Kazakhstan 2016 | AGRICULTURE | FOCUS: WHEAT

Kazakhstan is positioned to become a leader in grain exports in the coming years. With an enormous amount of arable land at incredibly cheap prices and its location within an area of high demand, now is the ideal time to invest in the country's grain sector.

Kazakhstan's grain production ranks third in the Commonwealth of Independent States (CIS), after Russia and Ukraine. The country has significant potential to export grain and flour. 8 to 10 million tons of wheat is exported annually from Kazakhstan to countries in Central Asia, North Africa, and Europe. The overall condition of the grain and wheat industry remains stable despite the country's unsteady economic situation.

Agriculture is an important sector of the economy in Kazakhstan. In the north part of the country, climatic conditions are suitable for cultivating spring wheat, oats, barley, and other grains, and provide a suitable environment to grow vegetables, melons, and to cultivate several industrial crops, such sunflower, flax, tobacco, and many others. In the south, among the foothills and river valleys, the temperature is warm for a considerable part of the year and irrigation yields great amounts of cotton, sugar beets, yellow tobacco, rice, and fruit.

Steady population growth in Central Asian countries will drive demand for Kazakh wheat and grain. In the Chinese market, there are great prospects for Kazakh exporters—in 2013, 124,000 tons of grain were exported. A recent influx of investment and technology in the grain industry has made for stable production of the crop. Despite periodic lean years, the overall profitability of grain production in the past remained between 52 and 65%. With the price per hectare of arable land around $44-52, the country presents an attractive long-term investment in the grain and wheat industry.

The current over-indebtedness problem in agricultural enterprises should reduce due to a financial recovery program. Reducing the annual average of payments on loans is expected to increase available cash resources for grain companies, which will encourage investment in modernization and, consequently, contribute to the growth of labor productivity

KazAgro Holding believes appropriate grain companies should invest in the construction and modernization of granaries, which will sell grain during periods of high prices and thereby increase profitability. KazArgo may provide loans for construction and modernization projects for long-term grain storage at the rate of 6% per annum. In addition, it launched an investment subsidies program in 2014, which will offset some of the costs of building wheat storage facilities and thereby accelerate the return on the project.

Moreover, the recent currency devaluation is expected to have a positive impact on the export-oriented grain industry. Large grain companies will be able to obtain additional liquidity to service loans, without reference to foreign currencies. This applies in particular to loans from KazAgro.

Estimates for grain imports this year were set at 8.4 million tons. For the 2014-15 season, the International Growth Centre (IGC) estimated that wheat and grain exports from the country reached some 6.3 million tons. According to an April report by the IGC, this season's domestic consumption of grain will be equal to 8.8 million tons. Previously, forecasts have been accurate—one year earlier, the volume of use was expected to be around 9.7 million tons.

The forecast for carryover stocks of grain for 2015-16 is fixed at around 2.9 million tons as of April. Compared with March, the prospects grew by only 100,000 tons. At the end of the 2014-15 season, the reserves will be 2.9 million tons. According to statistics, compared to the same time last year, there has been an observed slowdown in inflation.