Agribusiness to Kazakhstan

Trends and opportunities

The market

Land and climate

Agriculture is an important pillar of the Kazakhstan economy. The total area of agricultural land in Kazakhstan is 222 million hectares, including 24 million hectares of arable land, 188 million hectares of pasture, five million hectares of hayfields and approximately 4.5 million hectares of fallow land. The country covers several different agro-ecological systems. The north, where most grains are produced, is suitable for rain-fed agriculture. The centre-south is desert and semi-desert, with mountains in the south and east of the country. In the south, agriculture is mostly dependent on irrigation (1.2 million hectares), while the east is traditionally planted with oil-seed crops (mostly sunflower).

Economic indicators and challenges

The agricultural sector is a key pillar of the Kazakhstan economy from both a social and economic development perspective. The sector employs around one fifth of the economically active population and 46.8 per cent of the population live in rural areas. Key agricultural sectors are animal husbandry and plant growing (grain and feed crops).

In 2017, Kazakhstan’s gross agricultural output increased by 2.9 per cent and foodstuff production by 4.1 per cent.

A favorable investment climate has contributed to increased investment in the agricultural sector of the country. In 2017, capital investment in agriculture grew by 29 per cent and in foodstuff production by almost 32 per cent (for comparison, investment in construction grew 11.8 per cent, industry – 3.8 per cent, trade – 21.8 per cent, communication-9.5 per cent).

Despite abundant land resources and increasing agricultural production, the contribution of agriculture to Kazakhstan’s gross domestic product (GDP) has been around 6 to 8 per cent over the last five years according to the Ministry of Agriculture (versus 13 per cent in 1996). This is largely due to faster growth in the oil and resources industries as well as weak productivity in the agricultural sector.

The agribusiness sector, and particularly the livestock and dairy industries, are a focus of the Kazakhstan government’s policy, which is seeking to reduce dependence on oil and gas. The government has a stated aim of doubling the size of the non-oil sectors by 2025 and is focusing on the development of priority export-oriented sectors (agriculture, food production, metal making, mechanical engineering and petrochemical industry).

Kazakhstan has fertile soil and a strong agricultural tradition with more than 70 per cent of Kazakhstan’s land area occupied by agricultural crops and animal husbandry (Source: BMI, Kazakhstan Agribusiness Report Q2 2018). It has achieved self-sufficiency in wheat and last year achieved self-sufficiency in beef and lamb.

In 2013, the Kazakh Ministry of Agriculture released a master plan for the stabilisation of the grain market. The Agribusiness-2020 program specifies goals and projections for grain production, consumption and exports for the period 2013-2020. The development of the livestock industry is linked with the diversification of arable production away from wheat. According to the plan, the sown area for all grains will stay relatively the same during this period. It envisages a considerable shift from wheat to feed grains. The area sown to wheat is expected to reduce by 14 per cent from 13.5 million hectares in 2012 to 11.5 million hectares in 2020. Feed grains are expected to increase by 53 per cent from 2.8 million to 4.3 million hectares by 2020.

Market structure

As a result of farm restructuring, small holdings and households have become the main agricultural producers, accounting for more than 56 per cent of total agricultural output. Large agricultural enterprises account for around 20 per cent of output and collective farms 24 per cent. Households are particularly dominant in livestock production and this is a constraint on the potential for a large-scale industry expansion. In addition, the productivity in the livestock sector is considerably lower than international standards.

Small enterprises and family farms account for around 80 per cent of meat production. Around 90 per cent of dairy production comes from the household sector with most output for home consumption.

The majority of dairy cattle in Kazakhstan belong to small-scale farmers reliant on traditional grazing practices. This makes milk output very dependent on the quality of pasture and in turn makes the weather a crucial factor in determining yields (Source: BMI Kazakhstan Agribusiness Report Q2 2018).

According to the National ‘100 Concrete Steps’ plan the share of imported milk in Kazakhstan is to be reduced from 28 per cent to 18 per cent by 2020. It is planned to increase milk production by 500 thousand tonnes by 2020 and to increase processing capacity from 40 per cent to 70 per cent.

This is to be achieved via creation of production cooperatives and introduction of latest technologies to run workshops with foreign experts in the field of dairy farming, financing agricultural projects through the National Holding Baiterek and KazAgro, tighter control of falsification and safety of products, establishment of logistics centers and the development of technical regulations.

The Kazakh government has announced it wants to invest US$1.5 billion in milk and meat production in the coming years to address major challenges facing both sectors (Source: BMI Q2 2018). Crop yields can be increased further; 2017 yields (tonnes per hectare) were 1.34 for grains, 0.97 for oilseed crops and 25.4 for vegetables.

Kazakhstan has the largest amount of permanent pasture per animal in the world, which can serve for year-round feeding. Currently, Kazakhstan has 6.7 million head of cattle, more than 18 million sheep and goats, and nearly 39.9 million poultry (Source: Kazakhstan Statistics Committee, 2017). The Government is providing financial support to increase these numbers – from 2011 a state program ‘Sybaga’, administered by the state holding KazAgro, subsidises imports of breeding cattle and brood stock with a target to increase cattle by 61 percent by 2020. Australia has been a major cattle supplier along with the US and Canada. The first shipments of Australian pedigree cattle arrived in November 2011.

Kazakhstan has ambitious plans to become one of the world's top five largest beef exporters. To this end, it is planned to purchase around 1 million heifers over 7 years, develop aggregated processing and support services. Productivity should increase from current US$1,000 to US$8,000 per person engaged in beef cattle farming.

Although landlocked, fish are an important part of the country's agricultural sector. Kazakhstan’s reservoirs, rivers and the Caspian Sea are rich in valuable fish species such as sturgeon (beluga, stellate sturgeon), pikeperch and trout.

Food processing ranks amongst the most promising areas for investment. Because of insufficient food-processing capacity, Kazakhstan has to import much of its food supplies.

Water availability is of growing importance. Given the need for large volumes of water for agricultural purposes, the Agribusiness-2020 strategy also calls for the introduction of modern water-saving agricultural technologies and an end to water wastage. The target set by the President of Kazakhstan is to introduce a minimum of 600 thousand hectares of irrigated land during the next five years (Source: bnews.kz , Sep 2016). These developments are supported by major development banks including the EBRD, ADB and the World Bank.

In recent years, the agricultural sector in Kazakhstan has shown a remarkable and continuous growth in output. Committed state support and opportunities created by an enlarged market (the Eurasian Economic Union with Russia, Belarus, Armenia and Kirgizstan) makes agriculture an attractive sector for investment. To unleash its potential, the sector must tackle a number of problems, including low productivity and low yield, as well as lack of strategies and technologies pertaining to successful entrepreneurship. In addition, there are high transportation costs, logistics and infrastructure limitations, access to certain markets (especially China) as well as availability of accessible credit. The sector also needs to renew its stock of agricultural machinery, most of which is quite old and has a level of depletion of 80 per cent.

The liberalisation of the agricultural sector will continue. However, the dominance of state-owned enterprises in a variety of agribusiness sub sectors and the absence of private land ownership continue to be major obstacles to investment growth in the sector (BMI Q2 2018).

Industry support

The Government of Kazakhstan is strengthening its indirect support measures to increase agricultural competitiveness. The state program of support for agribusiness (covering 2013-2020) stipulates a 450 per cent increase in state financial support by 2020. The program targets diversification of crop production, increased production from dry lands, further agricultural land development and improved taxation. In livestock, the program supports exports, stimulates the development of meat livestock, and increases breeding potential (by importing high quality breeding stock). Indirect support include subsidies and credit insurance. The government also wants to protect local producers within the regional trade organisations (Eurasian Economic Union, WTO) by watching for violations of fair trade, controlling technical regulations, placing a priority on local producers in state procurement and developing logistics infrastructure.

State support measures are being revised to maximise coverage of agricultural producers and stimulate introduction of new technologies, increase productivity and achieve food safety via digitalisation and technological modernisation, introduction of precision farming and Smart farms.

For technological modernisation the government plans to re-direct inefficient subsidies for subsiding leasing interest rates and to increase investment subsidies. Through state support measures, the government plans to ensure investment of up to 240 billion tenge (AUD$938.7 million) in technology to entrepreneurs by 2021.

The state operator – KazAgro – plays an important role as it administers various state programs, supports agricultural development and oversees public spending in the sector. The holding includes several entities such as Food Contract Corporation, Agrarian Financial Support Fund, Agrarian Credit Corporation, KazAgroFinance, KazAgroMarketing, KazAgroGarant and KazAgroOnim. All organisations work with local agribusinesses and provide knowledge and know how. They have developed web portals to ensure constant feedback for potential investors and offer various information and logistical services.

There are plans to reform the agrarian science for the purpose of introduction of new technologies available worldwide. Agrarian educational institutions will be turned into research institutes and will incorporate research and pilot facilities.

According to the Ministry of Agriculture, financing of agrarian science for 2018-2020 is 12.6 billion tenge (AUD$ 49.3 million). Financing is carried out according to 21 priority directions of science development. At the same time, the Ministry intends to increase the participation of businesses in the promotion of agrarian science.

The government is also supporting the development of transport infrastructure by investing in roads, railways, and expansion of grain terminals on the Caspian Sea. It is also involved in the Belt and Road initiative, as the country aims to become the largest business and transit hub of the Central Asia region, a bridge between Europe and Asia.

Opportunities

Areas of opportunity for Australian exporters and investors include:

• supply of genetic material (the main breeds of interest are Angus and Hereford), artificial insemination and embryo transplant technologies
• farm management technologies and services
• agricultural consulting services (e.g. pasture development)
• agricultural machinery and software
• modern irrigation system/technology, wind erosion protection technologies
• grain infrastructure and services
• investment/JVs
• access to an enlarged market, which includes Russia, Belarus, Kyrgyzstan and Armenia as Kazakhstan’s partners within the Eurasian Economic Union as well as China, Iran, Azerbaijan.
• agribusiness specialists training.

The Government of Kazakhstan welcomes foreign investment in:

• meat and milk production
• food production with high value-add
• oilseed crops and soy beans
• wool and skin production and processing
• investment in developing regions, including foreign direct investment in agricultural businesses.

Marketing your products and services

Market entry

Some of the issues for potential exporters and investors to consider include:

• State-owned firms are key players in the market
• Under-development of large-scale animal farming: most livestock producers are household plots which lack financial resources
• Landlocked country: no access to open-sea ports, high transportation tariffs in neighboring countries (particularly, Russia)
• Infrastructure remains underdeveloped, particularly for perishable goods
• Low level of development of agricultural technologies, large depletion of equipment
• Weak vertical integration/coordination between production and processing facilities
• Underdeveloped marketing strategies, particularly for export markets
• Generally high risk of agriculture because of harsh climate
• Competition and potential trade disputes with its partners (Russia, Belarus)

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