Kazakhstan implemented several temporary export restrictions on wheat and wheat flour to ensure adequate supply of staples for the domestic market during the current state of emergency due to the coronavirus outbreak. However, Kazakh millers are concerned about the flour restrictions. Millers claim that the restrictions will create an excess supply of both grain and flour and that increased demand for food in other countries amid the spread of COVID-19 could have helped the companies recapture losses incurred last autumn and allowed mills to stay afloat.

Kazakhstan is the leading country in Central Asia and has emerged as a major transport and logistics hub in the region. The country links the large and fast-growing markets of China and South Asia and those of Russia and Western Europe by road, rail, and a port on the Caspian Sea. Kazakhstan, the last republic to leave the Soviet Union in 1991, has rich natural resources and enormous economic potential. It is the 9th largest country in the world with an area of 2 million 724 thousand 900 square kilometers. With a population of 18.5 million, it is one of the least densely populated countries. The country has shown rapid development performance with market reforms initiated after the collapse of the Soviet Union and large investments in the oil sector.

The Central Asian country is dependent on oil revenue and the economy relies heavily on hydrocarbon exports, despite the government's diversification efforts. Its economic growth is largely based on gas and oil revenues (35% of GDP and 75% of exports). In 2019, Kazakh GDP grew by 4.5%, as domestic demand, business spending and construction boom supported economic activity. Nonetheless, this was lower than 4.1% a year earlier, with higher oil revenues supporting growth during the period. GDP growth is expected to fall to -2.5% in 2020, due to the outbreak of the COVID-19 and pick up to 4.1% in 2021, according to the updated IMF forecasts from 14th April 2020.

The country, with its large and fertile lands, has great potential in agriculture. The sector accounts for 4.4% of GDP and employs 14.9% of the working population. Agriculture in the country is extensive, but aging infrastructure limits its development. More than half of the products are vegetable crops (cereals, including wheat, oilseeds, cucurbits). Kazakhstan is one of the world's leading wheat producers. Livestock and dairy industries account for a significant share of the agricultural sector. Kazakhstan is almost self-sufficient in agri-food.

Kazakhstan is a major player in the grain and flour market. It is one of the top 10 grain exporters in the world, exporting to over 70 countries. The main markets for Kazakh wheat are Uzbekistan, Tajikistan, Kyrgyzstan and Afghanistan. The Central Asian country has been trying to increase its wheat export and find new markets. Speaking to Miller Magazine, Nurlan Ospanov, Chairman of the Kazakh Grain Union, says Kazakhstani exporters are constantly in search of markets and optimal routes for delivering products to consumers. This is not an easy task, given the geographical location of the country. “We are also working to improve the quality of exported products and establish a fair price for our products. We understand that our partners are interested in stable quality and compliance with the plan and delivery time of products, so the most important task for us is to solve current problems, which will allow us to comply with the requirements of our partners,” says Mr. Ospanov.

Although its potential, Kazakhstan has a big disadvantage for the grain trade, because it cannot conduct maritime trade. Remoteness from global markets and lack of direct access to ports are obstacles for grain export in Kazakhstan. ınfrastructural restrictions and transport-logistical costs, lack of guarantees in terms of deliveries restrict implementation of grain export potential of the country. The imperfect transport-logistical system of grain transportation in Kazakhstan reduces the competitiveness of grain producers and grain traders on the global market. The country needs to develop sea (river), train and highway infrastructures and create alternative routes. Increasing the grain storage capacity is also another factor that will ease the country. According to Kazakhstan’s Ministry of Agriculture, the grain storage capacity of the country is 26 million tons.

In Kazakhstan, for many years only wheat, barley and sunflower were produced. But in the past ten years, the situation has changed markedly. Thus, due to the reduction in wheat sowing, the production of such crops as flax and rape seeds, barley and lentils has significantly increased. For example, the sown area for flax seeds increased from 556 thousand hectares in 2014 to 1.287 million hectares in 2019, that is more than 2.3 times. Thus, Kazakhstan has become a major producer and exporter of flax seeds. The volume of production and export of Kazakh flax in the season 2018/19 amounted to 25% and 35% of the volume of global production and export, respectively.

The bumper wheat harvest in 2012 caused a collapse in Kazakhstan, as insufficient storage capacity caused large grain losses. As a result, the government began to promote the planting of alternate higher value crops (oilseeds) to diversify farmers’ incomes and to vary exports. This took the form of higher per-hectare subsidies for oilseeds than for wheat. Though crop-specific subsidies have now been eliminated, this program contributed to the significant increase in oilseed production in Kazakhstan in last ten years, as well as the consequent decline in the wheat area.

In the 2020/21 season, grains and pulses are expected to make up 15.2 million hectares, which is 193,000 hectares smaller than last year. This includes wheat area at 11.381 million hectares.

Kazakhstani grain production is expected to recover from last year’s drought-impacted 11.4 million metric ton crop, with wheat production forecast at 13.5 million metric tons (MMT), according to United States Department of Agriculture’s (USDA) last report released on 27th April. This expected increase is due to increased soil moisture thanks to higher precipitation last fall and during the winter.

WHEAT PRODUCTION TO RECOVER USDA forecasts that Kazakh wheat production will recover in 2020/21season to 13.5 million metric tons (MMT), compared to 11.4 MMT during last year’s drought. Though wheat area continues to fall, higher precipitation last fall and during the winter have increased soil moisture, which is expected to lead to more average yields for MY 2020/21.

Wheat exports for 2020/21 marketing year are forecast at 6.7 MMT, up from 6.0 MMT in 2019/20. Uzbekistan continues to be the number one importer of Kazakhstani wheat, as it has been for the last three years. During MY 2018/19, wheat exports to Uzbekistan made up 35 percent of all exports. Traders note that the demand from Central Asian countries is growing, but exports will depend on export quotas. Kazakhstan is a significant export

er of wheat flour, particularly to Afghanistan. However, Kazakhstan’s milling industry has complained that this trade has declined somewhat as Uzbekistan has milled more Kazakhstani wheat for re-export.

BARLEY Barley production is estimated at 3.9 MMT, relatively flat from MY 2019/20’s production of 3.8 MMT, as higher expected yields compensate for area reductions. USDA Foreign Agricultural Service (FAS) expects barley exports to rebound slightly in MY 2020/21 to 1.8 MMT, given higher available supplies. Unlike wheat and some other grains, barley is not currently subject to any export restrictions in Kazakhstan or the Eurasian Economic Union. Iran continues to be the biggest importer of Kazakh barley, taking 89 percent of all exports during MY 2018/19. Newcomers to barley exports from Kazakhstan in 2019 include China and Azerbaijan, but it is not yet clear whether they will become regular buyers.

EXPORT QUOTAS FOR WHEAT AND FLOUR As a response to the COVID-19 pandemic, Kazakhstan announced a state of emergency in the country starting from March 16, 2020. And in late March 2020, Kazakh government implemented a number of temporary export restrictions on staple food. In particular, wheat and wheat flour are subject to export quotas, while buckwheat and many vegetables and oilseed products are prohibited for export while Kazakhstan remains under an emergency situation related to COVID-19. The Ministry of Agriculture has indicated that restrictions will likely remain in place until September 1, 2020. The Kazakh government has stated that the restrictions are intended to ensure adequate supply of staples for the domestic market and to stabilize the economy during the current state of emergency.

Kazakhstan initially planned to ban all flour exports, while not limiting wheat grain exports. However, this was revised to the current quota system due to concerns by the Kazakh milling industry. For April 2020, the quota for flour was set at 70,000 metric tons, while the wheat grain quota was set at 200,000 MT. For May, the Ministry of Agriculture increased the quota for flour to 150,000 MT and for wheat to 257,000 MT. Quota recipients will be required to sell 30 percent of the volume of their export quota on the domestic market at fixed prices. Quota applications must be submitted through the relevant producer’s groups, such as the Grain Union of Kazakhstan, Millers’ Union, and Potato Union of Kazakhstan. Quota volume for specific exporters is determined by taking the total quota set by the Ministry of Agriculture’s Crop Department, multiplied by the exporter’s percentage share of total export volume.

NUMBER OF THE MILLS DECREASED Millers are concerned about the wheat flour restrictions. In 2018, there were 350 active mills, but in 2019 this number decreased to 260. Average wheat flour exports were previously around 2.8 million tons, but last year exports reached just 1.4 million tons. This reduction was due in part to increased milling of Kazakh wheat in Uzbekistan, which drew calls from Kazakh millers to limit wheat grain exports in 2019. Currently, millers claim that export restrictions will create an excess supply of both grain and flour, and that increased demand for food in other countries amid the spread of COVID-19 could have helped the companies recapture losses incurred last autumn and allowed mills to stay afloat.