MILKING IT

Kazakhstan 2016 | AGRICULTURE | FOCUS: DAIRY EXPANSION

Efforts are underway to increase Kazakhstan's dairy production capacity, particularly its domestic milk production. With agriculture a key sector for growth and investor opportunities, the dairy sector finds itself at the forefront of a radical change in central policy.

The dairy sector has undergone significant changes over the last decades, with increasing demand and a growing market. Companies in the industry are classified in three different ways: household farmers, small and medium dairy farmers with land properties, and agricultural enterprises. Home processing maintains its position as being one of the most prevalent sources of dairy production, as only 30% of all dairy products are produced in factories. This is due, in large part, to the fluctuation in prices based on the time of year and geographic position in the country.

The country's economic policy points to positive positions in the agricultural sector. Over the past 10 years, dairy production has increased by 70%, while the livestock sector represents 65.7% of agriculture's share of the GDP.

Several companies in the country are using new technologies and innovative processes, though they are still using old equipment and outdated production methods for competitive goods. The result is a market full of imported dairy products, which has spurred the government to carve out a way to develop the dairy industry, bearing in mind the reduction of losses in the production of high-quality products. At the moment, the replacement of many types of imported dairy products in the domestic market is still unrealistic, since its production is not enough in quantitative terms.

There is no difference with other developing markets in terms of opportunities or government support, but there are some particular aspects that should be taken into account. About 95% of milk is homeade, which affects the cost and quality of raw materials. Raw milk from Kazakhstan is among the most expensive in the world.

The price of raw milk in Kazakhstan has a negative impact on the competitiveness of dairy products in the local market, as well as abroad, when compared to the prices of raw material in Japan and South Korea. This has been a problem for several years now.

Another specific aspect to consider is the level of consumption of milk in the country, which is low in comparison to other countries in the region. Here, consuming milk products is more often associated with the tradition of drinking milk with tea, making local dishes, or being served for breakfast and before dinner. The proportion of milk drinking in Finland is about 150-170 liters per capita per year; Kazakhstan, however, only consumes an average of 36 liters each year. The government is making a concerted effort to increase consumption by giving consumers sound knowledge about the benefits of milk and by also providing free milk in schools.

In looking to increase consumption, Kazakhstan officials have started to analyze production capacity. According to recent statistics, dairy processing plants are operating at just 35-45% of capacity, and retrofitting these plants is costly. Though dairy companies are aware of the need to update old equipment, costs can be prohibitive, and funding is not widely available. Less than 1% of dairy companies lease newer equipment, the number of companies that have established ISO-standards is just 3%, and only 3-4% of businesses are covered by country credit associations. Additionally, only 50% of dairy processing equipment has been overhauled, which will further hinder growth and expansion within the industry.