#7 Kazakhstan Agriculture Bulletin, BFC

11/2016

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7 K A Z A K H s ta n Agriculture Bulletin Kazakhstan’s Largest Greenhouse Complex to Open Wheat Production to Drop in Diversification Effort FAO, EBRD Organize Conference on Kazakh Grain Industry Farmers Can Repurchase Grain to Resell at Higher Market Prices

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Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5) 6) 7) 8)

National Agribusiness Development Programme to Focus on Cooperatives ................................. 2 State Allocates KZT 7 Billion to Agricultural Micro‐Lending ............................................................ 2 Kazakhstan’s Largest Greenhouse Complex to Open ...................................................................... 2 National Branding to Be Introduced ................................................................................................ 3 Wheat Production to Drop in Diversification Effort ........................................................................ 3 Ministry of Agriculture Plans Redistribution of Subsidy Funds ....................................................... 3 Control Program Reduces Brucellosis Cases by 40% ....................................................................... 3 Lack of Funding for State Program Leads to Less in Subsidies for Farmers .................................... 4

Foreign Aid ................................................................................................................. 4 9) FAO, EBRD Organize Conference on Kazakh Grain Industry ........................................................... 4 10) Green Technologies Learning Center Opens in Astana ................................................................... 5

Private Sector .............................................................................................................. 5 11) 12) 13) 14) 15)

Sheep and Goat Numbers Increase 0.9% to 20.01 Million .............................................................. 5 Farmers Can Repurchase Grain to Resell at Higher Market Prices ................................................. 6 Record 23.7 Million Ton Grain Harvest Reported ........................................................................... 6 Atameken to Help Food Producers Enter Chinese Market ............................................................. 6 Economist Identified Three Major Hindrances to Agricultural Growth .......................................... 6

Note: The Agriculture Bulletin presents a monthly roundup of headlines and news stories related to Kazakhstan’s agricultural sector.

This bulletin is prepared by Business & Finance Consulting—a Swiss‐based development finance consulting company with a long history of working in Eastern Europe, Central, South and South East Asia and North Africa. Read more »

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BFC Agriculture Bulletin

State Initiatives 1)

National Agribusiness Development Programme to Focus on Cooperatives

November 30th, 2016, https://primeminister.kz/en/news/selskoe_hozyaistvo/novaya‐gosprogramma‐razvitiya‐apk‐pomozhet‐ povisit‐blagosostoyanie‐selskogo‐naseleniya‐v‐kazahstane‐ekspert‐13791

The National Agribusiness Development Programme (NADP) for 2017‐2021 provides a holistic, interagency approach, covering land and water resources, commodity production, logistics, infrastructure, trade regulations, and agrochemical safety, amongst others, according to KazAgro Advisor to the Chairman Saruar Kenzhebulat. The NADP will create new jobs and increase rural income, notably through the formation of cooperatives encompassing private farms, distribution networks and processing facilities, said Kenzhebulat. This should help small‐scale private farms focus on commodity production rather than sustenance farming, noted Kenzhebulat, adding that processing capacity is currently underutilized. The NADP also envisages a raft of new subsidy and incentive schemes, according to the Advisor. The government discussed the Programme on November 29. KazAgro is a holding company responsible for implementing state agricultural programs.

2)

State Allocates KZT 7 Billion to Agricultural Micro‐Lending

November 29th, 2016, http://finprom.kz/ru/article/gosudarstvo‐na‐48‐uvelichilo‐podderzhku‐selskogo‐hozyajstva‐cherez‐ mikrokreditovanie‐vypusk‐v‐agrosektore‐za‐god‐vyros‐na‐5

From January to June 2016, state disbursements to micro financial institutions (MFIs) and credit unions (CUs) increased 48% to KZT 7 billion. The money was distributed through the Fund for Financial Support of Agriculture (FFSA). The FFSA’s share of total funds attracted by MFIs and CUs increased by 6% and 14% respectively. During the same period, total newly issued agricultural bank loans doubled to KZT 100 billion, while long‐term agricultural loans increased by a factor of 2.2 to KZT 69 billion. From January to June 2016, agricultural production volume increase by 5% year‐on‐year. By 2020, the government plans to increase state agricultural subsidies by a factor of 4.5.

3)

Kazakhstan’s Largest Greenhouse Complex to Open

November 28th, 2016, http://bnews.kz/en/news/ekonomika/apk/biggest_greenhouse_complex_in_kazakhstan_is_constructed_in_almaty‐ 2016_11_28‐1297491

Kazakhstan’s largest greenhouse complex is to open in Almaty in December. The KZT 6.6 billion, 12 hectare complex is expected to produce 3,200 tons of tomatoes and 4,000 tons of cucumbers per year.

The technology will be provided by Dalsem, a Dutch greenhouse specialist. The project will be funded through KazAgro – the holding company responsible for implementing state agricultural programs.

Nationwide, KazAgro approved the funding of a further 41 greenhouse projects worth KZT 46.5 billion and spanning 147 hectares. Cumulative capacity is projected at 63,000 tons per year. The projects aim to bridge an off‐season deficit in domestic fruit and vegetable supply, with local production accounting for only 83% of demand. KazAgro has already provided 14 producers with KZT 6 billion, providing a cumulative yield of 31,000 tons of fruit and vegetables annually. The two largest are Amakeldi LLP in South Kazakhstan and Alma Green Fields, in Almaty. Kazakhstan produces and estimated 175,000 tons of fruit and vegetables per year.

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4)

National Branding to Be Introduced

November 22nd, 2016, http://www.inform.kz/en/kazakhstan‐is‐creator‐of‐organic‐brand_a2972134

The Kazakh umbrella brands “Qazaq Organic Food”, “Halal”, and “Meat Brand” are under development by the Ministry of Agriculture (MoA) and the National Export Agency KAZNEX INVEST. A multi‐ organization group, including state institutions, development agencies and the National Chamber of Entrepreneurs “Atameken” will help with brand and quality promotion, according to the MoA’s Deputy Director of the Department of Strategic Planning and Analysis Timur Nurashev. The single umbrella brands are aimed at improving quality recognition and competitiveness of Kazakh products in international markets, particularly in China, Russia and Iran, said Nurashev. A draft concept outline and brand development road map are expected by the end of November.

5)

Wheat Production to Drop in Diversification Effort

November 21st, 2016, http://www.apk‐inform.com/en/news/1075315#.WDP26KLp7m4

In an effort to diversify production, wheat cultivation will be reduced by 2.3 million hectares to 10.1 million hectares by 2021, announced Minister of Agriculture Askar Myrzakhmetov, with newly available land used to sow barley, oats, corn and oilseeds, amongst others. In addition, the Ministry of Agriculture will increase subsidy volumes and create incentives encouraging farmers to use high‐quality seeds and fertilizers, said Myrzakhmetov. International standard fertilizer use will be increased from 30% to 50% while new agreements will be reached with producers, guaranteeing supplies, said the Minister.

6)

Ministry of Agriculture Plans Redistribution of Subsidy Funds

November 18th, 2016, http://www.kt.kz/rus/economy/msh_planiruet_napravitj_6_3_mlrd_tenge_na_investicionnoe_subsidirovanie_sadov_i_vinogra dnikov_1153630384.html

The Kazakh Ministry of Agriculture plans to allocate KZT 6.3 billion for subsidizing investments in orchards, vineyards and fruit crops. The funds would be redirected from a current plan to use KZT 9.3 billion for subsidizing direct, per hectare investments in fruit and berry crops, with the remaining KZT 3 billion redirected to subsidize the production of animal feed and the processing of rice, oilseeds, sugar production, molasses and raw cotton.

In addition, there is KZT 30.4 billion in subsidies currently allocated for cereals, legumes, sugar beets, melons, potatoes, cotton. The Ministry is also proposing to redirect KZT 7.1 billion of these funds for subsidizing the seed industry (KZT 4 billion) and industrial greenhouses (KZT 3.1 billion).

The main effect of this redistribution would be approximately 5,000 more agricultural producers eligible for subsidy programs across all spheres of the agricultural sector, helping agricultural producers and processing enterprises as well as improving the quality of seeds and the overall volume of agricultural production.

7)

Control Program Reduces Brucellosis Cases by 40%

November 14th, 2016, https://primeminister.kz/en/news/selskoe_hozyaistvo/prinimaemie‐pravitelstvom‐meri‐pozvolili‐snizit‐ zabolevaemost‐brutsellezom‐v‐kazahstane‐na‐40‐13685

Following the implementation of a central and regional government joint disease control program this summer, incidents of brucellosis in animals and humans decreased by 40% year‐on‐year, according to Page 3

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Deputy Minister of Agriculture Kairat Aituganov. The reduction can be attributed to an increase in analysis and response times, with timely diagnosis, vaccination and slaughter of animals preventing further infections, said Aituganov. Due to the program’s success, extension proposals have been tabled.

8)

Lack of Funding for State Program Leads to Less in Subsidies for Farmers

November 10th, 2016, http://today.kz/news/ekonomika/2016‐11‐10/729599‐v‐rk‐fermeryi‐nedopoluchayut‐subsidii‐iz‐za‐ nedostatka‐finansirovaniya‐gosprogrammyi/

Agricultural producers in Kazakhstan have received less in subsidies due to incomplete financing of the Agribusiness 2020 development program. In connection to the underfunding of the program, the targets to increase both the volume of state support through subsidizing agribusiness facilities and the volume of non‐governmental credit funds have not been achieved. Within the framework of the program, KZT 21.4 billion in budget funds was planned for 2014, with a further KZT 31.8 billion budgeted in 2015; however, only KZT 6.3 billion was actually allocated in 2014 and KZT 9.4 billion in 2015, 29.6% and 29.7% of the planned amounts, respectively.

In addition, the volume of non‐governmental credit funds attracted for agribusiness only amounted to KZT 329.4 billion for 2013‐2015. The low figures are related to the underfunding of the program compensating interest rates on loans and leases.

The overall implementation of the program has, however, helped ensure positive growth in agriculture over this timeframe. The volume of gross agricultural output has increased in nominal terms by 65% compared with 2012, and amounted to KZT 3.3 trillion in 2015. This growth was achieved due to an increased crop production of 86% and an increased livestock production of 45%. Manufacturing of food products increased by 29.7% during this period as well and exceeded KZT 1 trillion.

In 2016, Kazakhstan transitioned to new rules for subsidizing agricultural enterprises. Subsidies will now be made available to farmers for the purchase of equipment and the acquisition of knowledge rather than being based solely on current assets.

Foreign Aid 9)

FAO, EBRD Organize Conference on Kazakh Grain Industry

November 17th, 2016, http://mgov.kz/ru/r‐ashm‐zhanynda‐y‐agrarly‐sayasat‐zh‐nindegi‐ke‐esi‐a‐k‐ni‐damytudy‐2017‐2021‐ zhyldar‐a‐arnal‐an‐memlekettik‐ba‐darlama‐t‐zhyrymdamasyn‐tal‐ylady‐3/

A conference in Astana was organized by the Food and Agriculture Organization of the United Nations (FAO) and the European Bank for Reconstruction and Development (EBRD) as part of the “Improving Transparency of the Grain Market of Kazakhstan” project. The conference brought together 60 participants representing farmers, grain processors, government officials, representatives of the Food Contract Corporation, national and international analysts of the grain market, specialists on quality control, shipping companies, grain suppliers and stock experts to discuss issues related to the grain industry in Kazakhstan.

In recent years, a significantly improved mechanism for collecting and distributing information on the country’s grain industry, including the examination of grain yields, detailed official statistical data and a new system of electronic grain receipts, has helped support greater transparency in the industry.

Further progress, however, is needed to give greater transparency and improve investor confidence in the market, specifically regarding market analysis through the formal implementation and regular Page 4

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updating of the country's grain balance as well as wider distribution of available data on the use and consumption of grain. Participants also discussed that Kazakhstan has significant potential for the storage and transportation of grain but that the distribution of storage capacities as well as the availability of equipment for drying grain still requires further improvement. EBRD has stated that it is ready to support the development of this strategic sector.

Resolving the aforementioned issues will enable the country realize their potential for the production and export of grain more fully. Along with a number of steps already taken, it is crucial to continue reforming the sector in order to improve Kazakh competitiveness and efficiency inside the region as well as around the world. Participants concluded that the development of the Kazakh grain trade will require macroeconomic and financial stability, a robust regulatory framework and system of state price support.

10) Green Technologies Learning Center Opens in Astana November 11th, 2016, http://astanatimes.com/2016/11/green‐technologies‐learning‐centre‐kicks‐off‐to‐support‐transition‐to‐ green‐economy/

The Green Technologies Learning Center (GTLC), aimed at promoting the transition to a green economy, opened in Astana on November 8. The project is backed by the European Union (EU), the United Nations Development Programme (UNDP), and the United Nations Economic Commission for Europe (UNECE).

The GTLC will provide environmental best practice training as well as seminars on green technologies, according to UNDP Deputy Resident Representative in Kazakhstan Munkhtuya Altangerel. Urban agriculture – a key focus of the GTLC program – shortens supply chains thus reducing transport emissions, while producing organic waste that can be used for energy and fertilizer production, said the head of the EU’s Kazakhstan Cooperation Section Jean‐Louis Lavroff. It also helps alleviate food insecurity and diversifies agricultural and biological knowhow distribution channels, added Lavroff. The Center is aimed at farmers, entrepreneurs and public institution representatives and is free of charge for university students.

With EUR 7.1 million in EU funding, similar centers are being erected across Kazakhstan’s regions. The country’s green economy transition strategy was devised in 2013 and will be implemented from 2015‐ 2018. Kazakhstan is a signatory of the Paris Agreement, setting out a global plan to mitigate climate change.

Private Sector 11) Sheep and Goat Numbers Increase 0.9% to 20.01 Million November 24th, 2016, http://eng.kazakh‐zerno.kz/index.php?option=com_content&task=view&id=1527

As of November 2016, sheep and goat numbers totaled 20.01 million, up from 19.83 million a year earlier – a 0.9% increase. The largest volume increases were recorded in: South‐Kazakhstan with 92,800 additional heads; Almaty with 53,300 heads; Zhambyl with 51,900 heads; Aktobe with 44,800 heads; and Kyzylorda with 38,800 heads. The largest percentage increases were recorded in: Kyzylorda with 106.3%; Aktobe with 103.8%; Akmola with 103.2%; and South Kazakhstan with 102.3%. The largest flocks were recorded in: South Kazakhstan with 4.04 million heads; Almaty with 3.79 million heads; and Zhambyl with 2.71 million heads.

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12) Farmers Can Repurchase Grain to Resell at Higher Market Prices November 21st, 2016, http://agroinfo.kz/fermery‐rk‐smogut‐obratno‐vykupit‐zerno‐u‐prodkorporacii‐v‐sluchae‐povysheniya‐ rynochnyx‐cen/

In early September, the Food Corporation announced the purchase of 3‐4 classes wheat and 2 classes of barley. In order to promote the interest of agribusiness entities in participating in the grain purchasing program, the Food Corporation has also taken the decision to allow those who have sold grain to the Corporation the right to repurchase it later if there is an increase in market prices. This way, farmers can now sell grain to the Food Corporation to repay any financial obligations that come due at the end of the year and, should prices rise in the first quarter of 2017, buy their grain back to resell at a better price.

In order to repurchase grains, farmers must repurchase it by no later than February 15 of the following year and refund the expenses for grain storage, any operating expenses, VAT, and a Food Corporation commission.

13) Record 23.7 Million Ton Grain Harvest Reported November 17th, 2016, http://www.apk‐inform.com/en/news/1075135#.WDP246Lp7m4

This year’s grain harvest was a record 23.7 million tons with an average yield of 1.54 t/ha, according to Vice‐Minister of Agriculture Gulmira Isayeva. Nearly 7 million tons of grain and flour were exported to date this year, with the annual total forecast at 9 million tons, added Isayeva. The main export markets are the countries of Central Asia, as well as Afghanistan, Iran and Azerbaijan, reported Isayeva, with export volume increased projected in North Africa, the Middle East, the European Union, and China.

14) Atameken to Help Food Producers Enter Chinese Market November 11th, 2016, http://astanatimes.com/2016/11/kazakh‐farmers‐adapting‐to‐chinese‐market/

Due to its demand for large, stable supplies, producers must form cooperatives if they wish to export to China, according to National Chamber of Entrepreneurs “Atameken” Chair Nurzhan Altayev. At USD 115 billion, Chinese food imports trail only those of the United States and the European Union. Packaging must be homogenized and Chinese quality and safety standards met, said Altayev, adding that Atameken is ready to assist all the players in the food value chain with their export efforts.

Recently, Atameken helped 1,500 beekeepers in East Kazakhstan launch a honey processing and packaging plant. Chinese veterinary inspectors were invited and were satisfied with the quality and safety of the product, said Altayev. Now that volume levels and certification has been secured, exports to China will soon begin, predicts Altayev. With Kazakh products in high demand in many markets and fetching prices 5‐7 times higher than on the domestic market, China offers a huge opportunity, stressed Altayev.

15) Economist Identified Three Major Hindrances to Agricultural Growth November 10th, 2016, https://kapital.kz/economic/55127/selskoe‐hozyajstvo‐v‐kazahstane‐ubivayut‐tri‐faktora.html

Economist Mukhtar Tayzhan expressed his opinion on the progress of the agricultural sector of Kazakhstan and the three factors that are hindering its growth: affiliation, land leasing rights and the process of subsidies.

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The first factor hindering agricultural growth is affiliation. Currently, if a company decides to do business in multiple areas of the agricultural industry through subsidiaries and the tax inspector deems them to be affiliated, that company could potentially miss out on additional investment opportunities. Tayzhan believes that it should be the case that each subsidiary should be considered differently, opening up the investment of real money into more branches of the agricultural economy.

Secondly, the government needs to lift the ban on the commercial circulation of the rights to lease land.

Farmers must have the ability to transfer the rental rights of land if the obligations before the state are maintained. Such transfers should be recorded, of course, but it should not be decided by an official whether or not to allow the transfer since this could have a deterrent effect on the process and become corrupted.

Finally, the process of subsidies needs to be reformed to have funds allocated based on results and not hectare size. Today, the state provides subsidies based on the number of hectares, giving major benefits to those who own hundreds and thousands of hectares and might not necessarily be involved in cultivating them. Instead, a subsidy program based on the number of produced agricultural products would encourage farmers to have more efficient plant management so that they produce more.

Agriculture is the main part of the national economy, amounting to KZT 2.5 trillion in gross output over the first nine months of 2016.

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Prepared by Business & Finance Consulting (BFC) www.bfconsulting.com In this bulletin, BFC provides extracts from articles that have been published by others and as a result cannot be held responsible for such content.

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