Focus on Kazakhstan

by Chris Lyddon
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Kazakhstan is a major producer and exporter of high quality wheat, which dominates the output of its large-scale commercial farms. However, production is highly variable. It’s also a major processor, with a milling industry that has been the top ranked wheat flour exporter in the world in recent years.
According to the International Grains Council (IGC), Kazakhstan is facing a sharp fall in production in 2012-13, with total grain production put at 12.5 million tonnes, compared with the record 26.1 million the year before. Its wheat crop is down at 10.5 million tonnes from 22.7 million. The IGC total also includes 1.2 million tonnes of barley, down from 2.6 million.
It means a drop in total grain exports to a forecast 7.2 million tonnes for 2012-13, compared with 11.4 million the year before. Wheat exports are forecast to fall to 7 million tonnes from 10.7 million, while exports of barley are set to fall to 200,000 tonnes from 700,000.
Despite all that, Kazakhstan’s wheat exports in July to October were actually up by 35% at 2.4 million tonnes.
“Key northern wheat growing areas, especially the Kostanay region, experienced continued dry weather and high temperatures throughout the growing season,” an attaché report explained. “According to the Ministry of Agriculture of Kazakhstan, as of Oct. 24, Kazakh farmers harvested 14.648 million tonnes (bunker weight) of grain from 15.058 million hectares, which accounts for 99.9% of the total harvested area,” it said, noting that the harvest was earlier because of the smaller crop and high temperatures. The average yield is reported at 0.97 tonnes per hectare compared with 1.76 last year.
“Despite the poor crop this year, the bumper harvest of 2011 and high prices for farmers have helped to somewhat mitigate the negative impact on farmers (especially compared to previous years of drought),” the report said. “In addition, the Kazakh government has promised to help farmers by extending their loans. For livestock farmers, the government has provided support for purchasing feed.”
The history of Kazakhstan’s wheat production is one of a long-term decline, followed by a recovery since 2000 as the USDA’s Foreign Agricultural Service explains in an overview of the country’s agriculture.
“After peaking at 19.6 million hectares in 1969, Kazakhstan wheat area began in the mid-1970s to decrease gradually as fields of marginal productivity were taken out of production,” it said. “In the early 1990s, following the breakup of the Soviet Union and the loss of massive government subsidies for state and collective farms and livestock enterprises, local agricultural officials began to set productivity thresholds for individual fields.
“Fields that consistently failed to meet the threshold — typically 0.6 to 0.7 tonnes per hectare against a national average of about 0.9 tonnes per hectare — were taken out of grain production and converted to permanent pasture. The decline in grain area accelerated in the mid-1990s when shrinking livestock inventories caused feed-grain demand to plummet, leading to a 75% drop in barley area between 1993 and 1999. During these six years, total grain area in Kazakhstan contracted at the rate of nearly 2 million hectares per year.”

INFRASTRUCTURE IMPROVEMENTS
The attaché also reports that the Government of Kazakhstan is working to increase and modernize storage capacity.
“The Food Contracting Corporation JSC (Kazakh Government grain operator) has announced the construction of several grain terminals with a total capacity of 400,000 tonnes in various regions of Kazakhstan by 2015,” the report said. “The terminals will be located in the South Kazakhstan, North Kazakhstan, Aktobe and Mangistau regions. In 2010-11, KazAgro commissioned 14 grain terminals with a total capacity of 313,000 tonnes, and by the end of this year the company will open five grain terminals with a total capacity of 61,000 tonnes.”
An earlier annual report on the sector notes that the ministry of agriculture is trying to encourage diversification into crops other than wheat, “especially as in most places wheat is planted monoculture.”
“The long-term strategy of the government is by 2020 to have wheat comprise just 52% of total area sown to all crops, down from the current level of 65% percent (and as high as 80% in some northern provinces),” the report explained. “The reason for encouraging this decline in area is to improve agronomic practices of crop rotation, and provide more feed grains and oilseeds to the expanding livestock and poultry industries.”
The shifting of wheat into other crops is primarily occurring in better-financed farms owned and operated by large agroholdings who have the financial means to pay for more expensive seeds, inputs, and machineries needed to switch into these other crops, the report said.
“The growth in oilseeds area in Kazakhstan has grown dramatically in recent years, although the base remains low,” it said.
“The production of oilseeds (sunflowerseed and rapeseed) is increasing, but total oilseed output remains well below 1 million tonnes,” according to the FAS overview. “The country also grows a small amount of cotton in southern Kazakhstan, with annual lint output at around 100,000 tonnes.”

FLOUR MILLING INDUSTRY
The attaché expected food consumption of wheat to remain steady. It noted that the flour milling industry has consolidated. “According to the Flour Millers Association of Kazakhstan, the total number of flour mills has sharply declined in the last 10 years as consolidation has taken place. And while there were 2,300 mills in 2000, by 2010 this had fallen to just 383,” the report said. “The total capacity of mills in Kazakhstan is estimated at over 12 million tonnes of flour, although overall production is just 50% of capacity with domestic demand estimated by the association at 2.6 million tonnes, and exports at 3.5 million tonnes.”
“The location of mills in the country is spread out, and while the key wheat growing region of Kostanay is the largest flour producer (27% of the total), second place is the South Kazakhstan region (20% of the total), which is far from growing areas and is closer to Almaty and key Central Asian buyers,” the report said.
In an interview with the APK Inform news agency in December, Eugenie Albertovich, president of the grain processors and bakers association, described the capacity usage of the industry.
“According to our estimation, the total capacity of the milling enterprises of Kazakhstan is at the level of 12 million tonnes of grain annually,” he said. “In order to satisfy the domestic market demand, we need only 2.5 million tonnes of the annual grain crushing, and for the foreign market — maximum 3.5 million tonnes annually. The average loading of the milling capacities is nearly 50%.”
Although overall flour consumption is largely stagnant, a consumer survey from the Flour Millers Association has shown that quality and health have become more important motivations for consumers, and as a result sales of the highest grade of flour has increased, the attaché said.
“In addition, the number of consumers baking their own bread has decreased and the share purchased in markets has continued to grow,” it said.
Kazakhstan has been the world’s biggest wheat flour exporter for some years, but its reduced crop means that 2012-13 shipments will be limited to 2.8 million tonnes, according to estimates published by the IGC last year. That compared with the previous year’s total of 3.5 million tonnes. It will limit supplies to some of Kazakhstan’s traditional customers.
“Imports by Uzbekistan are projected to fall by 400,000 tonnes, to 1.5 million, capped by tighter export availabilities in Kazakhstan which normally fills virtually all its neighbor’s needs,” the IGC said. Even with reduced exports of wheat flour, Kazakhstan will still be the joint biggest wheat flour exporter in the world, equaled only by Turkey.

Key Facts
Capital: Astana
Population: 17,522,010 (July 2012 est.)
Religions: Muslim 47%, Russian Orthodox 44%, Protestant 2%, other 7%.
Location: Central Asia, northwest of China; a small portion west of the Ural (Zhayyq) River in eastern-most Europe.
Government: Republic; authoritarian presidential rule, with little power outside the executive branch. Chief of state: President Nursultan Nazarbayev (since Dec. 1, 1991); head of government: Prime Minister Serik Akhmetov (since Sept. 24, 2012).
Economy: Kazakhstan, geographically the largest of the former Soviet republics, excluding Russia, possesses enormous fossil fuel reserves and plentiful supplies of other minerals and metals, such as uranium, copper, and zinc. It also has a large agricultural sector featuring livestock and grain. In 2002, Kazakhstan became the first country in the former Soviet Union to receive an investment-grade credit rating. Kazakhstan’s economy has largely recovered from the global financial crisis of 2008, and GDP increased 7% year-on-year in 2011. Extractive industries have been and will continue to be the engine of this growth. Landlocked, with restricted access to the high seas, Kazakhstan relies on its neighbors to export its products, especially oil and grain. Although its Caspian Sea ports, pipelines and rail lines carrying oil have been upgraded, civil aviation and roadways have been neglected. Telecoms are improving but require considerable investment, as does the information technology base. Supply and distribution of electricity can be erratic because of regional dependencies. At the end of 2007, global financial markets froze up and the loss of capital inflows to Kazakhstani banks caused a credit crunch. The subsequent and sharp fall of oil and commodity prices in 2008 aggravated the economic situation, and Kazakhstan plunged into recession. While the global financial crisis took a significant toll on Kazakhstan’s economy, it has rebounded well. In response to the crisis, Kazakhstan’s government devalued the tenge (Kazakhstan’s currency) to stabilize market pressures and injected around $10 billion in economic stimulus. Rising commodity prices have helped revive Kazakhstan’s economy, which registered roughly 7% growth in 2010-11. Despite solid macroeconomic indicators, the government realizes that its economy suffers from an overreliance on oil and extractive industries, the so-called “Dutch disease.” In response, Kazakhstan has embarked on an ambitious diversification program, aimed at developing targeted sectors like transport, pharmaceuticals, telecommunications, petrochemicals and food processing. In 2010 Kazakhstan joined the Belarus-Kazakhstan-Russia Customs Union in an effort to boost foreign investment and improve trade relationships.
GDP per capita: $13,000 (2011 est.); inflation: 8.3% (2011 est.); unemployment: 5.4% (2011 est.).
Currency: Tenge (KZT): 1 U.S. dollar equals 150.8 tenge (Jan. 22, 2013).
Exports: $88.47 billion (2011 est.): oil and oil products 59%, ferrous metals 19%, chemicals 5%, machinery 3%, grain, wool, meat, coal.
Imports: $41.21 billion (2011 est.): machinery and equipment, metal products, foodstuffs.
Major crops/agricultural products: Grain (mostly spring wheat), cotton; livestock.
Agriculture: 5.2% of GDP and 25.9% of the labor force.
Internet: Code: .kz; 67,464 (2012) hosts and 5.299 million (2009) users.

Source: CIA World Factbook

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