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 KAZAKHSTAN  №4, 2014
 Interest is Reciprocal
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Interest is Reciprocal

The first Agriculture Investment Forum of Kazakhstan, held 17-18 June in Astana, can be considered as a landmark event for the local farmers. During the event, the officials were convincing the potential investors regarding the attractiveness of the investments in our agricultural sector, promising them the privileges and preferences. But they, in turn, asked questions about the markets, farm size and logistics.

 

The Forum was organized by the national holding company KazAgro and the British company- Adam Smith Conferences with the support of the Ministry of Agriculture and Informa Agra conference company. In total, the event attracted about 200 participants from 15 countries, including representatives of agricultural business from Europe, the United States, Russia, Ukraine, the Middle East and, of course, Kazakhstan.

Opening the event, Alan Stock, Head of the Analytical Department of Agra Informa, said that this is a very good opportunity to demonstrate our country's investment potential in the agricultural sector. "We see that the global demand for agricultural products is steadily increasing. And, in this context, we need to find more suppliers in order to satisfy these needs".

Kazakhstan could actually be interesting to the foreign investors. First, about 80% of its territory is suitable for agricultural purposes, and based on the availability of acreage, the country occupies the second place in the world. Another advantage is that out of every 10 workable citizens, three are employed in the agricultural industry. And of course, don't forget the environment issues: the Republic is the leader in terms of minimal use of fertilizers in its crop production.

Government of Kazakhstan is also interested in the agriculture. In recent years, the Ministry of Agriculture is trying to build an effective system to stimulate an agricultural production. The culmination of this work became the State program Agrobusiness-2020, launched this year, which defines the agriculture development priorities and the ways of enhancing its competitiveness. In addition, we discussed the need to reform the National Holding KazAgro. According to Dulat Aytzhanov, Deputy Head of the State Holding, in 2014-2016 Kazagro plans to sell its shares in 71 companies, 39 of which are the microfinance organizations.

At the same time, a new structure was created at the Holding, known under the working name of KazAgroInvest. This is how Asylzhan Mamytbekov, Minister of Agriculture explains the reason for creating a new subsidiary: "We are not limited to the credits, leasing and subsidies. We are ready to co-invest, to consider the venture projects under the terms of a gradual withdrawal from the equity. That’s why we created the investment subdivision”. 

Moreover, there are functioning programs on the equipment lease and cattle subsidising, cultivation of the priority crops, as well as the production of raw materials for processing plants and end products in the livestock sector.

At the same time, KazAgro ensures the agricultural financial recovery programme at the level of financial institutions. It includes a cancellation of fines and penalties, extension of the payment terms, payment in instalments and interest rate subsidies for the loans. Given that after the February devaluation this problem has become particularly important, it was decided to fix the dollar rate at the level of 168 KZT for all the loans, provided by the KazAgro subsidiaries within the framework of the financial recovery. And it's nothing less than 136 billion KZT.

Unprecedented conditions are created for the new investors. Most recently, a number of preferences was adopted for them: extension of the agricultural land lease, exemption from the CIT and land tax for up to 10 years, and from the property tax- up to 8 years.

As stated by Dulat Aytzhanov, Chairman of the Board of KazAgro, the holding company formed a list of 66 advanced projects for the potential investors that require the additional investments. "There are projects on dairy and meat cattle breeding, production and processing of vegetables, feeding mixes, grain, wool and leather processing. I would like to encourage the foreign companies to become our partners not only as a supplier of equipment and technologies, but also to come to the agrarian sector with direct investments, to participate in the implementation of high-tech projects on a parity basis".

 

Grains of Hope

As to the crop production, which is represented in our country by the grain cultivation, expanding to the new markets is the main point of contact with the interests of foreign investors, as well as the key to the further growth. Therefore, Mr. Aytzhanov shared that the talks with China on establishment of a common grain terminal for 20-30 thousand tons. Its construction will begin in 2015, on one or other side of the border. At the same time, the talks regarding the the construction of the Terminal with possibilities of flour production are held by the Group of companies Alibi.

The seriousness of the Chinese investors was highlighted by the representative of China Minzhong Food Corporation Ltd. Sam Ong, who noted out that his company was considering investing in the agricultural projects of industrial scale, using its in-house expertise and involvement of the local farmers.

However, David Herbada, Investment Director of Al Falah Group Capital Partners expressed a doubt that the Chinese market may be more promising than the South Western direction, including the countries such as Iran, Iraq and even Turkey. Apparently, the speaker means first and foremost the grain, but not the flour production.

Let’s remind that Kazakhstan was one of the world's leading exporter of flour for a quite long time. Recently, its traditional importers like Tajikistan, Uzbekistan and Kyrgyzstan implemented the  import duties on our flour and pasta, stimulating the supply of grain at the same time. It is clear that all the countries want to open new production facilities and to create new jobs. For the same reason, Kazakhstan is not intended to lose the accumulated volumes of the flour export, being interested in new markets for sales, including China.   
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        The deep processing of grain with production of gluten, starches, and other products is not started yet. Few years ago, a Japanese investor expressed an intention to undertake this type of business, however, he was never able to reach a consensus on the grain price.

During the Forum, there were the rumours that Toyota Tsusho is still trying to invest into the grain processing.  By the way, the company has an experiece of cooperating with KazAgroInnovation for several years to increase the grain crops through the application of space technologies. “Profit is not that important for us for this moment. But in the future it will return handsomely... Our management likes Kazakhstan, so we hope to attract the support from Japan and we will continue our work here for 10-20 years and more”- said the representative of Toyota Tsusho, Mr. Takuya Ichihai.

 

Meat Production Development

Another priority for the investors is the livestock development, since the demand is growing worldwide. Russia can be considered as a large consumer market for beef, lamb and pork. The Islamic countries, including Iran, are willing to buy large batches of our lamb. Leather and wool are the goods, traditionally imported by China, and most recently, Europe shown the interest too. Besides, our domestic demand for milk, dairy products and poultry was supplied only in part, meaning that an increase of volumes is very important.

Our officials proposed the investors not only to develop the projects from scratch, but to expand the production capacity of the existing agricultural enterprises. For example, Rudnyi dairy plant, Schuchinsk Meat Plant, quarantine and export site in Aktobe, Crown Batys company, supplying the meat to Moscow, poultry factory Komsomolskaya and many others- all require the investments for the further development. However, judging from the statements of the potential investors, there is no strong intention to invest in Kazakhstan's agricultural industry by creating the joint ventures. Moreover, the moderator of the Forum, Mr.Buillon told about the risks, associated with such form of cooperation: "We are always looking for a business partner, a vendor or an investor. However, the joint venture is a rather good theory, since it too risky to work with someone you barely know”. 

Investors mentioned the individual integral projects with much more enthusiasm. In addition to the beef and lamb, the foreign visitors have shown interest in the poultry production in such niche areas as the geese and turkey. The determining factor regarding the chicken is the market capacity. "The only issue, important to us, is the market. By developing the domestic production, one shall focus on the export and to be competitive. Therefore, we talk about the vertically integrated holding-from fodder production, egg incubation, facilities for slaughtering and cutting up to processing. It is important to not only to provide the meat, which is demanded, but also to ensure its deep processing. But let’s say again: market is the king... It is obvious that the Government is making great efforts to promote the products, which is good,"- said Elliot Daniloff, Managing Director of ED Capital Management. 

 

After Staring

When discussing virtually all the projects, the potential investors mentioned the weakness of the logistics, human resources and sales markets. At the same time, the forum visitors tried to comfort the Forum hosts that it can be arranged and settled. "Once we thought that our mozzarella cheese may be produced ideally at a certain location,"- jokes Diego Peshiatini, Director of MMD Investments.

Oddly enough, the most vigorous and initiative investors are those from the small countries. For example, Hungary occupies a special place in cooperation between KazAgro and the foreign partners, which was strengthened following a joint business forum, held in Budapest. Today, an issue of creating the Kazakhstani-Hungarian Fund was discussed, which will attract $ 20 million investment from each party. The Hungarian company like Mirelit Mirsa, Lac Holding and Vitaford will enter our market. The first  one is going to process fruits and vegetables, the second one will ensure their cultivation and storage, and the third company will take care of the fodders.

Josef Losho, the General Director of Mirelite Mirsa, focused our attention to the fact that despite having the fruits and berries in the South of our country, Kazakhstan does not have the industrial lines for their freezing. "The freezing means the high technologies. It is not enough to simply freeze until minus 26 degrees, you have to adapt and to arrange the logistics, storage and sales. The head of a company with 70 years of history, was very accurate, when talking about future cooperation with Kazakhstan.  And it is understandable. In Hungary, the relations with the farmers are established long time ago and they are planning together the spring sowing, crop types and volumes. Here, everything shall be done from scratch. "It is not enough simply to transfer a technology. You have to train people to use and to manage it appropriately. Therefore, we would like to be present, to participate, to help the people in their work, by transferring the information and knowledge".

Forum in Astana ended for the Kazakhstan’s Agricultural & Production Cooperative Budan, involved in the elite seeds of corn, as well as for the French company Irrifrance, specializing in irrigation systems. At the final press conference, Osman Aidi, President of Irrifrance, shared with us:"This farmer has very large territories in the South Kazakhstan region. The work at the farm will be carried out in six stages, and in the future, the entire area will be improved due to the implementation of the modern and advanced irrigation systems. The saved water resources will amount to 15%, with improvement of the state and productivity of the cropland. We hope that in the process of cooperation with our first client, we will be able to implement all our ideas".

As to the livestock sector, two agreements were signed within the frameworks of the Forum. The first agreement was with the Emirates Futures company (U.A.E.) for creation of a feeding facility for 20 thousand beefs, sheep-breeding farm for 1 million heads and heavy-duty dairy farm for 3 thousand head of cattle . The second one was signed with the Egypt’s Сairo Poultry Company on construction of the poultry plant with target production of 70 thousand tons.



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