Central Asian breadbasket
Nov. 19, 2013
by David McKee
From the Siberian steppes of Kazakhstan in the north to the mountain valleys of Afghanistan in the south, wheat is by far the most important cereal grown and consumed in Central Asia.
The six countries of the region have a combined output ranging from 30 to 35 million tonnes in most years. Kazakhstan may account for anywhere from one-half to two-thirds of wheat produced in these countries, depending on the amount of rain received on its vast dryland farms.
Four of the other “stans” — Uzbekistan, Kyrgyzstan, Tajikistan and Afghanistan — all to a varying extent depend on Kazakhstan to provide wheat and wheat flour to cover part of their consumption. Only Turkmenistan, one of the world’s most closed societies, in recent years has achieved self-sufficiency in wheat.
Until 1990, when the Soviet Union broke up, all of their economies (except Afghanistan) had been unified under a central economic plan with all wheat production and processing under state control. Since then, each of the five former Soviet republics has pursued separate economic models.
However, trade in wheat and wheat flour remains one of the major economic linkages among the nations of Central Asia.
Dryland wheat yields are low, averaging about one tonne per hectare, and can vary hugely from year to year according to rainfall and soil moisture. The harvest fell from a record 22.7 million tonnes in 2011 to just 9.8 million tonnes in the following drought year, per U.S. Department of Agriculture (USDA) data. The chairman of KazAgro Holding’s management board has predicted a recovery to about 15 million tonnes in 2013.
Domestic use runs around 5 million tonnes, so even when yields plummet there is still surplus wheat for export to other countries of the region.
Given the logistical difficulties of export over long distances by rail, Kazakhstan typically carries over to the next year over one-third of a bumper harvest. Following the record harvest of 2011, wheat stock levels reached an unprecedented 17 million tonnes. The government grain agency stepped in to buy several million tonnes from farmers that year.
Kazakhstan’s wheat can be delivered competitively to Black Sea and Baltic Sea ports, usually only when its crop is larger than average and world wheat prices are high due to shortfall in production among the traditional major exporters.
In 2011-12, when exports reached about 11.4 million tonnes, about half were to countries outside of the Central Asian region. The following year exports dropped to about half of that, and nearly all went to other Central Asia countries and to Azerbaijan on the opposite shore of Caspian Sea, as well as to Russia in difficult to monitor cross-border trade.
All told, other Central Asian countries including Afghanistan now buy the equivalent of about 5 million tonnes of Kazakhstan wheat and wheat flour annually.
Thanks to steady demand from nearby countries, but mainly Uzbekistan, Kazakhstan had been the world’s top wheat flour exporter for a number of years running, with exports reaching 3.65 million tonnes in wheat equivalent in 2011-12, according to the International Grains Council (IGC). Shipments dropped the following drought year to a level below Turkey but a recovery to 3 million tonnes is projected by the IGC in 2013-14, enough to regain the top position.
Proximity, an excellent railroad network, large efficient mills, low prices for high quality wheat, and supportive government polices are all factors in the ability of its milling industry to dominate wheat flour markets in the other countries of the region.
There are currently about 350 wheat milling enterprises in Kazakhstan according to Evgeny Gan, longtime president of the Kazakhstan League of Grain Processors and Bakers, an industry association. The trend has been toward investment in larger plants and closure of smaller mills to the point where about 200 of these are above 150 tonnes per day capacity and only 50 have a capacity of less than 50 tonnes per day.
Uzbekistan’s wheat production of 6.2 million tonnes depends 80% on irrigation from the rivers flowing westwards out of the Tianshan Mountains, which are nearly sucked dry before reaching the shrunken Aral Sea. Planted areas and yields are predictable from year to year thanks to adequate water and heavy state planning.
Paradoxically, though the country is nominally self-sufficient in wheat, its imports from Kazakhstan have steadily climbed to 1.4 million tonnes of wheat flour, the largest flow of this commodity between any two countries.
Among the reasons for the increase may be the increasing exports of lower quality Uzbek wheat and flour, as well as greater re-exports of imported Kazakh flour, mainly to Afghanistan.
Consumers in the nation’s capital, Tashkent, and other large cities demand “naan” bread made from the higher protein rain-fed wheat of Kazakhstan for reasons of taste and texture.
It is estimated that only 62% of the wheat grown in Uzbekistan is used domestically for food. The remainder goes for livestock feed or is exported at low prices to neighboring countries.
Though it has been nearly a quarter century since achieving independence, Uzbekistan has retained the Soviet model of state ownership for large parts of its economy. Farmland is privately held, but government planners still dictate the amount of wheat (and cotton) to be sown, the prices of inputs and how much the state will pay for wheat at harvest.
The bulk of the wheat surplus is purchased by a single government grain storage, flour and feed milling entity called Uzdonmahsolut, which means “Uzbekistan Grain Products.”
It controls 40 to 50 feed and flour milling enterprises most of which incorporate monolithic concrete grain elevators dating from the Soviet era. Uzdonmahsolut’s annual planned wheat flour output is about 1.5 million tonnes.
All exports of surplus wheat and wheat flour are restricted to the government monopoly, but no data is published about prices, volumes and destinations of shipments outside Uzbekistan. Such grain trade data is officially treated as a state secret, one of few countries that is so lacking in transparency.
Despite heavy government controls in the sector, dozens of private milling companies have started up in the last several years as the share of wheat ground on a tolling basis in tiny village mills has declined, replaced by commercially produced flour.
This former Soviet Republic of just 10 million people has remained the truest to the model of state ownership of the economy since the collapse of the Soviet Union. Total wheat production, all from irrigated lands that formerly grew cotton, is expected to increase by one-third from 1.2 million tonnes in 2012 to 1.6 million tonnes this year, according to official government proclamations.
Abundant state revenues from exports of natural gas have permitted large-scale investment in the entire wheat value chain from modern tractors and combine harvesters to state-of-the-art milling and pasta plants.
The country reports exportation of 300,000 tonnes in 2012 of carryover wheat from the previous year. Most of it went across its southern border to either Iran or Afghanistan.
In contrast to its neighbors to the north, Afghanistan has achieved a high level of wheat-based food security through unregulated agriculture, a large network of small, adroit traders who import flour and cash inflows from the outflow of illegal drugs.
Wheat consumption, which accounts for over 60% of total caloric intake, has reached about 6 million tonnes per year, with domestic production about 4.15 million tonnes last year and forecast by USDA to be down slightly for 2013-14.
Production is balanced between rain-fed fields on the one hand and snowmelt irrigation on the other, and is also split between winter and spring-planted crops.
Kazakhstan’s aggressive milling industry has supplanted Pakistan in the last decade as the main supplier of wheat flour. Afghanistan’s wheat flour imports from Kazakhstan reached 1 million tonnes in 2011-12 before falling off to 700,000 tonnes the following year when the crop came up short and Pakistan regained some of its position as a wheat flour supplier. Uzbekistan’s low cost, low quality wheat flour accounted for another 250,000 tonnes per USDA data.
Other sources of wheat include official food aid donated by India and distributed by the United Nations World Food Program.
Most wheat flour shipments from Kazakhstan and Uzbekistan move efficiently by rail, crossing a bridge at the border at Termez, Uzbekistan to the rail terminus inside Afghanistan on the river bank and near the city of Mazar-e-Sharif. From there it is less than one day’s truck journey to the Afghan capital, Kabul and most other large cities in the country.
About 90% of Afghanistan’s domestically grown wheat is milled for farmers and others in small village mills, grinding just 1 to 4 tonnes per day on a pay-for-service basis.
There has been investment in about 12 commercial mills with capacity ranging from 80 to 500 tonnes per day. These are often shut down due to lack of wheat supply, electricity or other factors.
During the Soviet occupation of the 1980s, there were five large milling and baking complexes with concrete elevators built, averaging 50,000 tonnes storage capacity, similar to what exists throughout Russia and Central Asia.
Recently the Afghan government has taken steps to create a strategic grain reserve and has begun to reuse some of these complexes, though the milling and baking sections have remained unused except for the one in Kabul.
The small amounts of arable land in the most mountainous of Central Asian nations allow for 800,000 to 1 million tonnes of annual wheat production.
Tajikistan is usually the second or third-largest market for Kazakhstan wheat flour, with imports having reached a peak of about 460,000 tonnes in 2007 and 2008 but dropping off since then to just 240,000 tonnes in 2012. The country’s millers that year used 720,000 tonnes of imported wheat as the trend has been for declining wheat flour imports and increasing wheat imports as the domestic milling industry expands.
Like Tajikistan, Kyrgyzstan is mostly mountainous. Its agriculture is focused on livestock production, mainly sheep and cattle. Potato tonnage exceeds wheat production that amounts to about 800,000 tonnes in most years.
Wheat is irrigated in the portions of the country’s southern region in the Fergana Valley that is shared with Uzbekistan.
The wheat value chain is entirely in private hands in line with the country’s free market economic policies.
Millers in the capital city of Bishkek rely partly on wheat deliveries from Kazakhstan, which are in the range of 450,000 tonnes per year for the country. The industry has been successful in getting its government to protect it via duties on wheat flour imports, though this usually results in large in-flows of contraband flour. Flour imports are only about 110,000 tonnes.
Though isolated from the rest of the global grain trade by thousands of kilometers to ocean ports, the economically and politically diverse, landlocked (Uzbekistan is double landlocked) nations of Central Asia comprise a dynamic wheat production, processing and trading community that continues to evolve with greater investment from governments and private enterprise.
Kazakhstan’s government is now pursuing policy measures to increase livestock production through reduced plantings of wheat in favor of feed grains. Nevertheless, the country will continue to supply its neighbors while holding large buffer stocks of wheat that can be released on world markets when prices spike.