USD/KZT 448.81  +0.25
EUR/KZT 476.82  -1.21
 KAZAKHSTAN International Business Magazine №4, 2011
 Food Market. Wishes and Possibilities
Food Market. Wishes and Possibilities

Structural changes in the global economy triggered global changes in the international food market. Worldwide food prices continue to rise and Kazakhstan is no exception. However we have a real chance not only to satisfy our own needs, but also to expand our export potential. However first of all Kazakhstan has to stabilize the situation with food prices in the country in order to fulfill this potential.

Current trends and analysts' estimates indicate that over the medium term no decrease of world food prices can be expected.

Thus, a survey conducted by Reuters in February 2011 among the 16 leading Western experts in the field of agribusiness, showed a symptomatic unanimity in forecasts: food prices in 2015 will definitely be higher than the present ones. Moreover Deutsche Bank analysts believe that continuing inflation and rising demand will only push them up.

According to the research of Organization for Economic Co-operation and Development (OECD), in the next 20 years the U.S., Australia and New Zealand will move to the forefront of world exports of agricultural products, surpassing Euro zone countries.The demand for food in mature economies will remain the same, but changes will affect mainly the structure of consumption and food quality. Trade of processed and ready-to-eat foods will grow faster than for non-proccessed goods.On the other hand, as shown by forecasts, developing countries in East Asia and Eastern Europe will become net importers of agricultural products providing new markets to major producing countries. These trends show an expansion of global demand for food as prices increase.

That is why Kazakhstan increasingly expresses its desire to occupy an important position in the world food market.But the unstable situation with food prices in the country requires much more attention of the authorities than future prospects.

Grain as a factor of stability

If we talk about our main export agricultural commodity – grain – at first sight everything here is in perfect order.Thus, in the last agricultural year about 6 million tons of grain were exported from Kazakhstan.As the chairman of JSC "National Holding "KazAgro" Asylzhan Mamytbekov stated that this year there were no reasons to restrict exports.This belief is based on a good harvest forecast in 2011. According to Mr. Seksenbay Kaskyrbaev, General Director of the Barayev Institute of Grain Farming, the current harvest of cereals could reach 16–18 million tons.

The expectations of the President of Kazakhstan Nursultan Nazarbayev are even more optimistic, On August 8 he came up with an estimate of 18–20 million tons for the new harvest. The Ministry of Agriculture also revised its forecast upwards – from the previously estimated 17–17,5 to 18.9 million. At the same time, according to authorities, the export potential of Kazakhstan in the 2011/12 marketing year could exceed 10 million tons of grain. The existing climatic conditions in combination with other factors give hope that these predictions will come true.

However to do this it is necessary to reduce prices and increase competition in the markets. According to the March report of the International Grains Council (IGC), the current harvest in the whole world is estimated at 1 805 million tons. It is 79 million tons more than in 2010/2011, and even higher than the record 2009/2010, when the world have produced 1 802 million tons of grain. The report notes that the forecast is based on high estimates of grain yield in the U.S., Russia and the EU.A good harvest is also expected in Canada, Kazakhstan and Ukraine.

Against the background of these trends Kazakhstan should be ready to respond quickly to world market conditions to improve the competitive capabilities of domestic exporters. As the experience of last year showed, we are able to be up to those challenges.Then it was done at the expense of export subsidies – for one ton of grain that was sent abroad, the state paid $20.

At the same time we have a lot of internal problems concerning inefficiency of market regulation tools. This very circumstance does not allow Kazakhstan, as an exporter of grain, to feel confident in any circumstances: when there is a lot of grain but that it is rotting because of lack of storage, or when less – export flows are declining sharply.

It is known that the government uses a centralized procurement of grain to prevent price increase on the domestic market.Ideally, this allows sending the required amount of grain to those regions of the country where there is a risk of rising prices. But the system of centralized procurement is highly vulnerable, because grain prices are dictated by the world market, and we have no instruments to influence them. In reaction to global shortage of grain the price increases, and so the government has to purchase it at a higher price.If the government doesn’t have enough money, grain goes abroad, as most exporters are private companies.At the same time when there is a lot of grain, price falls sharply, and the money from its sale to the government does not cover the costs of farmers.

Besides, there is a problem of infrastructure, particularly shortfall for simultaneous storage of grain. According to "KazAgro", it is of more than 5 million tons. The sad example of 2009 showed that in case of a gross grain harvest of 17 million tons, lack of elevator storage capacity can reach 25 %. According to the chief specialist of the analytical service of JSC "KazAgroMarketing" Asel Yerzhanova, in 2010 we had a lower grain harvest, so that the situation was not so critical. In the current year, this problem is becoming real again. On August 22 at a government meeting the Minister of Agriculture Asylzhan Mamytbekov said that in the main grain regions a lack of storage capacities of up to 1.5–2 million tons is possible, because yield is high this year."

One can’t say that the government does nothing. In 2011 it sent 9 bln tenge via "KazAgro" to build new silos. The money was allocated for 12 years at 6 % per annum. And as a result of this money this year silos with a total capacity of 500–600 thousand tons are to be built. And 8 modern elevators built with American technology have already been constructed in the country. Nevertheless, even taking into account the imperfection of regulatory tools, grain and its derivatives remain the only product that allows restraining somehow the inflation in the food market. Now the price of grain, flour and bakery products remain stable enough. Without this factor the inflationary wave would be much stronger.

Stabilization tools in their context

As for other types of food, we can’t talk about any price stability in this sphere.In comparison with the similar period of last year, food prices in Kazakhstan in June 2011 increased by 12.6 %.Cereals rose by 2.2 times, oils and fats – by 23.4 %.The cost of sugar has risen by 18.7 %, fruits and vegetables by 15 %, dairy products by 11.2 %. Pasta experienced an increase of 9.8 %, coffee, tea and cocoa of 8.9 %. During this time, prices for meat and meat products showed an increase of 15.2 %, while lamb has risen by 19.5 %, horse meat by 10.8 %, poultry by 10.2 %, sausage products by 9.8 %, pork by 5.2 %.

At the end of May, at a government session Asylzhan Mamytbekov presented a draft set of measures to stabilize prices of basic food commodities.He noted a fundamentally important point: it is about price stability, but not their fixation or freezing."We cannot and do not have to grapple with rising prices connected with world food market fluctuations, as it undermines the economy of our domestic producers.In the opening of the outer limits all the government's efforts to reduce the price of products inside the country will lead to the fact that these products move to the border districts of neighboring countries".

A set of measures developed by the Ministry of Agriculture can be divided into operational and systemic.Operational measures. aimed to the leveling of seasonal fluctuations and the prevention of speculative, unreasonable price increase, include: the formation of stabilization funds of food products in the regions, exemption of VAT for farms which produce fruit and vegetables, payment of pre-emptive allowances to poor families as compensation for raising prices of socially important food products.The minister said that the state budget expenditures on the formation of stabilization funds is estimated to be worth about 17 billion tenge.According to the assumptions of the Ministry of Agriculture, the implementation of operational measures will take effect in the winter 2011–2012.

In the frame of the systemic measures the Ministry calculated the balance of production and consumption for each region of the country.The resulting deficit for each product will be compensated by imports."The Ministry of Agriculture made for each region specialization maps, which show where the production of each product is economically and technologically sound. The total demand for every kind of product in the country is distributed among several areas so that they supplied the whole country with it," – Mr. Mamytbekov said.In addition, he considers it is necessary to make a breakthrough in the construction of vegetable storages because an important issue is the preservation of fruits and vegetables during winter.

However, the main emphasis will be placed on the development of competitive environment in the trade sphere, because, in the minister’s opinion, it may lead to reduce retail margins and the cost of food.This can be achieved by the construction of new markets."There are accepted standards for the optimal amount of retail space per capita. Akimats should give themselves as a goal to increase the number of markets to that level".

It should be noted that the new plan is radically different from the programs to stabilize the food market that were previously initiated and implemented with varying degrees of success.Prior to this, the government was focusing on a limited range of foods, prices for which were to be stabilized. For example, they took grain, seed fat and sugar, considering them as multipliers of inflation.But the main difference is that the government arbitrarily was making centralized purchases, import liberalization and exemption of duties on food imported from abroad.

The proposed program appears to take into account previously made mistakes.Monitoring of local market conditions will allow to estimate the real needs of regions and to make policy of import liberalization more balanced. As a rule, the absence of continuous monitoring of duties abrogation used to lead to overstocking of some products and shortages of others.In addition, a clear knowledge of regions needs will allow the government to carry out food intervention adequately.But that is of course just an ideal scheme.

How to assess markets prices

In general, when we talk about the stabilization of any market, the question about the price of such stabilization always arises.Three years ago, when the economic crisis was just entering its peak phase, Kazakhstani government has made efforts to curb the prices in the food market.We have already mentioned above about the differences between past and current programs.Now let’s focus on fundamental aspects.In particular on the question: who should pay for cheap import?As a rule, the governments focused on import subsidization and thereby shift the burden on national budgets and this failed.A striking example of such an apparently social approach is Belarus. An overload of the budget by subsidies cannot work for the banal reason of taxes arrears.And in the economy a big amount of paper money, not supported by goods and services, spur the inflation. During a certain period it is possible to control this process, but in the end the crisis, as the experience of Belarus showed, is inevitable.

As for Kazakhstan reality, the Ministry of Agriculture seems to have listened to what was advised by foreign experts.For example, a senior economist of USAID in Kazakhstan Michael Boyd in 2008 warned about the weaknesses of direct subsidies to imports from the state budget. The subsidization policy, he thinks, should correspond to the interests not only of the population, which, of course, need food at affordable prices, but also of producers, who in case of low prices simply go bankrupt.

Therefore, the Ministry of Agriculture suggested concentrating on two things: completely abandon the containment of price changes, dictated by the situation on world markets, and promote competition.However, in order to clearly distinguish global trends and trends caused by the desire of wholesalers to get more money, we need a strong and, most importantly, professional anti-monopoly authority.

To ensure food security, and along with it to stabilize the food market, we need a powerful domestic agro-industrial complex of this same level of security.

According to the World Food Organization, to do this the share of food imports should not exceed 15 %. Unfortunately, Kazakhstan is far from the status of a country not depending on imports of food products, except for grain.Thus, according to Rabiga Tokseitova, Director of the Livestock Department of Ministry of Agriculture, 56 % of the consumed here poultry meat are imported from abroad. By comparison in 2000 this figure was at 37.4 %.Analysts tend to believe this trend derives from the increased consumption of poultry meat in Kazakhstan.

Thus, according to the Statistics Agency, only during the period from 2000 to 2010, annual consumption of poultry meat has increased from 53.2 thousand to 224 thousand tons, that is 4.2 times.But even this does not justify the growth dynamics of the country's dependence on imported poultry.As for other types of products, Kazakhstan imports from abroad from 32 % to 60 % of its total consumption.And this ratio goes on deteriorating. According to the Statistics Agency, only in January–February 2011 imports of meat increased by 2.1 times, sugar by 13 times.

It is clear that a high proportion of import is a serious disincentive factor for domestic producers.Therefore, if the government is really interested in a competitive agricultural sector, it has to actively use restrictive or prohibitive measures concerning food import.

But now Kazakhstan has to do it with an eye on our partners in the Customs Union.As the Minister for Economic Integration Zhanar Aitzhanova mentioned, all products which were subject to non-tariff regulatory measures should be included in a single list of goods which are subject to bans or restrictions on import or export of CU countries in trade with third countries. And in unilateral manner Kazakhstan, like Russia and Belarus, has the right to establish the non-tariff measures in relation to third countries only for period not exceeding six months.

In order to enhance the competitiveness of its farmers, Kazakhstan could also rely on the protective, antidumping and countervailing measures in relation to third countries, which are regulated by special agreement, signed January 25, 2008 and came into force on 1 July 2010. 

But to use them, producers must apply to the Commission of CU.The share of production of the applicants must be at least 25 % of the total production of the Customs Union.

Talking about how Kazakhstan's accession to the CU influenced food prices, businessmen and state representatives quite seriously diverge in their assessments.In particular, according to vice-president of the Independent Business Association Timur Nazhanov, due to the high level of reliance on imports, primarily from Russia, food prices in Kazakhstan will continue to grow. The global experience shows that in terms of integration large markets dominate over small ones. It means that higher prices for Russian food will be "imported" to Kazakhstan.Increase in customs duties in relation to third countries also plays a role here."We're seeing prices rose. Because we imported 80 % from other countries: China, Turkey and Europe. Duties for their products came to reach 20 %." Thus, according to Mr. Nazhanov, potatoes, onion and apples Kazakhstan mainly buys from China and Kyrgyzstan. 60 % of butter come from Russia or Ukraine and some from the European Union.

Zhanar Aitzhanova, in turn, believes that a change in customs duties on basic food groups is not reflected in their prices because they are imported mostly from CIS countries, with which trade is carried out duty-free. According to her, tea is on the first place among imported products (87 %), poultry – 84.4 %, and rice – 29.1 %. For other types of food our market depends on imports from third countries for not more than 20 %.

But the main factor affecting domestic prices, according to officials, was the opening of borders between the countries of Customs Union, as well as higher prices in Russian regions at the border with Kazakhstan, what made it attractive to export food to the border regions. The government is confident that this factor, despite the increase in prices in the short term, is positive in the long-term, giving kazakhstani producers the access to the large market of CU.

Of course, it is necessary to improve the efficiency of our agricultural industry. In the early 1990s, Kazakhstan has embarked on the development of farms, and most of large enterprises closed. Experts think, that the years of independence have shown, that in our conditions a farm cannot provide high efficiency because of lack of resources, mechanics, investment and so on. As a result, if during the Soviet period almost 40 million hectares of farmland were cultivated, now only about 21 million.

That’s why our government continues to increase funding of the domestic agricultural industry. For example, 47.9 billion tenge were directed to the industry in 2005, 47.1 billion in 2006, 55.9 billion in 2007, 77.8 billion in 2008, and 77.5 billion 2008. More than 989 billion tenge will be allocated under the Program for the development of the agro-industrial complex for 2010–2014. The main goal is to reach an effective diversification with the help of this money and to guarantee that the money will be received by the addressees, avoiding notorious corruption. Maybe in this case our ability will coincide with our wishes.

Table of contents
Kaznet as a growth driver  Alexander Vassilyev 
· 2016 №1  №2  №3  №4  №5
· 2015 №1  №2  №3  №4  №5  №6
· 2014 №1  №2  №3  №4  №5  №6
· 2013 №1  №2  №3  №4  №5  №6
· 2012 №1  №2  №3  №4  №5  №6
· 2011 №1  №2  №3  №4  №5  №6
· 2010 №1  №2  №3  №4  №5/6
· 2009 №1  №2  №3  №4  №5  №6
· 2008 №1  №2  №3  №4  №5/6
· 2007 №1  №2  №3  №4
· 2006 №1  №2  №3  №4
· 2005 №1  №2  №3  №4
· 2004 №1  №2  №3  №4
· 2003 №1  №2  №3  №4
· 2002 №1  №2  №3  №4
· 2001 №1/2  №3/4  №5/6
· 2000 №1  №2  №3

Rambler's Top100

  WMC     Baurzhan   Oil_Gas_ITE   Mediasystem