Sustainability-Related Implications of Competitive Advantages in Agricultural Value Chains: Evidence from Central Asia—China Trade and Investment

Vasilii Erokhin; Li Diao; Peiran Du

doi:10.3390/su12031117

Erokhin, Vasilii;Diao, Li;Du, Peiran

2020-02-04 00:00:00

sustainability Article Sustainability-Related Implications of Competitive Advantages in Agricultural Value Chains: Evidence from Central Asia—China Trade and Investment 1 2 , 2 Vasilii Erokhin , Li Diao * and Peiran Du School of Economics and Management, Harbin Engineering University, Harbin 150001, China; [email protected] School of Economics and Management, Wuhan University, Wuhan 430072, China; [email protected] * Correspondence: [email protected]; Tel.: +86-156-3670-9072 Received: 15 January 2020; Accepted: 2 February 2020; Published: 4 February 2020 Abstract: More stable value chains in agriculture allow countries to take the best advantage of their factor endowments and thus achieve the UN Sustainable Development Goal on ending hunger. It is, however, dicult to interpret such advantages properly due to the multivariate eects of natural, technological, and economic variables on agricultural output and food supply. The authors attempt to tackle this challenge by developing the approach to the identiﬁcation of competitive advantages and matching them with the production capabilities of agricultural sectors in Central Asia. The application of Revealed Comparative Advantage (RCA), Relative Trade Advantage (RTA), Lafay Competitive Advantage (LI), and Domestic Resource Costs (DRC) indexes to the array of 37 products results in the revealing of comparative, trade, competitive, and production advantages of ﬁve Central Asian economies for labor-intensive horticultural products and grains. Capital and technology-intensive sectors of animal husbandry and food processing are recognized as low competitive. Taking Central Asia–China collaboration as a model, the authors elaborate policy measures aimed at support, promotion, or establishment of competitive advantages. The application of the measures facilitates the concentration of the resources toward competitive and conditionally competitive products, allows to protect fragile advantages in marginally competitive sectors, and contributes to the overall improvement of stakeholders’ performance across agricultural value chains in the region. Keywords: agriculture; Central Asia; food security; sustainability; value chain 1. Introduction With the dissolution of the Soviet Union in 1991, ﬁve countries of Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan) along with other Soviet republics gained independence and entered a period of transition from planned to market-based economies [1]. In the early 1990s, the transition was particularly painful for the newly independent states due to the sharp economic decline, inﬂation, and disruption of production and trade ties with Russia and other territories of the former Soviet Union [2]. In no time, previously closed markets became open to global trade, but the countries of Central Asia were not able to immediately convert openness to sucient gains due to the total lack of competitiveness [3]. Market principles called for the establishment of qualitatively new types of linkages and value chains based on competitive advantages rather than command planning and administrated supply networks. Underdeveloped transport infrastructure oriented on central parts of Russia (Soviet heritage), as well as landlockedness and remoteness from major economic centers and trade hubs, contributed to the degradation of the competitiveness of the Central Asian countries [2] and increased economic and social instability in the entire region. Agriculture was among those sectors where production capabilities, trade links, and competitive advantages were cut in the most severe way. Before the start of the market transition, agriculture had Sustainability 2020, 12, 1117; doi:10.3390/su12031117 www.mdpi.com/journal/sustainability Sustainability 2020, 12, 1117 2 of 29 been one of the major sectors in Central Asian economies and contributed up to 45% of their GDPs and provided employment to almost 50% of the labor force [4]. Despite the launch of agricultural and land reforms in 1992–1993, the performance of the agricultural sector has been rather weak across the region [5]. The volume of production of animal products (various kinds of meat and meat products), and some staple cereals (wheat) has fallen signiﬁcantly. Apart from the general economic decline in Central Asian countries during the 1990s, the key reasons for such a bad performance are the low competitiveness of the agricultural sector and distortion of competitive advantages for the gain of the command economy. In Soviet times, each country of Central Asia specialized in the production of particular agricultural products according to the general plan (wheat and other grains in Kazakhstan, corn and lamb in Kyrgyzstan, cotton and fruits in Tajikistan, Uzbekistan, and Turkmenistan) [6]. Command allocation indeed took into account available natural resources and capabilities of particular countries but created mono-specialization and did not allow diversiﬁcation, which negatively aected both the competitiveness positions and ﬂexibility of Central Asian economies when transitioning to the market-based principles of competition. Along with the structural barriers, the development of competitive advantages in agriculture has been hindered by poor land management [7], land degradation and salinization [8], irrational water use [9], desertiﬁcation and reduction of the areas under crops in the irrigated lands [10], and climate change eects such as higher temperatures, changing precipitation, and river runo [11]. Those factors have led to low productivity levels across the entire agricultural sector. As vast territories are regularly used for extensive livestock husbandry, only a small portion of agricultural land can be used for crop production and horticulture [12]. The upshot is that agriculture has become less important as a source of livelihood for many people, agricultural revenues are partially replaced by remittances from labor migrants [13], while the continuing decline in agricultural production aggravates the standards of living and food security problems in rural areas, where over 90% of the population is now deﬁned as poor and food insecure [14]. In recent decades, the food insecurity problem has emerged globally with Asia being one of the regions most critical to meeting the challenge of sustainable food supply [15]. Establishing food security, ensuring sustainable food production systems, ending hunger, and providing access by all people to safe, nutritious, and sucient food are the targets of the United Nations Sustainable Development Goals to be achieved by 2030 [16]. As a part of the global community, the countries of Central Asia are also committed to achieving the sustainable development goals on the elimination of hunger and improvement of food security along the four dimensions of availability, access, stability, and utilization as prescribed by the Food and Agriculture Organization of the United Nations (FAO) [17]. These eorts resulted in a substantial improvement of food security in the region compared to the 1990s. In particular, the average prevalence of undernourishment decreased from 11% in the early 2000s to 6% in 2017 [18]. Nevertheless, signiﬁcant levels of poverty along with poor availability and low accessibility of food staples [19] still keep the prevalence of undernourishment an issue of concern in Uzbekistan (7.4%), Kyrgyzstan (6.5%), and Turkmenistan (5.5%) [18]. Among the major threats to sustainable food security in Central Asia, Schroeder and Meyers [20] pointed out inadequate micronutrient intake, growing obesity rates, and high dependence on food imports which posed a risk to sucient availability and economic accessibility of food products on the domestic markets. In recent years, FAO [18] has reported an increasing prevalence of severe food insecurity (PoSFI) in the region from 1.7% in 2015 to 3.5% in 2017. The PoSFI implies a probability of people having been unable to access nutritious and diverse food and having been forced to reduce the quantities of food eaten as a result of lack of money or other resources [21] and thus demonstrates that the food insecurity problem in Central Asia is primarily associated with economic aspects of sustainable development of the agricultural sector. To date, indeed, the agricultural sector has lost a dominating role in Central Asian economies amid the emergence of oil and gas and other resource-extraction industries. Nevertheless, it still contributes 23.3% of the GDP in Tajikistan, 20.8% in Kyrgyzstan, and 18.5% in Uzbekistan (compared to over 50% in the 1990s), but in hydrocarbon and gas-abundant Kazakhstan and Turkmenistan, its contribution to the GDP is Sustainability 2020, 12, 1117 3 of 29 no longer impressive (5.2% and 7.5%, respectively) [22]. For Uzbekistan, Tajikistan, and Kyrgyzstan, agricultural trade remains one of the major sources of export revenues despite the substantial changes in trade patterns and the directions and structure of exports in the past decades. According to Kurmanalieva and Parpiev [2], one of the most prominent features of the Central Asian trade since the recovery of the independence in 1991 has been its drastic reorientation from the former Soviet republics to the rest of the world, speciﬁcally, to Asia. Since the mid-1990s, the governments in Central Asia have been increasingly undertaking policy measures and activities with the speciﬁc goals of trade facilitation and improvement of connectivity with China [1], while China itself has been emerging as one of the key trade partners of Central Asia [23]. China has been gradually occupying those niches and gaps on the market which had been created by the disruption of trade and production ties between Central Asia, Russia, and other former Soviet republics. With the launch of the Belt and Road Initiative (BRI), China declared its commitment to improving infrastructural and trade connectivity along with sustainable value chains in Eurasia with Central Asia being a crucial component in the network. While neither agricultural trade nor food security has been speciﬁcally outlined among the BRI goals, both themes are of fundamental importance for China. The country has already made substantial contributions to combating rural poverty and food insecurity and improvement of the global stability of food production and supply through innovations, intensiﬁcation of farming and agricultural productivity, and food safety [24]. In 2019, in its new National Strategy on Food Security, China declared its further commitment to every possible promotion of agricultural trade, active participation in global food security, and establishment of healthy and sustainable development of food value chains worldwide [25]. Between 2000 and 2018, interregional agricultural trade in Central Asia has been declining while international trade has been experiencing a fast growth of imports but the sluggish real growth of exports [13]. Exports of cotton, fruits, cereals, and some other products have been gradually reoriented from Russia and the EU to China and other Asian markets. Exports reached $230.1 million in 2018, while imports increased from $27.4 million in 2000 to $553 million in 2018 (Table 1). Agricultural trade balance with China is steadily negative for the countries of Central Asia. Table 1. Agricultural trade between China and the countries of Central Asia in 2000–2018, $ million. Years Countries 2000 2005 2010 2015 2016 2017 2018 Import to Central Asia from China Kazakhstan 13.367 53.388 133.701 231.527 216.610 313.166 322.672 Kyrgyzstan 2.758 21.471 125.332 154.439 101.042 47.277 127.627 Tajikistan 0.248 2.243 13.013 16.675 12.197 21.144 15.153 Turkmenistan 1.690 3.041 5.375 11.677 16.914 9.918 8.023 Uzbekistan 9.381 14.735 29.624 62.527 39.893 53.594 79.702 Total imports 27.444 94.878 307.045 476.845 386.656 445.099 553.177 Export from Central Asia to China Kazakhstan 0.105 0.926 12.271 100.797 120.626 175.610 184.477 Kyrgyzstan 0.495 0.067 1.159 4.572 3.108 4.603 2.997 Tajikistan 0.000 0.000 0.312 0.622 0.305 0.366 0.727 Turkmenistan 0.000 0.000 0.000 0.156 0.078 1.119 1.244 Uzbekistan 0.069 0.218 0.594 22.019 27.906 23.007 40.651 Total exports 0.669 1.211 14.336 129.053 152.023 204.705 230.096 Sustainability 2020, 12, 1117 4 of 29 Table 1. Cont. Years Countries 2000 2005 2010 2015 2016 2017 2018 Central Asia’s trade deﬁcit with China Kazakhstan 13.262 52.462 121.430 130.730 95.984 137.556 138.195 Kyrgyzstan 2.263 21.404 124.173 149.867 97.934 42.674 124.630 Tajikistan 0.248 2.243 12.701 16.053 11.892 20.778 14.426 Turkmenistan 1.690 3.041 5.375 11.521 16.836 8.799 6.779 Uzbekistan 9.312 14.517 29.030 39.621 11.987 30.587 39.051 Total trade balance 26.775 93.667 292.709 347.792 234.633 240.394 323.081 Source: Authors’ development based on [26]. Low self-suciency in staple foods is a challenge for the countries of Central Asia [27]. High reliance on imports hinders the development of disintegrated value chains and heavily subsidized agricultural sector and imposes a threat to sustainable availability and accessibility of food products on the market. Both households and producers experience severe eects of food prices ﬂuctuations as large percentages of households’ and state budgets’ incomes are spent on food imports [11]. Peyrouse [28] reports that in Tajikistan and Uzbekistan, people spend 80% of their household incomes on food. This corresponds to the fact of Tajikistan’s lowest level of food self-suciency in the region (31%) and indicates that Central Asian markets are particularly exposed to the instability of the global food market. In response to the increasing dependence on agricultural imports (not only with China but with Russia and the EU as well) and growing food insecurity and poverty levels, some countries of Central Asia, speciﬁcally, Kazakhstan and to a certain degree Turkmenistan and Kyrgyzstan, adopted food self-suciency policies [29]. For low diversiﬁed industries with few competitive products, however, self-suciency policy rarely works out as a driver of competitiveness as it diverts resources to lower-eciency sectors and thus triggers inappropriate use of the country’s advantages. Given, ﬁrst, the emergence of the food insecurity problem in Central Asia, second, food self-suciency policies of Central Asian governments, and third, the growing involvement of Central Asian countries in global agricultural market and trade with China, it is imperative to study the most appropriate use of various resources and advantages the countries possess. With an increased awareness of the link between sustainable development of agricultural production, food security, and competitive advantages in trade [24], reliance on research has become more critical. One branch of studies analyzed trends in the agricultural sector in Central Asia in general and individually in certain countries. Schroeder and Meyers [20] conducted a comprehensive analysis of agricultural production and trade, constraints and bottlenecks in agricultural productivity growth, as well as the policies that may be implemented to shape sustainable food security and reduce malnutrition. Akter et al. [30] synthesized emerging issues and challenges that confronted food sector in Central Asia and called for the identiﬁcation of competitive advantages, elaboration of development strategies, and setting priorities for future food, agriculture, and natural resource policy agendas for sustainable development of the agricultural sector and rural areas. There have been many studies that drifted away from food production and focused speciﬁcally on various dimensions of food security across the region of Central Asia. Thus, Babu and Pinstrup-Andersen [19] identiﬁed major challenges to food security across Central Asian countries and suggested the measures and policy transformations to facilitate economic reforms, reduce poverty, increase food security, and ensure sustainable use of natural resources. Akramov [31] addressed the impact of global food prices on the domestic market and policy responses taken by national governments to stabilize food markets. There is an array of studies that address economic and trade linkages between Central Asia and China, but the majority of them pay inadequate attention to agricultural trade. Bird et al. [32] and Kokushkina and Soloshcheva [33] assessed the participation of Central Asian countries in the BRI based on the revealed comparative advantage and other indicators with a major focus on trade in resources and raw materials. Vakulchuk and Overland [34] analyzed the present state of relations Sustainability 2020, 12, 1117 5 of 29 between the countries of Central Asia and China and systematized the BRI’s perceptions on the part of various stakeholders, including local rural communities and farmers, and found that many value chain actors remained weakly connected to Central Asia-China value chains. Another shortcoming is that those few studies related to both the BRI and agricultural collaboration in Central Asia concentrate on individual countries. Carter [35] reviewed the patterns of China’s recent trade and investment policies in Central Asia in the cases of Kazakhstan and Tajikistan, Bitabarova [36] conducted similar analysis for Kazakhstan, Babu and Reidhead [37] provided insights into poverty, food insecurity, and malnutrition in Kyrgyzstan, while Asadov [27] searched for possible solutions to critical dependence on food imports and staple food self-insuciency in Tajikistan. A speciﬁc fragility of the advantages in Central Asia’s agriculture calls for a comprehensive analysis on the regional level. The fragility and erosion of the advantages due to a variety of natural, technological, and economic factors bring instability to the entire value chain in agriculture. Reyer et al. [11] studied possible climate change impacts on the agricultural sector in Central Asia and found extreme vulnerability of competitive advantages to even slightest changes in precipitation, rainfall patterns, and heat extremes. Adding value allows to increase the share of processed higher-value agricultural products in export, as well as to improve both self-suciency and sustainability through growing farmers’ income and more employment opportunities in agriculture [38], but the sustainability of agricultural value chains in Central Asia, nevertheless, remains scantily explored. Discretely, some references to the relevance of sustainable value chains for Central Asia can be found in the studies of Bloch [39], Rakhimov [40], Turaeva and Hornidge [41], and Pomfret [1,42]. Pirmatov et al. [38] attempted to conduct a comprehensive analysis of value-added chains in the production of cotton, wheat, rice, and fruit and found the unrealized potential for storing, freezing, processing, and packaging of even the most competitive products. The study of Pirmatov et al. [38] considered the socio-economic role of value-added agriculture for Central Asian countries but did not link the performance and sustainability of value chains with the exploitation of competitive advantages of particular countries of the region in food production and trade. Similarly, Rillo and Nugroho [43] studied the challenges to the development of integrated value chains without proper previous investigation of competitive advantages in agricultural sectors across the countries of Central Asia. Egilmez [44] covered dierent regions of the world and scarcely focused on Central Asia, while Hanf and Gadalyuk [45] conducted a detailed analysis of value chains in Kyrgyzstan but limited the study to the sector of small-scale farming. Summarizing the above, the following gaps in Central Asia-China agricultural trade and the value chains agenda can be identiﬁed: The research of competitive advantages in agriculture is very scarce for Central Asia. Most commonly, the studies are focused on climate, soil, and irrigation as the major determinants of agricultural productivity in the region, but insufficiently explore economic and trade patterns of the competitiveness. Many studies examine revealed comparative advantage as a decisive parameter to identify the competitiveness of agricultural products on the global market. Consideration of other types of strengths (trade, competitiveness, production, among others) could beneﬁt the establishment of truly sustainable advantage in agriculture in the long run. Despite the geographical proximity of the ﬁve countries of the region, they are rather dierent in terms of the conditions of agricultural production. Currently, among the countries of Central Asia, Kazakhstan’s economy seems the best studied one in terms of comparative advantages while for other countries (particularly, Turkmenistan and Uzbekistan) few studies address the advantages in agricultural value chains. In the China–Central Asia agenda, two types of studies prevail: Broad overviews of trade and economic policies (transformation period in Central Asia and China’s trade openness policy, most recently, the BRI) and the analysis of trade in resources and raw materials. To the best of the authors’ knowledge, there are no comprehensive studies of agricultural trade between China and the countries of Central Asia from the perspectives of competitive advantages and sustainable development of value chains. Sustainability 2020, 12, 1117 6 of 29 In this paper, the authors attempt to bridge these gaps by developing the approach to the identiﬁcation of existing and potential competitive advantages in the spheres of agricultural production and food supply across the region of Central Asia. In the case of Central Asia-China trade in food and agricultural products, the study aims to elaborate the solutions to the problems of low competitiveness of agricultural sectors and in such a way to contribute to the improvement of the sustainability of Sustainability 2020, 12, 1117 6 of 30 agricultural value chains in the macro-region of Eurasia. The remainder of this paper is divided into four sections. In Section 2, the authors review the The remainder of this paper is divided into four sections. In Section 2, the authors review the most commonly used as well as the most appropriate approaches to the identiﬁcation of competitive most commonly used as well as the most appropriate approaches to the identification of competitive advantages in agricultural value chains. Based on this review, the ﬁve-stage methodology for the advantages in agricultural value chains. Based on this review, the five‐stage methodology for the identiﬁcation of the advantages is established. In Section 3, the authors present the results of the identification of the advantages is established. In Section 3, the authors present the results of the application of the methodology to the array of major food and agricultural products in Central Asia’s application of the methodology to the array of major food and agricultural products in Central Asia’s export. In Section 4, the ﬁndings are discussed through the lens of the correspondence between the export. In Section 4, the findings are discussed through the lens of the correspondence between the competitiveness of Central Asia’s agricultural export and the prospects of food demand in China and competitiveness of Central Asia’s agricultural export and the prospects of food demand in China and China’s agricultural investment in the region. The discussion concludes with the elaboration of policy China’s agricultural investment in the region. The discussion concludes with the elaboration of policy measures for the promotion of the revealed advantages and the improvement of the sustainability of measures for the promotion of the revealed advantages and the improvement of the sustainability of agricultural value chains. agricultural value chains. 2. Materials and Methods 2. Materials and Methods The study is performed in the case of the ﬁve countries of Central Asia (Kazakhstan, Kyrgyzstan, The study is performed in the case of the five countries of Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan) and China in 2000–2018 (Figure 1). Tajikistan, Turkmenistan, and Uzbekistan) and China in 2000–2018 (Figure 1). Figure 1. Countries of Central Asia and China. Source: Authors’ modification of [46]. Figure 1. Countries of Central Asia and China. Source: Authors’ modiﬁcation of [46]. The data are obtained from the United Nations Conference on Trade and Development The data are obtained from the United Nations Conference on Trade and Development (UNCTAD) [26]. SITC Commodity classification is used. The total volume of agricultural trade in (UNCTAD) [26]. SITC Commodity classiﬁcation is used. The total volume of agricultural trade both exports and imports is generalized as SITC “All food items” (SITC 0 + 1 + 22 + 4). The array of in both exports and imports is generalized as SITC “All food items” (SITC 0 + 1 + 22 + 4). The array of the products is built along 37 positions and include major food and agricultural commodities traded the products is built along 37 positions and include major food and agricultural commodities traded between China and the countries of Central Asia. To assess the advantages of the Central Asian between China and the countries of Central Asia. To assess the advantages of the Central Asian economies in agricultural trade, the study employs the five‐stage approach. economies in agricultural trade, the study employs the ﬁve-stage approach. 2.1. Stage 1: Balassa Index Classical trade theory assumes that the pattern of international trade is determined by comparative advantage [47]. In the attempts to measure the advantages, the scholars have used various techniques, including multivariate data analysis (factor analysis, cluster analysis, and structural equation modeling), trade data on exports and imports [48,49], and descriptive approaches [50,51]. One of the commonly accepted methods to identify the advantages of a country on the global market is the Balassa index of revealed comparative advantage (RCA) [52]. It has been used by many researchers for the identification of the changes in comparative advantages worldwide [53–55]. Porter Sustainability 2020, 12, 1117 7 of 29 2.1. Stage 1: Balassa Index Classical trade theory assumes that the pattern of international trade is determined by comparative advantage [47]. In the attempts to measure the advantages, the scholars have used various techniques, including multivariate data analysis (factor analysis, cluster analysis, and structural equation modeling), trade data on exports and imports [48,49], and descriptive approaches [50,51]. One of the commonly accepted methods to identify the advantages of a country on the global market is the Balassa index of revealed comparative advantage (RCA) [52]. It has been used by many researchers for the identiﬁcation of the changes in comparative advantages worldwide [53–55]. Porter [56] implemented the RCA index to identify strong sectoral clusters in international trade. Konstantakopoulou and Skintzi [57] used it to discover comparative advantages of the EU countries by sectors and by major product categories, Amiti [58] analyzed the specialization patterns in Europe. In the case of China, Hinloopen and van Marrewijk [59] analyzed the dynamics of comparative advantage as measured by export shares, Chun [60] investigated comparative advantage by studying the correlations between the cost of labor and foreign trade, Shuai and Wang [61] made an empirical analysis of the comparative advantages and complementarity of agricultural trade, while He [62] modiﬁed RCA index to the study of the dynamics of agricultural trade patterns. There are also abundant studies of Central Asia’s comparative advantages. One of the earliest and most comprehensive ones is that by Lücke and Rothert [63] who identiﬁed the advantages of Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan based on the information about factor prices and transport costs, historical production patterns, and trends in the geographical and product composition of Central Asian external and interregional trade. The study, however, aimed at the suggestion of broad guidelines for the identiﬁcation of potentially competitive export sectors rather than focused on the determination of comparative advantages at the industry or product level. In the case of Kazakhstan’s trade, Bozduman and Erkan [64] analyzed the competitiveness of export products on a sectoral basis and found that the country was competitive in export of hydrocarbons, ores, and other raw material intensive product groups, but excluded agricultural trade from their analysis. Falkowski [65] also excluded agricultural products from the study and approached to the investigation of long-term comparative advantages of Kazakhstan and Kyrgyzstan as the members of the Eurasian Economic Union (EAEU) from a perspective of the Organization for Economic Cooperation and Development (OECD) classiﬁcation of manufacturing industries based on their technology intensity. To address the existing shortcomings, at the ﬁrst stage, the authors employ the Balassa method to reveal the comparative advantage of Central Asian countries in trade in agricultural products: X i j i j X n j it RCA = = (1) X X n j it X nt nt where RCA = revealed comparative advantage; X = export; i = country; j = product group (domestic market); t = product group (international market); n = group of countries. According to the Balassa method, a country i specializes in the export of a product j if the market share of a product j is above average or, equivalently, if the weight of a product j in the total export of a country i is higher than the weight of a product j in the export of the reference area [66]. Stated dierently, RCA > 1 means a country i enjoys a comparative advantage in trade in a product j, ij while RCA < 1 means a comparative disadvantage. ij When applying the Balassa index to the measuring of the competitiveness of the products, industries, or countries, a dierence between comparative advantage and competitiveness must be considered. The OECD [67] deﬁnes competitiveness as an economy’s ability to compete fairly and successfully in international goods and services markets, which, as a result, leads to a steady rise in the living standards in the long term. According to Dunmore [68], comparative advantage is a statement about international specialization and trade patterns that would arise in an undistorted Sustainability 2020, 12, 1117 8 of 29 world based on the dierences in relative eciencies between countries in the absence of trade. Competitiveness, on the contrary, is a characteristic of a country on the real global market distorted by various government policies. Dynamic character of competitive advantages under the conditions of an open economy inversely to comparative advantages is stressed by Weresa [69], Carbaugh [70], Collignon and Esposito [71], and Fagerberg [72]. Accordingly, the measurement of competitiveness should include the assessment of the dynamics of comparative advantages inﬂuenced by trade policies. Due to the dierence between comparative and competitive advantages, the Balassa index is not that eective in the identiﬁcation of competitive positions of particular products, since it allows to identify revealed comparative advantages rather than to determine the underlying sources of such advantages [66]. Siggel [73], Costinot et al. [74], and Hinloopen and van Marrewijk [75] point out that although the Balassa method allows detecting the advantage of a country in foreign trade as compared to other economies and the world as a whole, it fails to reveal the reasons of such advantage. It does not let divide comparative advantages on natural (for example, increased competitiveness due to technological innovations or improved eciency) and acquired ones (for instance, state subsidies or alike distorting administrative measures). Understanding the sources of comparative advantages is crucial for such sectors as agricultural production, where government interventions commonly distort market patterns and aect competitiveness. Speciﬁcally, a government may provide support for domestic agricultural producers and exporters, subsidize export, increase or decrease customs taris, and employ non-tari regulations to support the competitiveness of particular agricultural products on the external market [76]. In such cases, RCA shows an advantage, but actual competitiveness is distorted [77]. In the region of Central Asia, the employment of RCA in the measurement of competitiveness results in a very rough picture of the advantages due to the following reasons. First, the static nature of the index does not allow us to consider market disturbances and react to the changes in the equilibrium in the long run [77]. In the case of Central Asian economies which are still in a state of transition from distorted (during the Soviet times) and ﬂuctuant (in the 1990s and 2000s) economic environments, low ﬂexibility of the index is a shortcoming. Second, RCA can be inconsistent or misleading for the countries of the region as for smaller economies it demonstrates stronger advantages than there really are [78,79]. 2.2. Stage 2: Vollrath Index Due to the above shortcomings of the Balassa method, at the second stage, the authors check RCA results by measuring relative trade advantages for the same array of 37 product groups: X M i j i j X M it it RTA = (2) X M n j n j X M nt nt where RTA = relative trade advantage; X = export; M = import; i = country; j = product group (domestic market); t = product group (international market); n = group of countries. The Vollrath index of relative trade advantage is a tool to identify the competitive advantages of the products by measuring their relative portions in trade. It is a comparison of how well a country performs in exporting a particular set of products compared to the total export of all its products [80]. In contrast to RCA, RTA takes account of both exports and imports and thus demonstrates net trade advantages and disadvantages. RTA > 0 means a country i possesses relative trade advantage in a ij product j, while RTA < 0 demonstrates relative trade disadvantage. After the identiﬁcation of product ij groups j for which RTA > 0, the results are applied upon previously calculated RCAs, two sets are ij compared, and the matches between the two types of advantage are identiﬁed. The use of two indexes for the same dataset reduces the risk of random error. The Vollrath index was used by Rusali and Gavrilescu [81] in discovering competitive advantages and disadvantages in Romania’s agricultural trade, by Drabik and Bartova [82] in the study of the Sustainability 2020, 12, 1117 9 of 29 Slovak food trade specialization pattern, and by Carraresi and Banterle [83] in the assessment of the agricultural competitive performance in the EU countries. Similar to RCA, when measuring the competitiveness of agricultural products in an export portfolio of a country through RTA, it is crucial to examine the extent to which trade advantages are consistent with competitiveness [84]. Ballance et al. [85] discovered that results on the consistency of the RCA and RTA indexes are mixed. Khai et al. [86] examined coherence between the RCA and RTA indexes and concluded that despite the high consistency, the competitiveness of some product groups remained unclear. Ferto and Hubbard [87] tested a coherence between RTA and competitiveness in the cases of agricultural exports in Europe and found that the two indexes were not consistent in cardinal and ordinal measures. 2.3. Stage 3: Lafay Index There have been many attempts to increase the consistency between various measures and improve the relevance of the competitiveness analysis. Since both RCA and RTA are structural, it is important to eliminate the inﬂuence of cyclical factors [88]. One of the most promising methods to do that is the Lafay index (LI): X M X M 1000 i j i i i j LI = 2 (3) i j Y X + M i i i where LI = Lafay index; X = export; M = import; i = country; j = product group. The Lafay index allows to test both RCA and RTA indicators by considering the dierence between each product’s normalized trade balance and the overall normalized trade balance [89]. It also weights each product’s contribution according to the particular importance in trade. LI > 0 means a country ij i possesses a competitive advantage in a product j, otherwise, there is a disadvantage. LI captures intra-industry ﬂows by using both the exports and imports variables and controlling the distortions due to the macroeconomic factors with the GDP variable [90]. For the purpose of this study, it is important that LI does not take into account world variables [47], which is crucial in the establishment of a reliable picture of competitive advantages for smaller economies. So far, the three-indexes approach has not been widely applied in the literature. Ishchukova [91] and Benesova et al. [92] employed consecutive matching of RCA, RTA, and LI indexes to discover comparative advantages of agricultural exports and distinguishing competitive export products based on the parameters of the amount of foreign exchange, comparative advantage, and trade balance. Maitah et al. [89] used a similar approach for the analysis of the positions of agricultural producers both in comparison to domestic producers from other sectors and in relation to their foreign competitors. Erokhin and Gao [66] modiﬁed the approach by applying the three indexes to the same dataset and calculating Lafay index for the same array of product groups constituting a country’s export portfolio, not for separate territories as compared to the earlier studies. The application of the three-indexes approach to trade in agricultural products has deﬁnite limitations coming from the very nature of agricultural production. As it has been demonstrated by Ishchukova [91], Maitah et al. [89], Ishchukova and Smutka [93,94], and Erokhin and Gao [66], the three-indexes approach allows to check advantages and model policy responses on the potential strengthening of the advantages or evening out the disadvantages. Theoretically, the most obvious response is to reallocate the resources in such a manner as to increase the production and export of those products in which a country enjoys an advantage. In agriculture, though, simple reallocation is not possible due to the natural limitations (available arable lands and other land resources, quality of land, climate conditions), social and economic factors (rural labor, longer return on investment compared to non-agricultural sectors), time (cycles in crop and animal production, seasonality, etc.), and technical constraints (irrigation, transportation, storage, processing, other kinds of infrastructures in rural areas). Moreover, a simple abandoning of the production of non-competitive agricultural products may decrease the availability of these products on the domestic market and in such a way impose a threat to food self-suciency and food security of a country. In Central Asia, where agricultural production is additionally hampered by hot and dry climate, desertiﬁcation [95], scarcity of arable lands, salinization Sustainability 2020, 12, 1117 10 of 29 and land degradation [96], prevalence of small-scale farming, and low diversiﬁcation of crops [1], among other factors, an establishment of a sustainable value chain requires the matching of competitive advantages with agricultural production capabilities, i.e., production advantages. 2.4. Stage 4: Domestic Resource Costs Index Considering the existing limitations to the sustainable development of competitive advantages in agriculture, in this study, the authors supplement the three-indexes method by the domestic resource costs index (DRC): i j DRC = (4) i j P C i j i j d f where DRC = domestic resource cost; C = domestic input costs; C = foreign input costs; P = price of a unit of the output (undistorted border price measured in foreign exchange); i = country; j = product group. The domestic resource costs concept originates from the works of Bruno [97], Balassa and Schydlowsky [98], and Banerji and Donges [99]. In the 1970s, it started as an approach to the measurement of real opportunity costs in terms of total domestic resources [97], speciﬁcally, primary factors such as labor, capital, and land committed to the production of ﬁnal product with prices at which these products can be traded internationally with foreign exchange gained or saved [99]. The approach has been further adapted to the evaluation and testing of competitive advantages in agricultural trade. Speciﬁcally, Hoang et al. [100] advocated for the use of DRC to address the intrinsic weaknesses of coee production amid the price ﬂuctuation on the world coee market and volatile competitive advantages, Yercan and Isikli [101] applied DRC to measure international competitiveness of horticultural products, and Masters and Winter-Nelson [102] demonstrated that the DRC method was biased against agricultural activities that relied heavily on such domestic factors as land and rural labor. DRC shows the value of the country’s resources used to produce one unit of a product j. When DRC < 1, a country i enjoys an advantage in producing a product j (the smaller the DRC ij ij the greater the advantage), otherwise, there is a disadvantage in the production [77]. The index is widely used in agricultural trade and policy analysis as it allows to identify ecient production sectors [103]. In this study, an introduction of the DRC index to the model as the fourth criteria allows to match four types of advantages (comparative, trade, competitive, and production) and in such a manner to build a more comprehensive picture of competitive position of a country on the global market and suggest where the policies should be targeted to improve the productivity as a reaction to competitive advantage. 2.5. Stage 5: Competitiveness Ranking The application of the four indexes results in the identiﬁcation of the products which demonstrate advantages in all four cases (hereinafter referred to as “competitive”), as well those for which the advantages do not intersect (“non-competitive”) and those for which at least one of the parameters shows an advantage (“conditionally competitive” and “marginally competitive” depending on the degree of the production advantage). At stage 5, the products are distributed among the groups according to their competitiveness rankings (Table 2). When RCA > 1, RTA > 0, LI > 0, and DRC < 1, a product j is recognized as competitive (C group) with comparative, trade, competitive, and production advantages. If a product demonstrates an advantage on any of RCA, RTA, or LI indexes and at the same time possesses a production advantage, it is deﬁned as conditionally competitive (CC group). For the products for which DRC > 1, an arithmetical average of RCA , RTA , and LI is calculated. Those products for which all three values of MC+NC MC+NC MC+NC RCA , RTA , and LI are below RCA , RTA , LI , respectively, are recognized as av av av MC+NC MC+NC MC+NC non-competitive. The products for which at least one of the values of RCA , RTA , and LI is above av av av Sustainability 2020, 12, 1117 11 of 29 RCA , RTA , LI , respectively, are distributed to the MC group. Based on the identiﬁed MC+NC MC+NC MC+NC competitiveness parameters, group-dierentiated policy measures are suggested to support, promote, and protect the advantages. Table 2. Grouping of products on their competitiveness. Groups Competitiveness Criteria Competitive (C) RCA > 1, RTA > 0, LI > 0, and DRC < 1 av av av av Conditionally Competitive (CC) RCA > 1, or/and RTA > 0, or/and LI > 0, and DRC < 1 i i i i Marginally Competitive (MC) RCA > RCA , RTA > RTA , LI > LI , and DRC > 1 av av av av MC+NC MC+NC MC+NC Non-Competitive (NC) RCA < RCA , RTA < RTA , LI < LI , and DRC > 1 av av av av MC+NC MC+NC MC+NC Note: RCA—revealed comparative advantage, RTA—relative trade advantage, LI—Lafay competitive advantage, DRC—domestic resource cost. Source: Authors’ development. 3. Results: Central Asia’s Perspective 3.1. Revealed Comparative Advantages At stage 1, the study reveals the comparative advantages of agricultural exports across 37 product groups. Based on the average RCA values in 2000–2018, the most notable advantages are identiﬁed for the crop sector and horticulture. Product groups with the highest competitiveness potential in export include wheat and meslin ﬂour, fruits and nuts, vegetables, and other crop products. Among the countries of Central Asia, only Kyrgyzstan possesses a comparative advantage in livestock products (Table 3). Table 3. RCA values for selected agricultural products in Central Asia in 2000–2018. av Products Kazakhstan Kyrgyzstan Tajikistan Turkmenistan Uzbekistan Live animals 0.032 2.030 0.042 0.002 0.292 Meat of bovine animals, fresh, chilled or frozen 0.016 0.018 0.000 0.000 0.006 Other meat and edible meat oal 0.036 0.306 0.000 0.010 0.004 Meat, edible meat oal, salted, dried 0.002 0.034 0.000 0.000 0.000 Meat, edible meat oal, prepared, preserved 0.066 0.358 0.000 0.002 0.000 Milk and dairy products 0.104 4.770 0.012 0.000 0.008 Butter and other fats and oils derived from milk 0.218 5.194 0.016 0.004 0.000 Cheese and curd 0.042 2.444 0.008 0.000 0.004 Eggs, eggs’ yolk, albumin 0.256 0.136 0.000 0.148 0.288 Fish, fresh, chilled or frozen 0.290 0.034 0.020 0.010 0.058 Fish, dried, salted, smoked 0.120 0.050 0.000 0.000 0.002 Crustaceans, mollusks, and aquatic invertebrates 0.000 0.022 0.000 0.014 0.000 Fish and aquatic invertebrates 0.082 0.038 0.162 0.004 0.000 Wheat and meslin 4.890 0.082 0.010 0.010 0.572 Rice 0.284 0.190 1.626 0.002 0.008 Barley 5.222 0.050 0.000 0.000 0.000 Maize 0.004 0.070 0.002 0.000 0.048 Cereals, unmilled 0.452 0.128 0.002 0.000 0.002 Flour (wheat and meslin) 27.332 3.876 3.564 1.510 2.724 Other cereal meals and ﬂour 0.674 0.044 0.050 0.086 0.004 Cereal preparations, ﬂour of fruits or vegetables 0.134 0.506 0.010 0.004 0.052 Vegetables 0.242 9.112 3.296 0.086 6.610 Vegetables, roots, tubers, prepared, preserved 0.016 0.696 1.394 0.012 2.130 Fruits and nuts 0.062 4.736 6.548 1.042 9.312 Fruit, preserved 0.024 0.304 0.478 0.044 1.002 Fruit and vegetable juices 0.032 0.834 5.636 0.008 2.188 Sugar, molasses and honey 0.304 3.598 0.112 0.032 0.028 Sugar confectionery 0.452 0.324 0.044 0.014 0.516 Coee and coee substitutes 0.038 0.098 0.010 0.012 0.000 Cocoa 0.006 0.002 0.000 0.000 0.000 Sustainability 2020, 12, 1117 12 of 29 Table 3. Cont. Products Kazakhstan Kyrgyzstan Tajikistan Turkmenistan Uzbekistan Chocolate 0.220 0.456 0.248 0.030 0.262 Tea and mate 0.158 2.194 0.066 0.024 0.002 Spices 0.002 0.272 0.348 0.382 1.470 Feeding stu for animals 0.168 0.108 0.002 0.182 0.346 Margarine 0.488 2.938 0.000 0.010 0.008 Edible products and preparations 0.126 0.512 0.022 0.002 0.036 Oilseeds and oleaginous fruits 1.274 0.206 0.738 0.044 0.886 Note: Green cells—product groups with comparative advantage. Source: Authors’ calculation based on [26]. 3.2. Relative Trade Advantages At stage 2, the study aims at the identiﬁcation of those agricultural products for which relative trade advantage is positive and then matching average values of trade and comparative advantages (Table 4). Table 4. RTA values for selected agricultural products in Central Asia in 2000–2018. av Products Kazakhstan Kyrgyzstan Tajikistan Turkmenistan Uzbekistan Live animals 0.764 1.223 1.673 0.845 0.394 Meat of bovine animals, fresh, chilled or frozen 0.499 0.956 2.554 0.391 0.598 Other meat and edible meat oal 0.208 0.591 1.960 0.492 0.492 Meat, edible meat oal, salted, dried 0.746 0.443 1.438 0.818 0.694 Meat, edible meat oal, prepared, preserved 0.552 0.309 1.005 0.738 0.440 Milk and dairy products 2.955 1.927 2.028 1.118 0.941 Butter and other fats and oils derived from milk 1.730 0.770 2.315 1.231 1.329 Cheese and curd 1.663 0.301 1.583 0.890 1.226 Eggs, eggs’ yolk, albumin 2.967 1.609 0.376 0.204 0.845 Fish, fresh, chilled or frozen 1.004 0.098 2.228 1.948 2.380 Fish, dried, salted, smoked 1.291 0.238 2.392 1.773 2.005 Crustaceans, mollusks, and aquatic invertebrates 0.007 1.224 3.410 2.022 3.538 Fish and aquatic invertebrates 0.019 1.503 3.109 2.118 3.103 Wheat and meslin 3.438 0.884 0.334 0.025 0.047 Rice 0.083 2.361 0.883 0.444 0.885 Barley 1.109 1.330 0.503 0.117 0.494 Maize 1.754 1.948 0.991 0.428 1.205 Cereals, unmilled 0.993 0.004 0.895 0.073 0.403 Flour (wheat and meslin) 2.291 0.882 0.649 0.481 0.302 Other cereal meals and ﬂour 0.008 0.420 0.008 0.365 0.038 Cereal preparations, ﬂour of fruits or vegetables 0.129 0.251 0.429 0.522 0.295 Vegetables 0.583 0.529 0.077 1.247 0.038 Vegetables, roots, tubers, prepared, preserved 0.429 0.494 0.012 0.719 0.092 Fruits and nuts 1.530 3.280 1.370 1.009 1.628 Fruit, preserved 0.888 2.425 1.394 0.917 0.944 Fruit and vegetable juices 1.002 1.730 0.641 0.238 0.727 Sugar, molasses and honey 0.730 1.004 0.493 0.371 0.085 Sugar confectionery 1.628 0.397 0.648 1.317 0.438 Coee and coee substitutes 3.047 2.092 3.881 1.528 2.225 Cocoa 1.994 3.114 3.202 2.020 2.702 Chocolate 1.703 2.606 3.444 2.418 2.993 Tea and mate 2.906 1.994 1.820 0.905 0.066 Spices 0.839 0.422 0.553 0.177 0.054 Feeding stu for animals 0.977 0.575 1.112 0.883 0.048 Margarine 0.022 0.149 1.284 0.691 1.596 Edible products and preparations 0.393 0.338 0.404 0.447 0.330 Oilseeds and oleaginous fruits 1.619 0.792 0.328 0.303 0.444 Note: Green cells—product groups for which RCA and RTA match; yellow cells—product groups with relative trade advantage. Source: Authors’ calculation based on [26]. Comparative and trade advantages overlap largely for crops and horticultural products (fruit, wheat, oilseeds, rice, barley, spices), while do not match in the livestock sector and food processing (particularly, in Kyrgyzstan). Sustainability 2020, 12, 1117 13 of 29 The study also reveals that, in some cases, the countries of Central Asia trade in those agricultural products in which they possess no distinct comparative advantages but only trade ones—aquaculture products in Kazakhstan and Kyrgyzstan, cereal meals and preparations in Turkmenistan and Tajikistan, feeding stu for animals in Kazakhstan and Turkmenistan, and oilseeds in Uzbekistan and Kyrgyzstan, among others. 3.3. Competitive Advantages A revealed discrepancy between the advantages attests to the relevance of measuring the competitiveness through several alternative parameters. At stage 3, applying the Lafay index to the established grid of RCA and RTA values, we see that the countries of Central Asia have competitive advantages in labor-intensive horticulture (fresh fruits and nuts) rather than technology-intensive food processing or ﬁnance-intensive livestock sector. Even for the production of preserved fruit and fruit and vegetable juices, LI indicators do not fully match previously identiﬁed comparative and trade advantages (Table 5). Table 5. LI values for selected agricultural products in Central Asia in 2000–2018. av Products Kazakhstan Kyrgyzstan Tajikistan Turkmenistan Uzbekistan Live animals 0.004 0.332 0.446 0.597 0.835 Meat of bovine animals, fresh, chilled or frozen 0.041 0.428 0.259 0.886 0.946 Other meat and edible meat oal 0.007 0.229 0.303 0.365 0.808 Meat, edible meat oal, salted, dried 0.021 0.341 0.296 0.496 0.737 Meat, edible meat oal, prepared, preserved 0.047 0.120 0.199 0.179 0.961 Milk and dairy products 0.110 0.117 1.037 1.000 1.054 Butter and other fats and oils derived from milk 0.124 0.009 1.204 1.202 1.336 Cheese and curd 0.099 0.387 1.231 1.269 1.428 Eggs, eggs’ yolk, albumin 0.162 0.005 0.306 1.200 0.905 Fish, fresh, chilled or frozen 0.036 0.206 1.267 1.362 1.201 Fish, dried, salted, smoked 0.008 0.113 1.285 1.401 1.312 Crustaceans, mollusks, and aquatic invertebrates 0.237 1.299 1.399 1.003 1.444 Fish and aquatic invertebrates 0.244 1.005 1.405 1.554 1.396 Wheat and meslin 1.774 0.003 0.775 0.036 0.057 Rice 0.302 0.113 0.056 0.402 0.043 Barley 0.013 0.016 0.062 0.004 0.128 Maize 0.014 0.299 0.700 0.078 0.224 Cereals, unmilled 0.110 0.004 0.055 0.012 0.065 Flour (wheat and meslin) 0.427 0.007 0.009 0.045 0.071 Other cereal meals and ﬂour 0.090 0.015 0.003 0.026 0.329 Cereal preparations, ﬂour of fruits or vegetables 0.012 0.012 0.007 0.018 0.012 Vegetables 0.076 0.045 0.034 0.042 0.056 Vegetables, roots, tubers, prepared, preserved 0.044 0.071 0.067 0.176 0.112 Fruits and nuts 0.002 0.481 0.303 0.419 0.665 Fruit, preserved 0.017 0.372 0.044 0.206 0.393 Fruit and vegetable juices 0.120 0.279 0.265 0.385 0.004 Sugar, molasses and honey 0.348 0.218 0.087 0.204 0.033 Sugar confectionery 0.401 0.054 0.420 0.123 0.013 Coee and coee substitutes 0.906 1.249 1.164 0.206 1.201 Cocoa 0.997 1.303 1.205 0.443 1.006 Chocolate 1.250 1.442 1.228 1.333 1.350 Tea and mate 1.089 0.558 0.883 1.004 0.028 Spices 0.806 0.366 0.021 0.008 0.013 Feeding stu for animals 0.166 0.013 0.772 0.056 0.442 Margarine 0.709 0.447 0.605 0.175 0.600 Edible products and preparations 0.010 0.001 0.843 0.118 0.522 Oilseeds and oleaginous fruits 0.229 0.284 0.674 0.124 0.052 Note: Green cells—product groups for which all three RCA, RTA, and LI match; yellow cells—product groups with competitive advantage. Source: Authors’ calculation based on [26]. 3.4. Domestic Resource Costs At stage 4, for all product groups included in the array, the study identiﬁes the value of the resources employed to produce one unit’s worth of that agricultural product and in such a way Sustainability 2020, 12, 1117 14 of 29 reveals the advantages in production. When imposed on the previously identiﬁed comparative, trade, and competitive advantages, the parameter of production advantage allows to ascertain positively competitive (four parameters match) and conditionally competitive food and agricultural products (DRC < 1), as well as those products recognized as marginally competitive and non-competitive (DRC > 1) (Table 6). Table 6. DRC values for selected agricultural products in Central Asia in 2000–2018. av Products Kazakhstan Kyrgyzstan Tajikistan Turkmenistan Uzbekistan Live animals 1.207 1.173 1.377 1.190 1.032 Meat of bovine animals, fresh, chilled or frozen 0.826 0.331 1.050 1.114 1.125 Other meat and edible meat oal 0.772 0.305 1.195 1.209 1.153 Meat, edible meat oal, salted, dried 0.910 0.343 1.206 1.321 1.097 Meat, edible meat oal, prepared, preserved 0.754 0.682 1.223 1.185 1.088 Milk and dairy products 1.005 0.424 1.300 1.006 1.224 Butter and other fats and oils derived from milk 1.177 1.102 1.312 1.077 1.206 Cheese and curd 1.236 1.299 1.290 1.194 1.255 Eggs, eggs’ yolk, albumin 1.048 1.063 1.096 1.087 1.404 Fish, fresh, chilled or frozen 0.829 0.942 1.137 1.226 1.552 Fish, dried, salted, smoked 0.886 1.057 1.229 1.251 1.499 Crustaceans, mollusks, and aquatic invertebrates 1.057 1.222 1.332 1.302 1.500 Fish and aquatic invertebrates 1.109 1.219 1.304 1.343 1.543 Wheat and meslin 0.657 0.940 1.041 0.804 1.012 Rice 1.005 1.109 1.222 1.067 1.110 Barley 0.995 1.085 1.094 1.045 1.016 Maize 1.093 1.226 1.267 1.078 1.055 Cereals, unmilled 1.146 1.054 1.120 1.004 1.014 Flour (wheat and meslin) 0.838 0.938 1.038 0.911 1.020 Other cereal meals and ﬂour 0.807 0.990 1.114 0.932 1.099 Cereal preparations, ﬂour of fruits or vegetables 1.063 1.033 0.883 0.995 0.741 Vegetables 1.112 0.901 0.904 1.154 1.114 Vegetables, roots, tubers, prepared, preserved 1.004 1.106 1.055 1.076 1.127 Fruits and nuts 1.055 0.811 0.268 0.260 0.228 Fruit, preserved 1.197 0.736 1.096 0.776 1.194 Fruit and vegetable juices 1.208 0.683 1.182 0.812 0.997 Sugar, molasses and honey 1.083 0.469 1.228 1.111 0.809 Sugar confectionery 1.115 1.195 1.209 1.137 1.102 Coee and coee substitutes 1.306 1.203 1.314 1.290 1.541 Cocoa 1.227 1.224 1.557 1.295 1.526 Chocolate 0.994 1.250 1.506 1.302 1.553 Tea and mate 1.290 1.117 0.905 1.032 0.705 Spices 1.166 1.008 0.880 1.117 0.901 Feeding stu for animals 0.884 0.900 1.344 1.046 1.117 Margarine 1.306 1.199 1.402 1.261 1.492 Edible products and preparations 0.773 1.023 1.189 1.177 1.203 Oilseeds and oleaginous fruits 0.449 1.112 1.254 0.856 1.188 Note: Green cells—product groups for which all four RCA, RTA, LI, and DRC match; yellow cells—product groups with advantage on domestic resource costs. Source: Authors’ calculation based on [26,104–108]. 3.5. Competitiveness Distribution Proceeding from the above results, competitive positions primarily include horticultural products such as apricots and plums (the two most competitive products in Kyrgyzstan, Uzbekistan, Tajikistan, and Turkmenistan), cherries (Kyrgyzstan, Uzbekistan, and Turkmenistan), and grapes (Uzbekistan and Tajikistan) as well as wheat and meslin (Kazakhstan), milk and dairy products (Kyrgyzstan), ﬂour (Kazakhstan), honey (Kyrgyzstan), and walnuts (Kyrgyzstan and Uzbekistan). There are the products considered conditionally competitive as they obtain any of comparative, trade, or competitive advantage and DRC below market price. Kazakhstan and Kyrgyzstan may potentially promote their meat products (due to the developed livestock sector and cattle farming), ﬁsh (ﬁshing and aquaculture production in the Caspian Sea and the lakes of Balkhash, Issyk-Kul, Zaysan, and Alakol), and feeding stu for animals (abundant pastures). The countries of Central Asia are also Sustainability 2020, 12, 1117 15 of 29 conditionally competitive in the production of various cereals and their preparations, tea, and spices (Table 7). Table 7. Allocation of agricultural products to competitiveness groups per countries. Products Kazakhstan Kyrgyzstan Tajikistan Turkmenistan Uzbekistan Live animals NC MC NC NC NC Meat of bovine animals, fresh, chilled or frozen CC CC NC NC NC Other meat and edible meat oal CC CC NC NC NC Meat, edible meat oal, salted, dried CC CC NC NC NC Meat, edible meat oal, prepared, preserved CC CC NC NC NC Milk and dairy products NC C NC NC NC Butter and other fats and oils derived from milk NC MC NC NC NC Cheese and curd NC MC NC NC NC Eggs, eggs’ yolk, albumin NC NC NC NC NC Fish, fresh, chilled or frozen CC CC NC NC NC Fish, dried, salted, smoked CC MC NC NC NC Crustaceans, mollusks, and aquatic invertebrates MC NC NC NC NC Fish and aquatic invertebrates MC NC NC NC NC Wheat and meslin C CC NC CC NC Rice NC NC MC NC NC Barley CC NC NC MC NC Maize NC NC NC NC NC Cereals, unmilled MC MC NC MC NC Flour (wheat and meslin) C CC MC CC MC Other cereal meals and ﬂour CC CC MC CC NC Cereal preparations, ﬂour of fruits or vegetables MC MC CC CC CC Vegetables MC CC CC MC MC Vegetables, roots, tubers, prepared, preserved MC MC MC MC MC Fruits and nuts MC C C C C Fruit, preserved MC CC MC CC MC Fruit and vegetable juices MC CC MC CC CC Sugar, molasses and honey NC C NC NC CC Sugar confectionery NC MC NC NC NC Coee and coee substitutes NC NC NC NC NC Cocoa NC NC NC NC NC Chocolate CC NC NC NC NC Tea and mate NC MC CC NC CC Spices NC NC CC MC CC Feeding stu for animals CC CC NC MC NC Margarine MC MC NC NC NC Edible products and preparations CC MC NC MC NC Oilseeds and oleaginous fruits C MC NC CC MC Note: Green cells—competitive (C); yellow cells—conditionally competitive (CC); orange cells—marginally competitive (MC); red cells—non-competitive (NC). Source: Authors’ development. The majority of agricultural products in Central Asia, however, are recognized as either non-competitive (no advantage on any of the four indexes) or marginally competitive (there are advantages, but DRC to produce a unit of a product is higher than the product is worth). 4. Discussion: Matching Central Asia’s and China’s Perspectives 4.1. Matching 1: Export Competitiveness of Central Asian Countries and China’s Food Imports The study demonstrates that the development of agricultural value chains in the countries of Central Asia is based on a narrow nomenclature of the most competitive products: Fruit, wheat, cereals, and meat. This corresponds with the earlier ﬁndings of Rillo and Nugroho [43], Adriano [109], and International Center for Agricultural Research in the Dry Areas [110] who all concluded that value chains in each of the Central Asian countries served their respective competitive sectors and were not deeply integrated with each other due to dierent competitive advantages. Both comparative and competitive advantage theories suggest that a country specializes in production and trade in those products in which it possesses an advantage over its competitors. It is natural for a dry and hot region of Central Asia to lose out in the production of cocoa, coee, Sustainability 2020, 12, 1117 16 of 29 and some crops (rice, maize, and barley) as well as for landlocked Tajikistan and Uzbekistan to be non-competitive in ﬁshing. However, even in the conventional sectors of animal husbandry, fruit and vegetable processing, or edible products preparation, most of the Central Asian economies lose their competitive advantages as corresponds with the World Bank’s [77] ﬁndings of the erosion of competitive advantages in the region due to the outdated facilities, lack of investment and technologies, underdeveloped infrastructure, low productivity, poor veterinary and phytosanitary systems, and low capacity to comply with packaging, marketing, and other requirements of the contemporary global market. Apart from a pure trade advantage on one side, an establishment of a sustainable value chain involves the creation of stable demand for a product on the other [111,112]. Demand is one of the four interrelated components of success in international trade in Porter ’s theory of competitive advantage [113], as well as an integrated element in various value chain concepts, such as global commodity chain [114,115], world economic triangle [116], global value chain [117], Porter ’s value chain [113], commodity chain [118], and “ﬁliere” approach [119]. On the one side of the chain, there are Central Asian suppliers of fruits, cereals, meat and dairy, and some other products identiﬁed as either competitive or conditionally competitive. What is the demand on the other side? China is a country where agricultural sector is intended to feed over 1.3 billion people [120]. This fact alone brings a substantial portion of risk to the stability of agricultural value chains globally. Since the late 1970s, China has been gradually opening its market to food import and external actors [121], as well as encouraging the penetration of its state-backed agricultural companies to value chains abroad. The most recent food security strategy approved in 2019 outlined international collaboration in agriculture as one of the tools to sustain food security of China and thus contribute to the improvement of food security globally [25]. By now, China has achieved self-suciency on staple agricultural products on the level above 90% [122]. For some products, nevertheless, the country still depends on imports being the world’s top importer of soybeans, cotton, palm oil, and sugar. Oilseeds and oleaginous fruits, in which Kazakhstan and Turkmenistan possess competitive advantages, account for one-ﬁfth of China’s total agricultural imports in 2000–2018 (Table 8). Oilseeds and vegetable oils and fats will remain the predominant imported agricultural commodities of China for at least a couple of decades [120]. Currently, self-suciency in oilseeds is the lowest among agricultural products in China and is expected to decrease in 2020–2040 [120]. The match between demand and advantage makes soybeans the most perspective crop to produce and export to China. Fruits and nuts, in which all the countries of Central Asia, except Kazakhstan, enjoy the highest advantages, are also perspective for export, but China has been improving its self-suciency in fruits since mid-2000s. The demand is still high for exotic tropical fruits not grown in Central Asia. Moreover, there are advantages-demand overlaps for milk and dairy products (Kyrgyzstan), feeding stu for animals (Kazakhstan and Kyrgyzstan), and sugar and honey (Kyrgyzstan). Table 8. China’s top import products and Central Asia’s competitive advantages. Share in Imports *, Imports/GDP Ratio Products Competitive Advantage Percentage **, Percentage Oilseeds and oleaginous fruits 20.776 76.183 Kazakhstan, Turkmenistan Fish, fresh, chilled or frozen 6.450 12.574 Kazakhstan, Kyrgyzstan Feeding stu for animals 6.086 20.419 Kazakhstan, Kyrgyzstan Other meat and edible meat oal 4.807 16.055 Kazakhstan, Kyrgyzstan Kyrgyzstan, Tajikistan, Fruits and nuts 4.488 10.038 Turkmenistan, Uzbekistan Edible products and preparations 3.425 13.800 Kazakhstan Crustaceans, mollusks, and aquatic invertebrates 2.646 7.229 - Sustainability 2020, 12, 1117 17 of 29 Table 8. Cont. Share in Imports *, Imports/GDP Ratio Products Competitive Advantage Percentage **, Percentage Milk and dairy products 2.571 82.982 Kyrgyzstan Barley 2.311 6.504 Kazakhstan Vegetables 2.172 9.336 Kyrgyzstan, Tajikistan Sugar, molasses and honey 1.683 69.027 Kyrgyzstan Kazakhstan, Kyrgyzstan, Wheat and meslin 1.489 5.038 Turkmenistan Rice 1.226 4.930 - Cereals, unmilled 0.906 6.117 - Meat of bovine animals, fresh, chilled or frozen 0.981 22.170 Kazakhstan, Kyrgyzstan Tajikistan, Turkmenistan, Cereal preparations, ﬂour of fruits or vegetables 0.522 7.005 Uzbekistan Live animals 0.503 18.683 - Fruit, preserved 0.414 14.864 Kyrgyzstan, Turkmenistan Margarine 0.414 17.449 - Chocolate 0.347 38.114 Kazakhstan Vegetables, roots, tubers, prepared, preserved 0.291 7.385 - Fish and aquatic invertebrates 0.284 6.910 - Kyrgyzstan, Turkmenistan, Fruit and vegetable juices 0.244 18.793 Uzbekistan Cheese and curd 0.221 44.170 - Butter and other fats and oils derived from milk 0.217 37.372 - Sugar confectionery 0.188 21.006 - Fish, dried, salted, smoked 0.138 11.144 Kazakhstan Tea and mate 0.083 2.378 Tajikistan, Uzbekistan Spices 0.066 9.993 Tajikistan, Uzbekistan Kazakhstan, Kyrgyzstan, Flour (wheat and meslin) 0.054 5.709 Turkmenistan Kazakhstan, Kyrgyzstan, Other cereal meals and ﬂour 0.032 8.225 Turkmenistan Meat, edible meat oal, prepared, preserved 0.026 13.082 Kazakhstan, Kyrgyzstan Meat, edible meat oal, salted, dried 0.003 10.663 Kazakhstan, Kyrgyzstan Note: * share of a product i in total agricultural imports of China, average in 2000–2018; ** ratio of import volume of a product i to gross domestic output of a product i, average in 2000–2018. Source: Authors’ calculation based on [26,123]. There is no match between Central Asia’s competitive advantage in wheat and China’s demand for grain. Currently, China supplies 95% of its own needs for grain [25], but in the coming decades, the demand for and import of grain crops is expected to rise rapidly [120]. Economic development, progressing urbanization and transformation of food consumption patterns along with the degradation of limited arable land and heavy use of fertilizers in China are likely to bring increased demand for all major crops in 2020–2040 [77,122,124]. Zhou [125], Zhou et al. [126], and the World Bank [77] attribute the growth in the consumption of food products of higher quality, nutrient value, and price in China (meat and meat products, milk and dairy products, and seafood) to the prejudice of cheaper and fewer nutrient crops. Consequently, Chinese meat and dairy producers demand more crops as fodder for agricultural animals which is a niche to be potentially occupied by the producers of feeding stu for animals from Kazakhstan and Kyrgyzstan. 4.2. Matching 2: Production Advantages of Central Asian Countries and China’s Agricultural Investments in the Region How China can meet the challenge of growing demand for food and ensure the stability of food supply chains? As stated in the National Strategy on Food Security [25], among the solutions are the sharing of resources, support of the enterprises in going global, and encouragement of investment in agricultural products abroad. Foreign direct investment became an increasingly important element in sustainable development of agricultural value chains worldwide [127]. Being the most populous country in the world, China has been increasingly concerned in securing sustainable and sucient food supply for its people. As the economic growth in China brings more purchasing power to the customers, the country has been emerging as a leading importer of food of all kinds, including Sustainability 2020, 12, 1117 18 of 29 high-quality and nutritious products, as well as a major player in outward agricultural investment [128]. According to Zhang and Cheng [129] and Cui and Shoemaker [130], the main task for China’s overseas agricultural investment is to establish global value chains that would improve the stability of food supply. The country has been diversifying where it obtains crops that Chinese farmers are not able to grow in sucient quantities domestically [122]. Many authors, including Bondaz et al. [131], Zhang [132], Shah [133], He et al. [134], and Huang et al. [135] share the vision of the BRI as a driver of China’s new approach to its food security strategy and establishment of sustainable agricultural value chains across Eurasia. While the BRI’s major focus in Central Asia is on the improvement of connectivity and facilitation of trade, it also involves investment in agriculture. Among the countries of Central Asia, Kazakhstan is most attracting country of foreign direct investment (70% of total investments in the region) [136] and the main recipient of agricultural investments from China (over $1 billion in 17 projects as of 2018) in processing and sale of rapeseed and sunﬂower seeds, oil crops, and fresh-frozen ﬁsh and ﬁsh products, construction of slaughterhouses and poultry farms, and establishment of a cluster in sheep farming and enterprises for deep processing of grain, ﬂax, soybeans, and semi-ﬁnished meat products [137] (Table 9). In Uzbekistan, Tian Jean Nana and Exim Bank of China invested about $29 million to the establishment of a logistics hub in the Bukhara region for the processing of fruit and vegetables and meat and dairy products and exporting them to China. In Kyrgyzstan, Chinese companies invest to crop production, processing of agricultural products, and food industry [138]. Table 9. Major Chinese investment projects in agriculture * and Central Asia’s competitive advantages. Countries Sectors with Chinese Investment Sectors, in Which an Advantage Is Possessed Meat and meat products Fish and ﬁsh products Wheat and meslin Barley and other cereals Processing of cereals Kazakhstan Vegetables prepared, preserved Sugar, molasses, and honey Chocolate Feeding stu for animals Edible products and preparations Oilseeds and oleaginous fruits Meat and meat products Milk and dairy products Fresh ﬁsh Wheat and meslin Processing of cereals Kyrgyzstan Vegetables Fruit and nuts Sugar and honey Feeding stu for animals Edible products and preparations Wheat and meslin Maize Cereal preparations Tajikistan Vegetables Fruit and nuts Tea and mate Spices Wheat and meslin Processing of cereals Turkmenistan Fruits and nuts Processing of fruit and vegetables Oilseeds and oleaginous fruits Sustainability 2020, 12, 1117 19 of 29 Table 9. Cont. Countries Sectors with Chinese Investment Sectors, in Which an Advantage Is Possessed Meat and meat products Milk and dairy products Cereal preparations Fruit and nuts Uzbekistan Fruit and vegetable juices Sugar and honey Tea and mate Spices Note: * this study does not consider the cotton sector, one of the major attractors of Chinese investment in the region, as that not directly related to food production; green cells—C group; yellow cells—CC group; orange cells—MC group; red cells—NC group. Source: Authors’ development based on [104–108,123]. In general, the directions of Chinese agricultural investment in the region intersect with competitive advantages of respective counties. In particular, there is a distinct match between the investment and advantages in horticulture. This ﬁnding, however, contradicts with Hofman [139], who argued that the investments in the production of unpreserved fruits in Central Asia were disadvantageous for Chinese agro holdings due to the impoverished storage and transport infrastructure and costly shipment to China. Indeed, there are substantial challenges to both the stability and economic eciency of value chains due to the backwardness of infrastructure, geography, and landlockedness and remoteness of the region, but Chinese investors still enter joint projects in the production of fresh fruits and vegetables and other perishable products. Perspective sectors for Chinese companies to move to are dairy and sugar production in Kyrgyzstan, both in C group. In most of the sectors, where China currently invests to, Central Asian agricultural producers possess conditionally competitive advantages, according to our classiﬁcation. Moreover, there are investment projects in the sectors where the advantages are either marginal or absent. 4.3. Matching 3: Sustainability of Agricultural Value Chains and Policy Implications of Competitiveness and Trade Potential Assessment Despite the growing volume of joint agricultural projects, China’s investment in the region primarily focuses on mining and construction with limited involvement in agricultural value chains [140]. Kurmanalieva and Parpiev [2] think that it would be dicult for Central Asian economies to diversify their value chains away from primary commodities towards processed goods, including agricultural. Nevertheless, the authorities in all countries of the region expect China to invest more in food production. The use of agricultural land by foreigners, however, remains a controversial topic across social groups in Central Asia. People are becoming concerned that China’s growing investment in agricultural sector could result in land grabbing by Chinese companies and the inﬂux of Chinese workers. For instance, in Kazakhstan, the protests forced the government to postpone the extension of the farmland lease period for foreigners from 10 to 25 years until December 2021. Along with economic, infrastructural, environmental, and climate challenges that confront food sector in Central Asia, emerging social issues pose new threats to the sustainability of agricultural value chains in the region and call for adequate policy responses. Many of earlier studies, including Adriano [109], Pirmatov et al. [38], Akter et al. [30], Foggin [141], and Akramov [31], among others, found that policy eorts aimed at the fostering, coordination, and integration of agricultural value chains in Central Asia would lead to the improved performance of agricultural sectors and more stable food supply. Following on from the results of this study, we propose policy measures to be dierentiated in such a way as to support and promote the advantages in C and CC groups and establish and protect those in MC and NC groups (Table 10). Sustainability 2020, 12, 1117 20 of 29 Table 10. Policy measures to improve the sustainability of China–Central Asia agricultural value chains. Competitiveness Groups Policy Measures Diminishing of administrative barriers to export C group Development of production and logistics infrastructure, including as a part of the BRI Economic corridor approach to the development of value chains PR and promotion of domestic products on Chinese market Support of “niche” export-oriented productions CC group Subsidized loans for the development of export production Subsidized insurance of export-oriented productions Income support of agricultural and food producers Reduction of production costs MC group Programs for sustainable development and diversiﬁcation of the rural economy Measures to prevent and oset the impact of sharp increases in agricultural imports Encouragement of Chinese investment in agricultural research and infrastructure, particularly, irrigation, storage, processing, and supply facilities Direct payments to the producers of staple crops Comprehensive subsidies for agricultural inputs Subsidies for farm machinery purchases NC group Subsidies for improved crop varieties Minimum grain purchasing prices Temporary storage options Source: Authors’ development. For C group products, the competitive environment can be improved by reducing administrative barriers to export and implementing customs and tari regulations of export. Currently, trade policy regimes in Central Asia vary from fairly liberal in Kyrgyzstan and Kazakhstan to quite restrictive in Uzbekistan and Turkmenistan [142]. According to Raballand and Andresy [143] and Jha [144], the variability of export regimes across the countries in Central Asia very much depends on the membership in the WTO. Kyrgyzstan (the most liberal trade regime among the ﬁve economies, WTO member since 1998), Kazakhstan, and Tajikistan have made extensive eorts to improve export regulations and facilitate the development of core automation of trade procedures. Uzbekistan and Turkmenistan (both are still out of the WTO framework of trade regulations), on the contrary, lack transparency and stability in their trade policies. Mogilevskii and Akramov [13] found that Uzbekistan and to a lesser degree other countries in the region extensively introduced export duties and even export bans to reduce or prevent the exports of raw agricultural products which might be processed domestically. These include oilseeds, cereals, fodder crops, vegetable oil, live animals, meat, and sugar. Our study, however, demonstrates lower competitiveness of food processing industries across Central Asia compared to crop production which means such export restrictions favor “managed” trade but distort real competitive advantages and bring instability to value chains. For a value chain to gain sustainability, it is imperative to develop production, logistics, and supply infrastructure. The potential solutions include the reduction of export transaction costs and the improvement of the access of Central Asian producers to the Chinese market. All countries of the region currently rank low in the Trading Across Borders Indicator of the World Bank’s Doing Business Index (Kyrgyzstan ranks the highest among the ﬁve, 89th out of 189 economies in 2019) [145] due to the high number of documents and procedures required to conduct an export delivery. Even for high-competitive C group products, these barriers reduce competitiveness and call for a pro-active removal of export constraints for ecient trade facilitation. This agrees with White [146], who demonstrates that lowering the number of documents required to export would yield shorter export times, decrease the opportunity for corruption and other uncertainties along the value chains, and increase the advantage of Central Asian products in the global market. As this study demonstrates, some of the competitive sectors lack Chinese investments, while in some cases, Chinese companies invest to the sectors where the advantages are marginal or negligible. The BRI as an umbrella initiative aimed at the development of connectivity on the macro level may allow agribusiness to concentrate around major infrastructure investment, potentially, in a form of Sustainability 2020, 12, 1117 21 of 29 the economic corridor, a complex of production, logistics, and trade arrangements. A concept of the economic corridor approach to the development of agricultural value chains in Central Asia is advocated by Rillo and Nugroho [43] and Nogales [147]. Due to the landlockedness and low intraregional and international transport connectivity, economic corridors have been central to the agenda in most of the Central Asian countries. Speciﬁcally, Central Asian Regional Economic Cooperation (CAREC) program has laid the groundwork for economic corridor development in Central Asia by mobilizing over $34.5 billion investments in the establishment of multimodal transportation networks [148]. Concerning economic corridor approach, CAREC supports simpliﬁcation and harmonization of customs procedures, information and communication technology development and data exchange, risk management and post-entry audit, joint customs control, and regional transit development [148]. In relation to C group value chains, the economic corridor approach may allow to attract more investment in the most competitive sectors and stimulate economic activities along the territories in which the corridor is established. For CC group products, it would be rational to aect the demand side of the value chains. The eorts should be focused on the promotion of CC products outside and creating demand on the Chinese market. Among CC products, the most demanded in China are oilseeds, wheat, and other cereals. In Central Asia, the major hindrances to the stability of value chains in crop production are large distances and high storage and transportation costs due to the scarcity, fragmentation, and deterioration of infrastructure. Kazakhstan is developing its railway and road infrastructures, including in the framework of Nurly Zhol initiative, a national plan to develop and modernize roads, railways, ports, and IT infrastructure, in an attempt to establish a network of multimodal transport hubs and integrate them with China’s BRI economic corridors [149]. In other countries of the region, capital stocks devoted to infrastructure development are lower, while the obsolesce of infrastructure appears to aect export-oriented agricultural value chains in a negative way [142]. This is especially relevant for C and CC group products, including such key export items as fruits and vegetables which are perishable and sensitive to delays in transportation [13]. Crop producers may beneﬁt from the investment in grain market infrastructure, subsidized loans, and export insurance programs. These measures correlate with the recommendation of Svanidze et al. [150] to complement trade and infrastructure-enhancing policies with the support of domestic producers in order to bring more stability to value chains in crop production. The establishment of tax incentives along with the allocation of preferential credits for agribusiness are recommended by Pirmatov et al. [38] among the measures to support competitive advantages. Pomfret [42] also advocates technological improvements of grain production and supply infrastructure and ﬁnancial support of farmers as the conditions of increasing eciency in the grain sector. Technological improvements, for instance, are required to help to overcome technical barriers for trade established in China and other export markets. They include compliance with health, veterinary, and phytosanitary requirements. Due to the overall underdeveloped veterinary and phytosanitary systems and quality infrastructure in Central Asia, agricultural producers encounter diculties to comply with safety regulations applied internationally. For MC products, the aim of policy measures is to protect vulnerable and eroding competitive advantages. This task demands the application of indirect economic measures focused on the increase of competitiveness, for instance, income support or reduction of production costs in agriculture. Measures to prevent and oset the impact of the increases in agricultural imports should be introduced, including anti-dumping measures, countervailing and safeguard measures, and a mechanism to cope with agricultural subsidies. On China’s side, there should be a support of agricultural production in Central Asia in the form of agricultural research. It agrees with earlier ﬁndings of Babu and Reidhead [37], who propose the investment in information generation and building capacity in farming technologies and knowledge as fundamental aspects of long-term sustainable development of value chains in Central Asia. Along the same line goes the argumentation of Danabayeva [151] who observes Sustainability 2020, 12, 1117 22 of 29 that a major challenge to sustainability and performance of the agricultural sector faced by Central Asian economies is the transformation of existing value chains into the knowledge-based ones. As regards those value chains which involve non-competitive food and agricultural products, they should be focused on the domestic market in order to improve food security along the availability pillar and increase farmers’ incomes through a system of agricultural support policies, including direct payments for the production of major crops, subsidies for agricultural inputs, subsidies for farm machinery purchases and improved crop varieties, minimum purchasing prices for crops and other staple foods, and temporary storage options. Such measures aimed at the support of both non-competitive and marginally competitive agricultural products will establish the conditions for the strengthening of competitive advantages in the long run, improve the performance of agricultural producers, drive them to expand their production facilities, and thus contribute to the improvement of food security and sustainability of agricultural value chains in the countries of Central Asia. 5. Conclusions The ﬁve-stage approach allowed to (1) reveal comparative, trade, and competitive advantages of Central Asian economies in agricultural trade, (2) match those advantages with production capabilities of agricultural sectors, (3) divide products into groups according to the degree of competitiveness. It is revealed that the countries of Central Asia are able to compete internationally in labor-intensive horticultural products and some crops, primarily, wheat and oilseeds. Capital and technology-intensive sectors of animal husbandry, livestock production, and food processing are all low competitive across the region (to a certain degree, the exceptions being Kazakhstan and Kyrgyzstan where some meat and dairy products are recognized conditionally competitive). The matching between the revealed advantages of Central Asian agricultural sectors and China’s current imports, investment in the region, and future demand in food demonstrates several opportunities that can be embraced from closer China—Central Asia collaboration. First, there is a growing demand for diverse food products in China. Currently, Central Asia is indeed a very modest contributor to China’s agricultural imports. None of the ﬁve countries of the region is now capable to pose any substantial inﬂuence on food supply in China. However, at least in C and CC product groups (oil seeds, fruit, wheat, cereals, feeding stu for animals), Central Asia can become one the sources of food import in the diversiﬁed food supply network. Second, closer agricultural ties between China and the countries of Central Asia in the framework of the BRI, economic development corridor, as well as agricultural investment, knowledge-sharing, and technology will ensure regional food supply and enhance the sustainability of agricultural value chains. Third, the development of agricultural value chains between Central Asia and China may have food security and pro-poor beneﬁts as it would involve farmers in the international food supply and provide more jobs and income opportunities to low-income people in rural areas. To enhance the integration between Central Asia’s supply and China’s demand sides of the value chains, the authors construct a set of policy responses to major advantage-related challenges. The approach is that the stakeholders in C and CC value chains should be supported to implement or develop competitive advantage and expand exports, while MC and NC value chains should be aimed at the domestic markets to contribute to the solution of the food insecurity problem. It is expected that the implementation of policy measures will facilitate the concentration of the resources toward competitive and potentially competitive products, protect and promote vulnerable competitive advantages in the value-added sectors of animal production and food processing, enhance the competitiveness and productivity of the stakeholders within the chains, thus contributing to better performance of agricultural sectors in Central Asia, agriculture-driven economic growth in rural areas, and more sustainable food supply in the macro-region of Eurasia at the end. This study is a preliminary attempt to roughly link trade and competitive advantages and production capabilities with the sustainability of value chains in agriculture. Thorough work is required to eliminate the existing limitations and make the approach relevant in a wider sustainability-related Sustainability 2020, 12, 1117 23 of 29 context. Due to the fact that this study considers China as a single trade partner, there is a rationale to extend the research to a wider pool of trade partners of Central Asian economies, for instance, Russia, the Middle East, and the EU. This will allow to assess the degree of diversiﬁcation in value chains and suggest the responses to possible demand and price ﬂuctuations on particular markets. Intra-regional agricultural trade in Central Asia has been stagnating since the 1990s due to the fact that no country possesses a decisive advantage over the others. In almost similar climate, geographical, technological, and economic conditions of agricultural production, they all produce similar products of a rather narrow assortment. There is no economic basis for intensive exchange then. Still, it is worth studying those marginal competitive advantages which exist outside the traditional sectors of horticulture and crop production in order to understand how they may be promoted for the beneﬁt of intra-regional supply chains. Quality constraints to expanding agricultural exports from Central Asia should be studied primarily in relation to C and CC product groups. Moreover, there is a rationale in analyzing the eects of trade policy constraints (both export restrictions from Central Asia’s side and import policies of trade partners) for the stability of value chains. Author Contributions: V.E. designed the research framework and wrote the paper; L.D. performed the data collection; P.D. analyzed and interpreted the data. 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Sustainability-Related Implications of Competitive Advantages in Agricultural Value Chains: Evidence from Central Asia—China Trade and Investment

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Sustainability-Related Implications of Competitive Advantages in Agricultural Value Chains: Evidence from Central Asia—China Trade and Investment

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Sustainability-Related Implications of Competitive Advantages in Agricultural Value Chains: Evidence from Central Asia—China Trade and Investment

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