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Grain and Flour Market in Kazakhstan

06 June 201414 min reading
As one of the major wheat producers of the world, Kazakhstan is also the wheat flour supplier of the Central Asian countries. These countries such as Uzbekistan, Kyrgyzstan, Tajikistan and Afghanistan depend on Kazakhstan to meet their wheat and wheat flour needs with varying amounts. It is stated that the total capacity of mills in Kazakhstan is over 12 million tons of flour although overall production is just 50% of capacity. Ranking 12th in the world wheat production and 6th in the exports, Kazakhstan has an important role on ensuring the food safety of the countries in its region as those regional countries such as Uzbekistan, Kyrgyzstan, Tajikistan and Afghanistan depend on Kazakhstan to meet their wheat and wheat flour needs with varying amounts. However, Kazakhstan cannot assure stability in the production although it is a major producer both in the world and in its region. When the wheat production of the country in the last 10 seasons is reviewed, it is seen that the production amount varies between 9 and 23 million tons. These serious differences between the seasons show that the agricultural industry in the region is highly affected from the natural weather conditions. GENERAL ECONOMIC OUTLOOK IN KAZAKHSTAN The role of Kazakhstan in the Soviet system which was dependent on specialization was wheat production, metallurgy and mineral production before the independence in 1991. There was a significant decrease in the production of Kazakhstan together with the disintegration of the Soviet Union and the collapse of the centrally planned economy. During the recession period experienced after independence by Kazakhstan, which was a Central Asian country whose economy was mainly dependent on Russia, some sub-industry sectors like consumption goods production were damaged significantly. As a result, the share of the industrial sector in GDP receded during 1990s. The share of the industrial sector in GDP reached around 30% again as of 2000. The most important role about that increase belonged to the petroleum sector which gained speed with the investments. Today, petroleum constitutes more than half of the total industrial production. Another major product of Kazakh economy is metalworking and steel production. These industries are the ones recovered rapidly with the foreign investments entering the country in the post-Soviet era. The construction industry almost totally depends on the petroleum industry and its share in the GDP increased gradually with the investments in the petroleum industry. The rest of the economy consists of service industry that is small but has recovered quickly and labor-intensive agricultural sector. Agricultural sector is the one which provides employment at most. The share of agricultural industry in the GDP was 5,4% in 2011. This rate was 23% in 1992. The share of the food industry products that are gaining importance in the production gradually has a low share in the export income. Even though the increases in welfare, which was realized with the positive effect of the economic growth and foreign investments, were not spread to the whole population; poverty is in a downward trend and income distribution is improved. Rapid economic growth between the years 1999 and 2011 induced employment increase and improved the standard of living. Annual average unemployment rate receded to 5,3% in 2011 while it was 13,5% in 2011. A great part of the added value in the economy is based on hydro-carbon industry. Petroleum production intensifies in the areas near to Caspian Sea in the west of the country. Heavy industry sector is located in the north of the country and Russians constitute the majority of the population in this region. A great part of the grain production realized in the old collective farms is made in the north of the country. Although there is some petroleum in the south of the country, agricultural production is realized more in this region. Kazakh population makes cotton production in this region. Drying of the Aral Sea affects the agricultural production in the region adversely. Innovative Industrial Development Program implemented for 2003-2015 period aims to provide sectorial diversification in the economy and create a strong economy in terms of service and technology industries in the long term. AGRICULTURE IN KAZAKHSTAN Kazakhstan has approximately 84,6 million-hectare agricultural land. 24 million-hectare part of the agricultural land is arable and 61,1 million-hectare part is meadow. After the disintegration of the Soviet Union, agricultural industry was affected significantly from the general economic recession and total agricultural production had a considerable decrease in the early 1990s. Agricultural industry started to give improvement signs after a nearly 10-year intensive macro-economic reform program. Although it was not like the other industries, the industry started to grow as of 2000. Land Reform was launched in the agriculture in 2003. State Agriculture and Food Program was completed in 2005. Grain production in the north of the country has the highest share in the agricultural industry production. Meat and wool production is another important production branches. Despite the good quality of the agricultural land in the country; harsh climatic conditions of the country makes production difficult. In addition to that, there are hardships in the equipment and agricultural input supply for farmers. Slow progress of privatization in the sector makes it more difficult access to fuel, fertilizer, agricultural machinery and spare parts which are already limited. Sales of large-scale state farms and collective farms to the former owners affected productivity adversely. Slow progress of the land reform prevented the success of the small private farms. Despite all of these, Kazakhstan ranks 12th in the world wheat production and 6th in the export. Kazakhstan is the country that realizes the highest land reforms among the Central Asian countries. Although there are some factors making agricultural production difficult, the gain of the farmers obtained from the production is much more compared to the other Central Asian countries. Purchase prices are at lower level compared to the international standards but are high compared to the region-wide. The reform process is quite advanced compared to the other regions but has not reached to a sufficient level yet. One of the major obstacles in the development of the agricultural production is that land purchase rights have not been regulated completely yet. The country provides export opportunities in terms of its agricultural production potential, agricultural machineries and food processing equipment. GRAIN PRODUCTION AND CONUSMPTION As one of the world’s major wheat producers, Kazakhstan is the most important grain (especially wheat) producer by itself in the Central Asian region. Most of the grain products (more than 95%) are spring sown in April and May. According to the report of UN Food and Agriculture Organization FAO dated as 13 January 2013; the total area planted under wheat (representing over 85 percent of total cereal production) has been officially reported as having decreased by 300 000 hectares, slightly down on last year’s level. Although Kazakhstan has an important place in the world grain production, it cannot assure stability in the production. When the wheat production of the country in the last 10 seasons is reviewed, it is seen that the production amount varies between 9 and 23 million tons. The data of U.S. Department of Agriculture Foreign Agricultural Service of USDA and the UN Food and Agriculture Organization FAO is reviewed; Kazakhstan’s wheat production that was 11,5 million tons in 2003/04 season decreased to 9,9 million tons in the following season. Increasing its wheat production in the next 3 seasons, Kazakhstan reached 16,4 million-ton production amount in 2007/08 season but could not maintain this production amount in 2008/09 season. Reaching 22,7 million tons in 2011/12 season as the highest wheat production amount of the last 10 years, the country receded to 9,8 million ton levels again in 2012/13 season. Estimating that Kazakhstan wheat production was 13,9 million tons in 2013/14 season, USDA projects that the production will reach to 14,5 million tons level in 2014/15 season. Kazakhstan is among the top 10 countries in the world wheat production with these production amounts. Compared to the fluctuations in the production, Kazakhstan wheat consumption shows a more stable picture. When the consumption amounts of the last 10 seasons are reviewed, it is seen that consumption remains between 6 and 8 million tons. Kazakhstan exports the wheat amounts that are left over from the domestic consumption depending on the production amounts. Another prominent product in Kazakhstan’s grain production is barley. When country’s barley production in the last 10 seasons is reviewed; it is seen that production varies between 1 and 2,5 million tons. According to USDA data; Kazakhstan’s barley production, which was 2,1 million tons in 2003/04 season, reached to the highest level of the last 10 years with 2,6 million tons in 2011/12 season. Declining to 1,5 million tons in 2012/13 season, country’s barley production is estimated to reach to 2,5 million tons in 2013/14 season. USDA projects that Kazakhstan barley production will reach to 2,6 million ton levels again in 2014/15 season. The country uses an important part of barley production for its domestic consumption. The remainder of the domestic consumption is exported. Rice and corn production is not very common due to the climatic features of the region. While the country’s rice production varies between 150 and 250 thousand tons, consumption shows a picture in parallel with the production amount. Likewise, the same situation applies to the corn production that varies between 400 and 600 thousand tons. Kazakhstan is also one of the few oat producers in the world. The country realizes oat production varying between 150 and 300 thousand tons each year. Although this production amount seems to be low compared to the other grain products, it is an important amount when considered within the world oat production amount as 23 million tons in total. FOREIGN TRADE IN KAZAKHSTAN Kazakh economy is generally based on high level of imports. The majority of production realized in the country intensifies on petroleum and natural gas industries and the production is not at the level that can meet the domestic consumption in the capital and consumption goods. Majority of the capital and consumption good producers is not at the level that can compete with the imported goods in terms of price and quality. Lots of cheap and illegal entry of goods is realized in the country from its wide and open borders. High amount of unregistered trade volume makes the attempts for the track of the course followed by imports difficult. Wide and easily crossed borders with Russia, Kyrgyzstan and Uzbekistan allow unregistered cross-border trade and the volume of the border trade cannot be reflected on the foreign trade data. Majority of the import that cannot be registered consists of non-food consumption goods and used cars. Kazakhstan’s export majorly consists of petroleum and base metals. Thus, the export income of the country is significantly affected from the fluctuations in world prices of these products. For instance; the sudden drop in world prices of these products after the financial crisis in Asia in 1998 caused significant decreases in the country’s export incomes. High level of world petroleum prices in the recent years increases foreign trade surplus. However, imbalances in the country's foreign trade structure also cause foreign trade deficit from time to time. The major problem limiting the development of trade in the country is that Kazakhstan is a landlocked country. Thus, the costs of exports and imports are significantly high. When the trade of Kazakhstan by countries is reviewed with the data of 2012; it is seen that China ranks first in Kazakhstan’s export with a share of 18,5%. Italy with 17,1% and Netherland with 8,5% follow China. Turkey ranks 8th in Kazakhstan’s export with a share of 2,9%. Russia is the country with the highest share (42,8%) in Kazakhstan’s import. Trade facilitating practices and agreements between the two countries play an important role on that share. Commercial and political ties between the two countries from the past are still maintained today. China with 13,2% and Ukraine with 5,5% follow Russia. Turkey ranks 9th with a share of 1,9%. THE PLACE OF GRAINS IN FOREIGN TRADE Kazakhstan is one of the major grain exporters in the region and plays an important role in the food safety of sub-regions. Wheat is significantly important in terms of the country’s export. According to the FAO’s country report dated as 13 January 2013; majority of the grains are traditionally exported to Afghanistan, Iran, Turkey, and to countries in Central Asia that have food deficits, such as Azerbaijan, Kyrgyzstan, Tajikistan and Uzbekistan. Ranking 7th in the world wheat export with amount exported in 2013/14 season, Kazakhstan has realized wheat export varying between 5 and 11 million tons in the last 5 seasons. According to the USDA data; Kazakhstan’s wheat export, which was 4,1 million tons in 2003/04 season, increased to 8,1 million tons in 2006/07 season. Varying between 6 and 8 million tons in the next 3 seasons, export declined to 4,8 million ton levels again in 2010/11 season and reached to 11,8 million tons that was the highest level of the last 10 seasons. Estimating that Kazakhstan’s wheat export declined to 8 million tons in 2013/14 season, USDA projects that the decline will continue in 2014/15 season and wheat export will remain at 7 million ton levels. Kazakhstan realizes barley export besides wheat. However, barley export is significantly low compared to the wheat. According to USDA data; Kazakhstan’s barley export, which was 700 thousand tons in 2003/04 season, declined to 97 thousand tons as the lowest level of the last 10 seasons in 2004/05 season. However; increasing in the following seasons, barley export reached to the highest level of the last 10 seasons with 792 thousand tons in 2007. As it is understood from the USDA data; instability in the production of wheat and barley reflects on the exports directly. The country is stated to export 164 thousand tons of barley in 2012/13 season and 300 thousand tons in 2013/14 season. The projection for 2014/15 season is 400 thousand tons. Export of the products excluding wheat and barley is very limited. Import is at significantly low levels for all grain products. MILLING AND GRAIN PROCESSING INDUSTRY Central Asian countries such as Uzbekistan, Kyrgyzstan, Tajikistan and Afghanistan depend on Kazakhstan to meet their wheat and wheat flour needs with varying amounts. Only Turkmenistan as one of the world's most closed societies has reached to the level of self-sufficiency in wheat. When considered from this point; Kazakhstan owes this dominance in the region to proximity, an excellent railroad network, large efficient mills, low prices for high quality wheat, and supportive government policies. According to the information obtained from Evgeny Gan who is the longtime president of the Kazakhstan League of Grain Processors and Bakers as an industry association on the Kazakhstan Grain and Feed Yearbook of USDA dated as 2012, there are currently about 350 wheat milling enterprises in Kazakhstan. The trend in the country has been toward investment in larger plants and closure of smaller mills to the point where about 200 of these are above 150 tons per day capacity and only 50 have a capacity of less than 50 tons per day. Flour Millers Association of Kazakhstan states that the total number of flour mills has sharply declined in the last 10 years as consolidation has taken place. According to the data given by the association; while there were 2,300 mills in 2000, by 2010 this had fallen to just 383. According to the estimations of the association; the total capacity of mills in Kazakhstan is over 12 million tons of flour although overall production is just 50% of capacity. 3,5 million tons of this 6 million-ton flour produced with this 50% capacity is exported and the remaining 2.6 million tons is used for domestic demand. 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 South Kazakhstan region (20% of the total) which is far from growing areas and is closer to Almaty and key Central Asian buyers. 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 have increased. In addition, the number of consumers baking their own bread has decreased and the share purchased in markets has continued to grow.
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