Innovation and Knowledge Adoption for Local Firms in the Value Chain : The Story of 'White Gold' from Uzbekistan

Despite the end of the Soviet era, cotton production continues to play a major role for the economies of Central Asia, regularly named the "white gold" of Uzbekistan. The present paper looks at the current system of cotton production as state-order crop in Uzbekistan and discusses possibilities of integrating environment and innovation in the value chain subsystem as an effort to move away from exporting cotton as raw material towards developing a cotton processing industry. Through a game theoretic and value chain mapping, we conducted an assessment of the likelihood of cotton farmers adopting knowledge and technology vis a vis government price. We showed that the adoption of innovations in the agricultural production and processing sectors in Uzbekistan is hampered by strict state norms, as well as by a lack of support services, and legal, social and market infrastructure. Current production quota system is accepted by the state officials as an incentive for farmers to produce cotton rather than switching to other crops. In reality, low procurement price for cotton causes the principal-agent problem where farmers overexploit natural resources by growing marketable but more water consumptive crops like rice instead of following the government quota. The data analysis argues for a reduction of state control over the agricultural sector in order to increase the space for bottom-up creativity and knowledge adoption to take place. While the chosen game theoretical approach is limited in acknowledging the top-down planning structures of Uzbekistan, it achieves to empirically illustrate bottom-up potential for, further developing the cotton processing industry through knowledge and innovation adoption by individual agents