#3 BFC Kazakhstan Agriculture Finance Bulletin3

07/2016

#

3 K A Z A K H s ta n Agriculture Finance Bulletin Over KZT 85 Billion for Spring Field Works So Far this Year Kazakhstan Working Towards KZT 106 Billion Irrigation Restoration Belarus to Subsidize Kazakh Leasing of Belarusian Agricultural Equipment Kazakhstan Exports 8.3 Million Tons of Grains and Flour

All materials are published “as is� and are the property of their respective owners.

Agriculture Finance Bulletin Edition #3, July 2016

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

KZT 1 Billion Agricultural Training Program Launched .................................................................... 2 Grain Receipts Move to Electronic Platform ................................................................................... 2 KazAgro to Expand the Presence of Agricultural Cooperatives ....................................................... 2 Over KZT 85 Billion for Spring Field Works So Far this Year ............................................................ 2 KazAgro Developing Private Equity Funds to Attract Foreign Investment ...................................... 3 Agriculture Ministry Proposes Revision to Cattle Feedlot Subsidy ................................................. 3 Agriculture Ministry Proposes Monitoring of Leased Agricultural Lands........................................ 3 Kazakhstan Working Towards KZT 106 Billion Irrigation Restoration ............................................. 4

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

Belarus to Subsidize Kazakh Leasing of Belarusian Agricultural Equipment ................................... 4

Private Sector.............................................................................................................. 4 10) 11) 12) 13) 14) 15) 16) 17) 18) 19)

Amanat Program Progress Monitored ............................................................................................ 4 Nearly 1 Million Tons of Grain Harvested in Kazakhstan ................................................................ 4 Beef Exports will Fall Short of Expectations in 2016 ....................................................................... 5 Nearly KZT 14 Billion Financed for Advanced Grain Purchases ....................................................... 5 Banks in Kazakhstan Increase Agricultural Lending Volumes.......................................................... 6 Kazakhstan Increasing Egg Export Capacities .................................................................................. 6 More Than 12,000 Agricultural Producers Supported by Credit Associations ................................ 6 Russia and China Temporarily Refuse to Buy Kazakhstan Meat Products ...................................... 6 Fishing Industry in the Aral Sea Region Exporting to the EU ........................................................... 7 Kazakhstan Exports 8.3 Million Tons of Grains and Flour ............................................................... 7

Note: The Agriculture Finance Bulletin presents a monthly roundup of headlines and news stories related to investments and financing flows 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.

BFC Max-Högger-Strasse 6 CH-8048 Zurich, Switzerland

Phone: +41 44 784 22 22 Fax: +41 44 784 23 23

info@bfconsulting.com www.bfconsulting.com

BFC Agriculture Finance Bulletin

State Initiatives 1)

KZT 1 Billion Agricultural Training Program Launched

July 29th, 2016, http://bnews.kz/en/news/ekonomika/apk/one_billion_tenge_allocat

The Ministry of Agriculture commissioned a KZT 1 billion agriculture training program to be held from June to November this year. An Agricultural Competencies Center (ACC) run by the National Chamber of Entrepreneurs “Atameken” will implement the program. Across Kazakhstan, 660 seminars will be delivered with the cooperation of 25 foreign experts and an estimated 10,000 participants, according to ACC Director Toleutaya Rakhimbekov. The seminars will focus on 25 topic areas – 13 in animal husbandry and 12 in crop cultivation. With ever-changing agricultural technologies, farmers need continuous and constant education to remain competitive, said Rakhimbekov. This program provides participants with the contemporary technological applications and decision-making tools to increase business efficiency, concluded Rakhimbekov.

2)

Grain Receipts Move to Electronic Platform

July 29th, 2016, http://strategy2050.kz/en/news/37571

Grain receipts have moved from paper to an electronic platform, announced the Ministry of Agriculture’s Director of Manufacturing, Processing and Crops Azhar Kadzhybekova. Farmers can receive grain receipts via the internet or mobile telephone, reducing costs by eliminating the need to be physically present at grain elevators, said Kadzhybekova. Grain enterprises, in turn, can eliminate the cost of paper receipt forms and registration, while participating in the operation of the scheme. Since grain receipts will be automated and the information available to all users – including regulatory authorities – the system will increase transparency and greatly reduce the opportunity for corruption, said Kadzhybekova. Relevant authorities will establish a grain industry database, added Kadzhybekova, providing for more effective regulation and analyses. Grain receipts will function as securities and may be used as loan collateral. In the future, an electronic grain trading platform will be based on the system, concluded Kadzhybekova.

3)

KazAgro to Expand the Presence of Agricultural Cooperatives

July 22nd, 2016, http://bnews.kz/en/news/ekonomika/apk/kazagro_kazakhstan

In light of positive experiences with agricultural cooperatives, KazAgro Holding has announced that it is planning to expand its influence into more spheres of agriculture. With the financial support of the Financial Support Fund on the Rural Economy, KazAgro plans to create and introduce cooperatives for beekeeping, breeding (cattle and sheep) and the production and processing of milk, meat, cotton, and corn through 2018. Already this year, KazAgro has financed ten cooperatives in the Akmola, North Kazakhstan, Karaganda, and Pavlodar regions and has provided KZT 8.3 billion in financing to over 200 participants in the cooperatives.

4)

Over KZT 85 Billion for Spring Field Works So Far this Year

July 22nd, 2016, http://bnews.kz/en/news/ekonomika/apk/over_85_billion_tg_allocated_

So far this year, KazAgro Holding has, through direct financing and indirect means, financed a total of KZT 85.3 billion for spring field works in Kazakhstan, helping more than 3,300 agricultural producers. Of this amount, KZT 60 billion came in the form of loans as follows: KZT 36 billion for direct financing of agricultural producers; KZT 15.4 billion for guaranteed grain purchasing; and KZT 8.6 billion for financing regional grain cooperatives.

Page 2

BFC Agriculture Finance Bulletin

5)

KazAgro Developing Private Equity Funds to Attract Foreign Investment

July 21st, 2016, http://www.kazagro.kz/en/holding?p_p_id

In an effort to improve the investment climate for agricultural businesses in Kazakhstan, KazAgro Holding, with support of the Ministry of Agriculture, has begun to establish private equity funds.

A pilot fund has already been jointly established for KazAgro with Export-Import Bank of Hungary. The initial amount of the fund has been set at USD 40 million and is planned to increase up to USD 150 million. The fund is being managed by independent company ADM Capital, which has extensive experience managing aggregate capital through various investment funds in 16 developing nations.

ADM Capital has already begun its work and is considering more than 100 investment projects in the agricultural sector. To date, three projects have been agreed upon and will shortly be finalized with signed agreements: a dairy farm, a production plant for mineral fertilizers, and a greenhouse complex.

KazAgro is also working with FPP Asset Management LLP to attract investments into the agricultural sector of Kazakhstan. FPP Asset Management has significant experience in management of private equity funds and will be working to increase corporate governance efficiency, instill financial controls for projects, develop a risk map, monitor projects and attract additional financing.

Apart from direct financing, the fund will also work to implement new technologies into the agricultural sector, thereby supporting both agricultural development and industrialization.

In order to attract more foreign investors, the perspective investment projects are being published on corporate portal of KazAgro, and information about the project opportunities is being sent to interested state bodies for their distribution among potential foreign investors.

6)

Agriculture Ministry Proposes Revision to Cattle Feedlot Subsidy

July 13th, 2016, http://www.apk-inform.com/ru/news/1069996#.V6SOiaLp7m4

The Kazakh Ministry of Agriculture is proposing to revise the subsidy for cattle feedlots in an effort to increase the workload of processing enterprises through the use of private farms. Currently, more than 80% of the KZT 5.7 billion budget for cattle feedlot subsidies is used to support large feedlots (3,000 cattle stalls or more) with the remaining KZT 1 billion left for smaller feedlots. The Ministry’s proposal would revise the current approach to better allow for small- and medium-sized feedlots to have access to the program.

7)

Agriculture Ministry Proposes Monitoring of Leased Agricultural Lands

July 9th, 2016, http://www.inform.kz/eng/article/2923367

The Kazakh Ministry of Agriculture is proposing to begin monitoring of the leased agricultural lands of the country. Speaking to the Land Reform Commission, Deputy Agriculture Minister Yerlan Nysanbayev expressed the importance of continuing to lease agricultural lands for up to 49 years, but to also include monitoring of the land. The proposed measure would help to ensure proper use of the lands by monitoring leased lands every year for the first five years and then periodically after that. If adopted, monitoring would be conducted in cooperation with public organizations, associations and the National Chamber of Entrepreneurs.

Page 3

BFC Agriculture Finance Bulletin

8)

Kazakhstan Working Towards KZT 106 Billion Irrigation Restoration

July 8th, 2016, http://www.inform.kz/eng/article/2923166

Kazakhstan is looking to attract KZT 106 billion from the Islamic Development Bank and the European Bank for Reconstruction and Development for the restoration of drainage and irrigation systems. The restoration plan, developed jointly by the Ministry of Agriculture and the Ministry of National Economy, hopes to begin with the implementation of irrigation system restoration projects in four regions (South Kazakhstan, Almaty, Zhambyl and Aktobe) that cover 183,000 hectares.

Foreign Aid 9)

Belarus to Subsidize Kazakh Leasing of Belarusian Agricultural Equipment

July 20th, 2016, http://www.kazagro.kz/en/web/kaf/news;jsessionid=C5790B58

KazAgroFinance JSC and the government of Belarus have signed an agreement under which Belarus will compensate KazAgroFinance for a part of lease payments on agricultural machinery. According to the agreement, compensation will be on lease agreements which will be concluded prior to the end of 2016 and are for certain machinery and goods produced in Belarus. Additionally, compensation will cover a period of up to five years only. The compensation will amount to two thirds of the refinancing rate as set in Kazakhstan. Currently, that sets the subsidization rate at 3.67%. Subsidization payments from Belarus will occur quarterly.

Private Sector 10) Amanat Program Progress Monitored August 4th, 2016, http://www.kazagro.kz/en/holding?p_p_id=newsportlet_WAR_

In June, state-run KazAgroProduct (KAP) audited the progress of several beneficiaries of the Amanat program – which aims to maximize cattle farm productivity. KAP provides technical assistance and other consulting services to Amanat participants, including advice on veterinary procedures and documentation, and the keeping and feeding of cattle. KAP also weights and registers livestock. The average weight of Amanat cattle is 415 kg, above the Kazakhstan average. Roughly 600 tons of beef was sold domestically through the program.

Sairam district cattle farm “ET Onimderi”, with a capacity of 3000 heads and 14 staff, saw 1079 cattle purchased and sold through the program. Average daily weight gain was recorded at 0.7 kg. Feed comprises hay with additives. Merken district farm “Olzha”, with a capacity of 4600 heads and 35 staff, saw 2887 cattle purchased and sold through the program. Average daily weight gain was recorded at 0.9 kg. Feed consists of hay, bran and additives. Syrdariya district farm “Shagan Zher”, with a capacity of 3000 heads, joined the program in December 2015. The farm will concentrate on hay-haylage-silage feed.

11) Nearly 1 Million Tons of Grain Harvested in Kazakhstan July 27th, 2016, http://www.apk-inform.com/en/news/1070544#.V5i13KLp7m4

As of July 27, nearly one million tons of grains have been harvested, representing a year-on-year increase of 171 thousand tons. The grains have been harvested on 440.7 thousand hectares, which is Page 4

BFC Agriculture Finance Bulletin

35.2% of the planned grain area. In particular, Jambyl oblast harvested 154.5 thousand hectares; South Kazakhstan oblast, 153.8 thousand hectares; Almaty oblast, 100.4 thousand hectares; West Kazakhstan oblast, 26.7 thousand hectares; and Kyzylorda oblast, 5.4 thousand hectares.

12) Beef Exports will Fall Short of Expectations in 2016 July 25th, 2016, http://eng.kazakh-zerno.kz/index.php?option=com_content&task=view&id=1463&Itemid=1

With half the year now behind us, it appears that the optimistic outlook for beef exports will end up well short of its goal. At the beginning of the year, hopes were high that Kazakhstan could reach 60,000 tons of beef exported in 2016; however, a number of issues are holding development of the industry back.

Theft of livestock has become a great concern for many, especially in villages. While extreme cases like the theft of 200 horses in the Nura region of the Karaganda oblast are rare, smaller scale theft of livestock have made many cautious in regards to the risk of spending financial resources to expand their herds only to have the investment stolen from them the next day.

Another issue hindering the development of the beef industry in the country is the question many face of modernization with new technologies versus maintaining the status quo of cheaper, manual labor.

Many are opting for cheap labor, an abundant resource at the moment, which generally provides for poor sanitary conditions, low productivity, poor quality, and a limited potential for growth.

Finally, an outbreak of anthrax in the country that has killed and hospitalized many has been traced back to infected beef. Moreover, disposal methods of sick animals is widely viewed as having greatly deteriorated since the fall of the Soviet Union, causing concern among countries which import beef from Kazakhstan. Russia and China have even temporarily banned the import of Kazakh beef products.

In the end, the question of increasing beef exports from Kazakhstan is not a matter of setting a target number at this point, but rather whether or not the issues facing the industry can be overcome so as to allow for an industry that can grow and thrive responsibly.

13) Nearly KZT 14 Billion Financed for Advanced Grain Purchases July 18th, 2016, http://www.kazagro.kz/en/holding?p_p_id=newsportlet_WAR_newsportlet&p_p_lifecycle=0&p_p_state=maximized&p_p_mod e=view&_newsportlet_WAR_newsportlet_action=showNewsFull&_newsportlet_WAR_newsportlet_idNews=1935&_newsportlet _WAR_newsportlet_type=1

NC Food Contract Corporation seeks to support trading and procurement operations in the grain market of Kazakhstan as well as to help develop a stable domestic and export environment for Kazakh grain producers. To that end, they are running a program, with financial support from Social Enterprises Corporation (SEC), of advanced grain purchasing and have already signed KZT 13.9 billion worth of advanced grain purchasing agreements. In June, the total budget for the program was increased from KZT 14.1 billion to KZT 15.4 billion in order to better support the total amount requested, which had exceeded the originally budgeted amount. While the advanced grain purchasing program is, overall, showing signs of success, the North-Kazakhstan region has only allocated 74% of the available funds, and the Pavlodar region also has yet to fully utilize all its available funds.

Agricultural producers have until November 1, 2016 to fulfill their obligations of grains delivered under the terms of the advanced purchase agreements.

Page 5

BFC Agriculture Finance Bulletin

14) Banks in Kazakhstan Increase Agricultural Lending Volumes July 15th, 2016, http://www.azernews.az/news.php?news_id=99397&cat=region

Kazakh banks have increased the amount of loans issued for enterprises engaged in agriculture to KZT 699 billion (USD 2.04 billion), a 47% increase over last year. The share of agricultural loan products in the banks’ loan portfolios is now 6%, as compared to 4% in 2015. In addition, the total value of loans allocated to agricultural enterprises between January and May of this year was KZT 123 billion (USD 360 million), 2.2% higher than the same period in 2015. Long-term loans amounted to KZT 88 billion (USD 250 billion); short-term loans amounted to KZT 36 billion (USD 100 million).

Agriculture still remains a small sector of the country’s economy; however, the sphere is considered to be very important for tackling poverty and increasing food security as well as for providing an avenue for economic diversification. Kazakhstan increased its total agricultural production by 4.4% in 2015 (crop production increased 5.6% while livestock production increased 3.2%).

15) Kazakhstan Increasing Egg Export Capacities July 15th, 2016, http://kazakh-tv.kz/en/view/news_kazakhstan/page_166546_kazakhstan-increases-egg-export-capacities

Thanks to the growth of egg production in Kazakhstan, domestic egg markets are fully satisfied and Kazakh egg producers are looking towards exports as the next stage of growth. Eggs are relatively competitive on the world market, and egg producers are planning to take advantage of this by expanding their exports to more countries, including Mongolia and Iran.

Egg exports began on a small scale in 2013 with delivery to neighboring Kyrgyzstan and have steadily expanded to include Tajikistan, Russia, Afghanistan and the United Arab Emirates. Last year, nearly 5 billion eggs were produced in Kazakhstan, and production this year is on pace to push that number even higher thanks to increased export potential.

16) More Than 12,000 Agricultural Producers Supported by Credit Associations July 12th, 2016, http://bnews.kz/en/news/ekonomika/apk/over_12000_landowners_of_kazakhstan_have_been_supported_by_credit_corporati on-2016_07_12-1281019

In the past 15 years, 176 credit associations have been created. Through cooperation in their creation and development, this extensive network of credit associations has been able to reach 163 areas of Kazakhstan and 12,400 agricultural producers. In just the last three years alone, the number of participants in credit associations has increased by 83.7%, and credit associations have been involved in the financing of 44,400 workplaces. Credit associations provide financing not only for plant growing and animal husbandry but also non-agricultural businesses in villages.

17) Russia and China Temporarily Refuse to Buy Kazakhstan Meat Products July 12th, 2016, http://bnews.kz/en/news/ekonomika/apk/russia_and_china_refuse_to_buy_the_kazakhstan_meat2016_07_12-1281031

Kazakhstan has exported 10,000 tons of meat production to the Russian Federation, and a contract for 50,000 tons of meat product was close to finalization with China; however, recent outbreaks of pasteurellosis and anthrax have caused both Russian and Chinese buyers to temporarily refuse to buy Kazakh meat.

Page 6

BFC Agriculture Finance Bulletin

Meat producers have received less than KZT 3 billion the past month and are concerned that a prolongation of the situation will cause the loss of investments already made and no revenue stream. In addition, complications in the domestic market have left Kazakh meat producers scrambling to conduct negotiations with other countries in order to sell their products.

18) Fishing Industry in the Aral Sea Region Exporting to the EU July 10th, 2016, http://www.inform.kz/eng/article/2923699

At a conference on the past, present and future of the fishing industry in the Aral district of Kazakhstan, it was announced that eight fish-processing plants in the Kyzylorda region are now exporting their products to EU countries. The eight plants have a capacity to export 11,000 tons of product per year.

A state-run program aimed at preserving the northern Aral Sea and creating better opportunities for fishing has helped the region develop its fishing industry, and confidence is high that development of the industry will continue in the Aral Sea region.

19) Kazakhstan Exports 8.3 Million Tons of Grains and Flour July 8th, 2016, http://www.apk-inform.com/en/news/1069780#.V5i17KLp7m4

Kazakhstan has exported 8.3 million tons of grains and flour so far in the 2015/2016 season, 1 million tons higher than expected, according to the Ministry of Agriculture of the Republic of Kazakhstan. In particular, the country exported 5.4 million tons of grains and 2 million tons of flour (2.9 million tons of grain equivalent). It should be noted that the average annual grain export from Kazakhstan is between 6 and 7 tons.

Page 7

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.

The articles do not necessarily reflect the opinions of BFC, its staff, its associates or its partners.

Copyright of articles is retained by their authors.