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Grain Heights

According to the European Committee research, by the costs on development of agro-industrial complex Kazakhstan is now ahead of some countries membered in the Organization for Economic Cooperation and Development (OECD). In spite of this, the progress of industry is still restricted by several problems such as lack of innovative technologies, poorly developed production infrastructure and insurance system of agro-industrial complex as well as the lack of motivation to create large-size productions of commodities.

In Kazakhstan 90% of cultivated areas is for grains, 86% of which is occupied by wheat and all of the areas are in the zone of risky farming, therefore the harvest heavily depends on the weather conditions. The research works proved that in our country the fluctuations in harvesting capacity (ratio of maximum harvest capacity and the minimal one) are 2.05 which is a high amplitude. For comparison: in Canada the indicator is 1.18, in Australia it is 1.24, in Germany it stands for 1.09 and in Russia it is 1.51.

The recent events of last two year illustrate that neither farmers nor the state are capable to feedback efficiently to the impact of weather conditions. For instance, in 2011 due to undeveloped storage facilities the considerable part of the peak corn harvest (gross gathering was about 30 million tons at the average harvest capacity at 18 c/ha) was left for a winter period in fields covered with snow. Only in the Sandyktausky area of the Akmola region in May still the corns were rotting on 4 000 ha.

This year the situation was complicated as well due to the phenomenon of opposite nature: drought cut harvest by half. As it was said in the Farmers Association of Kazakhstan, in total, 1.5 million ha of planting perished (by estimates of the Ministry of Agriculture this amount is 776 thousand ha) and about 90% of this is in the Kostanay, Akmola, Aktobe and West Kazakhstan Regions.

At the same time, by the data of the Ministry of Agriculture, in 2012 the grain crop (it makes 14.8 million tons in a hopper-type weight) and crop remained since last year (as of the 1st August there were still 6.2 million tons of crops) should be enough for the Republic both for domestic needs and export supplies.

Actually, this is only an official statistics though the analysts think the data on harvest capacity and gross harvest is overstated by 20–30% in the reports of regional and areal akims.

Moreover, in spite of harvest gathered this year the problems with delivery of crops have happened again. Thus, farmers in North Kazakhstan complain that they have to keep grain in heaps under snow as they cannot hand it in to grain elevators where ProdCorporation stores grain of last year while waiting for the peak prices for it.

Against the background, in spite of agreements signed by akimats and crops producers, the cost of crops raised in five regions of Kazakhstan at simultaneously. Thus, both in the Akmola region, a crop farming area, and the Mangistau Region, an oil producing area, the price for a loaf of so called social bread raised by three tenge. And moreover, only 25–45% of the flour self cost depends on crops compared to all costs of flour manufactures.

In addition, the research completed by and Kazpotrebnadzor Public Association discovered that an average difference between the actual and fair value (fair value means a value stated by agreements with akimats) for a loaf is KZT 6 all over the country. It means that the total annual amount overpaid by population for bread is more than KZT 17 billion! Also, it turned out that we have no a unified standard for the “social” bread: its official weight varies in Kazakhstan from 500 to 650 grams.

It seems that there are no important factors inducing growth of cost for bread in Kazakhstan. There should be enough grain in the country’s bunkers from the harvest of last year and the price for bread baked of the last-year grain shall not increase. Nevertheless, it is getting higher. What will occur when flour of this year grain is used? So, in October the internal price for grain increased from $155 up to $280 per ton compared to July! External factors contribute to the process as well: currently, at the international market an average export price for wheat is $350 against $300 last year.

Not only bread is getting more expensive in Kazakhstan, the same story is about vegetables and fruits. If the price for “social” bread is restrained in some way by the new Prime Minister who threaten akims with personal responsibility for the increased price, the vegetables and fruits are beyond authorities’ control as the authorities refer to the uncontrollable market processes.
Deficit at Abundance

The alarm situation is forming around rice production, which is another important food product in our country. Today, major rice manufacturing entities exist only in three southern regions, they are the Kyzylorda (88% of seeds), Almaty and South Kazakhstan regions. Growing domestic demand for rice is mainly met with import. 

Liquidation of major farming entities and ageing of material and technical base required for production, storage and treatment of rice resulted in considerable reduction (for 30%) of cultivated areas and drop (for 25%) of harvest capacity. By the official statistical data, now the volume of gross rice harvest is about 300 thousand tons on average which is 52% less than in 1990. Even the decreased results were gained due to an extensive approach. Specialists assure that the actual situation in the rice manufacturing industry of the country is extremely complicated.

Rice farmers appealed to the Ministry of Agriculture asking to solve their problems and to re-construct irrigation systems, upgrade fleet (wear and tear is 75%), setup selection works to breed new rice varieties, to supply fertilizers and to eliminate deficit of skilled staff but all request are still unanswered. But rice consumption in the total picture of cereal use is 65% and the demand is growing all the time.

Continuous deficit of rice is covered by supplies from Russia (57.8% of total import) and China (29.3%). This does not include smuggling.

Increased import is mainly caused by high self cost at national producers. Thus, in Russia (where rice farming reached parameters previously gained before reforms were implemented) an average rice harvest capacity is 65 c/ha but in Kazakhstan it is 35 c/ha only, and the yield of cereal is 70% and 38% correspondingly.

This is a result of inconsistent policy in the state support of the industry as well. As an example, in 2008 the subsidies for rive were increased up to KZT 20,000 per 1 ha and this helped rice farmers to start upgrading of vehicles but the year after 2008 the subsidies dropped up to KZT 14,000 per 1 ha and since 2010 they are KZT 12,000 per 1 ha only.

Simultaneously, interest rates for leasing of agricultural vehicles occurred all of a sudden: in KazAgroLeasing JSC from 4% up to 8% and in KazAgroMarketing JSC from 4% up to 12.5%.

The situation is deteriorated by the non-performed strategy of the state to provide subsidies for purchase of mineral fertilizers as monopolists producing the fertilizers overstate disbursing costs for them.

Scientific element is not good as well. In Russia the financing of scientific and research works in the area is more than 0.7% of the gross rice production we spend less than 0.2%. As a result, land and water resources of rice systems are still deteriorating; crop rotation is destructed and rice farming technologies are ruined.

Obviously, if the situation left unchanged in the nearest future rice produced domestically will be totally expelled by import. Therefore, farmers ask the government to pay attention to the problems of their field right now and to intensify state support for rice farming.

Clay Feet of State Support

In experts’ opinion the average harvest capacity of grains in country can be 1.5 times more but for these purposes it will require to support farmers really in restoration of crop rotation system and in weed control. Budget funds currently spent mainly for speculations with grains shall be used to implement new intensive technologies and to establish enterprises with advanced processing of farm products, to upgrade barn-floor and elevator facilities.

At the same time, it is necessary to solve issues on aggregation of agricultural enterprises and development of cooperation. Small commodity productions are inefficient in their core as they cannot apply modern agricultural technologies in order to stay competitive. Thus, sudden bounces of harvest capacity in regions where it was usually high, witness on the violation of agrotechnical farming methods. Farm households often do not have funds to perform seasonal operations. Meanwhile, is the branch is left unindustrialized we should not expect any of its feasibility and profitability.

The situation is aggravated by high cost of borrowed funds and lack of own working capitals possessed by agricultural producers and it is also influenced by low efficiency of investments made into the agricultural sector from the state and local business entities. Thus, for the recent five years, over KZT 200 billion were invested to the branch from the budget funds as well as KZT 800 billion as private investments and the main part of the investments were used for the grain producing sector. However, not amount is important here but the structure and mechanism of distribution applied for the financial resources.

Today it is unclear where the appropriated funds were used and how much they actually help farmers: as we can see no considerable progress either in harvest capacity growth or in improvement of capacity on dairy and meet. Most part of farm producers never receive subsidies provided for them due to the non-transparent schemes of funding and it means that their fleet remain not upgraded, in a critical state and the wear and tear on it is up to 80% already.

Next year in Kazakhstan another special program will be commenced in the agricultural complex for 2013 to 2020. It includes mechanisms which help to ease loan burden of farm producers and to reduce risk of their bankruptcy. In particular, it includes such types of supports for agricultural entities as invested subsidies, insurance and guarantees for obtaining of loans.

Nevertheless, farmers are still concerned with the new program as it is similar to previous programs by the lack of consistency and complexity. For example, for improvement of financial position of agricultural enterprises the program provides supply of budget funds in amount of KZT 260 billion. At the same time, the most part of appeared debt will not fall upon small entities of agricultural complex but for agricultural holdings and in such a case the holdings will have an opportunity to write off their debts at the cost of state funds.

Small farming entities, producing the most part of goods, will be still left without free access to the financial resources and markets for selling of their products. Agricultural cooperative societies would be helpful to solve the issues but their establishment stays at the proposing stage for many years already.

As per the new program, by 2020 it is necessary to replace 92% of all existing tractors, combines and other agricultural vehicles. If major players have a chance to invest considerable funds into upgrading of their fleet small farmers are not able to do it either at their own costs or loans.

Centralized purchase of agricultural vehicles which can be further sold at 5–6% per annum is not an option for our farmers as Mr. Asylzhan Mamytbekov, a Minister of Agriculture, believes that “when vehicles is purchase in bulk the corrupting element will emerge and this restrain us from appropriation of great amounts for bulk purchases”.

In addition to the agricultural vehicles, farmers also have problems with fuel and lubricants: prices are getting higher all the time and it has an adverse impact on the low feasibility of production. And it’s obvious. Specific weight of fuel in grain cost is up to 30% and we have fuel consumption per hectare which is twice more than in Canada.

Putting it into a nut shell, one can say boldly that for development of high-tech agricultural manufacture in Kazakhstan, besides sufficient program on rehabilitation and development of agricultural complex it is also required to enlarge amounts and types of subsidies, to revise insurance mechanism in crop growing as well as to come to absolute transparency in the application of funds invested by the state into the branch as well as to apply a sever personal responsibility for implementation of targets assigned.

Table of contents
New Frontiers ahead of us  Erkebulan Iliyasov 
No Changes with Banks  Editorial 
Grain Heights  Editorial 
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· 2001 №1/2  №3/4  №5/6
· 2000 №1  №2  №3

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