REVIEW

The Open Plains

Embedded in the historic traditions of Central Asian culture, the Kazakhstani agriculture sector is taking root and looking to grow through technology promotion and exports.

Agriculture is an inherent part of the Kazakhstani way of life and an increasingly promising segment of the national economy. The country is one of the largest grain producers and exporters in the world, specifically milling wheat. The country also capitalizes on its stock breeding heritage, having large herds of sheep and cattle. More than 40% of the population lives in rural areas, and the agricultural sector employs nearly 30% of the workforce and contributes 5% of national GDP.

The Soviet model of collectivized agriculture used to characterize the commercialization of agricultural production in Kazakhstan. From the early 1950s until independence, thousands of workers in large-scale farms spread over hundreds of thousands of hectares collectively cultivated the country’s vast territories. As the Soviet command framework insulated the industry from market dynamics, the wave of privatization in the 1990s impacted the industry severely, causing steep declines in grain and livestock production. From 1990 to 2000, the area under cultivation for basic crops decreased from about 35.2 million to 16.2 million hectares, before starting to pick up again in 2001. From independence until 1998, the livestock population in the country—including long-horned livestock, sheep, goats, pigs, horses, and camels—dropped from 50.4 million to 15.4 million head. As of 2010, the country’s number of livestock stands at 27.2 million head, while 21.4 million hectares of land are under all forms of cultivation.

GRAIN

Kazakhstan, the world’s ninth largest country by territory, is the sixth largest producer of wheat and the number one exporter of flour. In 2010, 16.6 million of the country’s 21.4 million hectares were dedicated to crops allocated to grain production, which takes place mainly in northern and western Kazakhstan. Akmola, Kostanay, and North Kazakhstan produce about 70% of the country’s total output, and spring wheat makes up 90% of the grain produced in these areas.

The grain harvest in 2010 decreased to 12.2 million tons (net weight) from 22.7 million tons in 2009 due to drought conditions. The Ministry of Agriculture expects the grain harvest to reach 18.9 million tons in 2011. In the 2010/2011 marketing year Kazakhstan exported 5.9 million tons of grain, including 2.5 million tons of grain equivalent exported flour.

Kazakhstan has the second highest wheat productivity in the world after Canada, with an annual production rate of more than 900 kilograms per inhabitant. Although this situation is primarily due to the low population of the country, it is nevertheless a substantial and sustainable export position.

Traditionally, Kazakhstan exports most of its grain produce to CIS countries due to lower transport costs, its largest trade partners being Kyrgyzstan, Tajikistan, and Uzbekistan. Afghanistan and Iran have also become large recipients of Kazakhstani wheat. According to the European Bank for Reconstruction and Development (EBRD), in the 2008/2009 marketing year, half of Kazakhstan’s more than 2 million tons of wheat exports were destined for Turkmenistan, Iran, and Afghanistan. The latter’s increasing population is also making the country a particularly important market for Kazakhstani grain exports.

Kazakhstan’s landlocked location is the main drawback for its grain exports, as exporting through Ukraine and Russia adds to transportation costs. When these two competitors have good harvests, Kazakhstani grain struggles in the Baltic and Black Sea ports. Therefore, although achieving a balance between the CIS and other countries, such as the GCC region and China, is on the agenda, for the time being the focus is on traditional markets. Construction of the Kazakhstan-Turkmenistan-Iran railway, which will run from Uzen in west Kazakhstan to Gorgan in Iran, is expected to boost exports further to Iran, Afghanistan, and Turkmenistan. Further investment and innovation in grain production, storage, and transport will continue to strengthen the sector and bring it closer to utilizing its full potential.

LIVESTOCK

For centuries, livestock production has been a major economic activity among Kazakhstanis. The traditional nomadic way of life shaped not only their day-to-day affairs, but also the collective consciousness and identity of the Kazakh people. Kazakhstani cuisine is heavily oriented toward meat consumption, and this creates a strong domestic market. The main livestock produce of the country consists of cattle and sheep in the southern and eastern regions and swine in the northern regions. Horse, camel, and poultry are also counted among the country’s livestock produce, although in smaller volumes.

In a period of increasing local and market prices, the country’s deep-rooted livestock tradition and seemingly endless grasslands provide what the World Bank in 2009 called a “good production base”, and opportunities for livestock development, “especially for the emerging small and medium-sized producers”. Yet, the sector remains under-exploited, still facing challenges inherited from the country’s transition to a market economy.

Under the Soviet Union, livestock production was handled in large farms, each with several thousand head of livestock. In the 1990s, the country’s national herd contracted due to volatile demand and privatization. The average size of livestock operations decreased to 50-100 head, making smaller farm holdings the main players in the sector. Although consolidation in the market started in the early 2000s, more than 80% of meat production still comes from small, single-owner operations.

The fragmented market leads to a lack of industrial standardization in meat and dairy production as the overall genetic quality of local cattle lags behind international standards. David Manzini, General Director of Danone Central Asia and Caucasus, told TBY, “A cow in Kazakhstan produces around 2,500 liters of milk per year, while a European or French cow, for example, produces about 5,500 to 6,000 liters per year.” The advancement of production technologies and improving the national herd are high on the government’s agenda. The Ministry of Agriculture plans to improve the cattle gene pool by raising popular breeds of cattle such as Hereford, Angus, and Charolais in the country. To underline their commitment, the Kazakhstani government signed a $50 million deal with Global Beef Consultants from North Dakota, which entails the import of cattle and the construction of breeding facilities and feedlots. In addition to the approximate 2,000 Angus and Hereford cattle that were transported from North Dakota in October 2010, about 70,000 head of cattle will be imported from the US, Canada, Australia, and Europe.

The full realization of Kazakhstan’s livestock potential will eventually lead to a more equal distribution of economic development across the country, as the sector will create income, employment, and export opportunities in rural areas far from the main industrial centers. “The vast and under-exploited rangelands, low-cost production structure of smallholder farms, and the availability of low-cost by-products from large-scale crop production (feed grain and oilseed meals),” constitute Kazakhstan’s areas of comparative advantage in this regard, according to a World Bank report in 2009.

Opportunities exist for Kazakhstan to become an export base for the region in livestock, too. With Russia, China, and South Korea importing 1.5 million tons of meat annually, and GCC member states in the market for substantial quantities of halal meat, the country has a promising market to target. The Ministry aims to increase annual beef exports to 60,000 tons by 2015.

ECONOMIC DIVERSIFICATION

The Innovative Industrial Development Strategy 2003-2015 gives due prominence to the role an improved export-oriented agricultural sector could play in the economy. The main areas of focus are technological grain processing, and the production of fodder, livestock, and meat and dairy products. Also targeted for their value-added advantages is the modernization of grain storage, the production of machinery and fertilizers, pharmaceutical products, and biotechnologies.

Among the main challenges to fulfilling this ambitious agenda are comparative low levels of labor productivity vis-à-vis the country’s competitors and outdated machinery. These improvements are also important for the attainment of international quality standards, which will de facto prepare Kazakhstani producers for the country’s approaching negotiations for WTO membership.

The government’s support for agriculture is certainly more than political rhetoric. Kazakhstani authorities note that National Holding KazAgro allocated $1 billion to a comprehensive construction spree, which entailed greenhouses, poultry farms, feedlots, meat-packing factories, dairy farms, infrastructure for grain exports, and the development of a processing industry. Yet, in a dynamic international market, the government’s efforts alone will not suffice to transform Kazakhstan’s agricultural sector into a top global player in foodstuffs. Foreign investors and experience are needed to help the sector reveal its true promise.