#8 Kazakhstan Agriculture Bulletin, BFC

12/2016

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8 K A Z A K H s ta n Agriculture Bulletin 2016 Successful for Agriculture

Grain Reserve Increases Wheat Procurement Prices

EBRD Invests USD 951 Million in Kazakhstan

Kazakhstan Asia’s Third Largest Organic Producer

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

2016 Successful for Agriculture ....................................................................................................... 2 Agricultural Subsidy Schemes Revamped ........................................................................................ 2 Fall in Preferential Agri‐Loan Interest Rates to 3%.......................................................................... 2 KazAgro Disburses KZT 2.3 Trillion in 10 Years ................................................................................ 3 Agribusiness 2020 Program Scrapped Following Audit ................................................................... 3 Irrigation Systems Supplying 610,000 Ha to Be Restored ............................................................... 3 Grain Reserve Increases Wheat Procurement Prices ...................................................................... 4 Ministry Announces Agribusiness Export Center ............................................................................ 4

Foreign Aid ................................................................................................................. 4 9)

EBRD Invests USD 951 Million in Kazakhstan .................................................................................. 4

Private Sector .............................................................................................................. 5 10) Single Month Oilseed Exports Hit Record ....................................................................................... 5 11) Wheat Unprofitable – Diversification Required .............................................................................. 5 12) Kazakhstan Asia’s Third Largest Organic Producer ......................................................................... 5

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

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BFC Agriculture Bulletin

State Initiatives 1)

2016 Successful for Agriculture

January 1st, 2017, http://24.kz/ru/news/economyc/item/156548‐novaya‐programma‐pomoshchi‐fermeram

2016 was a successful year for farmers, with a record grain harvest and other agricultural areas seeing substantial growth. Nearly 24 million tons of grains were harvested in 2016, 17% more than in 2015. In addition, 2016 saw Kazakhstan export nearly 8 million tons wheat and flour. Kazakhstan also experienced growth in livestock breeding as the cattle population grew 2%, the number of horses increased 6% and poultry numbers increased 4.5%. This helped lead to a 3.2% growth in meat processing for 2016.

Looking to 2017, the Ministry of Agriculture will be implementing a new KZT 30 billion subsidy support program. The program, designed for 2017‐2021, aims to support the agro‐industrial complex by subsidizing cooperatives created by smaller farms. The Ministry is also developing a strategy to increase the acreage of oilseed and other crops in a manner consistent with ongoing monitoring and market analysis. Moreover, the Ministry is examining the possibility of reducing agricultural product imports into the country as they look to eventually fully meet domestic demands with locally produced goods.

2)

Agricultural Subsidy Schemes Revamped

December 26th, 2016, http://palata.kz/en/news/25115

The Ministry of Agriculture (MoA) announced a raft of amendments to its subsidy schemes. Going forward, oilseed and sugar beet production will be subsidized according to tonnage sent to domestic processors only, said MoA Director of Crop Production and Processing Azhar Kadzhibekova. Accordingly, farmers will no longer receive subsidies should they export their produce, added Kadzhibekova. Instead of subsidizing 50% of domestic and 30% of foreign fertilizer and pesticide costs, respectively, the MoA announced it would be paying a fixed sum according to product quality only. Agricultural machinery subsidies will also move from a percentage of costs to a fixed sum, said Kadzhibekova. While the pace of technological advances is relatively low, vast sums are spent on expensive, foreign‐built state‐of‐the‐art machinery; the changes should encourage the purchase of cheaper domestic machinery, argued the Director. As per hectare crop subsidies failed to encourage productivity increases, they will be abolished and marketable yields incentivized instead, announced Kadzhibekova. A per hectare subsidy for rice, cotton and fodder will remain in place, however, added the Director.

3)

Fall in Preferential Agri‐Loan Interest Rates to 3%

December 26th, 2016, http://mgov.kz/ru/2017‐zhyldan‐bastap‐k‐ktemgi‐dalaly‐zh‐mystar‐a‐beriletin‐kredit‐zhyldy‐3‐a‐dejin‐ azajtylatyn‐bolady/

Reporting on its 2017‐2021 agro‐industrial complex development program, the Ministry of Agriculture said preferential loan interest rates for springtime farming activities will drop from 7.4% in 2016 to 3% next year. The rates will be available for potato, vegetable, melon, oilseed and other crop cultivation.

The loans will be disbursed by KazAgro National Management Holding, responsible for implementing state agricultural programs.

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BFC Agriculture Bulletin

4)

KazAgro Disburses KZT 2.3 Trillion in 10 Years

December 23rd, 2016, http://www.inform.kz/en/in‐10‐years‐kazagro‐holding‐spent‐2‐3trln‐tenge‐on‐support‐of‐agro‐ industrial‐complex_a2982675

State‐owned KazAgro National Management Holding – responsible for implementing agricultural policies – celebrated its 10th anniversary on December 23. Since its inauguration, the holding pumped KZT 2.3 trillion into the agriculture sector; assets, capital and revenue increased by factors of 6.6, 3.4, and 2.2, respectively; and lending increased from KZT 116 billion to KZT 300 billion per year, of which 16% was sourced from state funds. Roughly 50,000 beneficiaries received credit through KazAgro, with small and medium enterprises swallowing 89% of the funds. The holding has employed over 141,500 people, while its activities have created 33,400 jobs.

5)

Agribusiness 2020 Program Scrapped Following Audit

December 23rd, 2016, http://eng.kazakh‐zerno.kz/index.php?option=com_content&task=view&id=1531

An Accounts Committee (AC) audit of the Agribusiness 2020 program – launched in 2013 with Askar Myrzakhmetov at the helm of the Ministry of Agriculture (MoA) – revealed KZT 21.5 billion in financial violations and KZT 53 billion in inefficient expenditures. The program was subsequently scrapped.

Current Minister of Agriculture Askar Myrzakhmetov presented a new 2017‐2021 agriculture development program in November. The audit found 74% of performance indicators wanting, with 49% of program elements partially carried out or not carried out at all. Of the KZT 203 billion in state agricultural loans disbursed in 2015, 50% of the total went to just 1% of recipients.

Failures were due to corruption, poor planning, and weak information gathering and consulting support, according to the AC. From 2013‐2015, KZT 28.8 billion in MoA spending was not correctly accounted for.

Despite a declared KZT 18.6 billion in veterinary measures from 2014‐2015, disease growth remains stable. In addition, second floors were added to 75 regional veterinary laboratories, costing KZT 4.4 billion. These floors remain empty, according to the AC. The construction of 12 laboratories worth KZT 900 million has been discontinued while a further 89 laboratory buildings worth KZT 400 million remain empty. From 2014‐2015, KZT 9.6 billion in fertilizer and seed subsidies were redirected by local authorities, found the AC. Industry weaknesses revealed by the audit include: decreasing insurance coverage; pesticide use on only 30%‐40% of cereal crops with a resulting 10% loss of the annual harvest; a reduction in cotton cultivation; food safety inspections on only 5.6% of imports, with eggs and milk not tested at all; and inadequate tools to develop an effective national veterinary program.

6)

Irrigation Systems Supplying 610,000 Ha to Be Restored

December 8th, 2016, http://www.apk‐inform.com/en/news/1075952#.WFFNpaLp7m4

By 2021, irrigation systems supplying 610,000 hectares of regular farmland will be restored, announced Ministry of Agriculture Water Resource Committee Chairman Islam Abishev. Area affected in each province is as follows: Almaty, 127,000 ha; South Kazakhstan, 99,000 ha; East Kazakhstan, 92,000 ha; Jambyl, 86,000 ha; West Kazakhstan, 40,000 ha; Pavlodar, 30,000 ha; Aktobe, 29,000 ha; Kyzylorda, 29,000 ha; Karaganda, 28,000 ha; North Kazakhstan, 28,000 ha; and Atyrau, 22,000 ha, according to the Chairman. A program to restore estuary irrigation systems across 368,000 ha is in development, said Abishev.

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BFC Agriculture Bulletin

7)

Grain Reserve Increases Wheat Procurement Prices

December 8th, 2016, http://www.fao.org/giews/food‐prices/food‐policies/detail/en/c/460129/

In December, the Food Contract Corporation (FCC) – the state grain reserve – announced increased quality graded wheat procurement prices: KZT 49,000‐58,000 per ton for 3rd grade, up from KZT 41,000‐ 50,000 per ton; and KZT 38,000‐40,000 per ton for 4th grade, up from KZT 34,000‐36,000 per ton. To increase participation in the program farmers may buy back grain until mid‐February. This will allow them to benefit from potential increases in market prices. The buy‐back scheme requires participants to pay the original purchase price plus storage and operating costs plus VAT and commission. Participant may then sell the wheat back to the FCC at market prices if they choose.

8)

Ministry Announces Agribusiness Export Center

December 6th, 2016, http://www.apk‐inform.com/en/news/1075869#.WFFNnaLp7m4

The Ministry of Agriculture announced a prospective agribusiness export center as part of the 2017‐ 2021 agro‐industrial complex development program. The center will focus on promoting domestic agricultural products in foreign markets. The Food Contract Corporation – the state grain reserve – will be responsible for its implementation. The 2017‐2021 program envisages a central role for the agro‐ industrial complex in ensuring sustainable development, labor efficiency increases, and living standard improvements across Kazakhstan.

Foreign Aid 9)

EBRD Invests USD 951 Million in Kazakhstan

December 13th, 2016, http://astanatimes.com/2016/12/2016‐ebrd‐investment‐in‐kazakhstan‐breaks‐record‐for‐third‐year/

The European Bank for Reconstruction and Development (EBRD) reported it invested between USD 898‐ 951 million in Kazakhstan in 2016. The bank has more than 30 ongoing projects in agribusiness, utilities, infrastructure, and finance. Since the launch of the Enhanced Partnership Programme in 2014, the company invested USD 600 million in its first year and USD 749 million in 2015. This year, EBRD supported projects in: private sector food processing; Astana‐Almaty road rehabilitation; logistics company development; solid waste management in Kyzylorda; and heating system development in Pavlodar, amongst others.

Food and agriculture are increasingly important in the bank’s portfolio. This year, for example, Lactalis received an EBRD loan to boost local dairy production. In line with the bank’s targets, 40% of its projects help with the transition to a “green” economy. In 2016, the EBRD helped 200 small and medium enterprises (SMEs) access consulting services, which are crucial to developing best practice in corporate governance, said EBRD Regional Head of Small Business Support (SBS) Holger Wiefel. The bank’s Women in Business program, launched in 2015, was another priority in 2016. The program provides loans in local currency, advisory services, and training. Five training seminars, 45 consulting projects and 5,797 microloans resulted through the program in 2016.

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BFC Agriculture Bulletin

Private Sector 10) Single Month Oilseed Exports Hit Record December 27th, 2016, http://www.apk‐inform.com/en/news/1076707#.WGLiJqLp7m4

In November 2016, oilseed exports hit a single month record 99,300 tons, a 27% increase year‐on‐year, according to the Ministry of Finance’s Customs Control Committee. Sunflower seed and flaxseed were leading drivers, with 30,000 tons and 53,900 tons exported, respectively, representing 9% and 19% year‐ on‐year increases. In the first three months of the 2016‐2017 market year, oilseed exports totaled 178,000 tons, up 18% year‐on‐year.

11) Wheat Unprofitable – Diversification Required December 26th, 2016, https://kapital.kz/economic/56261/v‐kazahstane‐stanovitsya‐nevygodnym‐vyracshivat‐pshenicu.html

Crop subsidies will total KZT 68 billion in 2017 with a focus on crop diversification and import reductions, said Ministry of Agriculture Crop Production and Processing Director Azhar Kadzhibekova. By 2021, the Ministry aims to increase fruit and vegetable, oilseed, and sugar production by 64%, 70% and 90%, respectively. Over the same period, target import reductions are as follows: 160,000 tons to 69,000 tons of vegetable oils; 185,000 tons to 75,000 tons of sugar; and 99 tons to 62 tons of canned food, reported Kadzhibekova. According to agricultural expert Toleutai Rakhimbekov, crop and livestock production currently meet 100% of domestic needs; however little is processed domestically, resulting in heavy reliance on food imports.

Wheat yields in Kazakhstan are roughly 1 ton per hectare, fetching between USD 260‐280 on global markets, said Rakhimbekov. Farmers receive roughly USD 150 per hectare once transport costs to Baltic and Black Sea ports are factored in. This makes wheat cultivation unprofitable with oilseed proving a better bet, argues the expert. Moreover Russia allows Kazakh wheat transits only when its own wheat harvest is below 70‐80 million tons. With Russia planning to increase production to 120‐130 million tons, the focus should be on the Chinese market, said Rakhimbekov. Demand is expected to reach 20 million tons per annum in the near future, roughly the equivalent of the Kazakh crop. Upon its entry to the World Trade Organization 13 years ago, China agreed to open its borders to wheat and soybean; Kazakhstan must take advantage of this opportunity, argued Rakhimbekov.

12) Kazakhstan Asia’s Third Largest Organic Producer December 9th, 2016, http://www.apk‐inform.com/en/news/1075994#.WFFNqKLp7m4

At 300,000 hectares, Kazakhstan is Asia’s third largest organic producer according to International Federation of Organic Agriculture Movements (IFOAM) figures. This year, organic exports totaled USD 10 million, reported Ministry of Agriculture Deputy Director of Strategic Planning and Analysis Timur Nurashev. The umbrella brand “Qazaq Orgnaic” has been developed to promote a positive image of the country’s organic produce abroad, said Nurashev. Qazaq Orgnaic circulates alongside to other Kazakh umbrella brands – Halal and Meat Brand.

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