KAZAKHSTAN: GLOBAL GRAIN PLAYER

Kazakhstan, one of the most important grain producers and exporters in the world, has trouble reaching to international markets due to the lack of direct access to ports. Astana who wants to overcome this hurdle with investments in transportation infrastructure is planning to install new facilities and upgrade old equipment to increase its grain processing capacity.

kazakistan

Kazakhstan, the last republic to leave the Soviet Union in 1991, has rich natural resources and an enormous economic potential. Kazakhstan is the 9th largest country in the world with an area of 2 million 724 thousand 900 square kilometers. With a population of 18.5 million, it is one of the least densely populated countries. The country has shown rapid development performance with market reforms initiated after the collapse of the Soviet Union and large investments in the oil sector. Rapid economic growth, especially between 1999 and 2014, increased employment and improved the life standards. Kazakhstan is now the country with the highest per capita national income among former Soviet countries.

Astana formed the Customs Union with Belarus and Russia in 2010. Global integration is pursued through membership in the World Trade Organization (WTO). Kazakhstan is of strategic importance in terms of access to Central Asian countries and the 180 million Customs Union market. Another factor that should not be ignored is that the country is neighboring China, the rising economy of the world.

In Kazakhstan, large oil and natural gas deposits and mine reserves are the backbones of the economy. The oil sector carries out more than half of the industrial production and exports. President Nursultan Nazarbayev, who wants to save the economy from excessive dependence on oil and mining industries, aims to diversify its economy by developing the other sectors such as transportation, telecommunication, and food processing. Within this framework, in ‘2030 Strategy’ tourism, oil, and natural gas equipment, food, textile, transportation, and logistics are identified as primary sectors. The development of small and medium-size enterprises in the modernization of agriculture and agri-food marketing are among the key issues. According to The Food and Agriculture Organization of the United Nations (FAO), the country requires technical assistance particularly for: organization of agricultural production in the context of water scarcity, waste-water treatment and recycling with safe recovery of water and nutrients for agriculture, modernization of large-scale irrigation systems, land degradation assessment, sustainable land and watershed management, harmonization of legislation related to natural resources and coordination among institutions.

OBSTACLE TO EXPORT: PROBLEM OF ACCESSING SEA
Kazakhstan has shown considerable development since the independence from the Soviet Union, but it has not yet fully asserted its huge economic potential. The biggest obstacle the country face is that lack of sea coast to reach to international markets. It is a landlocked state. This causes the rise in exports and imports costs. Kazakh goods can be transported to international waters via ports in Russia and Georgia in the Black Sea. In addition, the Kazakh ships enter the Black Sea via Volga-Don Canal. Customs taxes applied on imports in the country vary according to the type of the products. In the country where customs duty varies between 0% and 30%, the average figure is 7.9%.

GREAT POTENTIAL IN AGRICULTURE
Kazakhstan has a large agricultural sector featuring livestock and grain. The country, with its large and fertile lands, has a great potential in agriculture. It is one of the world’s major grain producers and exporters. The share of agricultural sector in GDP is around 5-6%. There are three prevalent groups of agricultural producers in the country: large agricultural enterprises and smaller individual farms mostly engaged in grain, and tiny household economies focusing on vegetable and livestock.

Agriculture plays an important role in the development of the country. More than 74% of the country’s territory is suitable for agricultural production, but only 25% of the land is arable. The most important agricultural products are wheat, corn, rice, oats, cotton, potatoes, vegetables, sugar beet, and sunflower. An important factor of subsistence support is self-sufficiency in grain for the production of bread and for livestock forage.

According to FAO, the cultivable area, including pastures and grazing, notably the steppes, is an estimated 222 million hectares. The country is well endowed with fertile land but suffers environmental handicaps such as water availability and harsh climate. There are also structural challenges, such as domination of subsistence-oriented producers in key product sectors, weak integration of domestic food chains, and difficult access to external markets. Skilled labor is scarce.

However, Kazakh government support to agriculture has been rising. The government is also engaged in grain procurement and storage to achieve national food security goals but does no longer interfere in on-farm production decisions. Subsidised funding for agricultural investments is provided through the state-owned holding KazAgro.

WHEAT PRODUCTION TO DECLINE
Kazakhstan is one of the top 10 grain exporters in the world, exporting to over 70 countries. It is a major wheat-producing and wheat-exporting country. United States Department of Agriculture’s (USDA) Foreign Agricultural Service (FAS) estimates wheat production in Kazakhstan in marketing year (MY) 2017-2018 at 13.5 MMT, down nearly 10 percent from 14.99 MMT for 2016-17, due largely to a decline in the planted area. And food, seed, and industrial consumption of wheat is expected to remain unchanged at 4.8 MMT in the same period.

FAS forecasts that Kazakhs wheat exports will remain flat in 2017-2018 at 7.5 MMT. The majority of grain exports are to Russia, Iran, China and other Central Asian countries. And the biggest importers of the Kazakh wheat are Uzbekistan, Tajikistan, Afghanistan, China, Italy, and Turkey. Recently, wheat export to Iran, Sweden, and Tunisia also has increased. The largest buyer of Kazakh wheat has been neighboring Uzbekistan for the last four years.

THE BIGGEST IMPORTER OF KAZAKH BARLEY
Kazakhstan is the second largest flour exporter, following Turkey. The Central Asian country was the world’s leading wheat flour exporter until the 2012-2013 season. However, Turkey has ranked first in the last three years. According to Global Trade Atlas, Kazakhstan’s total flour exports in 2016 reached nearly $494 million, up from the 2015 exports of $486 million.

Another most-produced cereal in the country is barley. Barley production this year is expected to be 2 million 700 thousand tons, 17 percent lower than the last season. Iran continues to be the biggest importer of Kazakh barley, taking 87 percent of all exports in 2016-2017. Newcomers to barley exports from Kazakhstan in 2016 and 2017 were the United States and Germany.

EQUIPMENT TO BE RENEWED
Nearly 80% of machinery currently in use is at the end of its lifecycle and needs to be replaced. Local production of agricultural machinery and equipment is insignificant. In 2016, the Kazakhstani agricultural machinery and equipment sector was roughly estimated at approximately $500 million, of which $300 million was imported, Export.gov reported. Russia is a market leader in agricultural machinery and equipment with a 40% market share. Germany, Canada, Netherlands, Belarus, Turkey, and China are other large suppliers. Both the government of Kazakhstan and private entities are looking for international partners to increase existing domestic production of agricultural machinery and equipment and establish new manufacturing and assembly facilities.

LOGISTICS PROBLEM LIMITING GRAIN TRADE
Although its potential, Kazakhstan has a big disadvantage for the grain trade, because it cannot conduct maritime trade. Remoteness from global markets and lack of direct access to ports are obstacles for grain export in Kazakhstan. According to Transport and Logistical Risks in Grain Export report, published in Espacios, infrastructural restrictions and transport-logistical costs, lack of guarantees in terms of deliveries restrict implementation of grain export potential of the country. The imperfect transport-logistical system of grain transportation in Kazakhstan reduces the competitiveness of grain producers and grain traders on the global market. The country needs to develop sea (river), train and highway infrastructures and create alternative routes. Increasing the grain storage capacity is also another factor that will ease the country. According to Kazakhstan’s Ministry of Agriculture, the grain storage capacity of the country is 26 million tons. It is stored in 204 licensed warehouses, while the other half is on farms.

KAZAKH MILLERS DEMAND QUALITY WHEAT
Another disadvantage of Kazakhstan is that wheat quality varies according to weather conditions. Kazakh millers are not satisfied with the quality of wheat because of the low gluten content because this directly affects the quality of the flour to be exported. Millers agreed that since good milling quality is not available on the market, they would rather buy Russian wheat even if it will be more expensive. The increase in high-quality grain production will be a good basis for the economic stability of the country.

In the country where about 650 mills are located, annual flour production is more than domestic consumption. According to a study published in the International Journal of Economics and Financial Issues, the total capacity of these mills is about 2.5 times the annual consumption. Today in the country mills operate only about half of their production capacity.

GROWTH IN WHEAT EXPORT SUSTAINABLE?
Some experts believe Kazakhstan’s wheat exports will fall in the long run. According to these experts, in the coming years, the climate in the country will be warmer and drier, the frequency of drought periods and unusual weather conditions will increase. If inputs such as good quality seeds, fertilizer use, irrigation and agricultural equipment are not used more intensively, the wheat yield in Kazakhstan may decline. Although wheat production in the country has a potential to increase up to 33% by 2035, it is likely that the export potential could also decrease as domestic consumption will increase.

30 FACTORIES TO BE CONSTRUCTED
The food processing sector is one of Kazakh government’s priorities for investment. In November 2017, the government adopted the ‘State Program for the Development of the Agricultural Industry Complex’ for the next three years. Under this program, modernization of 17 existing facilities and construction of 30 new factories and production facilities in Jambil, Kizilorda, Almaty and South Kazakhstan are planned. The facilities include milk and sugar factories, meat facilities, fruit and vegetables, oil, leather and potato plants and seed processing facilities. In September, Chinese investors announced that they would open a $ 47 million noodle production facility in Kazakhstan.

In our previous article titled "Mozambique: The Gateway to Africa" information is given about "Mozambique".

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