In November 2023, Kazakhstan and Russia conducted the 19th Interregional Cooperation Forum, which was devoted to agricultural cooperation between the two countries with the participation of Presidents Kassym-Jomart Tokayev and Vladimir Putin. Kazakhstan’s Kostanay city hosted the forum. However, the Presidents participated online from Kazakhstan’s capital Astana. The governments of Kazakhstan and Russia consider agricultural development as one of the key factors of economic diversification.
The President of Kazakhstan pointed out the enormous opportunities for expanding trade and mutually beneficial cooperation in the agricultural sector. According to Kassym-Jomart Tokayev, Kazakhstan and Russia account for almost 10% of arable land and 9% of pastures and haylands worldwide. In Kazakhstan, over the past 5 years, the volume of gross agricultural output has more than doubled. Agricultural exports also doubled, reaching almost $6 billion. The country’s agricultural products are supplied to 80 countries around the world. Kazakhstan ranked 32nd out of 113 countries in the 2022 Global Food Security Index. Kazakhstan has ambitious plans regarding the future development of the agricultural sector. The country started large investment projects, aimed at reducing import dependence on socially important food products. In particular, 115 dairy farms and 15 large poultry farms will be built. The dairy farms will increase milk production by 600 thousand tons, while poultry farms will have a total capacity of more than 120 thousand tons of meat per year. Over the next five years, Kazakhstan plans to implement almost 900 investment projects in the agricultural sector totaling 2.7 trillion tenge (almost $5.8 billion). The President also mentioned important problems in the agricultural sector including transport and logistics restrictions, low level of self-sufficiency in seeds, and insufficient use of mineral fertilizers in crop production. For example, in Kazakhstan, only 25% of the scientifically based requirement is contributed, while in Russia it is almost three times more. Furthermore, Russia is one of the largest exporters of organic fertilizers in the world (Akorda, 2023).
According to Vladimir Putin, Russia is a key supplier to Kazakhstan of such product groups as wheat and barley – 98% of imports, poultry meat – 80-90%, sugar – up to 70%, fermented milk products – 60-70%. In general, the bilateral trade turnover of agricultural products and food in 2022 increased by 22% – to $4 billion, and in the first seven months of this year, it added another three percent (Kremlin, 2023).
Figure 1 shows the bilateral trade between Kazakhstan and Russia. Total trade increased substantially growing from $379 million in 2003 to almost $3800 million in 2022 (almost 10 times increase). Kazakhstan’s exports to Russia changed insignificantly, while its imports from Russia surged. In particular, while in 2003 the imports amounted to $220 million, in 2022 they reached $3207 million. In the same period, the country’s exports increased from $159 million to $544 million. Thus, while Kazakhstan’s exports increased 3.4 times, its imports surged almost 15 times. As a result, during the reported period the trade balance widened from minus 61 million to minus 2663 million.
Importantly, the share of agricultural products in Kazakhstan’s total exports to Russia did not change and remained at the level of 6%. At the same time, the share of agricultural products in Kazakhstan’s total imports from Russia increased from 7% in 2005 to 18% in 2022 (Figure 2). Kazakhstan succeeded in increasing exports of meat, dairy products such as milk, cream, and butter, products of the milling industry, preparations of cereals, and preparations of vegetables. For instance, exports of dairy products increased from $1.8 million in 2003 to $57.3 million in 2022, showing almost 32 times growth. In the same period, supplies of preparations of cereals grew from $4.3 million to $52.8 million, increasing 12.3 times. However, despite high growth rates, the value of exports remains low.
In the same period, Kazakhstan’s meat imports from Russia increased from almost $0.2 million to more than $98 million (490 times growth), dairy products – from $36.3 million to $203 million (5.6 times growth), and cereals – from $1.1 million to $366 million (333 times growth). Russia started to substantially increase supplies of cereals in 2019. One of the key factors that allowed Russia to increase cereals is yield differences. Figure 3 shows wheat yields in Kazakhstan and Russia. Higher yields in Russia make its farmers more competitive and they supply their wheat at lower prices. Wheat trade remains one of the most controversial issues between Kazakhstan and Russia. KazTAG (2023) reports that Kazakhstan has sharply increased imports of Russian wheat in the 2022/2023 agricultural season. If previously the average annual supply volume was 1.3 million tons, then it increased to 2.1 million tons. According to APK Inform (2023), 1.65 million tons of grain worth $331.5 million were imported in 2022 from Russia, which is 22% more than the level in the same period in 2021 (1.35 million tons worth $222 million). For January-September of 2023, 2.97 million tons worth $236.6 were imported, which is 2.5 times more than the level in the same period in 2022 (1.16 million tons worth $241 million). In January-September 2023 imports of seed wheat increased by 6.7 times compared to the same period last year and amounted to 1.66 million tons. As a result of the substantial increase in supplies of seed wheat, its prices plummeted. It should be noted that during the reported period of 2023, the average price of seed wheat decreased to $18.3 per ton, while in the same period last year, this figure was $215.2 per ton.
The Ministry of Agriculture introduced a ban on the import of wheat by rail from third countries and the Eurasian Economic Union (EAEU) until April 2024. It took effect on October 11. The previous ban on the import of wheat by road has been in effect since April. According to the Grain Union, after the ban was introduced, the price of wheat on the domestic market started to increase (Tonkonog, 2023). Import bans aim to reduce ‘grey’ imports (smuggling) of Russian wheat, which distort market prices. According to Zerno.ru (na), ‘grey’ imports of grain from Russia to Kazakhstan range from 1.5 to 2 million tons per year. Wheat imported without paying VAT is registered on peasant farms, and then in the form of hidden re-export, without paying a transit railway tariff, it is sent to the countries of Central Asia and Afghanistan. According to the estimates of the Grain Union of Kazakhstan and the Union of Grain Processors of Kazakhstan, unpaid VAT can annually amount to $57 million, the losses of National Company Kazakhstan Temir Zholy from non-payment of the transit tariff – $85 million, costs of Kazakhstan’s agricultural producers due to price distortions amount to $350 million. Hence, the total costs of ‘grey’ imports equals $500 million per year. According to Nurlan Ospanov, Chairman of the Grain Union of Kazakhstan, despite the introduced bans, imports of grain continue through river transportation. To systematically solve the problems of illegal grain trafficking Ospanov proposes to introduce state registration of grain and its processed products in Kazakhstan. The corresponding bill has been prepared and sent to the Parliament (Kalinkina, 2023). In 2023, Kazakhstan’s farmers have threshed 10 million tons of wheat, only half of it has milling qualities. The remaining 5 million tons are either fodder or unclassified grain, suitable only for deep processing. The country’s grain processing enterprises are not capable of this due to technological backwardness. The Ministry of Agriculture of Kazakhstan recently clarified its order banning the import of Russian wheat into Kazakhstan (with exceptions for poultry farmers, flour millers, and licensed elevators) allowing the transit of Russian wheat through the territory of Kazakhstan. Hence, there are proposals to completely ban the import of Russian wheat (Buyanov, 2023).
Thus, the government of Kazakhstan has to find a solution for an important problem as import bans will bring temporary solutions. In this regard, Kazakhstan should view Russia as:
- The main competitor in the field of imports.
- A key competitor for its traditional Central Asian markets.
- Country that contributes to ensuring food security in Kazakhstan.
The government of Kazakhstan should pay attention to the following factors that influence bilateral trade in agricultural products.
- Russian agricultural policy, which provides for a significant amount of government support to transform Russia into a major player in the global agricultural market;
- The emphasis of the Russian government on the development of large businesses in the field of agriculture, in particular, agricultural holdings;
- Russian policy to limit imports of agricultural products, retaliatory sanctions;
- Protection of the Russian market by non-tariff measures;
- Differences in labor productivity, technological development, and yields;
- Russia’s diversification of production, the development of new markets, in particular in Asia, and the growth of supplies to the markets of the CIS countries.
In this regard, Kazakhstan should focus on the following tasks:
- Cooperation with Russia in the field of agriculture should be aimed at increasing the technological level and competencies of business in Kazakhstan. As President Tokayev mentioned, the number of Russian companies amounted to 19 thousand out of 42 thousand enterprises with foreign participation in Kazakhstan. Hence, the government needs to increase efforts to attract agricultural businesses from Russia to form joint companies. According to President Putin, there are cases of successful agro-industrial cooperation between Kazakhstan and Russia. For instance, the construction in Kazakhstan, together with Uralchem, of a plant for the production of mineral fertilizers with a capacity of four million tons. The chemical industry must provide the farmers of both countries with high-quality fertilizers in full and at an affordable price;
- Increasing the competitiveness of existing domestic businesses in agriculture, and its consolidation, including through technological development;
- Research of the Russian market and its needs in the food sector. Forecast of the main demand factors in the long term. For instance, there is potential to increase meat exports, in particular beef;
- The requirement to eliminate non-tariff barriers and comply with EAEU standards;
- Elimination of ‘grey’ schemes for importing agricultural products from Russia, which distort the domestic market. It is important to analyze the current situation with the wheat trade and reveal the benefits and costs for both producers and consumers of Kazakhstan and the total impact of cheap wheat imports.
Thus, Russia is the largest importer of Kazakhstan, including agricultural products. Mutual trade is characterized by a significant imbalance in favor of Russia. Exports of Russian products to Kazakhstan are consistently high, and Russia supplies new types of food products. Kazakhstan’s exports are limited, but progress is being made. The proposed policy measures may improve the competitiveness of Kazakhstan’s agriculture.
References
Akorda (2023). Kassym-Jomart Tokayev and Vladimir Putin took part in the plenary meeting of the 19th Forum of Interregional Cooperation between Kazakhstan and Russia. Retrieved from https://www.akorda.kz/ru/kasym-zhomart-tokaev-i-vladimir-putin-prinyali-uchastie-v-plenarnom-zasedanii-hih-foruma-mezhregionalnogo-sotrudnichestva-kazahstana-i-rossii-9103651. Accessed on 10.11.2023.
APK Inform (2023). Kazakhstan may introduce a duty on wheat exports and lift the ban on the import of Russian grain. Retrieved from https://www.apk-inform.com/ru/news/1538201. Accessed on 01.12.2023.
Buyanov, Sergey (2023). Kazakhstan needs a complete ban on the import of Russian wheat. Retrieved from https://eldala.kz/novosti/kazahstan/16944-polnyy-zapret-na-vvoz-rossiyskoy-pshenicy-neobhodim-kazahstanu. Accessed on 04.11.2023.
FAOSTAT (2023). Crops and livestock products. Retrieved from https://www.fao.org/faostat/en/#data/QCL. Accessed on 26.11.2023.
International Trade Centre (2023). Bilateral trade between Kazakhstan and the Russian Federation. Retrieved from https://www.trademap.org/Bilateral_TS.aspx?nvpm=1%7c398%7c%7c643%7c%7cTOTAL%7c%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c1%7c1%7c1%7c1. Accessed on 26.11.2023.
Kalinkina, Svetlana (2023). Grain smuggling to Kazakhstan began by river transport. Retrieved from https://eldala.kz/novosti/zerno/16059-kontrabanda-zerna-v-kazahstan-poshla-rechnym-transportom. Accessed on 01.11.2023.
KazTAG (2023). Kazakhstan sharply increased imports of Russian wheat – expert. Retrieved from https://kaztag.kz/ru/news/kazakhstan-rezko-uvelichil-import-rossiyskoy-pshenitsy-ekspert. Accessed on 04.11.2023.
Kremlin (2023). Forum of Interregional Cooperation between Russia and Kazakhstan. Retrieved from http://kremlin.ru/events/president/news/72699. Accessed on 10.11.2023.
Tonkonog, Olga (2023). Kazakhstan has banned the import of wheat by rail for six months. Retrieved from https://kz.kursiv.media/2023-09-26/lgtn-wheatimport/. Accessed on 01.11.2023.
Zerno.ru (nd). Kazakhstan loses $500 million a year due to Russian grain smuggling. Retrieved from https://zerno.ru/node/22006. Accessed on 01.12.2023.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.