Chapter 16. Kazakhstan
Support to agriculture
The share of producer support in gross farm income (%PSE) was 3.1% in 2016-18. In 2018, domestic producer prices remain on average below world levels although to a lesser extent than in 2017, leading to a negative aggregate price support (MPS) for several crops1 and an implicit transfer from farmers to consumers as measured by the Consumer Support Estimate. Support to fixed capital formation is a major component of producer support, and accounts for 60% of the budgetary transfers to producers in 2016-18. On average, total support to agriculture growth is in par with economic growth and its share in the economy (%TSE) is stable. The share of general services to the sector (GSSE) in the TSE is stable at around a quarter. Spending on inspection and control, and on the development and maintenance of infrastructure together made up more than 80% of the GSSE expenditure in the past three years.
Main policy changes
The implementation of the 2021 State Programme began in 2017. In 2018, area payments for crop production, and output and headage payments for livestock production were reduced, eliminating 20 out of 54 types of the payments. The remaining payments were simplified in order to shorten the application process for subsidies and reduce corruption risks.
In 2018, a new seed subsidisation mechanism was introduced. The programme reimburses seed producers the full cost of producing the quality seeds distributed to farmers. In return, the farmers are required to return 30% of the subsidies to the Seed Development Fund, which finances the acquisition and modernisation of machinery and equipment for certified seed producers at preferential interest rates.
Kazakhstan restructured the agricultural research and development (R&D) system in 2018, consolidating 23 Research Institutes (SRI) to 12 and increasing the number of agricultural experimental stations. In addition, business associations have participated in making decisions on the financing of R&D projects with a view to introduce a co-financing scheme in R&D projects.
Assessment and recommendations
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While market price support is no longer the sole instrument, all farm support requires production and is hence likely to influence farm production decisions, increase pressure on resources and distort markets.
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Some of the measured negative MPS may be linked to weak infrastructure. A number of infrastructure projects are underway that have the potential to reduce weaknesses in the transport and market infrastructure, facilitate farmers’ access to domestic and international markets and improve water and land management. The focus on infrastructural development should make an important contribution to its international competitiveness and export potential.
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Increased subsidies for fertiliser and chemical inputs and for the use of industrial feed should be assessed in light of their potential negative environmental impact. Furthermore there is a risk of subsidy leakage to the input industry. Current efforts to streamline support to more targeted measures and more transparent attribution conditions should be continued.
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The mandatory crop insurance system should be reformed to increase the role of the crop insurance market.
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The sector’s long term productivity should be strengthened by giving producers access to land ownership and long-term rent, by enabling them to better manage market and climate-related risks and by creating incentives for a more efficient and sustainable use of natural resources. Farm decision-making and performance could be improved by developing a national system of extension services.
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Kazakhstan’s emission reduction target of 15% by 2030 relative to the 1990 levels (25% conditional on international investments to access low carbon technologies) covers all sectors including agriculture. An agriculture-specific target or reduction plan, however, has not been defined. Given that agriculture accounts for 10% of national emissions, a dedicated target should identify to what degree and how agricultural emissions are to be reduced.
Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.
Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Support to agricultural producers as measured by the %PSE was estimated to 3% of gross farm receipts on average in 2016-18. The share of gross producer transfers (whether positive or negative, i.e. expressed in absolute terms) arising from potentially most distorting measures (support based on output and variable input use – without input constraints) has gone down from 98% in the early 2000s to 61% on average in 2016-18. Domestic prices were lower than world prices for several crops, with negative MPS corresponding to -9% of gross farm receipts, but slightly higher than world prices for livestock commodities. Overall, the average prices received by farmers are 3% below world prices. Support to general services (GSSE) represents 4.5% of agricultural value added in the most recent period, an increase from 3.7% in 2000-02. This reflects the setting up of basic services including pest and disease inspection and control as well as institutional and market infrastructures. Total support to agriculture (TSE) as % of GDP declined to 0.6%, but the Total Budgetary Support Estimate (TBSE) as % of GDP increased to 1.1%. The share of GSSE in TSE increased from 16% in 2000-02 to 24% in 2016-18. In 2018, the MPS was less negative than in 2017, driven by price changes on domestic and world markets. Reflecting individual commodity price gaps, SCTs were strongly negative for rice and sunflower and slightly positive for livestock products.
Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Contextual information
Kazakhstan is an upper middle-income economy, 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 an exporter of mineral fuels and its share of trade in GDP is substantially higher than the corresponding value for all countries analysed in the report. Agriculture contributes about 4% of GDP and employs 18% of the country’s working age population. The farm structure is dualistic: large-scale and often highly integrated operations dominate the grain sector, while rural households produce the majority of beef and milk.
GDP growth accelerated to 4.0%, in 2017 from 1.2% in 2015 and 1.1% in 2016. Unemployment has been on a steady decline and reached its lowest level in 2017 at 4.9%. Kazakhstan is a net agro-food importer since the mid-2000s while one of the world’s largest wheat exporters. More than 60% of agro-food exports are in primary commodities, of which 82% go to processing. More than 60% of agro-food imports are in processed commodities, of which 78% are for final consumption.
Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.
Note: Numbers may not add up to 100 due to rounding.
Source: UN Comtrade Database.
The average annual Total Factor Productivity (TFP) growth rate of 0.6% between 2006 and 2015 is low when compared to the world average, and has fallen significantly relative to the 1990s. Still, output grew by 2.0% per year, thanks to strong growth in the use of intermediate inputs and in spite of a reduction in the use of primary factors. Agriculture’s share of energy use declined considerably between 1991-2000 and 2006-15. Agriculture’s share of greenhouse gas (GHG) emissions also fell during the period but remained above the OECD average in line with the higher contribution of agriculture to the country’s GDP. The share of irrigated land remains low at 1%. A high share of pasture land leads to significantly low level of nitrogen balance.
Note: Primary factors comprise labour, land, livestock and machinery.
Source: USDA Economic Research Service Agricultural Productivity database.
Description of policy developments
Main policy instruments
Since 2017, the State Programme of Agro Industrial Complex Development for 2017-21 (hereafter, the 2021 State Programme) defines the agricultural policy framework in Kazakhstan. It replaced the Programme for the Development of Agro Industrial Complex for 2013-20 (Agribusiness 2020) that had been in place since 2013.
While maintaining the principles from the Agribusiness-2020 Programme, the 2021 State Programme announced 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 such as agricultural machinery, agrichemicals, taxation, trade infrastructure and certification. In addition, some input subsidies including on seed, fertiliser and pesticides were also to be increased. Since the implementation of Agribusiness 2020, sub national budgets subsidise a larger share of agricultural policy instruments.
Kazakhstan is a party to the Paris Agreement on Climate Change. Through its Intended Nationally Determined Contribution, Kazakhstan set an economy-wide target to reduce its total GHG emissions by 15% in 2030 compared to 1990, over a period starting in 2021. This target covers all emissions including from agriculture. A more ambitious target of 25% reduction has also been identified conditional on international investments to access low carbon technologies. Specific targets or reduction plans for the agricultural sector have not been defined.
Kazakhstan applies a range of border and domestic price intervention instruments. Border measures are in large part 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 beef of lower grade and poultry products. A TRQ of 21 000 tonnes applies to imports of fresh, chilled or frozen beef and a 140 000 tonnes TRQ applies to fresh, chilled, or frozen poultry, the latter includes a TRQ of 128 000 tonnes for certain frozen bone-in chicken parts, and another one of 12 000 tonnes for remaining poultry items. Bound rates for in-quota tariffs for these TRQs are set at 15%. Bound rates for over-quota imports are set at 40% and no less than EUR 0.65 (USD 0.77) per kilogramme for poultry products. The tariff on pig meat is set to decline from 30% to 25% by 2020.
Intervention on domestic markets is twofold. The State Commission for the Modernisation of the Economy decides intervention purchases of grains to support domestic producer prices. At the same time, a system of consumption price stabilisation is in place for 29 commodities.2 Intervention is funded by local budgets and responds to local conditions. Purchase occurs after harvest at market prices and commodities are stored before they are released at below market prices later in the year.
Fodder crops and vegetables are supported by the area payments, while per tonne payments are in place for oilseeds, rice, sugar beet and cotton submitted for processing. The livestock sector is supported by headage and output payments. The Agribusiness 2020 programme and the current 2021 State Programme substantially increased subsidies for purchasing mineral fertilisers. Subsidies apply also to the purchase of high quality seeds. The largest share of support to the livestock sector is distributed through pedigree support. Other forms of support to livestock include silage and fodder subsidies, support for artificial insemination and for the purchase of young cattle for feedlots.
Investment subsidy and concessional credit represent principal forms of support to producers. Loans are provided at reduced interest rates by several credit agencies under the umbrella of the state company KazAgro Holding. Interest rates on agricultural loans and leasing contracts are subsidised by up to 7% and 5% per annum for contracts in KZT and USD, respectively. Concessional credits are granted both for short-term and investment loans. Primary producers also benefit from concessional leasing of machinery, which is additionally exempt from Value Added Tax (VAT). Along with agricultural producers, food processors benefit from concessional credit and leasing of machinery and equipment from credit agencies of KazAgro Holding. In addition to support through state-controlled institutions, subsidies to interest rates and leasing fees are available for loans and leasing contracts provided by both private and commercial banks and companies
Investment subsidies for new operations or the expansion of existing operations became an important support measure applied since 2014. In contrast to interest subsidies on investment loans, which reduce farmers’ credit costs, this support covers a share of investment project costs and is provided through a complex approval system. It applies to 39 “priority groups” conditioned on compliance with a number of technical specifications and regulatory rules and has to be approved by regional authorities and, in some circumstances, by the Ministry of Agriculture.
Administered prices apply to predetermined quantities of diesel fuel sold to agricultural producers during the sowing and harvesting periods. Agricultural enterprises and individual farms benefit from special tax regimes with substantial concessions. For example, corporate and family farms enjoy a 70% discount on property tax, social tax, VAT, profit tax, and tax on vehicles. Individual farms of less than 3 500 hectares are eligible for a Single Land Tax, which is set as a percentage of the cadastre value of land owned or used and replaces land tax, property tax, social tax, VAT, profit tax, and tax on vehicles. Since 2015 individual farms have to pay a 10% income tax for physical persons on the income above KZT 150 million (USD 0.4 million).
The President’s Edict dated 6 May 2016 imposed a moratorium until 31 December 2021 on the foreseen introduction of private ownership of agricultural land and on the extension of the maximum period of agricultural land rent to foreign entities from 10 to 25 years.
Several infrastructure projects are under construction that may ease constraints to agricultural development in Kazakhstan in general and agro-food export capacity in particular. Among other components, expenditure on general national programme for the development of transport infrastructure “Nurly Zhol” envisages the expansion of the railway network to facilitate access to the Persian Gulf region. The programme was started in 2016 and is expected to increase grain exports by up to 8-10 million tonnes per year and open opportunities for other agro-food exports.
Domestic policy developments in 2018-19
The implementation of the 2021 State Programme began in 2017. In 2018, area payments for crop production, and output and headage payments for livestock production were reduced, eliminating 20 out of 54 types of the payments. The remaining payments were simplified in order to shorten the application process for subsidies and reduce corruption risks.
In 2018, a new seed subsidisation mechanism was introduced, which covers 100% of farmers’ expenses to purchase seeds that meet quality standards. The programme reimburses seed producers the full cost of producing the quality seeds distributed to farmers. In return, the farmers are required to return 30% of the subsidies to the Seed Development Fund, which finances the acquisition and modernisation of machinery and equipment for certified seed producers at preferential interest rates.
Kazakhstan reintroduced interest rate subsidies for acquiring fixed assets and leasing agricultural equipment and livestock, allocating KZT 60 billion (USD 178 million) in 2018. In addition, the rate of the investment subsidy is standardised to 25% of the cost of investment, except for pastures watering, where the subsidy rate remains at 80%.
The government started to consider the transformation of the mandatory crop insurance system to a voluntary insurance scheme with a view to expand crop insurance markets in Kazakhstan. A new subsidy would cover the insurance premium instead of the indemnity. To empower the insurance agents to develop insurance products, an electronic platform would be created to monitor fields based on remote sensing data.
Kazakhstan restructured the agricultural R&D system in 2018, consolidating 23 Research Institutes (SRI) to 12 and increasing the number of agricultural experimental stations. In addition, business associations have participated in making decisions on the financing of R&D projects with a view to introduce a co-financing scheme in R&D projects.
The transition period for replacing value-added tax preferences for domestic producers and processors in agriculture to a WTO compatible subsidy mechanism came to an end on 1 January 2018 (WTO, 2015[2]). Preferences were eliminated, however a new replacement system is not yet in place.
Trade policy developments in 2018-19
Kazakhstan is a participant to the Treaty on the Eurasian Economic Union (EAEU) since its establishment in 2015. This body unifies five countries – Armenia, Belarus, Kazakhstan, Kyrgyzstan and the Russian Federation. Custom procedures between the signatories are simplified and mostly carried out electronically. Beyond free trade and common customs territory, the EAEU guarantees the free movement of labour and capital and sets a common framework for economic policies in its member-states. On 1 January 2018, the Treaty approving the EAEU Unified Customs Code entered into force.
Kazakhstan’s border measures are implemented within the Customs Union of the EAEU and a number of national competences in the area of custom regulations are transferred to the EAEU, including SPS and technical regulations.
As a member of the EAEU, efforts to harmonise veterinary and phytosanitary standards are on-going with several export destinations, including the People’s Republic of China (hereafter “China”), Iran and Saudi Arabia. Future harmonisation negotiations are planned with Israel, Kuwait, Malaysia, Japan, South Korea and the European Union. The harmonisation of veterinary requirements relates to beef, sheep and camels, to varieties of honey and to fish. The harmonisation of phytosanitary requirements relates to flax, beans, peas, safflower, melon seeds, alfalfa and oil cake. In 2018, Kazakhstan and China signed a number of sanitary and phytosanitary protocols on the export of agricultural products, including beef, rapeseed and alfalfa.
References
[1] OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
[2] WTO (2015), “Overview of Kazakhstan’s accession protocol commitments”, World Trade Organization, https://www.wto.org/english/news_e/news15_e/kazakhannex_e.pdf.
Notes
← 1. Much of the negative price support measured for crops may be related to weak infrastructure rather than to active public policy intervention. Wider price distortions at individual commodity levels offset each other in the aggregate measurement.
← 2. Intervention varies depending on local conditions. It is implemented for flour (grade 1 and extra class), buckwheat, millet, oats, sugar, rice, potatoes, onions, carrots, beets, peas, cabbage, milk, butter, yoghurt, cheese, curd, beef, lamb, poultry meat, eggs, manna groats, pearl barley, pasta, sunflower-seed oil, oil 49% spread, tea and salt.