17. Kazakhstan
Support to agriculture
The share of producer support in gross farm income (%PSE) was 3% in 2017-19. In 2019, domestic producer prices remained on average below world levels although to a lesser extent than in 2018, leading to a negative aggregate price support and an implicit transfer from farmers to consumers as measured by the Consumer Support Estimate (CSE). Support to fixed capital formation accounts for the majority of budgetary transfers to producers. General services to the sector accounted for a quarter of the budgetary expenditure for agriculture in 2017-19, of which spending on inspection and control made up close to 50%, and spending on infrastructure 35%.
Overall, total budgetary support to agriculture has increased relative to the size of the economy, now representing about 1% of GDP.
Main policy changes
The main changes were amendments to agricultural legislation and an update of the 2021 State Programme. The policy focus is now to orient agriculture to import substitution and to develop exports of high value-added products.
The process of rationalising production subsidies continues and the transparency of farmers’ access to credit has been improved. The transformation of KazAgro continued and is to be completed.
The mandatory crop insurance system was transformed to a voluntary insurance scheme with a view to expand crop insurance markets in the country. The new subsidy would cover insurance premiums instead of provide indemnities.
Investment subsidies were rationalised and focused primarily on the renewal of agricultural machinery and equipment, modernisation and creation of new agricultural enterprises, import-substitution, and the realisation of export potential.
Assessment and recommendations
Ongoing efforts to streamline support to fewer measures, and the creation of a national digital cadastre database for agriculture, increase transparency and should be continued.
While total support to agriculture is small relative to the overall economy, most of producer support is provided in highly distorting forms and is hence likely to influence farm management decisions, increase pressure on natural resources and distort markets.
The shift of policy focus towards import substitution should be reassessed as it would raise prices, weaken exposure of producers to international competition and could divert resources to rent-seeking activities.
The ban on exports of wheat, wheat flour and other key food products amid the COVID-19 pandemic, despite ample domestic stocks, could affect international food supplies and have a particularly strong impact on its trading partners, particularly in Central Asia. It also risks undermining Kazakhstan’s reputation as a reliable supplier to international markets.
The continuation of subsidies for inorganic fertiliser and chemical inputs and for the use of industrial feed should be re-assessed in light of their potential negative environmental impact.
The reform of the crop insurance system is welcome and should increase the role of private insurers.
Efforts towards establishing secure property rights for land, including simplification of procedures for land acquisition, are necessary steps towards improving the economic incentives for sustainable resource management. Farm decision-making could be further improved by incorporating environmental concerns into agricultural policies.
A number of investment projects are underway that have the potential to reduce weaknesses in the transport and market infrastructure, facilitate farmers’ access to domestic and international markets, improve water and land management and increase productivity. Integrating environmental and social impacts in infrastructure project evaluation and prioritisation, through the systematic use of Environmental Impact Assessment would support sustainable agricultural development.
Agriculture is by far the biggest user of water resources. Approximately two-thirds of the abstracted water is used by agriculture for irrigation and about 11–15% of the abstracted water is lost during transport, mostly due to the obsolete irrigation infrastructure and to the low cost of water supply. Water use efficiency in agriculture should be improved by promoting sustainable irrigation techniques, ensuring systemic provision of extension services to farmers and by establishing cost recovery irrigation tariffs.
The negative trend of nutrient balances could in the long term lead to a decline in soil fertility and productivity growth. Ensuring well-functioning markets and sufficient supplies of crop nutrients should be looked at carefully.
Organic agriculture is recognised by the government as one of the most promising agricultural sub-sectors. Yet, legislation for setting the national standards, certification and labelling of organic products are not yet adopted.
Agriculture is the second biggest emitter of greenhouse gases (GHGs), after the energy sector, and Kazakhstan should specify to what degree and how agricultural emissions are to be reduced in order to meet the country’s emission reduction commitments. Moreover, the lack of a co-ordinated and systemic approach hinders the country’s ability to increase its resilience to the effects of climate change and steps should be taken to enhance agriculture’s adaptation to the impacts of climate change.
Policy responses in relation to the COVID-19 outbreak
Agricultural policies
In order to help carrying out spring sowing in a timely manner, KZT 170 billion (more than USD 380 million) worth of loans will be allocated for farmers. Credit will be repayable at rates of 5-6% per annum, as opposed to the 13-15% rates usually available on the open market. Growers will additionally be provided 15% discounts on diesel fuel. In addition, the government has pledged to buy the output of agricultural producers six months in advance.
Subsidised lending will be provided under the state programme (“Economy of Simple Things”, KZT 1 trillion), along with actions to help small and medium-sized enterprises (SMEs) finance their working capital (KZT 600 billion). An additional KZT 1 trillion will be allocated to support employment under an “Employment Roadmap” program. SMEs and individual entrepreneurs are also eligible for new tax incentives.
On 1 April 2020, Kazakhstan introduced export quotas for wheat (200 000 tonnes a month) and all types of wheat flour (70 000 tonnes a month) for all countries, including the Eurasian Economic Union (EAEU) members (Armenia, Belarus, Kyrgyz Republic and the Russian Federation).
Kazakhstan, and other members of the EAEU have announced a ban on exports of a number of food products outside of the EAEU from 10 April to 30 June 2020. Exports of buckwheat, wheat, rye, including flours and sugar, potatoes, carrots, turnips, beets, onions, cabbages, sunflower seeds and oil were banned from 22 March to 15 April 2020.
Consumer policies
The anti-crisis package of KZT 4.4 trillion (USD 10 billion or over 6% of GDP), approved on 23 March 2020, includes, inter alia, a lower VAT rate for food.
Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Support to producers (%PSE) as measured by the %PSE was estimated at 3% of gross farm receipts (GFR) on average in 2017-19. 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 69% on average in 2017-19. Domestic prices were lower than world prices for several crops, with negative MPS corresponding to -4% of GFR, but slightly higher than world prices for livestock commodities. Overall, the average prices received by farmers were 3% below world prices. Support to general services (GSSE) accounts for 25% of the budgetary expenditure for agriculture in 2017-19, mainly focussing on inspection and control and on infrastructure. Total support to agriculture (TSE) as % of GDP declined to 0.7%, but the corresponding share of Total Budgetary Support Estimate (TBSE) increased to 1%. The share of GSSE in TSE increased from 19% in 2000-02 to 24% in 2017-19. In 2019, the MPS was less negative than in 2018, driven by price changes on domestic and world markets. Reflecting individual commodity price gaps, SCTs were negative for rice, sunflower, maize and cotton and slightly positive for livestock products.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en
Contextual information
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. The country is an upper middle-income economy and the richest country in Central Asia, but its economy remains highly dependent on fluctuations in the oil and commodity markets. An important bottleneck to Kazakhstan’s economic development is the state of infrastructure systems, particularly in transport. GDP growth remained stable at 4.1% in 2018, while unemployment has decreased slightly to 4.6% in 2019 (4.8% in 2018).
The share of trade in GDP (26%) is substantially higher than the corresponding value for all countries analysed in the report. Agriculture contributes about 4% of GDP and employs 15% 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. Kazakhstan’s agriculture and mining sectors are particularly vulnerable to the effects of climate change, as increasingly frequent hot weather and severe droughts threaten the availability of water.
Kazakhstan has been a net agro-food importer since the mid-2000s, yet is one of the world’s largest wheat exporters. More than 60% of agro-food exports are in primary commodities, most of which go to processing. More than 60% of agro-food imports are in processed commodities, the bulk of which 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 TFP growth rate of 0.9% between 2007 and 2016, underscores the remaining gap to achieve productivity growth rates similar to the world average. Output grew by 2.5% per year. The intermediate input grew faster than the output, but the reduction of primary factor led to a positive TFP growth. Moreover, the negative average nutrient balances suggests that in the long term such trend could lead to a decline in both soil fertility and productivity growth. Agriculture’s share of energy use declined considerably between 1991-2000 and 2007-16. Agriculture’s share of GHG emissions remained unchanged during the period and above the OECD average, a comparison that should be qualified by the higher contribution of agriculture to the country’s GDP than the OECD average. The share of irrigated land remains low at 0.9%. The share of agriculture in abstracted water has declined, but still remains much higher than the OECD average.
Note: Primary factors comprise labour, land, livestock and machinery.
Source: USDA Economic Research Service Agricultural Productivity database.
Description of policy developments
Main policy instruments
The State Programme of Agro Industrial Complex Development for 2017-2021 (hereafter, the 2021 State Programme) provides the agricultural policy framework in Kazakhstan. Although maintaining the principles of the previous framework (Agribusiness-2020 Programme), the 2021 State Programme puts 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 are to be increased.
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.
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. Purchase occurs after harvest at market prices and commodities are stored before they are released at below market prices later in the year.
The government’s crop diversification policy aims to reduce the area planted in wheat and increase the area planted in “priority” crops, including forage crops, oilseed crops, barley and corn. Higher subsidies are offered for “priority” crops. Area payments are provided to fodder crops and vegetables in the protected grounds, while per tonne payments are granted to oilseeds, rice, sugar beet and cotton to be used for processing.
The livestock sector is supported by headage and output payments. Large commercial livestock producers receive most of the output payments. 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 purchase of mineral fertiliser and of high quality seeds is subsidised. Administered prices below market prices apply to diesel fuel sold to agricultural producers; total volumes to be supplied at these prices during the sowing and harvesting periods are pre-determined as well.
Investment subsidies, together with concessional credit, represent the principal forms of support to agriculture. Concessional credit is delivered through numerous channels. 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 and concessional credits are granted both for short-term and investment loans. Primary producers also benefit from concessional leasing of machinery. Along with agricultural producers, food processors benefit from concessional credit and leasing of machinery and equipment from credit agencies of KazAgro Holding.
Investment support 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 also by the Ministry of Agriculture.
Agricultural enterprises and individual farms benefit from special tax regimes with substantial concessions. For example, corporate and family farms enjoy a 70% discount on all the business taxes applied in the country (property tax, social tax, VAT, profit tax and tax on vehicles). A practice of a 100% subsidisation of VAT to primary processors and procurement organisations on agricultural products procured from individual farms is in place since January 2016.
The land tax has been applied since 2015. 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 the land tax and the five business taxes mentioned above. 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).
Harnessing Information Technologies is part of Kazakhstan’s longer-term strategy to simplify, facilitate control over, and improve the transparency and effectiveness of government support to agriculture. An electronic system of subsidy payments is applied to most subsidy programmes. Applicants to KazAgro credit and leasing can apply electronically.
The process of changes in the organisation and structure of the state company KazAgro Holding continues according to the Comprehensive Privatisation Plan for 2016-20: i) the partial privatisation of three KazAgro subsidiary companies; and ii) modifications to the holding structure and specialisation of its subsidiary companies on the provision of specific support programmes. The Agricultural Credit Corporation (ACC) would specialise in funding commercial banks, credit co-operatives, micro-finance organisations and leasing companies, the Fund of Financial Support of Agriculture (FFSA) would serve small and medium agribusiness and agricultural co-operation, and KazAgroFinance would focus on the leasing of machinery and equipment and no longer provide credits.
The President’s Edict dated 6 May 2016 imposes 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.
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 those from agriculture. Specific targets or reduction plans for the agricultural sector have not been defined.
Kazakhstan, together with Armenia, Belarus, Kyrgyzstan and the Russian Federation, is a member of the Treaty on the Eurasian Economic Union (EAEU) since its establishment in 2015. 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.
Domestic policy developments in 2019-20
The main changes were amendments to agricultural legislation and an update of the 2021 State Programme. The principal focus and priorities of the updated 2021 State Programme include: explicit focus on import substitution and export development; sustainable land use conditions in provision of concessional credit; revision of the focus of investment support and a shift in priorities; continued organisational reform of KazAgroHolding; focus on bringing land into productive use; establishment of land cadastre, land evaluation, preparations for changing considerably land taxation, including increased taxes for unused land.
The process to rationalise production subsidies continues. In order to improve transparency of farmers’ access to finance, their applications for subsidies are to be made publicly available.
The subsidies on seeds, fertilisers and plant protection chemicals are to remain. The process of eliminating product-specific subsidies, started three years ago, is continuing. Released funds are to be redistributed to priority areas such as the purchase of breeding stock, as well as subsidies only for import-dependent items – milk, poultry and sugar beets. These changes were implemented in 2019 for the crop production sector, and in 2020 for the livestock sector.
In 2019, a new seed subsidisation mechanism was introduced, which covers 100% of farmers’ expenses for purchasing quality seeds. 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.
In 2019, investment subsidies were primarily focused on the renewal of agricultural machines and tractors, modernisation and creation of new agricultural enterprises, import-substitution, and the realisation of export potential. Subsidised areas of the industry were reviewed and investment support for elevators and for egg-poultry farms were abolished. Moreover, the subsidy rate for wells for the irrigation of pasture land was reduced from 80% to 25%. The released funds of these improvements, about KZT 20 billion (USD 52 million), were redistributed to other priority areas, such as the renewal of agricultural machinery and equipment, dairy and meat factories, poultry farms, orchards, greenhouses, and the storage infrastructure for fruits and vegetables.
In the context of the government’s efforts to shift away from subsidising credit to a credit guarantee system, the Fund for Financial Support of Agriculture JSC (FFCA) is involved in the guarantee system since the private financial organisations expressed low interest in guaranteeing loans for farmers. Based on the FFCA, a system of compensation for guaranteeing loans from the state budget is to be created. The KazagroGarant, a KazAgro subsidiary, which was operating warehouse receipts for grain and cotton, is to be liquidated. In 2019, small and medium-sized businesses with insufficient collateral could receive a guarantee for up to 30% of the loan for development projects in agricultural priority areas.
New regulation of agricultural insurance was introduced in 2019 to change the mandatory crop insurance system to a voluntary insurance scheme with a view to expand crop insurance markets in Kazakhstan. The new subsidy would cover insurance premium instead of indemnity. To empower the insurance agents to develop insurance products, an electronic platform is planned to monitor fields based on remote sensing data.
Within the framework of updating the 2021 State Programme, changes in the organisation and structure of the state company KazAgro Holding are to be completed in 2020. These entail: i) the partial privatisation of three KazAgro subsidiary companies; and ii) amendments of the holding structure and specialisation. The Agricultural Credit Corporation (ACC) would specialise in funding commercial banks, credit co-operatives, micro-finance organisations and leasing companies; the Fund of Financial Support of Agriculture (FFSA) would serve small and medium agribusiness and agricultural co-operation, and KazAgroFinance would focus on the leasing of machinery and equipment and no longer provide credits.
In 2019, a number of amendments were made to the law on agricultural regulation, including in particular the following: restriction of transfers of land of specially protected natural territories; improving the mechanism of monitoring the use of agricultural land; a ban on the provision of sales of agricultural land located in zones close to the state border to foreigners, stateless persons, foreign legal entities, as well as Kazakh legal entities with foreign participation.
In 2019, the Ministry of Agriculture carried out activities to bring unused agricultural land into production: i) the Ministry of Agriculture and local authorities identified 2.2 million hectares of unused agricultural land; ii) the government began a process to assess the quality of agricultural land parcels and expects to conduct a soil quality assessment on 33 million hectares by 2021.
The Ministry of Agriculture and the Ministry of Digital Development, as well as the Defence and Aerospace Industries, are working on the creation of the National Spatial Data Infrastructure project, which includes a section on agricultural land.
The Law on the Regulation of the Agro-Industrial Complex, signed in October 2019 by the President, allows using the results of space monitoring in state control to identify unused lands and to return them to state property. A digital cadastre for agricultural land was compiled at the level of arable, pasture, garden, and hay fields. So far, 26 million hectares of arable land and 56 million hectares of pastureland have been digitised, including 291 000 plots of arable land and 132 000 plots of pasture owned by 130 000 land users.
With this, the Ministry of Agriculture hopes to have timely and comprehensive information for future decisions, allowing it to quickly respond to changes on the ground and to make realistic forecasts for the development of agriculture.
The regulation on unused land is being significantly updated. In 2019, draft legislation was developed and entered into the approval procedure. The draft provides for: an accelerated process for returning unused agricultural land; a 20-fold increase of base tax rates on unused agricultural land; and the introduction of preventive monitoring of land use based on satellite data and remote sensing. So far, unused land can be seized only through the courts and the procedure takes between two and three years. The Ministry of Agriculture is proposing that lease contracts for unused land could be terminated unilaterally.
The update of the 2021 State Programme also provides for the development of irrigated agriculture. The State Programme originally planned to bring the total area of irrigated land to 2 million hectares. Within the framework of the relevant long-term sectoral programme, it is now planned to additionally introduce 1.5 million hectares of newly irrigated land, bringing the area to 3.5 million hectares in total.
In 2019, the Committee of Water Resources of Kazakhstan developed the Concept of the Kazakhstan Water Resources Management Programme for 2020-30. Within the framework of the Concept, the following problems of the Kazakhstan water sector were identified: poor water quality, outdated infrastructure, significant water losses in the irrigation system, inefficient tariff setting mechanism, shortage of qualified personnel, and insufficient cross-country co-operation in the water sector. The Concept defines the main objectives of the water management programme as follows: i) updating the legal framework. The set of laws to be adopted includes, among others, the Water Code, the law on the safety of hydro-technical structures, the law on irrigation and drainage, the law on drinking water supply and sanitation, and the law on water user associations; ii) modernisation and reconstruction of water infrastructure; iii) digitalisation of the water supply; and iv) development of public–private partnerships for the construction and maintenance of water infrastructure, the transfer of state property to trust management , and an increased attractiveness of investments in water infrastructure.
In order to develop organic agriculture, in November 2019, the Ministry of Agriculture approved a pilot programme to support export-oriented organic farming in the Almaty and Zhambyl regions.
The rules for the operation of stabilisation funds (food stocks) were simplified, and a new mechanism to control the prices of socially important food products was introduced. The new mechanism focusses on concessional loans for business entities covenanting to sell key food products at fixed, reduced prices. In 2019, following the decline in cereal production due to unfavourable weather conditions, the Food Corporation JCC purchased 350 000 tonnes of wheat in order to stabilise bread prices.
Trade policy developments in 2019-20
In 2019, Kazakhstan, as an EAEU member, signed a number of Free Trade Agreements. Meat imports from non-CIS countries into the EAEU area are subject to tariff rate quotas (TRQs) which are allocated to each EAEU member.
On 1 October 2019, Kazakhstan – as an EAEU member – joined the Framework Agreement on Comprehensive Economic Cooperation and the Free Trade Agreement between the EAEU and the Republic of Singapore. On 25 October 2019, the EAEU signed a Free Trade Agreement with the Republic of Serbia. The agreement provides for certain exemptions from the free trade regime. Within the agricultural group, sugar and certain alcoholic beverages imported into Serbia from the EAEU area would pay MFN import duties, and tariff rate quotas are to be opened for specific processed cheese, spirits from grape wine, and cigarettes. Serbian poultry meat, specified processed cheese, sparkling wine, ethyl alcohol and tobacco products entering the EAEU are to pay EAEU common tariffs, and tariff rate quotas are to be applied to specified cheese, alcohol, and cigarettes containing tobacco (EAEU, 2019[1]).
An Interim Agreement Leading to Formation of a Free Trade Area between the EAEU and its member states and the Islamic Republic of Iran entered into force on 27 October 2019. In its part related to agriculture this agreement foresees a reduction from 25% to 100% of EAEU import duties on a broad range of products imported from Iran, notably, certain fish products, vegetables and fresh and dried fruits. The EAEU benefits from 20% to 75% tariff reductions on products such as beef and veal, butter, certain confectionery and chocolate, mineral waters, oil and fat products (EAEU, 2018[2]).
The EAEU actively promoted economic and trade relations also with other countries. In 2019, memoranda of co-operation and memoranda of understanding were signed with Indonesia, the African Union, Bangladesh, Argentina, Thailand, MERCOSUR, and ASEAN. These documents aim at increasing economic co-operation, bilateral trade and investments, and among other issues, cover agriculture.
As a member of the EAEU, efforts are on-going to harmonise veterinary and phytosanitary standards with several export destinations, including the People’s Republic of China, Iran and Saudi Arabia. Veterinary requirements are being harmonised for beef, sheep and camels, various varieties of honey, and fish. In turn, work on phytosanitary requirements concerns flax, beans, peas, safflower, melon seeds, alfalfa and oil cake.
References
[1] EAEU (2019), Free trade agreement between the Eurasian Economic Union and its Member States, of the one part, and the Republic of Serbia, of the other part, Eurasion Economic Commission, http://www.eurasiancommission.org/ru/act/trade/dotp/sogl_torg/Documents/%d0%a1%d0%b5%d1%80%d0%b1%d0%b8%d1%8f/Agreement.pdf.
[2] EAEU (2018), Interim Agreement leading to formation of a free trade area between the Eurasian Economic Union and its Member States, of the one part, and the Islamic Republic of Iran, of the other part, Eurasian Economic Commission, http://www.eurasiancommission.org/en/.
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https://doi.org/10.1787/928181a8-en
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