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Welcome to Kabul:Reconstructions. You can follow the information below, which has been gathered from a
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own picture of events in Kabul since this site was launched on March 8th, 2003 and, in a sense, since the
reconstruction of Afghanistan began somewhere in the winter of 2001-02.
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Arian Mouj Sharifi
Barney Rubin on potential opium replacement crops
Institutional Framework for Flower/Fragrance Production in Afghanistan Or, Who Put the R in DDR? Barnett R. Rubin Kabul, October 13, 2003 This note will deal with conditions for the production, primary processing, and global marketing of fragrance products from Afghanistan; their potential for opium substitution, in conjunction, of course, with law enforcement; and the evaluation of risks. We also note that, if successful, this project might create livelihoods that would be useful to the reintegration of demobilized fighters or, eventually, demobilized bureaucrats. It is predicated on the following: * It is feasible to grow fragrance products in Afghanistan, given soil, climate, and water conditions (this is clearly true, though the extent of the possibility is unclear); * Primary processing of flowers, herbs, or other fragrance cultivars must take place on the day of harvest; * For a distillery or processing facility to be economically feasible, it must be within a half-day's journey of at least several hundred hectares of land cultivated with the product or products. I do not yet know if the same basic processing facility can be used for several different cultivars, e.g. roses, lavender, basil, or others. If so, this would give farmers greater flexibility and capacity for risk management, given demand and price fluctuations for different products. Their ability to avoid downside market risk would also depend on the lead-time required for shifting crops. Production and Primary Processing Given the processing requirements, it is necessary for a large area of land to be cultivated with the same product (if the primary processing facility can be dedicated to only one product) or several different fragrance cultivars (if a small facility can easily process more than one primary product) within a relatively compact area. The main issue is the ability of the farmers to transport the harvested product to the processing plant in time for it to be processed on the same day. There are two models: * Investors (Afghan or foreign) can purchase or lease large land areas in one place and employ laborers or sharecroppers to produce the product; or * The small-holding farmers who predominate in Afghan agriculture in most regions of the country can form production, processing, and marketing cooperatives to capture economies of scale in equipment and technology while still maintaining the family and clan structure of land ownership and operation that is the basis of most of Afghan rural society and livelihoods. If this industry is established in Afghanistan both models will probably co-exist, but to the extent possible, we should put in place measures to assure that the latter model predominates. Otherwise, the industry could lead to the same result as in other areas of the world, such as Latin America, where latifundia producing commercial agricultural products have marginalized and impoverished the peasantry. The purpose of this project is to help Afghan farmers gain livelihoods, not to provide a new exotic source of materials for the international fragrance industry, or, rather, it is to do the former by doing the latter. Otherwise, we may all regret having started this project. Hence starting production according to the desired institutional model would require the following: * Extension services to teach cultivators about how to raise the new products and what is required for them to be profitable; such services should also teach risk management and environmental protection (see below). * Training and assistance to enable farmers to form cooperatives. These cooperatives, which are likely (perhaps I should say certain) to be based on clan and tribal structures, would: o Acquire the basic technology for the crop; o Invest in whatever improvements in land, water, and local transportation infrastructure are necessary, either by themselves or in partnership with local authorities; o Collectively own and manage the processing plants; and o Sell the processed product to the manufacturers or wholesalers who will constitute the next step in the chain of production. Some of the investments required would be of benefit only to those actually engaged in production of the crop and therefore should be financed by the cooperative. A partial exception is the transportation requirements. Lowering the transportation time between farmgate and processing facility requires two components: faster vehicles and better roads. The vehicles1 should be owned by either the individual cultivators or by a cooperative that leases them to members. The government could finance road improvements, however, preferably through block grants to local authorities. There might be a division of labor, with main local roads financed by the local council and more dedicated paths by the cooperative. These requirements pose the question of financing. These cooperatives will require either grants or credits, probably a mix. Perhaps an NGO like German Agro-Action, ADA, or the Swedish Committee could combine extension services with grants and/or credits. An interesting idea is to consider possible interaction between this program and the National Solidarity Program. Once the technical infrastructure was in place, a processing plant, local road improvements, and a tractor station could be one package that could be available for $20,000. The money could be stretched further if some of it were used to establish a revolving credit fund. Business associations, such as the women's business association in Kabul, might be interested in pooling funds to invest in these ventures.2 The processing plants will generate employment, whether on the basis of wages or as a family labor contribution requirement on the part of the cooperative. This is necessary if the product is to compete with opium, harvest of which generates well-paid, seasonal jobs. A proportion of the processing jobs should be reserved for women, in particular widows. One could reserve employment in these plants, or in some of them, entirely to women. Wholesale Marketing The next stage of the process would be the transport of the product in containers to the international market. A small amount could be packaged in small bottles for direct sale to international workers or, eventually, tourists in Kabul or in the Dubai airport, but most will be sold in larger industrial container to buyers for international consumer fragrance producers. We must by all means prevent the establishment of any kind of marketing monopoly or oligopoly, whether a government marketing board or a private oligopoly of big traders. These inevitably work to keep the price paid to farmers low and capture most of the profits of the product for urban institutions and elites. This would be disastrous, as it has been with coffee, tea, and cocoa boards in Africa. Instead, we should probably seek to establish a transparently run auction house in Kabul, where the sales can be taxed by the national government. Buyers should come to this auction house and bid on lots. At first through radio broadcasts, and eventually through web points (as is done with milk cooperatives in Gujarat, I believe), the farmers should be kept informed of the market price of the goods in Kabul and internationally. There is no need to provide this auction house with a monopoly. Buyers may contract directly with locally owned distilleries for product. This should result in the development of a futures market, one that would be more transparently run than is the one for opium (the salaam system). This would eventually turn into an important credit mechanism. But the existence of an auction house where market prices are established is important to assure the farmers of realizing fair profits from longer-term production contracts. Opium Eradication and Reintegration of Fighters This project could be beneficial in providing livelihoods to farmers and those involved in processing and marketing whether or not it promotes opium eradication, but it will be better to the extent that it does. As it will create employment and incomes in agriculture, primary processing, and marketing, it will also create various opportunities for the reintegration of demobilized fighters. In order to estimate this project's potential for contributing, along with law enforcement, to opium eradication, it will be necessary to determine if fragrance cultivars can be grown in the same conditions as opium or in different ones. If these new products can be grown in the same locations as opium, then there is a potential for genuine crop substitution. To make these crops more competitive with opium, it is important that the institutional structure capture as much of the potential profit as possible for the farmers through vertical integration controlled by the cooperatives, that it provide access to credit, and that it be easily marketed. Hence the suggested institutional framework above is important not only from a developmental or humanitarian point of view, but also from a counter-narcotics, and hence security point of view. Obviously, demobilized fighters could be reintegrated as cultivators under this scheme. More important, low-level and mid-level commanders might be integrated as managers of processing or transport facilities, or as investors or marketers. Money gained from the opium trade could be invested as legitimate capital in these ventures. Managing the Downside We should be aware of a number of potential risks, even if the project were successful: these include: * Negative environmental and social consequences of monoculture; * Increased vulnerability of farmers to price fluctuations. The negative effects of monoculture of all kinds are well known. Among them are soil depletion, saturation of the soil with chemical fertilizers or pesticides, and possibly soil erosion. Cotton monoculture has led to these problems in Central Asia. There may be other negative environmental effects as well. I have noticed in Provence that lavender processing produces large quantities of what I call "lavender sludge," namely the unused parts of the plant that are left to rot in the field. We should explore whether these products can be reused as fertilizer, animal feed, or fuel. The cottonseed refuse that remains after processing of the raw material for fiber and oil is a very valuable animal feed. The Spinzar cotton plant in Kunduz used to hold regular auctions, including futures markets, for these waste products for the pastoralists of the area.3 Generally, it is advisable to integrate a commercial crop into a more diversified agriculture both to protect the environment and to reduce risk. The more improvements there are in local transport systems, the wider can be the area that a single processing facility can serve, and hence the more possibility there will be for integrating fragrance cultivars into a more diversified agriculture. The demand for fragrances varies due to changing fashions promoted by the industry. In addition, these are luxury goods for which there is therefore a high income elasticity, which makes the demand and hence price more vulnerable to cyclical economic factors. A downturn in the developed world could hit the market seriously. The former factor (fashion) would affect the optimal mix among fragrance cultivars. Some (rose, lavender) have a relatively steady, though gradually rising demand, along with the entire fragrance industry. Others (basil, which is now a hot fragrance for men's scents) may be more high growth, but with a lot of instability. If it is technically possible, both from an agronomic point of view and because of processing requirements, to develop a balanced and adjustable portfolio of steady "blue-chip" fragrance cultivars, high-growth but riskier fragrance cultivars, and subsistence crops, this might be a good mix for the Afghan farmers. Cyclical demand for the whole product line due to overall economic conditions in the consuming countries would affect the balance among fragrance cultivars and other crops. Adjustment to price fluctuations (relative prices both among fragrance products and between these products and other crops) is complex. Some crops (roses, for instance) require several years of investment before they begin producing commercially viable product, and changing the crop requires destroying a significant investment. These cultivars can require a lot of sunk capital that reduces the farmer's ability to respond to price fluctuations. Those countries dependent on the world market for coffee or tea have much sad experience with this kind of risk. A severe drop in coffee prices in the late 1980s due to the collapse of the international coffee agreement was one of the precipitating factors in the crises in Rwanda and Burundi. These crises contributed to genocide and war throughout Central Africa, so this is not a trivial consideration. We must not promote some quick income generation at the cost of making the Afghan economy vulnerable to external shocks that could have disastrous effects. To the extent that it is technically feasible for farmers to change their crop mix in response to changing conditions, they should be supplied with the information needed to make rational decisions and the support needed to implement them, for instance through an ongoing extension service and the price information services mentioned above. This means finding means, as described above, to keep farmers informed about global market conditions for the products and providing them with the means to adjust. We should also consider some form of insurance scheme. Crop insurance is a standard way to manage risks from weather and other adverse conditions. I should also offer insurance against negative market conditions. It might seem premature to consider all this before we even know the technical feasibility of the effort, but it is important to have the institutional arrangements ready in case the technical studies are positive. Otherwise, the market will probably follow the path of least resistance, to the detriment of the Afghan farmers. References: 1 Tractors are used for lavender transport in Provence, to the despair of motorists such as myself who get caught behind them on winding mountain roads. 2 Seema Ghani, who is working with this association, has expressed such an interest. 3Thomas Barfield, The Arabs of North Afghanistan.
Posted By: mariam   October 20th 2003, 2003 6:10 PM
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