MARKETING ACTIVITIES Domestic Marketing and Regulation 4.01 It is estimated that two thirds of Afghan agricultural output is consumed on farms where production takes place, reflecting a high level of autoconsumption and, therefore, non-market activity. The remaining one third moves for sale in domestic and exports outlets. In general the market struc- ture and distribution system is simple. There are usually one or two middle- men between the farmer (or landlord) and the consumer. 4.02 The marketing of horticultural products is a buyer's market reflect- ing weaker bargaining power on the part of the producer vis a vis the trader or merchant. Cash flow problems plus the absence of storage facilities at the primary level prevent the farmer from evening out his sales over the season or year. At the time of harvest, the farmer generally is in debt, having obtained short-term production credit at high interest rates from money bazaars. Thus, output must be sold immediately after harvest when production is bunched on the market and prices received are lower. 4.03 The merchants, often acting on behalf of larger traders, buy produce on farm and transport it by donkey and cart to local or more distant markets. These agents assemble, bulk and weigh the produce often to the disadvantage of the small farmer because there is no supervision or control of weight and quality. 4.04 In larger cosmopolitan areas such as Kabul and Kandahar there are individual wholesale markets or bazaars specializing in the handling of di- verse commodities. These outlets simultaneously handle retail trade. Some of the markets are privately owned while others are operated by municipa- lities or leased to private operators. Licensed merchants have fixed points of sale, while smaller unlicensed merchants without a fixed residence, often sell in the open. The major function of these bazaars is to make products available as well as to undertake intensive grading by hand. Role of Government 4.05 Promotion of Cooperatives. To improve the position of the farmer vis a vis the merchants, the Afghan Government, with support from the Swedish Government and FAQ has begun organizing producer and marketing cooperatives. The 59 cooperatives established to date (most since 1972) are designed to ful- fill four basic functions: (1) provide credit, (2) provide technical advice and extension services, (3) find markets and (4) provide literary programs. These are located principally in the Kohdaman Valley and Kandahar (Annex 4, Appendix 4). The coops sell produce on behalf of farmers without taking ownership. Credit is arranged in cooperation with the Ministry of Agricul- ture or AgBank. Borrowing is undertaken for transportation and processing rather than production purposes. As presently organized, official credit  - 25 - channels are inadequate in making available low cost short-term funds which small farmers, without generally acceptable collateral, can obtain. Formal marketing assistance by the GOA to date is virtually non existent. 4.06 Market Information. Afghan agencies have given little attention to domestic marketing and promotion activities. There is thus a serious lack of information on price, supplies, condition, etc. available to the producer, thereby distorting production plans for the following year. Merchants, in contrast, maintain extensive communications with other markets and frequently have agents present in other markets as well. 4.07 Price Policy. The Afghan Government does not fix domestic prices of horticultural products but some municipalities do so on a monthly basis. The policy is generally used when there are shortages, but, such efforts are usually not very successful. Provincial leaders may also pressure sellers to decrease prices temporarily through public statements or closing a market to buyers from outside provinces in order to return the market conditions to an equilibrium state. 4.08 Licensing. Municipal governments affect the marketing of horticul- tural produce through the licensing system. Local Chambers of Commerce issue licenses to and collect fees from those merchants with fixed places of business. Persons with no fixed address are not required to be licensed. Export Marketing System 4.09 Trade agreements frequently cause traders to be involved in both exporting and importing activities. They deal in a diverse range of commodi- ties among fresh and dry fruits, medicinal herbs, oilseed and cotton, enabling them to overcome the seasonal character of much of the produce, and maintain adequate cash flows despite the often long lags in the official payment system. There are an estimated 10,000 traders or trading companies in Afghanistan, of whom about 3,200 are licensed by the Chamber of Commerce. About 200 of these are engaged in fruit and nut exports, and they tend to be concentrated in the Kabul, Jallalabad and Kandahar areas. The large or licensed export traders average seven to eight employees each. These traders are not specialists, but primarily collect orders and quote prices. Upon receipt of a firm offer, they purchase the goods through agents, have a processor clean and package it as required, and ship goods to the customer. Most traders usually buy from wholesalers, but some large producers, especially in Kandahar, act as their own importers and exporters by setting up their own separate departments. Some of the traders are involved in ancilliary activities as well. A few have their own processing facilities, mostly for oilseeds, after buying nuts directly from the farmer. Others own simple packaging facilities for making cardboard boxes, which are then sold to raisin exporters. Traders, partic- ularly those selling in the Indian and Pakistan markets, are of Indian ori- gin, and rely on family ties to facilitate the exporting process. 4.10 Traders have some input into Government policy through the Chamber of Commerce of which all licensed traders are members. Twenty traders are on an advisory board to suggest to Government ways to solve export and import  - 26 - tax and trade policies, but Government has the final say. In the last few years, the Kabul Chamber of Commerce, to promote fruit and nut exports, has tried to export to the Gulf States through the establishment of a joint or- ganization of traders, but transit problems through Iraq and high air trans- port costs rendered the effort unsuccessful. They also tried to increase exports to Iran without success due to the Iranian fruit import ban. 4.11 Financing Exports. Three official institutions handle the finan- cial and currency aspects of trade: Bank Millie (the first Afghan bank, founded in the 1930's), Pashtoony Tejaratij, and the Da Afghanistan Bank. The Da Afghanistan Bank has the principal responsibility for export financing and currency control. A problem arises, however, when exports are not sold immediately such that there is a long lag for the trader in receiving revenue required to repay export loans, usually payable in installments. Should a trader default, the bank can cause him to lose his license. Loans to traders exporting to barter countries are generally safer because earnings must pass through the Da Afghanistan Bank. 4.12 Export Promotion Bank. In March 1976 a charter of a UNDP assisted Export Promotion Bank (EPB) vas passed. The objective of the Bank is to pro- vide financing for the promotion and diversification of Afghan export pro- ducts, assist producers in adapting their products to requirements of foreign markets, and facilitating the undertaking by exporters of specific promotional activities abroad. Immediate concern is now devoted to preparing regulations, establishing EPB credit policies programs, and training staff. The EPB will also be investigating ways to reduce freight rates and other charges on cer- tain Afghan exports to facilitate larger product flow. This is an ambitious program whose progress should be monitored. 4.13 The unofficial money bazaars have been active participants in all aspects of production and export financing for at least 15 years. The bazaars offer basically the same services as the commercial banks; financing export and import transactions, buying and selling foreign exchange, and making short term loans. They also deal in convertible currencies, clearing currency and rupees and are well informed of market interest rates through telephone com- munications. The bazaars are significant enough that the Da Afghanistan Bank has agents regularly located in the larger bazaars in Kabul and Kandahar. The Kabul money bazaar dominates foreign trade transactions, but there is a size- able operation in Kandahar, while in Herat, tourist shops and scattered traders act as dealers on a sideline basis. It is estimated that the bazaars finance as much as half of trade and agricultural production (mostly short-term sea- sonal credit), and about a third of other types of activities. 4.14 Interest rates on loans are significantly higher in the money bazaars than in the official banks. Due to greater competition in Kabul, the credit rate differential is less. In the money bazaars, interest rates vary from I to 2% per month to 30% per month, with an average charge of 5% per month. These rates are much higher than those offered by the Da Afghanistan Bank, but the bazaars provide many more short-term loans to small farmers and traders who cannot comply with stiffer collateral conditions of the official  - 27 - banks. Administratively, the bazaars are also quite efficient in providing their services. There are about 50 principal dealers with a roughly equal number of partners, retailers, and agents who operate on a commission basis. There is generally easy access, which the official institutions do not provide, but at a higher fee. 4.15 Export Promotion and Grading. In 1971 a Department of Export Pro- motion was organized within the Ministry of Commerce. A Bureau of Standards (Ministry of Commerce) was given responsibility for developing standards and grades. In the private sector, a Raisin Institute was recently established to do similar work, particularly in establishing uniform quality standards. All three institutions, however, are seriously constrained by a lack of enforce- ment power. This lack of enforcement tends to hurt the farmer as his reward for a quality product is generally not commensurate with quality of product. This is because there is no uniform interpretation or definition of what grades and standards represent so that grades are generally determined by the buyer. There is no official inspection or grading system which is required to insure uniform application. Improved and uniform grading standards would help not only the farmers, but processors, distributors and consumers as well. Horticultural Export Analysis 4.16 Since 1972, Afghanistan has annually exported an average of 150,000 tons of fruits and nuts valued at $70 million dollars. Between 1972 and 1975, total export volume increased yearly while value increased until 1974 but fell between 1974 and 1975 (Table 4.1). Table 4.1: AFGHANISTAN - FRUIT, NUTS, AGRICULTURAL AND TOTAL EXPORTS 1972/73-1975/76 1972/73 1973/74 1974/75 1975/76 A. Volume of Exports (metric ton) Fresh fruit 73,753 98,531 121,470 128,308 Dried fruit 39,784 42,263 46,698 45,014 Nuts 13,424 12,514 13,979 11,225 Total 126,971 153,308 182,147 184,447 B. Value of Exports ($ million) Fresh fruit 10.7 21.9 31.5 25.6 Dried fruit 18.1 32.8 39.6 31.7 Nuts 14.7 14.3 24.6 14.2 Total 43.5 69.0 95.7 71.5 C. Total Agric. Exp. ($ value) 56.3 82.3 129.9 N.A. D. Total Exports ($ value) 125.6 159.1 210.7 N.A. Source: Afghan Trade Statistics; 1975/76 figures preliminary estimates.  - 28 - 4.17 Contribution of Fruits and Nuts to Export Sector. Afghan fruit and nut exports are an important segment of its trade sector. Fresh and dried fruit and nuts account for 78% of the value of Afghan agricultural exports and 41% of the value of all exports. Dried fruit represent 18% of total exports compared to 12Z for fresh fruit and 11% for nuts. 4.18 Principal Afghan Horticultural X*ports. The principal fruit and nut exports are raisins, averaging 311 of the value of agricultural exports and close to 90% of value of dry fruit exports; grapes, averaging 13% of value of agricultural exports and 60% of fresh fruit exports and almonds which average 10X of value of agricultural exports and 50% of value of nut exports. 4.19 Direction of Horticultural Exports. Approximately 95% of Afghanistan's fruit and nut exports are directed to four major regions. India and Pakistan import 701 of Afghan horticultural exports and pay the highest prices. USSR, China and Czechoslovakia (barter zone) import about 201; the nEC (principally UK and Germany) imports 41 and the Middle East (Iran, Lebanon, Saudi Arabia, Kuwait, Iraq, and Syria) imports about 3%. Over 902 of fresh fruit export tonnage goes to India and Pakistan but Russia is also an important market for pomegranates Russia and Iran imports most of the citrus. The barter sone plus India and Pakistan are about equally important for dried fruit and nut exports (each region imports about 40% of Afghan dried fruit and 351 of nut exports). The EEC imports about 10% of Afghanistan dry fruit exports and the Middle East (especially Lebanon) imports 10% of Afghan nut exports. Further statistics on regional and country distribution of Afghanistan exports are given in the detailed tables in Annex 3. Recent Trends in Horticultural Exports 4.20 Summary. There has been a marked contrast in recent trends of Afghanistan horticultural exports to principal import markets. Volume and value of fruit and nut exports to India have all exhibited considerable fluctuations meriting further investigation. The reason is not clear but could be attributed either to fluctuating import demand, cyclical structural disturbances in the marketing process or variable quality of produce received. This latter reason may also account for the constant or declining treads in Russian and Chinese markets . Russian imports after 1974 were drastically increased, inspired by high quotas in a new bilateral agreement; but, *sice then Russian imports have been stagnant, vhile groos value has declined. A similar trend is observed in the value of Afghan exports to China. REports of nuts and dried fruit to the EEC have encountered the sam problem. Thus, despite the steady growth of exports in only one principal market, Pekistes, there has been a general declining trend in the value of Afghan horticultural exports reflecting serious quality problems whict Will impede any fqtber export expansion. 4.21 Fresh Fruit. In the last four years there has been a steady in- crease in both volume and value of Afghan fresh fruit exports attributed priO- cipally to a dramatic increase in pomegranate and melon exports between 1972 and 1973 and to a similar increase in grape exports in 1974. In the uso  - 29 - period the value of fresh fruit exports (except citrus) to Pakistan doubled between 1972 and 1973 with more modest gains in 1974. Pakistan accounts for 49% of the value of Afghan fresh fruit exports (1974-75). Russian imports of fresh fruit (mostly pomegranates and some citrus) drastically increased as well while Indian imports (mostly grapes, pomegranates and melons) all ex- hibited steep fluctuatious. India accounts for 34% of Afghanistan-'s fresh fruit exports by value (1974-75). 4.22 Dried Fruit. The volume and value of Afghan dried fruit exports grew between 1972 and 1974 but fell in 1975, attributed to a similar trend in raisin exports. Raisins account for 87% of value of Afghan dried fruit exports. USSR, India, U.K., Pakistan and China in that order are the major importers of Afghan raisins. Volume of Afghan raisin exports to Pakistan and China grew between 1972 and 1975, but there was a continual decline in exports to Czechoslovakia and sharp fluctuations in exports to India in the same period. Russian raisin imports from Afghanistan doubled between 1972 and 1973 and remained relatively constant thereafter. Although volume of raisin exports to China have exhibited some growth, raisin values have de- clined sharply since 1973. In addition, value of raisin exports to all markets except Pakistan fell between 1974 and 1975, indicating that there may be quality standard problems in Afghan raisins which could seriously inhibit future growth of raisin exports to these key markets. 4.23 Nuts. Volume of Afghan nut exports has been relatively constant since 1972 but value grew between 1972 and 1974 and fell in 1975, attributed to a similar trend in almond and pistachio exports, which comprise 54% and 25% of the value of nut exports respectively. Value of walnut exports has been constant. There have been contrasting trends in the last four years in almond exports to the three principal markets - Pakistan, India and USSR. Each market accounts for one third of Afghan almond exports. Almond exports to India have fluctuated; those to Pakistan increased steadily and those to USSR increased between 1972 and 1974 and fell in 1975. Pistachios go primarily to Lebanon and India which account for 58% and 26% of the volume of Afghan pistachio exports respectively. Pistachio exports to India fluctuated while those to Lebanon grew till 1974 and then drastically declined. Finally walnuts to USSR, which imports 70% of Afghan walnut exports, fluctuated while those to Lebanon (2% of Afghan exports) have increased throughout the four year period. Summary of Afghanistan's Export Marketing Potential Competitive Position 4.24 Current market prices are high in Afghanistan in relation to the cost of labor and the level of the economy, but are, in some cases, considerably be- low world price levels. Annex 4, Table 7 lists important fruit and vegetable crops produced in Afghanistan or crops which can be produced, and compares the Afghan price to 1974-75 farm price levels in Greece and California. (In many cases the price levels of Greece and California are similar, particularly in the case of many of the fresh vegetables, apples, grapes and pomegranates.)  - 30 - With the exception of apples and dry onions, Afghanistan's farm prices are below world market levels. The difference between California/Greece and Afghan vegetable prices is 5 to 10 fold, reflecting the low labor costs for labor intensive crops. Consequently, Afghanistan does have substantial pro- duction cost advantages. But, due to its remoteness from major developed country import markets, it has been unable to take advantage of these. Afghanistan also has a labor cost advantage in the grading, processing and packaging of labor intensive products such as dried apricots, raisins, shelled almonds and walnuts. 4.25 Table 4.2 summarizes the overall competitive position of Afghan fruits and vegetables in relation to: - Production and labor costs - World price comparisons - Quality (observations and reported quality) For further study, production costs in other competing countries such as Greece, Turkey and Iran should be evaluated. Constraints to Export Development 4.26 Fresh Fruits. Distant markets are unlikely to be tapped by Afghanistan's fresh fruits because of lack of significant seasonality advan- tages and the high cost of transport. Yet the potential demand in neighboring countries may well exceed Afghanistan's ability to meet this demand at its present rate of growth. 4.27 Dried Fruits. The long, rainless summer and fall climates coupled with low humidity is ideal for sun drying and storage of both fruits and vege- tables. Yet expansion of Afghanistan dried fruit exports faces a number of constraints: 1. Consumption of dried fruits is declining in most industrialized countries, with the notable exceptions of USSR and Japan. 2. Afghanistan has many competitors, all more advanced in marketing; among them, USA, Greece, Turkey, Iran and Australia. Despite the desire to trade with hard currency countries, it appears that the best market opportunities are in neighboring countries. Countries showing an increase in imports of dried fruit for the period 1967-1970 over 1962-66 in- clude : USSR (130), Japan (115), China (107), and India (107) (100 = index for 1962-66). Exploiting Afghanistan's low labor costs and shipping to hard currency countries can only be done within the framework of improved quality control and appropriate markeLing organization.  Table A AFGHANISTAN COMPETITIVE POSITION: MAJOR HORTICULTURAL CROPS World Overall Price Quality Export Crop Cost/Ton Comparisions Level Rating /4 Fruits very Grapes, fresh low competitive excellent good not Apples average competitive/3 excellentL2 excellent Apricots low competitive excellent good Pomegranates low competitive excellent excellent but limited Peaches /1 low competitive good /2 market untested very Plums /1 low competitive good /2 untested very Nectarines low competitive good /2 untested Nuts not Almonds average competitive/3 good good in India and Pakistan Dried Fruits very needs good can be Raisins, red low competitive improvement expanded very Apricots, sulfured low competitive excellent untested Prunes /1 low competitive good /2 untested Figs /1 low competitive good 72 untested /5 Vegetables very Tomatoes, fresh low competitive average untested Potatoes average competitive average untested not requires variety Onions bulb high competitive poor improvement very Carrots low competitive average untested very Spinach low competitive good untested very Cucumbers low competitive good untested Melons very Melons, sweet low competitive excellent good very Water melons competitive excellent good /i Estimated /2 Improved varieties /3 Very competitive in India and Pakistan markets /4 Rating relates only to neighboring counties 75 Small quantities currently exported to Pakistan  - 32 - 4.28 Tree Nuts. Expansion of Afghanistan's exports of tree nuts face several constraints: 1. Non-commercial production methods, with only a small percent- age from organized orchards. 2. Strong competition from other exporting nations in every category of tree nut produced by Afghanistan. 4.29 Fresh Vegetables. Constraints to export of onions, garlic, potatoes and dry beans include: - Government ban on vegetable exports. - Need for variety improvement (particularly onions and garlic) and seed availability. - Increase in domestic market demand. - Coordinating export market demand with the establishment of a marketing season. - Lack of potato and onion storage facilities. Do-.nd Prospects for Afghan Fruit Exports 4.30 Projections are shown in Table 4.3 for the year 1361 (1982/83, the final year of the 7 Year Plan). These are not projections of export avail- ability but are estimates of feasible penetration of major export markets based on an assessment of Afghanistan's competitive position, and absorptive capacity of the markets. These estimates should be carefully assessed prior to basing any investment on them. The import demand projections total 484,000 tons fresh equivalent, compared with 500,000 tons of exports projected in the Afghan 7 Year Plan. These projections anticipate 47% of total fruits to be exported in fresh form versus 40% in the 7 Year Plan projections. 4.31 Anticipating major growth in the USSR market and some additional growth in West Europe, raisin exports could increase from an average 150,000 tons fresh equivalent in 1353 (1974/75) and 1354 (1975/76) to 220,000 tons. Grape exports could increase from an average 60,000 tons to 110,000 tons; principally directed to Pakistan, but, with substantial growth into USSR. Both are based on the provision of improved handling facilities. USSR would be a new market for grapes. This expectation is based on the general con- sensus reached during discussions with USSR Trade Representatives in Kabul. Melon exports are similarly projected to increase through additional sales to P-kistan and new sales to USSR. Pomegranate sales to traditional markets coulr7 increase, with a proportionately greater increase to Middle East mar- ke-s. Some o the latter is expected to be in the form of juice. Propor- tion,-, S mircses for apricots, especially in dried form, are greater for  Table 4.3: Import Demand Prospects for Afghan Fruit ('000 metric tons fresh or fresh equivalent) INDIA PAKISTAN USSR W. EUROPE OTHER TOTAL 1353 1354 1361 1353 1354 1361 1353 1354 1361 1353 1354 1361 1353 1354 1361 1361 Raisins 1/ 40 18 24 16 22 30 68 65 100 24 22 40 20 19 25 219 Grapes 17 13 20 38 48 70 2 -- 20 -- -- -- -- -- -- 110 Melons -- -- -- 36 38 50 -- -- 10 -- -- -- -- -- -- 60 Pomegranates 5 7 10 2 3 5 3 3 5 -- -- -- 3 -- 10 30 Apples -- NA 5 5 NA 10 -- -- -- -- -- -- -- -- -- 15 Apricots 2/ 2 NA 5 15 NA 20 8 NA 15 -- -- -- -- -- -- 40 Citrus -- -- -- -- -- -- -- 2 5 -- -- -- 5 1 5 10 Total 64 38 64 112 111 185 82 70 155 24 22 40 28 20 40 484 1/ Fresh equivalent at conversion ratio of 4:1 2/ Fresh equivalent at conversion ratio of 6:1  - 34 - the USSR market, given its growing propensity to consume dried fruits. How- ever, the major limitation on exports is expected to be production constraints. 4.32 Nut export projections are not included in the 7 Year Plan. Almonds probably have the best potential growth rate and could increase from a shelled equivalent of 2,500 tons to 5,000 tons (if production can grow at these rates) principally to USSR, India and Pakistan. Production of other nuts is not well organized, and a review of the last ten years shows erratic production and export figures; this pattern is expected to continue. 4.33 Vegetable Export Prospects. The mission did not have an opportunity to study import markets for Afghan vegetables. Comparative price analysis suggests Afghan vegetables to be very competitive, and, subject to export market analysis and confirmation, it is expected that a market will be found in Iran. Iran presently imports substantial volumes of potatoes and onions and also dried pulses. Consequently initial Afghan efforts should concentrate on these as there appears to be an assured market for them. Fresh peas, beans, cabbage, cauliflower, brussels sprouts and asparagus are also imported by Iran, but in lesser amounts, and so expansion may lie in this direction.  - 35 - Table 4.4 Volume and Value of Specific Fruit and Nut Exports ------- Volume - Metric Tons -------- 1972-73 1973-74 1974-75 1975-76 Fresh fruit Grapes 36,929 32,987 56,781 62,316 Apricots 916 1,622 2,583 N.A. Pomegranates 7,286 12,553 13,208 13,749 Melons 20,083 39,635 36,146 38,331 Citrus -- -- 5,628 3,242 Apples 5,673 4,038 5,517 N.A. Total 70,887 90,835 119,863 N.A. Dried fruit Raisins 35,167 38,608 42,106 36,403 Dried apricots 3,827 2,878 3,735 N.A. Total 38,994 41,486 45,841 N.A. Nuts Almonds 4,528 3,722 5,766 6,384 Pistachios 1,487 1.203 1.710 708 Walnuts 5,879 6,061 4,902 4,133 Apricot nuts and kernels 1,363 1,491 716 N.A. Total 13,257 12,477 13,094 N.A. -------- Value - Million $ ---------- 1972-73 1973-74 1974-75 1975-76 Fresh fruit Grapes 7.8 8.8 18.5 16.6 Apricots .08 .3 .9 N.A. Pomegranates .6 3.6 5.0 4.06 Melons .9 6.9 2.6 2.3 Citrus N.A. N.A. 2.25 1.04 Apples .8 .8 2.0 N.A. Total 10.18 20.40 31.25 N.A. Dried fruit Raisins 15.8 30.4 37.2 25.8 Dried apricots 1.8 1.6 1.7 N.A. Total 17.6 33.0 38.9 N.A. Nuts Almonds 6.6 7.2 11.7 8.1 Pistachios 3.9 3.4 5.8 2.14 Walnuts 2.6 3.6 3.1 3.34 Apricot niuts and kernels 1.5 2.25 3 8 N.A. Total 14.60 16.45 24.40 N.A. Source: Afghanistan Government, Central Statistics Office, Foreign Trade Statistics, 1351-1353 (1972-1974) - Data for 1975/76 unpublished.  - 36 - CHAPTER 5 PLANNED TARGETS AND PROBABLE IMPLEMENTATION 5.01 Within the context of the 7 Year Plan, the Ministry of Agriculture has projected targets for all major crops, for minor crop groupings including fruits and vegetables and for livestock. These together with export projec- tions of the Ministry of Commerce are reproduced in Annex 2. The fruit and vegetable projections are summarized in Tables 5.1 and 5.2, respectively. 5.02 The most striking feature of the overall Plan is its projection of a 4% reduction in the area cropped by cereals in favor of increases of 35 to 50% for all other crops except oilseeds. 1/ This reduction will be offset by a 28% increase in yield, giving a 24% increase in cereal production. The 3.6% p.a. yield increase is almost double that for the previous 7 years so that while attainable, particularly in view of the wheat seed improvement program, it does create quite a challenge. Due to the special status of wheat in the sector combined with the support price policy, it is difficult to see what will bring this land reallocation about, particularly since no policy measures have been announced to this end. The Plan assumes that the area of cultivated land will remain unchanged. Despite the massive planned investment in irrigation (Table 5.5), this is a realistic assumption because it acknowledges that slippage is likely, particularly with large scale proj- ects such as many of these. 5.03 The additional fruit cropped land appears reasonable. Although a 14% increase in the vineyard area may be somewhat large in view of the current raisin export marketing problems. 2/ Citrus comprises 66% of the total citrus and olive area, but the targeted 70% increase in this area is unlikely to be achieved as available suitable land for citrus (mainly in the Jalalabad area) is in very short supply. Thus, the allocation of fruit cropped land heavily in favor of other fruits is rational. These other fruits are most likely to be pomegranates followed by apples and apricots, since this is the choice dictated by profitability and market outlook. In view of past progress and current trends in production technology and input use, the projected increase in yields appear to be overestimated. 1/ 45% for fruit and 30% fo) vegetables. 2/ This is a problem of marketing rather than a lack of export markets.  - 37 - Table 5.1 - Actual and Projected Fruit Production Year 1347 1354* 1361 Growth Rate (% p.a.) (1958/59) (1975/76) (1982/83) ITEM UNIT Actual Actual Projected 1347-1354 1354-1361 Actual Projected All Fruits Area 000 ha 135.3 140.3 153 0.5 1.1 Yield kg/ha 6,164 6,276 7,647 0.25 2.9 Tot. Prod. 000 mt 834 880 1,170 0.8 4.2 Grapes Area 000 ha 70 70 76 0 1.0 Yield kg/ha 5,500 6,000 7,631 1.3 3.5 Tot. Prod. 000 mt 385 420 580 1.3 4.7 Citrus and Olive Area C)00 ha - 3.3 5.6 - 7.9 Yield kg/ha - 632 2,321 - 20.0 Tot. Prod. 000 mt - 3.29 13 - 22.0 * Estimated. Source: Ministry of Agriculture, Afghanistan. Table 5.2 - Actual and Projected Vegetable Production Year 1347 1354* 1361 Growth Rate (% p.a.) (1958/59) (1975/76) (1982/83) ITEM UNIT Actual Actual Projected 1347-1354 1354-1361 Actual Projected All Vegetables Area 000 ha 91 92 120 0.3 3.9 Yield kg/ha 7,187 7,830 9,000 1.2 2.1 Tot. Prod. 000 mt 654 720 1,152 1.4 7.0 Potatoes Area 000 ha 15 17 23 1.6 4.4 Yield kg/ha 10,000 11,441 16,000 1.9 4.9 Tot. Prod. 000 mt 150 194.5 368 3.8 9.5 * Estimated. Source: Ministry of Agriculture, Afghanistan.  - 38 - 5.04 While almost no change took place in the past seven years in the area cropped by vegetables, Afghanistan is projecting a 30% increase in the area during the rext seven years together with a 15% increase in yield. The general performance in potato production over the past seven years has been better than that of All Vegetables and appears to be the only substantial reason for projecting such high performance for potatoes but this is seen as insufficient basis for such a high projection. Table 5.3 - Yield Growth Rates % Per Annum Item 1347-1357 Actual 1354-1361 Projected (1958/59-1975/76) All fruits 0.25 2.9 Grapes 1.3 3.5 Citrus and Olives 15.0 /1 20.0 All Vegetables 1.2 2.1 Potatoes 1.9 4.9 /1 Mission estimate. 5.05 Comparing actual and projected yield growth rates for fruit and vege- tables in Table 5.3, it is seen that substantial increases in the growth rates are projected for the next 7 years. Although for the most part quite modest by developed country standards, in view of the constraints faced by the sub- sector, meeting these production targets will require a major effort. Table 5.4 - Per Capita Consumption and Growth Rates for Fruits and Vegetables ITEM YEAR 1347 1354* 1361 Growth Rate (% p.a.) (1958/59) (1975/76) (1982/83) 1347-54 1354-1361 Actual Projected All Fruit Production (000 mt) 834 880 1,170 0.8 4.2 Trade (Exports) " 190 349 483 9.1 4.8 Cons " 664 531 687 -3.0 3.8 Per Cap. Cons (kg) 45.2 31.1 34.51 -5.0 1.5 Vegetables Production (000 mt) 654 720 1,152 1.4 7.0 Trade (Exports) " neg. - - - Cons " 654 720 1,152 1.4 7.0 Per Cap. Cons (kg) 44.5 42.1 57.91 -1.0 4.5 Pop. (Mill.) 14.68 17.1 19.91 2.2 2.2 * Estimated Source: Production - Ministry of Agriculture Trade - Ministry of Commerce, Afghanistan Population - World Bank Atlas  - 39 - 5.06 For the first and final years of the new Afghan 7 Year Plan prelim- inary projections for production and export of All Fruits and All Vegetables are combined in Table 5.4 to give the implied total and per capita consumption, and their growth rates. For comparison the actual record over the previous 7 years is also shown. The high growth rate in fruit exports during the past 7 years is seen to be at the cost of domestic consumption, as production growth was quite low. For the future, growth in exports is halved while that for production increases five-fold and consumption begins to recover. The five-fold increase in the fruit production growth rate is the most dubious aspect of this scenario. It depends almost entirely on an increase in the growth rate of yield from 0.25% to 2.9% p.a. Since these are permanent crops, with life lengths of 20 to 50 years and a replacement rate of only 4% p.a., varietal change can be ruled out as an aid to any dramatic increase in yield in the medium run. Given the non-cognizance of the need for trace elements and pesticides and the low level of fertilizer use, such a yield increase within seven years is just not possible. Consequently, production will be lower than projected in the Plan. Since free market forces allocate between the domestic and the export market, the continuous evaluation of the Afghani, the past decline in per capita consumption and expected growth in real income suggests that exports of fruit will level off and could actually decline from the record level of 1354 (1974/75). 5.07 Afghan production projections for vegetables (Table 5.4) appear reasonable by comparison with those for fruit, but still rather optimistic. A 30% increase in area and a 15% increase in yield are projected over the life of the Plan. The area increase (3.9% p.a.) may appear large, but, the base is small. Also the returns per unit area are attractive, and unlike fruit orchards are available immediately. Thus, vegetable production would appear attractive, where labor is plentiful. In the case of small farmers or share cropped areas, which have adequate labor and so are suited to expanded vege- table production, the present lack of access to seasonal production credit at a reasonable cost will prove a barrier to expansion. The projected yield increase (2.1% p.a.) is readily sustainable provided inputs are continuously improved in both quantity and quality. But, the present lack of access to production credit will be a barrier to quantity improvements, while the lack of an improved seed production program and adequate extension aid will prevent the required quality improvements. 5.08 To analyze the consistency of the implicit Afghan consumption pro- jections (Table 5.4) it is assumed that the income elasticities of demand for fruit and vegetables are 0.67 and 0.55 respectively 1/ and a conservative per 1/ From Agricultural Commodity Projections 1970-1980, Vol. II pg. 240, FAQ Rome 1971. These are the elasticities for the Near East in Asia group of countries, which contains Afghanistan. The individual elas- ticities shown for Afghanistan are rejected, except for potatoes (0.6), as they appear too great.  - 40 - capita real income growth rate of 3% p.a. is assumed. This gives a projected growth rate in All Fruit per capita consumption of 2% p.a. which suggests that the Afghan projection of 1.5% is sustainable if production is adequate. For vegetables the assumed parameters give a per capita consumption growth rate of 1.65% p.a. which is well below the Afghan projection of 4.5% p.a. A real per capita income growth rate of over 8% p.a. would be required to sustain the Afghan projections in the absence of a real price decline in vegetables; which of course would create a reduction in supply. Irrigation Targets 5.09 Irrigation projects and their targeted areas included in the 7-Year Plan are shown in Table 5.5. Most are extensive projects illustrating the continued emphasis on large scale projects despite disappointing past expe- rience with these due to slow implementation, uneconomic justification, and slow payback. The recent Bank Agricultural Sector Survey has made this issue clear and strongly recommended more emphasis on cost effectiveness and economic returns which would bias investment more towards smaller, quicker yielding irrigation projections. Almost all of these projects are not sched- uled to be completed until late in or at the end of the Plan period. With any slippage, they are unlikely to be completed until after 1361 (1982/83), and consequently, will have little effect on production projections. At present, little of the land to be irrigated under these schemes is foreseen as being cropped by fruit and vegetables, but, rather there is a continued emphasis in the long-run on grain production. However, since no long-run policy state- ments have been made on this, the official thinking remains unknown. But the recommendation is that a more economically rational approach should be encour- aged in determining the cropping pattern of this high value land. Probable Implementation of Production Targets and Resulting Exports 5.10 Since no known policy measures in the form of incremental efforts are underway to relieve the constraints posed by land tenure, and quality of and access to inputs, nor is there any sign of an emphatic change in the role of wheat in cropping patterns; there is little reason to expect that the sub- stantial changes in yields and cropping patterns embodied in the Afghan pro- jections are likely to occur. There will be some adjustments and improvements, but, to expect these to be much more than marginal is optimistic. 5.11 Assuming a 1.85% decline in land cropped by cereals, as opposed to the projected 3.7%, also assuming (possibly optimistic) annual yield in- creases as follows: All Fruits 2% All Vegetables 2% Grapes 2% Potatoes 3% Citrus + Olives 2% Two sets of revised production projections for fruit and vegetables, medium and low, are presented in Table 5.6, where they are contrasted with the high (Afghan) projections. The low set assumes yield increases as for the previous 7 years.  -41- AFGHANISTAN Table 5.5: Capacity of Proiects and Development of Irrigation During the Seven Year Plan (1355-1361) Anticipated Capacity Irrigation Development Irrigation Development Carry Over to N4xt Plan Name of Project Total New Existing Before the Plan Durins the Seven Year Plan Total New Existing Total New Existing Total New Existing (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (-I1) (12) (13) I. rrry over and Nsg I.rr4atonn 499.7 119.8 379.9 17.6 0.8 16.8 271.4 42.4 229.0 210.7 76.6 134.1 A. Carry over Projects 184.3 39.3 145.0 17.6 0.8 16.8 128.7 33.5 95.2 38.0 5.0 33.0 Gawargan-Chardarah 28.3 3.4 24.9 - - - 28.3 3.4 24.9 - - - Kokcha 'I 12.1 12.0 - - - - 7.0 7.0 - 5.0 5.0 - Chorband 1.1 0.5 0.6 0.6 0.3 0.3 0.5 0.2 0.1 Khenabad 30.0 - 30.0 - - - 30.0 - 30.0 - - - Parwan P4Aq 9.5 15.3 15.3 - 15.3 9.5 9.5 - Sange Mehr 1.3 1.3 - 0.2 0.2 - 1.1 1.1 Sardeh 13.1 12.0 1.1 1.1 - 1.1 12.0 12.0 Nshre Karin 0.7 0 6 0.1 0.4 0.3 0.1 0.3 0.3 Salim Reservoir Dam (Harirud) 73.0 - 73.0 - - - 40.0 - 40.0 33.0 - 33.0 B. New Projects 315.4 80.5 234.9 - _ - 142.7 8.9 113.8 172.7 71.6 101.1 Khosh Tapa 100.0 50.0 50.0 -- - - 100.0 50.0 50.0 Farah Rud (lst Phase) 60.7 - 60.7 - - - 40.7 - 40.7 20.0 - 20.0 Kelagai '2 "1.0 25.0 56.0 - - 52.7 21.6 31.1 Chashmeshafa 76.0 - 76.0 - _ _ 76.0 _ 76.0 - - Small irrigation projects Kokchenar, lshkamesh Jan Areq, etc. 16.8 5.6 11.2 - - - 16.8 5.6 11.2 - - - Kama irrigation and electricity generation 9.2 3.3 5.9 - _ - 9.2 3.3 5.9 II, Car- vovr -rniects and new croiects in Helmand and Nimroz Valley 388.3 262.1 126.2 72.6 59.0 13.6 125.3 19.6 105.7 190.4 183.5 6.9 A. Carry over Projects 104.4 65.9 38.5 72.6 59.0 13.6 26.4 6.9 19.5 5.4 - 5.4 Upper Shamalan 16.0 13.2 2.8 13.8 11.0 2.8 2.2 2.2 - - Lower Shsmalan (Lashkargah Shamalan) 2.2 2.2 - - - - 2.2 2.2 Upper Darweshan 16.0 16.0 - 16.0 16.0 - - - Lower Darweshsn 5.4 2.5 2.9 - - - 5.4 2.5 2.9 Marjs 18.0 18.0 - 18.0 18.0 - - - - Nade Ali 14.0 14.0 - 14.0 14.0 - - - - Babaji 3.2 - 3.2 3.0 - 3.0 0.2 - 0.2 Repair fo Saraj Canal 11.2 - 11.2 7.8 - 7.8 3.4 - 3.4 - Lashkari Nimroz Canal 18.4 - 18.4 - - - 13.0 - 13.0 5.4 - 5.4 8. New Projects 283.9 196.2 87.7 - - 98.9 12.7 86.2 185.0 183 5 1.5 Kamaal Khan (irrigating right and left areas) 153 123.0 30.0 - - 30.0 - 30.0 123. 123. - Seraj 25.3 9.8 15.5 - - - 25.3 9.8 15.5 - - - Western Kajaki (Kajaki up to Shamalan) 17.5 13.9 3.6 - - - 5.0 2.9 2.1 12.5 11.0 1.5 Khwabhah diversion dan 48 35.0 13.0 - - - 13.0 - 13.0 35.0 35.0 - Siekhsar 40.1 14.5 25.6 - _ - 25.6 - 25.6 14.5 14.5 - Total Carry over Projects 29R.7 105.2 183.5 90.2 59.8 30.4 155.1 40.4 114.7 43.4 5.0 38.4 Total New Projects 599.3 276.7 322.6 - _ _ 241.6 21.6 220.0 357.7 255.1 102.6 Grand Total 488 0 381.9 506.1 90.2 59.8 30.4 396.7 62.0 334.7 401.1 260.1 141.0 /L In Kokcha projects, only new land is indicated, because existing land which counts for about 32 thous. ha. is not taken into consideration during the Seven Year Plan Period. /2 In the total capacity of Kalagai, capacity of Gawargan and Chardara are included.  - 46 - USSR The three railheads on the Russian border are (a) Kushka, north of Herat, (b) Termez, north of Mazar, and (c) Sherkhan Bandar, north of Kunduz. Iran Meshed, via the border town of Islam Qala, is the authorized destination of Afghan trucks in Iran, whence freight is trans- shipped by rail or Iranian trucks. Truck Rates 6.05 Rates set by the Afghan Transport Commission are: Eastern and Central routes: Afs 2/ton/km Western routes: Afs 1.8/ton/km These rates are for government freight. For private sector goods, rates are quoted on various bases, including Afs per kg. and per truck load to specific destinations. Furthermore, reported rates are frequently inconsistent when compared on a ton-kilometer basis though road conditions are similar. The following are quoted rates for haulage of fruits and vegetables converted to the equivalent of Afs/ton: Kandahar-Kabul Afs 600 Kabul-USSR border 1,000 Kabul-Jalalabad 400 Jalalabad-Peshawar 400 Herat-Kabul 1,000 Herat-Meshed 400 Herat-Spin Boldak 500 On the basis of the above reports, it appears that the cost of the trip from Kabul through to Meshed, a distance of 1,430 km, is about Afs 1/ton-km. The method of allowing for return loads or empty return is unknown. Reported truck rates to Indian and Pakistan markets involve transshipment at each border or authorized terminal. Rates reported were: Jalalabad to Delhi (about 1,200 km): Afs 7,000 per truck-load of 800 seers (including all freight, repacking, and customs.) Kandahar to Delhi (about 1,700 km): Afs 22,500 for a truck- load of 1,500 seers. Both rates approximate Afs 1/ton-km.  - 47 - Surface Transport to Distant Markets 6.06 The major methods and approximate cost for getting dried fruit to distant markets are as follows: (1) To Europe and the UK: From Kabul to the Russian border by truck to load at the railhead of Termez and thence to Leningrad by rail; transfer to ship for London. Quoted time in transit is 8 weeks, but there are reports of delays stretching the transit time to three or four months. May 1976 rates were $100 per ton, which is the cheapest method of reaching London. A quicker route is all-rail through Russia, terminating at Hamburg or Frankfurt. Quoted time is four weeks and cost about $130 per ton. (2) To overseas destinations by ship: Kabul to Peshawar by truck, onwards to Karachi by rail, and thence by sea to New York ($130/ton) or Tokyo and the Far East ($135/ton). These rates include the cost from Kabul to Karachi of ap- proximately $50 per ton. Time in transit, depending on delays at Karachi, approximates 10 weeks. An alternative method of shipping to Japan involves using the Trans-Siberian Railroad, quoted time and cost from Kabul being six weeks and $150 per ton respectively. 6.07 In comparison, competing dried fruits from Greece and Turkey have an average freight cost of US$35-40 per ton to markets and a very short delivery time. A further significant disadvantage to Afghanistan is the long transport time and the delays in shipment that can occur. Points where de:lays often occur are at the Port of Karachi, within the USSR, at the Iranian border, and the transshipments to national transports in transit across India and Pakistan. 6.08 Despite delays, most of the shipments of dried fruits to Europe are sent by the lowest cost route, i.e. through the USSR. The USSR railroad is reported to have refrigerated rail cars available at Termez. This would allow fresh produce from Afghanistan to flow into the USSR if reErigerated transport were available to take produce from the Afghan interior to the rail- head. Contingent upon completion and operation of cold storage facilities, the financing of refrigerated trucks should be investigated for movement of perishable fruits and vegetables into USSR, Pakistan, India and Iran markets, with due consideratLiOT to seasonal movements and utilization throughout the year. Truck Transport to Eur_ e 6.09 At present truck rates are quoted for cargoes to or from Europe, but it is not known if there is any traffic. An 18 ton truck load (unrefri- gerated) between London and Kabul was quoted at $7,000 or $392/ton. The pos- sibility, was raise(ld of a $250/ton rate if a back haul could be secured. A second reported rate was $6,800 for 20T from Kabul to Germany in 12 days.  - 48 - 6.10 At the present time, the Ministry of Commerce is proposing the establishment of a European-Afghan trucking line (Afghan International Trucking). Requests for bids were mailed in May 1976. An autonomous truck- ing company would be formed, 49% foreign and 51% Afghan Government. Five to seven trucks would be the initial fleet. The trucks would operate via Iran, Turkey, and Yugoslavia. 6.11 The projected freight rate is US$135 per ton to Hamburg, with 4 weeks delivery. This venture is based on the expectation of Afghanistan being able to issue TIR carnets to vehicles licensed to appropriate standards, as well as revision and extension of bilateral transit treaties with coun- tries en route. The rate is based on expectations of two-way traffic: exports of carpets, animal skins, dried fruits and nuts, and imports of machinery, spares, chemicals and drugs. 6.12 This form of transport may initially be too expensive for commodi- ties such as raisins, but the rates may become more competitive as traffic increases. Refrigerated trucks will be considered after one or two years of operation, but the long, difficult journey to Europe is likely to preclude refrigerated, perishable exports in the near term. Air Freight 6.13 Several airlines are authorized to land in Kabul, including Ariana (49% Pan American), Aeroflot, PIA and Iran Air. Trans Mediterranean Airlines (TMA), an all cargo airline which is very active in the fresh fruit and vege- table transportation trade to the Persian Gulf states, is seeking approval to operate scheduled flights from Kabul. Karakul skins are flown to European auctions, the rate being $1.04/kg, but the likelihood of an increase in this rate is causing the Karakul Institute to evaluate the possibility of trucking. Organization of Export Transportation 6.14 Private freight forwarders, associated with international companies can arrange transportation to all markets from Afghanistan. In addition, banks which extend credits for export shipments have forwarding departments. These forwarders will advise on alternative transport modes, rates, transit times, expected delays, and appropriate documentation. The fresh fruit trade to India and Pakistan is handled directly by the traders concerned, using their own trucks or contracting for them. 6.15 All export freight from Afghanistan must physically move through a custom house to be assessed for export duties. 6.16 Lacking the availability of refrigerated transportation, the season of the year has to be considered in relation to the timing of export shipments for dried fruit. Steel food containers, particularly, heat up considerably in the summer and make shipment inadvisable, especially if shipping through Karachi.  - 49 - 6.17 Conclusions: Present transport capacity appears adequate for the volume of exports handled and can be expected to expand in line with demand. The bottlenecks to transportation occur outside the country but many of these, such as delays in the USSR and transshipment procedureA ^-Pakistan and India, could be improved upon by active negotiation between the Government of Afghanistan and the authorities of the countries concerned. Existing Afghan private transport concerns claim that the proposed joint venture long-distance trucking company is of dubious value since it will duplicate existing facili- ties. They state that exports to the Middle East and Gulf States could be facilitated by private concerns if the investment climate for private industry were less restrictive and the Government of Afghanistan facilitated the Afghan trucking industry with TIR carnets. However, the mission is of the opinion that the poor conditions of existing trucks, the poorly trained drivers and the lack of currently required refrigerated trucks point to major defects in present services which could be expected to be filled by the proposed concern. As a result, it is recommended that the joint trucking venture be established.  - 50 - CHAPTER 7 STORAGE AND PROCESSING OF HORTICULTURAL PRODUJCTS 7.01 Horticultural processing in Afghanistan is quite limited in scope. There is extensive drying of fruits (mainly raisins), some hand shelling of nuts, very limited grading of produce, a few smal'l canned and bottled product operations, but no cold storage or packing houses. These very limited facil- ities nevertheless support a US$100 million annual export business, but the penalties include high wastage, low prices, and a definite constraint to further growth of exports. The following discussion covers existing facili- ties and deficiencies for major Afghan horticultural products. Dried Fruits 7.02 Raisins. Afghan raisin exports are predominantly red (sun dried) and green (shade dried). The red raisins are dried outdoors on the ground. They are subsequently cleaned, graded and packed in processing plants, some of which are described in Annex 5, Appendix 1. Green raisins are shade dried, suspended in ventilated mud-brick structures near the vineyards, and without further processing, find their markets principally in India. 7.03 There are about 12 raisin cleaning, grading and packing plants for red raisins; several have a complete line of mechanical cleaning and destem- ming equipment; others have only a modest complement of equipment. Most of the processing (over 80%) is conducted on a custom or contract basis, ownership of the raisins remaining with the trader or cooperative which has obtained the foreign order or export quota. The per ton charge for cleaning, processing and cartons ranges between Afs 4,000 to Afs 5,000 per ton (US$77-91). Esti- mated processing costs appear in Annex 5.1. By comparison, in California the average processing cost is approximately US$366 per ton, but selling price in California ranges from between US$740 per ton bulk (export) to US$1,500 per ton in 1 pound retail packages. Sufficient capacity exists in Afghanistan to process up to 40,000 to 50,000 tons, 1/ particularly if a two-shift basis is utilized. Herat could be an exception in that no processing plants are located in the area. Many of the plants can be improved with additional equipment. A primary bottleneck appears to be time limits associated with the USSR quota system. A shortage of plant capacity occurs when large orders are received from the USSR, traders rush to process and ship their quota. This could be overcome by allocating quotas earlier in the season and should be attended to by the authorities negotiating the quotas. Some storage would also be required, but this is required in any event as presently sacks of raisins arriving from farms are stacked in the open, outside packing plants, often suffering weather damage and always being crushed, bruised and split. 1/ Peak exports amounted to 42,106 tons in 1974-75 (Table 4.4).  - 51 - 7.04 Based on mission observations of raisin processing, the following needs were evident: 1. Dry raisins on straw mats rather than on ground. 2. Store raisins in bins to avoid crushing. (In California a bin holds 1,000 lbs). 3. Improve in-plant sanitation in processing plants, parti- cularly at the washing stage. 4. Improve finished product storage conditions. 5. Ensure fumigation of export package. 6. Pay greater attention to production and marketing of grades and sizes demanded by the market. 7.05 Dried Apricots. All apricots are consumed in the fresh state or are air dried on the tree or as halves. The resulting product is dark brown to gray in color and extremely tough, and would not be accepted in European or US markets. One individual has been working to develop a sulphur treated dried apricot, and has produced an excellent quality product which is marketed primarily to the foreign community. He indicated that he has received firm orders from abroad at $900 per ton FOB Kabul. The price could well exceed $1,000 per ton as quality improves, or the product is packed in consumer size bags. The indicated dry out yield in Afghanistan is considerably higher than California. In California it requires 7 to 8 tons fresh for I ton dried, whereas in Afghanistan, it is reported that 5-6 tons is required for 1 ton of 20% moisture dried apricots. The higher sugar content of Afghan fruit is one reason for the difference. Fresh Fruits 7.06 Afghanistan's fresh produce exports consist mainly of grapes, melons and pomegranates; other products include apples and apricots, the total ship- ment being approximately 125,000 tons in 1353 (1974/75). Modern handling and processing of these products is minimal, with consequent loss of potential income through spoilage, mishandling, and lack of grading. Harvesting, ship- ment, and packing procedures all need to be greatly improved. Organization of production and export marketing on a national level is an obvious defi- ciency. These needs are known to Afghan nationals as there have been a number of reports made by expatriate experts pointing them out. 1/ 11 Representative of these reports is "The Improvement and Development of Marketing of Table Grapes and Raisins in Afghanistan", 1972. Swedish Aid through FAO. Also, see a working paper "Advisory Services to the Export Promotion Department", by John Perry, Consultant ITC Advisory Team, Afghanistan, 1973.  - 52 - 7.07 Grapes. Nailed wooden boxes are generally used for packing and transporting grapes. These square closed boxes, where the fruit is packed in more than one layer, are really too large to be effective and cause some "mechanical" damage, thus reducing the shelf life of the fruit. Flat wooden trays of minimum 15 kg would be more suitable. 7.08 Cold storage of grapes or other fresh fruit is not presently under- taken in Afghanistan. A cold storage facility for holding grapes two to four months after harvest would only be appropriate, or feasible, when dealing with late ripening varieties growing in the latest maturing areas. For the early producing area of Kandahar, precooling facilities should be investigated, with a limited amount of cold storage space large enough to hold the normal backlog of fruit accumulating at the shipping point prior to sales at the market place. Facilities of this nature are common in the early producing districts of some countries and serve as insurance in the event fruit is harvested, packed, precooled and a sale does not materialize. Should a lull occur during the early grape marketing season, the fruit can be be held on the vines rather than in storage for a reasonable length of time. These decisions are a func- tion of market outlook at harvest time. 7.09 Melons. Afghan melons are shipped to India and Pakistan. It is not known in what conditions they arrive. Discussions with traders and experience from other exporting countries indicate that the major deficiencies to be overcome are: 1. Wide variations in weight as a result of inadequate grading. 2. Extensive bruising and abrasion from shipping in loosely packed wooden boxes instead of corrugated boxes with separation strips. 3. High percentage of rotten fruit, exacerbated by poor handling methods and lack of fungicides. Nuts 7.10 Nut production and processing in Afghanistan is essentially a cot- tage industry. Most nut exports are in-shell. One firm, Spiaf, in Kabul, was observed to be organized to process and package nuts for export. Their new, modern facility was recently completed in Kabul Industrial Park. Pro- cessing capacity is 3 tons per day with a work force of 50 men and 30 women. The product line is: Blanched Almonds, Shelled Almonds, Shelled Walnuts, Apricot Kernels, and Shelled Pistachios. When plant construction started, almond prices were high in Europe. Currently, almond prices are higher in Afghanistan than in Europe and the only viable export at present is packaging the almonds in 100 and 200 gram consumer packages. (A special packaging machine was imported for this purpose.) The subsantial quantity purchased by the USSR in Afghanistan at high prices is the reason given for the above average price levels. Another reason is the high selling prices in India because of strong demand. The current price in Germany is US$0.85 to $1.00 per pound (shelled) and the market outlook indications are that prices will not be increasing. The Spiaf Company exported an average of 150 tons annually  - 53 - of pistachios annually in recent years. These pistachios, a dark green in color, are used in food manufacturing (sausages and baked goods). But in May 1976 the German price was DM 21/kg and the equivalent Afghan farm price DM 22/kg; the processing margin was negative. Canning 7.11 The function of canning is to provide a suitable means for pre- serving a portion of seasonally produced fresh fruit and vegetables; to date, only one canning plant has been established in Afghanistan. Built in 1963, this canned food processing facility was located in Kandahar to utilize locally produced fruits. Financial and technical aid was supplied by Czechoslovakia. The plant, known as the Kandahar Fruit Company was owned by a group of 25 local traders. Situated on a 15 ha site, the plant is a large, well con- structed building, the facility consisting of the processing facilities, cold storage, case goods storage, machine shop, can manufacturing, wood working shops, general offices and five houses. In general, the plant facilities are overbuilt and more extensive than required; the equipment not adequate and, in some cases, obsolete. 7.12 The initial investment was: building, Afs 38 million; machinery, 41 million, and Working Capital Afs 37 million, making a total of Afs 116 million. After three years of operation, inventories were high, sales very low, quality poor, and the plant was closed. The canning operation (fruits, jellies, jam, compotes and single strength fruit juices) was not successful apparently because management could not solve the technical and marketing problems. The plant was purchased in 1973 by the Government and is currently under the control of the Ministry of Mines and Industry; the plant was re- opened in 1974, and presently sells 95% of its output to the Afghan Ministry of Defence. At full capacity, utilizing two shifts, the plant was built to process 40 tons per day, but currently it has not been possible to produce over 10 tons per day on a two-shift basis. This appears due mainly to a lack of market outlets. A detailed description of the plant is given in Annex 5, Appendix 3. Other Processing Facilities 7.13 Winery. There is one winery in Afghanistan, Castellino Wine Company of Kabul. The principal products are table wines, distilled spirits and champagne. Output is about 3,000 hectoliters annually. The quality is variable. Being an Islamic country, the domestic market is small, dependent upon foreign residents and visitors. The export potential is limited due principally to distance from potential market outlets and low cost competition (Annex 5). 7.14 Olive Packing. Olives produced in Nangarhar are cured, graded, bottled and pasteurized to an acceptable product. Current production is 650 tons per year, which is all shipped to USSR. Bottles and caps, which are below western quality standards, are purchased from USSR. Due to unavailability of cost data, it is not know whether the product would be competitive in markets other than in USSR (Annex 5).  - 54 - Storage 7.15 Dry storage and warehouses for crops are not generally available in Afghanistan. Raisins and other dried fruits are stored at the farm level in burlap bags until sold. The conditions are usually inadequate, with substan- tial insect and moisture damage occuring to the crop. Also the practice of stacking filled burlap sacks five to seven high causes the raisins at the bottom of the pile to be crushed and sticky. It would be preferable to store raisins in 500 kg bins as is done in a number of countries, but physical handling problems involved for such sizes would have to be solved in the context of Afghanistan. 7.16 For perishable products such as seeded grapes, pomegranates, pota- toes and onions, cellar storage is utilized in order to increase the ability to store the product. Products kept insulated by the earth will remain at an even 50-40