18. Kazakhstan
Support to producers in Kazakhstan has been volatile for most of this century, accounting for 4.5% of Gross Farm Receipts (GFR) in 2020-22, compared to 8.6% in 2000-02. The share of potentially most-distorting producer transfers fell from an average of 98% in the early 2000s to 59% in 2020-22, mostly based on Market Price Support (MPS) and variable input use without constraints. On average, domestic prices were lower than world prices for several agricultural commodities, generating aggregate MPS worth about -2.4% of GFR in 2020-22, as negative MPS worth -3.9% of GFR more than outweighs smaller positive MPS worth 1.4% of GFR. Single Commodity Transfers (SCT) in 2020-22 were negative for rice, sunflower, and maize, reflecting individual commodity price gaps. SCTs with the largest positive transfers were barley, poultry, and cotton.
Support based on variable input use and fixed capital formation account for most budgetary transfers to producers. Together with limited other forms of payments, budgetary producer support amounted to 7.0% of GFR in 2020-22.
Support to general services (General Service Support Estimate, GSSE) accounted for 16% of budgetary support to agriculture in 2020-22 and corresponded to 0.6% of the value of agricultural production. Of this, spending on inspection and control accounted for 55% and spending on infrastructure (mostly irrigation and drainage, and the establishment of a digital land cadastre) accounted for 21%. Total agricultural support (Total Support Estimate, TSE) declined from 1.7% of Gross Domestic Product (GDP) in the early 2000s to 0.6% in 2020-22.
Developments in 2022 focused on land management and digitalisation, following priorities defined in the 2021 National Project and Concept. State land-control functions were centralised in a single body. The government launched the “JerInSpectr” platform across the country to improve institutional efficiency and identify issues related to unused agricultural land. It uses remote-sensing data for improved land-resource management without on-site visits.
A new Unified State Information System for Subsidies (USISS) launched in early 2023 to combat corruption by automating many of the functions of subsidy delivery. These include registration for and distribution of subsidies, checking subsidy recipients’ compliance with obligations, and keeping track of which subsidies were paid to applicants.
Baiterek Holding, the state-owned national development institution, was reorganised, allowing agricultural producers to apply for loans in a “one-stop shop” process. Existing financing conditions were not changed.
An amendment to the Tax Code in 2022 doubles the tax rate on unused agricultural land. This change is intended to encourage land to be put into productive use.
Limited effort has been made to facilitate the adaptation of the agricultural sector to a changing climate, despite adaptation’s mention among the government’s priorities in the national Concept framework, and the sector’s vulnerabilities to the effects of climate change. Steps were taken to develop state and regional action plans through the ministry’s “Rules of organisation and implementation of the process of adaptation to climate change”. However, Kazakhstan should look to move beyond planning and begin implementing adaptation-specific policy. This should be done with a co-ordinated effort across levels of government to monitor and measure progress.
Adverse weather conditions, pests and diseases, and price volatility pose challenges for farmers and agribusiness firms, and responding to these can strain government finances. Kazakhstan should enhance the resilience of its agricultural sector by adopting a broader, more integrated approach to risk management, replacing ad-hoc, ex-post emergency responses to local disasters, ensuring that disaster assistance does not impede the development of on-farm strategies and market solutions, such as insurance.
Agriculture is the second largest emitter of greenhouse gases (GHG) after the energy sector, and Kazakhstan should specify targets and approaches to reduce agricultural emissions to meet the country’s overall emission-reduction commitments.
While total support to agriculture is small relative to the economy, most producer support is provided in forms that are potentially most-distorting to agricultural production and trade, and likely to exacerbate pressures on natural resources. Subsidies for inorganic fertilisers, chemical inputs and industrial feed have strong potential to harm the environment. Kazakhstan should consider phasing out such types of support. Freed funds could be used for needed services for the sector, notably the relatively underfunded agricultural knowledge and innovation system, and advisory services. Giving strategic priority and incentives to orient innovation and growth towards reducing environmental pressures could keep the pace of productivity growth while ensuring a more environmentally sustainable path.
Positive developments in land management have been observed, such as the introduction of digital monitoring of land use. Kazakhstan should clarify its land-use objectives with respect to production, adaptation and conservation. The doubling of taxation on unused land and the commitment to increase labour productivity 2.5 times demonstrates Kazakhstan’s ambition to increase production, but should not neglect the potentially harmful environmental effects of over-production.
The introduction of a digital system to register and distribute subsidies is an important step towards improving transparency and the accuracy of monitoring.
Overview of policy trends
In the Soviet era, all sectors of Kazakhstan’s economy, including agriculture, were regulated by central planning. Production, the marketing of agricultural inputs and outputs, and processing and distribution of food were controlled by state enterprises. Agriculture was supported by high administered prices and considerable input and output price subsidies, in addition to policies such as cheap energy and transport, which were not agriculture-specific.
Kazakhstan became an independent country in 1991 following the collapse of the Soviet Union. Stabilisation and transition to a market economy were its main economic challenges. During the transition, the agricultural sector was affected by economic shocks, land reform and reduced government support. The main agricultural policies were geared towards decreasing food import-dependency and increasing domestic food production (Baubekova, Tikhonova and Kvasha, 2021[1]).
Agricultural products and inputs became exposed to market forces post-independence in the 1990s. After this early period of market reform, Kazakhstan made little progress in pursuing further trade liberalisation. It was not until its accession to the WTO in 2015 that the country restarted trade liberalisation measures. However, Kazakhstan continues to apply a range of border and domestic price intervention measures such as tariff rate quotas and non-tariff measures. They have also imposed export restrictions in times of global uncertainty or high prices, such as 2008, 2020 and 2022.
The State Programme of Agro Industrial Complex Development for 2017-2021 (hereafter, “the 2021 State Programme”) provided the main agricultural policy framework in Kazakhstan up until the end of 2021. While maintaining the principles of the previous framework (Agribusiness-2020 Programme), the 2021 State Programme put a stronger emphasis on the development of, and support to, individual household plots and small farms, agricultural producer co-operatives and agriculture supporting services and infrastructure. In addition, some input subsidies including on seed, fertiliser and pesticides were increased.
Producer support in Kazakhstan tends to vary considerably between years. Levels of support from price interventions have declined over time in favour of budgetary support. The %PSE fluctuated considerably between 1995 and 2020. In some years, negative support provided through depressed market prices for some products offset budgetary allocations and positive support provided through higher domestic prices for others. However, net producer support was positive in most years (Figure 18.4), due to increasing support related to the use of production inputs, in particular credit, over the past ten years. Overall, total budgetary support to agriculture increased relative to the size of the economy and is now about 2.6% of gross farm receipts.
Main policy instruments
The National Project for the Development of Agriculture for 2021-2025 (hereafter “the National Project”) and the Concept for the Development of Agriculture for 2021-2030 (hereafter “the Concept”) provide overarching policy frameworks for the development of the agricultural sector. The National Project was endorsed in October 2021 while the Concept was endorsed in December 2021.
The National Project sets out four goals to be achieved in the next five years:
Increasing labour productivity by 2.5 times compared to 2019.
Increasing the supply of locally produced basic food products.
Doubling food exports compared to 2019 and raising the share of processed foods in total food exports to 70%.
Generating higher and more stable incomes for 1 million rural people by establishing 7 sustainable food value chains (meat, fruits, vegetables, sugar, dairy, grains, and oilseeds) and related investment projects.
To achieve these goals, the National Project develops and expands existing state support measures including:
financing of crop cultivation through short and long-term loans
subsidy mechanisms and introduction of new forms of state support
forward contracting of agricultural products to stimulate the cultivation of priority crops
maintenance of reserve stocks of grain, a forage fund, and stabilisation funds for socially significant food products
R&D measures and build capacity for agro-industrial production.
The Concept sets out a number of key priority areas including:
adjusting support mechanisms to focus on competitive products
industry development based on manufacturing, digitalisation, sustainability and development of human capital
commercialisation and knowledge transfer; development and strengthening of phytosanitary and veterinary services
more efficient land use systems and water use for the production of agricultural products
growth of incomes and social support systems for the rural population, development of rural infrastructure
The Concept also sets goals to build on those of the National Project by setting more ambitious targets for productivity and exports, while also expanding its set of development goals to also include for agro-industrial investments and food availability.
Kazakhstan applies a range of border and domestic price intervention measures. Border measures are implemented within the Customs Union of the Eurasian Economic Union (EAEU) and include tariff rate quotas (TRQs) and non-tariff measures. TRQs apply to imports of lower-grade beef and of poultry products.
Intervention in domestic markets is twofold. The State Commission for the Modernisation of the Economy undertakes intervention purchases of grains to support domestic producer prices. At the same time, consumption price stabilisation is in place for 29 commodities.
Purchases of mineral fertiliser and high-quality seeds are supported by subsidies per unit of input. Administered prices below market prices apply to diesel fuel sold to agricultural producers for pre-determined volumes during sowing and harvesting periods.
Investment subsidies, together with concessional credit, represent the principal forms of support to agriculture. Concessional credit comes through numerous channels. Several credit agencies provide loans at reduced interest rates under the umbrella of the state company Baiterek Holding, which has absorbed the subsidiaries and functions of KazAgro Holding since 2021. Along with agricultural producers, food processors benefit from concessional credit and leasing of machinery and equipment from credit agencies of Baiterek Holding.
For crops, output payments go to oilseeds, rice, sugar beet and cotton used for processing. Headage and output payments support the livestock sector. Large commercial livestock producers receive most of these as they account for the largest shares of production and herd size. Other forms of support to livestock are silage and fodder subsidies, support to artificial insemination and to the purchase of young cattle for feedlots.
The current interest rate subsidy applies to loans issued by financial institutions with a nominal interest rate not exceeding 17% per annum. The interest rate subsidy reduces nominal rates by 10% for loans for the purchase of agricultural machinery, equipment and farm animals, purchase of fixed assets and construction; by 7% for replenishment of working capital; and by 9% for spring field work and harvesting.
There are separate terms for interest rate subsidies for loan agreements concluded under the Economy of Simple Things programme, designed by the Ministry of National Economy to raise domestic production and reduce imports of consumer products such as of food, textiles, and furniture. These loans are targeted towards production and processing of products deemed of strategic importance. The programme is financed by the National Bank and applies to loans with a nominal interest rate not exceeding 15% per annum. For this programme, the interest rate subsidy is transferred through the Damu Entrepreneurship Development Fund and local governments, and reduces the nominal interest rate by 10% for loans for investment purposes, by 9% for loans to replenish working capital and for spring field and harvesting work.
The Credit guarantee system is a mechanism for guaranteeing loans from second-tier banks through the Damu Entrepreneurship Development Fund.1 The terms of the guarantee provide for the issuance of a loan of up to KZT 3 billion (USD 7 million) at a rate of no more than 17% per annum, for a period of up to 10 years. The commission for guaranteeing is 30% of the amount of the guarantee, of which 29.9% is paid by the local executive body and 0.1% is paid by the agricultural producer. The guarantee is provided for the implementation of investment projects in all types of activities in agriculture, as well as in the field of food production. At the same time, within the framework of the guarantee, there are priority investment areas, which are supported with higher guarantee rates.
Land tax applies since 2015. Individual farms of less than 3 500 hectares can pay an alternative Single Land Tax set as a percentage of the cadastral value of land owned or used, which replaces the land tax and five other business taxes. Finally, since 2015, individual farms pay a 10% income tax for physical persons on an income above KZT 150 million (USD 0.3 million).
Kazakhstan is a member of the Treaty on the Eurasian Economic Union (EAEU) established in 2015, together with Armenia, Belarus, Kyrgyzstan and the Russian Federation. Kazakhstan’s border measures are implemented within the Customs Union of the EAEU and a number of national responsibilities in the area of custom regulations are transferred to the EAEU, including SPS and technical regulations.
Kazakhstan is a party to the Paris Agreement on Climate Change. Through its Nationally Determined Contribution (NDC), Kazakhstan set an economy-wide target starting in 2021 to reduce GHG emissions by 15% compared to 1990 by 2030. This target covers all emissions, including from agriculture. Specific targets or reduction plans for the agricultural sector were not defined.
There are no mitigation policies directed at the agricultural sector. There are however cross-compliance requirements linked to some support payments that could help lower GHG emissions from agriculture. For example, some interest rate subsidies provided to livestock producers require rehabilitation of pasture lands.
Climate change adaptation policies in agriculture
While no policies specifically target climate adaptation, one of the government’s 2030 agricultural development priorities in the Concept is the “Establishment of a sustainable, intensive crop sector with stable and high yields and profitability that is adapted to climate change”. Measures relevant to adaptation undertaken by the government include support for the development of irrigation, crop diversification, and research and development in drought-resistant species. The country is also working with the Food and Agriculture Organization (FAO) on a National Action Plan to Combat Desertification.
In 2021 the Ministry of Ecology, Geology and Natural Resources endorsed the “Rules of organisation and implementation of the process of adaptation to climate change”. This document outlines the process for developing and implementing climate-change adaptation measures by central and local executive bodies in regions and cities. It emphasises the need to assess vulnerabilities, establish clear and measurable goals, and prioritise adaptation measures based on efficiency, feasibility, cost, financing availability, and implementation timeline. Involvement of interested parties is encouraged through focus-group discussions, and measures are to be integrated into state and regional programs. Co-ordination, monitoring, and evaluation among various executive bodies are crucial to ensuring adaptation to climate change. However, no active steps have been taken in this direction.
Domestic policy developments in 2022-23
Forward contracting and price stabilisation
In 2022, the financing amount for forward contracting by the Food Contract Corporation was doubled to KZT 80 billion (USD 174 million). The list of purchased crops was expanded to ten items, including soft wheat, hard wheat, barley, oats, sunflower seed, soybeans, flax, rapeseed, buckwheat, and corn. In 2022, agricultural products were delivered to the Food Corporation’s funds under forward purchasing with a total amount of KZT 125.9 billion (USD 273 million).
In mid-2022, two new developments were introduced on forward contracts. The first involves new forward contracting of vegetables to ensure their sale in the off-season. This is provided a year in advance to guarantee timely sowing and subsequent market supply during off-season periods. The second involves the provision of working capital to processing plants for raw material purchases. Currently, sugar refineries receive working capital financing under a memorandum between the Integrated Tariff Information System, regional authorities, and sugar refineries. Additional forward contracting for buckwheat, rice, and sunflower producers through processing plants is under consideration.
Subsidy delivery
Harnessing information technologies is part of Kazakhstan’s long-term strategy to simplify, facilitate control, and improve the transparency and effectiveness of government support to agriculture. Starting from 1 January 2023 all subsidy applications are now accepted through the “Unified State Information System for Subsidies,” (USISS) replacing the previous Qoldau platform. The main distinction of the new platform is that farmers no longer need to pay a subscription fee for its use. The subsidy database is maintained by the Ministry of Agriculture.
An electronic mechanism was established for allocating and distributing diesel fuel to agricultural work within the USISS. This mechanism is designed to ensure transparency in the distribution of diesel fuel and enable effective monitoring and control. This is implemented via amendments to the Law on State Regulation of Production and Circulation of Certain Types of Petroleum Products
Merging of KazAgro Holding with Baiterek Holding
On 25 July 2022, Baiterek Holding, a state-owned finance corporation, transferred 100% of its subsidiary KazAgroFinance (KAF) shares to the Agrarian Credit Corporation (ACC). KAF, will continue its core activities of providing leasing for agricultural machinery and equipment as a subsidiary of ACC. This follows from a series of restructurings of other state-owned corporations in 2021 that saw Baiterek absorb KazAgro Holdings and three of its subsidiaries. The reorganisation will provide a “one stop shop” to agricultural producers for loans through the large branch network of the ACC. Conditions for financing agribusiness are otherwise unchanged.
Digitalisation of agriculture
Efforts began in October 2022 to digitise records of agricultural lands, covering 205.4 million hectares, or 75% of the republic’s total territory. A digital agricultural map is expected to be completed by the end of 2024. Work is also underway to create the “Unified State Real Estate Cadastre” information system.
Trade policy developments in 2022-23
The National Project sets the objective to double food exports and raise the share of processed food in agro-food exports to 70%. Some of the new measures include developing a network of trade and logistics infrastructure, wholesale distribution centres, eliminating trade barriers, and harmonising veterinary and phytosanitary requirements. These measures will be implemented through negotiations with potential importers, foreign partners, as well as participation in the work of international organisations (WTO, OIE, IPPC, Codex Alimentarius Commission, FiBL and IFOAM).
On 24-25 July 2022, a Protocol on sanitary and technical requirements for the import of Kazakh beef and mutton into Saudi Arabia was signed. The signed protocol opens up opportunities for Kazakhstan beef and mutton producers to expand their market and further enhance co-operation in the agricultural sector.
In January 2023 Kazakhstan introduced a three-month ban on onion exports. This was associated with an increase in demand for domestic vegetables from third countries. In accordance with the Order, territorial inspectors have suspended the issuance of phytosanitary certificates for exports. As of 31 December 2022, the Ministry of Agriculture introduced new regulations for the export of live animals. The regulations introduce quota limits of 60 000 bulls and 120 000 lambs.
Trade policy responses to Russia’s war of aggression in Ukraine
Kazakhstan did not introduce any policies specifically in response to the war in Ukraine. However, in May 2022, following the outbreak of the war and resulting volatility in global agricultural markets, the Ministry of Agriculture issued the “On some issues of exporting white sugar and raw cane sugar” to prevent the possibility of mass sugar export. This comes in response to a decline in sugar production volumes in the Eurasian Economic Union countries. The order imposes a temporary ban on the export of white sugar and raw cane sugar for a period of six months. Similarly, an export quota of 550 000 tonnes for wheat was introduced from April to September 2022.
Kazakhstan has the ninth largest land area in the world and is one of the least densely populated countries. It has the second-highest per-capita availability of arable land in the world. Kazakhstan is also an important exporter of fossil fuels. The country is an upper middle-income economy and the richest country in Central Asia, but its economy remains highly dependent on oil and commodity markets. Its high share of trade in GDP (25%) highlights the strong focus on international markets.
Although the contribution of agriculture to the economy has declined sharply since the early 1990s, agriculture remains an important economic sector, contributing to 5% of GDP and 15% of national employment. Over 75% (or 214 million hectares) of the country’s territory is suitable for agricultural production, but only about half of that is currently under agricultural production. Kazakhstan is one of the top ten grain exporters in the world, exporting to over 70 countries. The country’s major crops are wheat, barley, cotton and rice, with wheat exports a major source of foreign currency. Livestock products, including dairy, leather, meat and wool also comprise an important share of agricultural output.
The farm structure is dualistic: with large-scale and often highly vertically integrated operations dominating the production of the sector, while rural and subsistence-farming households account for the majority of farms. Kazakhstan’s agricultural sector is particularly vulnerable to the effects of climate change, as increasingly frequent hot weather and severe droughts reduce water availability.
Kazakhstan’s GDP grew by 4.3% in 2021 coming out of the COVID-19 pandemic. The pandemic hit the economy more than the crises in 2008 and 2015-16. The recovery in 2021 was also more muted than that following the 2008 crisis, but in line with that of 2015-16. Economic data is not yet available to describe the Kazakh economy following the outbreak of war in Ukraine.
Kazakhstan has been a net agro-food importer since the mid-2000s, yet the country remains one of the world’s largest wheat exporters. More than 60% of agro-food exports are in primary commodities, the vast majority of which goes to processing by industry. More than 60% of agro-food imports are processed commodities, the bulk of which are for final consumption.
Agricultural output grew very rapidly in Kazakhstan in the decade 2011-20, at an annual average rate of 2.9%. Intermediary inputs grew at only 1.1% and agricultural labour force fell with labour moving out of agriculture to other sectors. The strong output growth was only possible because of high productivity gains of 4.58% per year, well above the world average.
The persistent negative average nutrient balances suggest that soil fertility is being eroded which will have a negative impact on yields and output. Studies indicate that there is a high degree of land degradation in Kazakhstan and that soils are very poor in nitrogen and phosphorus, particularly in the rangelands (Shpedt and Aksenova, 2021[3]; Hu, Han and Zhang, 2020[4]). Agriculture’s share of energy use and agriculture’s share of GHG emissions have both declined and appear to be converging with OECD averages. The share of agriculture in abstracted water has increased slightly, and remains much higher than the OECD average.
References
[1] Baubekova, A., A. Tikhonova and A. Kvasha (2021), “Evolution of Agricultural Policy in Kazakhstan”, in Kazakhstan’s Developmental Journey, Springer Singapore, https://doi.org/10.1007/978-981-15-6899-2_3.
[4] Hu, Y., Y. Han and Y. Zhang (2020), “Land desertification and its influencing factors in Kazakhstan”, Journal of Arid Environments, Vol. 180, p. 104203, https://doi.org/10.1016/j.jaridenv.2020.104203.
[2] OECD (2013), OECD Review of Agricultural Policies: Kazakhstan 2013, OECD Review of Agricultural Policies, OECD Publishing, Paris, https://doi.org/10.1787/9789264191761-en.
[3] Shpedt, A. and Y. Aksenova (2021), “Modern assessment of soil resources of Kyrgyzstan”, IOP Conference Series: Earth and Environmental Science, Vol. 624/1, p. 012233, https://doi.org/10.1088/1755-1315/624/1/012233.
Note
← 1. The Damu Entrepreneurship Development fund took over the provision of credit guarantees from the Fund for Financial Support to Agriculture in 2021.