HomeNewsUzbekistan is losing produce export markets to competitors due to government’s decision

Uzbekistan is losing produce export markets to competitors due to government’s decision

As EastFruit experts have already reported, the fruit and vegetable business of Uzbekistan received an unexpected blow in May 2024 in the form of minimum export prices for fresh produce, which sharply worsened the conditions and opportunities for exports of vegetables and fruits. We can already state that the negative consequences of such a decision were not long in coming. During the first month exporters of vegetables and fruits, farmers who grow them, and the country’s budget have suffered significant losses. All this is happening against the background of stagnation of fruit and vegetable exports and an extremely difficult situation in some of its large segments, such as, for example, the greenhouse business, which Uzbekistan is gradually losing in competition with Turkmenistan.

In this article, EastFruit provides specific examples of the negative impact of the minimum export prices for vegetables and fruits on the participants of the value chain.

Let us recall that at the beginning of May 2024, recommended prices for the export of fruits and vegetables were introduced in Uzbekistan. Then exporters were allowed to supply vegetables and fruits abroad at prices no lower than 20% of the recommended prices. However, by a resolution of the Cabinet of Ministers of May 11, 2024, the recommended prices were replaced by the minimum acceptable ones. Seems like the government officials have not thought that prices for vegetables and fruits fluctuate significantly, both by country and by quality category – sometimes by as much as 10 times! No one was also concerned that prices for fruits and vegetables, especially early ones, which Uzbekistan specializes in, often change by a factor of 2 or more per day, so setting minimum prices once a week initially looked like a stillborn idea.

According to Nodirbek Musaev, head of the export company Musaevs Exim LLC, such a measure of export price control and the mechanism for its implementation have given rise to a number of problems that Uzbek exporters face at the height of the season for shipments of fresh vegetables and fruits from Uzbekistan.

“The minimum export prices for fruits and vegetables are reviewed and set once a week. After prices are set, everyone must wait another two days for their official application. But during the export season of fresh vegetables and fruits, the market is much more dynamic, i.e. prices can change every day. Especially in the active phase of harvesting wholesale prices for them may fall from day to day. There is a completely inflexible mechanism for establishing minimum acceptable export prices, which in turn creates many problems for Uzbek exporters and growers,” explains Nodirbek Musaev.

“Here is an example from the real practice of exporting Uzbek fruits and vegetables after the introduction of minimum acceptable prices for them. At the beginning of June 2024, at the height of the current season of shipments of fresh apricots from Uzbekistan, our company exported this product to Belarus. A batch of these products with a volume of about 20 tons stood at the foreign trade post for two whole days, awaiting the establishment of new minimum acceptable export prices for fruits and vegetables. Purchasing prices for apricots, which started at the end of May at $1, dropped almost by half within a week, and the minimum acceptable price remained unchanged at $1.2. When working with retail chains, the supplier does not have the opportunity to renegotiate prices, even with a clause to deduct the added price due to complaints, and therefore has to wait until the prices acceptable for export come into force,” says Mr. Musaev.

We would like to add that for goods such as apricots, every extra hour of downtime can be disastrous in terms of loss of quality, which can lead to the complete loss of the entire batch of products, not to mention the additional costs of transport downtime in days. Moreover, natural delays with determining minimum export price by bureaucrats, even assuming they do determine it transparently, may result in the fact that prices acceptable for the market will never be available.

According to Mr. Musayev, a similar situation arises for many exporters of various products, including when shipping onions and early white cabbage, which are one of Uzbekistan’s largest export positions in the fresh vegetable segment.

“This year, purchase prices for early cabbage and onions in Uzbekistan have dropped to record lows. Farmers from the southern and central regions suffered huge losses. Market participants believe that one of the key reasons for this situation is the entry into force the export restrictions due to the minimum export price mechanism. Traditionally, most of the early vegetables are purchased by traders at large fruit and vegetable markets in the CIS countries. So, while Uzbek exporters are wasting time waiting for the next revision of minimum export prices and incurring costs due to vehicle downtime at the border, onions are being actively shipped from the southern regions of Kazakhstan to the Russian market, which is the main market for Uzbek exporters. Exporters of Kazakhstan have a very good opportunity to expand their share in the Russian market on expensive of Uzbekistan because of the above-mentioned problems of supplying Uzbek products to this market,” notes Nodirbek Musaev.

EastFruit analysts have repeatedly drawn attention to “windows of opportunity” when exporting a number of types of Uzbek fresh fruits and vegetables. Due to its geographical location and climatic conditions, Uzbekistan can enter the main markets of one or another product several weeks earlier than other countries supplying the same products and/or significantly earlier than the appearance of the same products on the domestic market by local suppliers of the importing country. In the absence of weather anomalies in Uzbekistan, “windows of opportunity” are periods of increasing export volumes by Uzbek suppliers of fresh vegetables and fruits, in particular, this applies to onions. According to EastFruit experts, these measures to regulate export prices of fruits and vegetables and the existing inflexible mechanism for its implementation do not at all contribute to increasing export volumes during these periods, but, on the contrary, can become a negative factor in this process.

Long live the “crooked” export schemes?

The preamble to the resolution of the Cabinet of Ministers, in accordance with which measures to regulate export prices were introduced initially for leather, footwear, electrical and textile products, and then were extended to fruit and vegetable products, states:

“In order to prevent cases of unreasonable understatement of export prices for leather, footwear, electrical and textile products, to ensure control of the timely receipt of foreign currency and the fullest amount, as well as reducing the share of the shadow economy in these areas of activity, the Cabinet of Ministers decides: …”

In other words, the main purpose of establishing minimum export prices is to combat the concealment of export proceeds (revenues) by exporting companies. The starting point is that exporters try to hide export income by declaring low prices for products, so there is a need to establish minimum export prices.

However, from the point of view of revenue increase from exports and better exchange control, such a measure is ineffective. It is not difficult for large companies to bypass minimum prices using modern financial instruments, but the tax base may decrease as a result and hurt the national budget.

Moreover, since such measures primarily hit small exporters, whose opportunities for selling products are narrowed, they may resort to so-called “curve” schemes when exporting goods when real supply prices are lower than the established minimum prices. For example, when concluding an export contract for the supply of goods at established minimum prices, they can enter into another “parallel” contract to return an amount that exceeds the actual delivery amount, or “build” another chain of return of these amounts from the importer. In turn, this will lead to an increase in the exporter’s costs, which automatically means an increase in the cost of exported products and these additional costs will be taken from the pockets of Uzbek farmers.

The paradox is that the decision designed to reduce the share of the shadow economy in these industries, coupled with an inflexible mechanism for its implementation, may push exporters to use so-called “curve” schemes, thereby contributing to an increase in the share of the shadow economy, EastFruit experts note.

“The government’s desire to achieve transparency in the export process and the associated settlements is quite understandable. However, it is also necessary to understand the current realities of the markets to which Uzbek fruit and vegetable products are mainly exported. These realities are such that about 60% of vegetables and fruits exported from Uzbekistan are sold in the wholesale markets of importing countries. In these same markets, Uzbek products compete with goods from Turkey, Iran, Azerbaijan, and other countries where there is no regulation of minimum export prices for fruits and vegetables. An attempt to establish minimum export prices for Uzbek products leads to worsening conditions for exporters and thereby leads to a decrease in the competitiveness of Uzbek products in the main markets. In my opinion, the question needs to be posed differently: what is more important – to achieve export transparency by regulating export prices, which leads to a decrease in the competitiveness of Uzbek products in foreign markets, or to export more without setting minimum prices, which in turn helps to increase the production of fruits and vegetables? This does not mean that there is no need to take measures to increase the transparency of exports and ensure control over the timely and fullest amount of foreign currency receipts from abroad. Probably, these measures should exist, but not by regulating export prices,” concluded Nodirbek Musaev.

Similar stories can be heard from all companies that are actively involved in the export of fruits and vegetables from Uzbekistan. It turns out that minimum prices had the exact opposite effect to the declared one – they led to revenue losses in all segments of the fruit and vegetable business, creating all the conditions for a sustainable decline in export revenues from exports of vegetables and fruits.

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