18. Kazakhstan
Support to producers in Kazakhstan fell from 8.5% of gross farm receipts in 2000-02 to 6.4% in 2019-21. The share of potentially most-distorting gross producer transfers fell from an average of 98% in the early 2000s to 80% in 2019-21, mostly based on output, including market price support (MPS), and variable input use without constraints. Support based on variable input use and fixed capital formation account for most budgetary transfers to producers. Domestic prices were lower than world prices for several agricultural commodities, generating aggregate MPS worth about -1% of gross farm receipts in 2019-21. Reflecting individual commodity price gaps, single commodity transfers in 2019-21 were negative for rice, sunflower and maize, with the largest positive transfers going to barley and wheat.
Support to general services (GSSE) accounted for 15% of total budgetary support for agriculture in 2019-21 and corresponded to 1.9% of the value of agricultural production. Of this, spending on inspection and control comprised 39% and spending on infrastructure (mostly irrigation and drainage, and the establishment of a digital land cadastre) 38%. Total support to agriculture (TSE) declined from 1.6% of GDP in the early 2000s to 1.1% in 2019-21.
Important changes were made to the overarching agricultural development frameworks in 2021, with the endorsement of the National Project and Concept, which set out development goals over the next five and ten years, respectively. The National Project development goals include increasing productivity, exports, agri-food processing and rural incomes. Various measures were outlined to enhance investments in support of these goals, including the provision of subsidised finance, and improvements to agricultural insurance, subsidy mechanisms and the taxation system, and measures to stimulate R&D. The Concept also outlines goals that seek to strengthen the National Project over the longer term by setting stronger targets for productivity and exports while expanding its set of development goals to include agro-industrial investments and food availability.
The endorsement of the new National Project did not result in immediate changes to agricultural subsidies. However, it sets directions for the development of state support, which includes expanded availability to all crop producers regardless of their size, a refocusing towards technological development, and a linking of subsidies to outcomes rather than intermediate processes. Changes were also made to the subsidy eligibility rules for livestock producers to allow greater access for small-scale producers.
KazAgro Holding was merged with Baiterek Holding, the state-owned national development institution, on 15 March 2021. The reorganisation will allow agricultural producers to receive loans based on the “one window” principle, while current conditions for financing agribusiness will remain intact.
In 2021, Kazakhstan signed a free trade agreement (FTA) between the Eurasian Economic Union (EAEU) and Serbia. The new agreement expands the list of goods that can be traded without customs duties, including the supply of cheese, alcoholic beverages and cigarettes to Serbia. In addition, the EAEU signed FTAs with Viet Nam, Iran and Singapore.
Agriculture is the second largest emitter of greenhouse gases (GHGs) after the energy sector, and Kazakhstan should specify how much and how to reduce agricultural emissions to meet the country’s emission reduction commitments. Moreover, the lack of a coordinated 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.
While total support to agriculture is small relative to the overall economy, most producer support is potentially most-distorting to agricultural production and trade, and likely to exacerbate pressures on natural resources. In particular, the subsidies for inorganic fertilisers and chemical inputs, and for industrial feed should be re-assessed considering their potential environmental impacts.
Reform of the crop insurance system is welcome and should increase the role of private insurers, reduce farmers' costs and make the system more transparent.
Efforts to provide more stable policy, streamline support to fewer measures and create a national digital cadastre database for agriculture increase the transparency and credibility of reform, and should be continued.
The government continues to focus on increasing the output of domestic processed products to replace processed food imports. Care should be taken to ensure that this objective does not lessen producers’ exposure to international competition or divert resources to rent-seeking activities.
Secure property rights to land – including simplified procedures for land acquisition – are necessary to improve the economic incentives for sustainable resource management. Farm decision-making could be improved by incorporating environmental concerns into agricultural policies.
Agriculture is among the most risk-prone sectors in the country. Adverse weather conditions, pests and diseases, and price volatility pose challenges for farmers and agribusiness firms, and can strain government finances. Kazakhstan could enhance the resilience of its agriculture sector by adopting a broader, more integrated approach to risk management than the current system of ex ante public sector activity associated with crop and livestock disease, and ad hoc, ex post emergency responses to local disasters.
Overview of policy trends
In the late 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. After the mid-1990s price liberalisation removed the benefit of output prices above world levels and key input prices below them. From the early 2000s, Kazakhstan vacillated in pursuing trade liberalisation. It was not until its accession to the WTO in 2015 that the country implemented more liberal measures.
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]).
Producer support in Kazakhstan reveals no distinct long-term trend. 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, overall policies are supportive of domestic producers (Figure 18.4). Net producer support was positive in most years, due also 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, now representing about 1% of GDP. As market price support was estimated as strongly negative in 2016, net TSE shows a substantial drop in that year. However, in addition to budgetary support to producers, support to consumers was also significant in recent years.
Main policy instruments
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 have been increased.
The National Project for the Development of Agriculture for 2021-2025 (here after ”the National Project”) and the Concept for the Development of Agriculture for 2021-2030 (here after ”the Concept”) provide frameworks for the development of the agricultural sector. The National Project was endorsed in October 2021 while the Concept was endorsed in December 2021. More details and both of these policy frameworks are provided in the Domestic policy developments section.
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 occur after harvest at market prices and commodities are stored and released at below-market prices later in the year.
For crops, per tonne payments go to oilseeds, rice, sugar beet and cotton to be used for processing. Headage and output payments support the livestock sector. Large commercial livestock producers receive most of these. Other forms of support to livestock are silage and fodder subsidies, support to artificial insemination and to the purchase of young cattle for feedlots.
Purchases of mineral fertiliser and high-quality seeds receive subsidies. Administered prices below market prices apply to diesel fuel sold to agricultural producers; total volumes supplied at these prices during 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 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 (see details in Domestic policy developments section). Along with agricultural producers, food processors benefit from concessional credit and leasing of machinery and equipment from credit agencies of Baiterek Holding.
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, for the purchase of fixed assets, construction, by 9% for replenishment of working capital and by 7% 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 the domestic production and decrease import dependency for consumer products such as of food, textiles, and furniture. 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 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 Fund for Financial Support to Agriculture.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.
Agricultural enterprises, co-operatives and individual farms benefit from special tax regimes with substantial concessions. For example, corporate and family farms enjoy a 70% discount on all business taxes applied in the country (property tax, social tax, VAT, corporate income tax and tax on vehicles). Since January 2016, primary processors and procurement organisations receive a 100% subsidy of VAT on agricultural products from individual farms.
The land tax applies since 2015. Individual farms of less than 3 500 hectares are eligible for a Single Land Tax set as a percentage of the cadastral value of land owned or used, which replaces the land tax and the five business taxes mentioned above. Since 2015, individual farms pay a 10% income tax for physical persons on an income above KZT 150 million (USD 0.4 million).
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. An electronic system of subsidy payments applies to most subsidy programmes. Applicants to Baiterek credit and leasing can apply electronically.
Work continues by the Ministry of Agriculture, the Ministry of Digital Development, and the Defence and Aerospace Industries 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 by the President in October 2019, allows using the results of space monitoring to identify unused lands and return them to state property. A new digital cadastre for agricultural land stores 6.5 million data points on land plots, including soil, geo-botanical and agricultural lands.
Kazakhstan, together with Armenia, Belarus, Kyrgyzstan and the Russian Federation, is a member of the Treaty on the Eurasian Economic Union (EAEU) established in 2015. 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.
Climate change mitigation policies in agriculture
Kazakhstan is a party to the Paris Agreement on Climate Change. Through its Intended Nationally Determined Contribution (NDC), Kazakhstan set an economy-wide target to reduce GHG emissions 15% compared to 1990 by 2030, starting in 2021. This target covers all emissions, including from agriculture. Specific targets or reduction plans for the agricultural sector were not defined. There are also no mitigation policies for 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 come with an obligation to rehabilitate the pasture lands. If the obligation is not met, the subsidy has to be returned to the government.
According to Kazakhstan’s 2021 National Inventory Report submitted to the UNFCCC, agriculture was responsible for 37.1 MtCO2e of emissions, or 10.4% of total GHG emissions in 2019. Most agriculture emissions are composed of methane (59%), followed by nitrous oxide (41%). Annual GHG emissions from agriculture declined between 1990 and 1997 to 27.3 MtCO2e but have increased gradually since 1998. Annual emissions in 2019 were still 6.8 MtCO2e lower than in 1990.
Domestic policy developments in 2021-22
Agricultural development frameworks
The National Project and the Concept were developed with support by the UN Food and Agriculture Organization (FAO), and aim to reflect the UN Sustainable Development Goals. The National Project and the Concept were endorsed in October 2021 and December 2021, respectively. The National Project includes the following goals for enhancing the competitiveness of agro-industrial production, over the next five years: 1) increasing labour productivity by 2.5 times compared to 2019; 2) increasing the supply of locally produced basic food products; 3) doubling food exports compared to 2019, and raising the share of processed foods in total food exports to 70%; 4) generate higher and more stable incomes for 1 million rural people through the establishment of 7 sustainable food ecosystems (meat, fruits vegetables, sugar, dairy, grains, and oilseeds) and the implementation of investment projects. To achieve these goals the National Project includes plans to further develop and improve existing state support measures including through: the expansion of lending and leasing programmes for agribusiness; improvements to agricultural insurance; continued financing of crop cultivation through short and long-term loans; improvement of subsidising mechanisms and introduction of new forms of state support; continued work on forward contracting of agricultural products to stimulate the cultivation of priority crops; the formation and maintenance of a reserve stock of grain, a forage fund, and stabilisation funds for socially significant food products; improvements to the taxation system; and a continuation of measures to stimulate R&D and build capacity for agro-industrial production.
The Concept sets out a number of key priority areas including: ensuring food security and improving quality of food; adjusting support mechanisms to focus on competitive products; industry development based on manufacturing, digitalisation, sustainability and development of human capital; commercialisation and knowledge tranfser; 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; and the creation of production and distribution chains. The Concept also identifies a number of goals that that aim to strengthen those of the National Project by setting stronger targets for productivity and exports, while also expanding its set of development goals to also include for agro-industrial investments and food availability.
Forward contracting and price stabilisation
In 2021, the Food Contract Corporation JSC (FCC) carried out a forward purchase of agricultural products, and in order to stabilise the domestic market, since January 2021, the FCC has sold over 425 000 tonnes of grain. More than 325 000 tonnes of grain were sold to flour milling companies, resulting in mild fluctuations in bread prices and keeping the prices of wheat flour from spiking. In addition, the FCC formed a forage fund from the grain supplied by agricultural producers. In total, about 100 000 tonnes of grain were sold for the needs of livestock and poultry producers. The Food Corporation also purchased 5 000-6 000 tonnes of sunflower and buckwheat to sell to processing enterprises.
Crop subsidies
The endorsement of the new National Project did not result in immediate changes to agricultural subsidies. However, it sets the directions for the development of state support to the crop sector, which include expanded availability to all producers regardless of their size, a refocusing towards technological development, and a linking of subsidies to outcomes rather than intermediate processes.
One of the major changes is the gradual introduction of reciprocal obligations for subsidy payees that are designed to create incentives for diversification, technological change, environmental protection, and to prevent misuse of the subsidies. Other improvements include a reduction in the types of subsidies available and improvements in the efficiency of their administration, such as a reduction in the amount of documentation required and greater use of digital databases and system automation, which could also improve transparency and reduce the risks of corruption. A methodology for monitoring the effectiveness of subsidies is also being developed. More details will be available in 2022, when the final version of the subsidy mechanisms is presented by the Ministry of Agriculture (MoA) to the government.
Another change, which applies to all subsidies (crop subsidies, livestock subsidies, input subsidies, and Interest rate and investment subsidies) is the introduction of the so called “waiting list”, whereby the payment of subsidies will be carried out in turn, according to the date and time of the application. This “waiting list” method of disbursing subsidies was introduced to address the problem of the untimely receipt of subsidies by farmers associated with a shortage of government budget funds.
Livestock subsidies
In July 2021, the current rules for subsidising the development of pedigree livestock were revised. The capacity requirements for subsidised procurement of sheep by feedlots have been reduced from 5 000 heads to 500 heads for farmers of Atyrau, Kyzylorda and Mangystau regions, and to 1 000 heads in other regions. The National Project does not specify the exact changes in the subsidy system for livestock, however it does set the general direction for improving the subsidy system. Furthermore, subsidies for milk production by co-operatives are to be eliminated, due to difficulties in compliance with sanitary requirements.
Input subsidies
Some additional producer groups were added to those eligible for seed subsidies in 2021. Subsidies are being provided for the use of high productivity and hybrid seeds by producers and agricultural co-operatives cultivating both tomatoes and cucumbers in industrial greenhouses. Subsidies for seeds, fertilisers and pesticides (bioagents) were also extended to producers and co-operatives cultivating crops in industrial greenhouses on land categorised as being for non-agricultural purposes.
Interest rate and investment subsidies, and credit guarantees
There have been amendments to the rules for subsidising rates under loan agreements issued by the Development Bank of Kazakhstan and the Agrarian Credit Corporation under the Employment Roadmap for 2020-2021. The changes concern the origin of the machinery procured. Previously the price ceilings for the machinery eligible for the subsidies were set differently depending on whether the machinery was produced in Kazakhstan or abroad, now – it no longer differentiates between the machinery produced in Kazakhstan or abroad and sets a unified price ceiling.
Merging of KazAgro Holding with Baiterek Holding
On 15 March 2021, KazAgro Holding was merged with Baiterek Holding, the state-owned national development institution. Three subsidiaries of KazAgro Holding were transferred to Baiterek Holding: the Agrarian Credit Corporation (ACC), KazAgroFinance (KAF) and the Fund for Financial Support of Agriculture (FFSA).2 The FFSA functions for guaranteeing loans will be transferred to the Damu fund. The reorganisation will allow agricultural producers to receive loans on principle of “one window” on the basis of a wide branch network of the ACC. The current conditions for financing agribusiness will remain intact. Currently a roadmap for transferring the functions of KAF to ACC is being developed.
Trade policy developments in 2021-22
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 the development of a network of trade and logistics infrastructure, wholesale distribution centres, the elimination of trade barriers, and the harmonisation of veterinary and phytosanitary requirements. It is envisaged that these measures will be achieved 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).
In 2021, an import quota for sugar was introduced on the level of 134 400 tonnes from 15 May 2021 to 30 September 2021. Subsequently, in December 2021 the quota was set to 250 000 tonnes from 20 December 2021 to 31 August 2022.
In August 2021, the government set the quota for the export of sunflower seeds and sunflower oil to 15 000 and 32 000 tonnes, respectively, to secure the local supply of sunflower seeds and oil. Previously there were no quotas on these commodities
In 2021, Kazakhstan signed the free trade agreement (FTA) between the Eurasian Economic Union and its member states, as well as with Serbia. The new agreement expands the list of goods that can be traded without paying customs duty (including the supply of cheese, alcoholic beverages and cigarettes to Serbia).
In accordance with the established rules from 1 January 2021, Kazakhstan assumed chairmanship in all bodies of the EAEU. In March 2021 the President ratified the Agreement on measures aimed at unifying selection and breeding work with farm animals within the framework of the Eurasian Economic Union. The agreement is aimed at developing a common market for livestock breeding between the EAEU countries and removing barriers to mutual trade. In particular, it provides for approval of the created types, lines (breeds) and crosses of farm animals, molecular genetic examination of breeding products, determination of the breed of breeding animals and assessment of their breeding value.
Overall in 2021, the EAEU has signed FTAs with Viet Nam, Serbia, Iran and Singapore, two branch agreements were also adopted aimed at unification of requirements and production of circulation of seed products. Work is underway to form co-ordinated actions in the field of export development, and in addition to five technical regulations that were introduced as part of Kazakhstan’s membership in the EAEU (regarding the safety of food products, fish and fish products, milk products, meat products, grain). Furthermore, a technical regulation for the safety of poultry and processed products was also adopted in 2021.
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 mineral 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, which can be volatile. An important bottleneck to Kazakhstan's economic development is the state of infrastructure systems, particularly in transport. The share of trade in GDP (25%) is substantially higher than the average for all 54 countries analysed in the report (14%).
Although the contribution of agriculture to the economy has declined sharply since the early 1990s, agriculture remains an important economic sector, contributing to 5.4% of GDP and 15.4% of national employment. Over 75% (or 214.5 million hectares) of the country's territory is suitable for agricultural production, but only about 30% (or 106 million hectares) of the land 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 goods, leather, meat and wool also comprise an important share of agricultural production.
The farm structure is dualistic: with large-scale and often highly vertically integrated operations dominating the grain sector, while rural households produce the majority of meat and milk. Kazakhstan's agricultural sectors are particularly vulnerable to the effects of climate change, as increasingly frequent hot weather and severe droughts reduce water availability.
The COVID-19 pandemic has hit the economy more than the crises in 2008 and 2015. In 2020, the economy contracted by 3% and domestic demand fell sharply because of job losses and lower disposable income (Azamat, 2020[3]). Unlike past recessions, the pandemic has severely hit the retail, hospitality, wholesale and transport sectors. Inflation increased during the coronavirus lockdown, mainly due to rising in food prices. Hoarding, driven by a fear of supply disruptions associated with restrictions on movement, contributed to higher food demand and food prices.
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, 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 has grown by about 4% per year between 2010 and 2019, far above the world average over this period. For Kazakhstan, this growth has been driven almost entirely by an impressive increase in TFP of nearly 6%. This along with a relatively minor increase in intermediate input use have easily exceeded a 3% decline in the use of primary factors.
The persistent negative average nutrient balances suggest that soil fertility may be being eroded, which may eventually cause yields and outputs to fall. Agriculture’s share of energy use has remained steady, and around double that of the OECD average in 2000 and 2020. Agriculture’s share of GHG emissions has fallen and appears to be converging with the OECD average. The share of agriculture in abstracted water has declined, but still remains much higher than the OECD average.
References
[3] Azamat, R. (2020), A Slow Recovery Through the COVID-19 Crisis in 2020: Kazakhstan-Economic-Update, World Bank Group, http://documents.worldbank.org/curated/en/792601609750238730/Kazakhstan-Economic-Update-A-Slow-Recovery-Through-the-COVID-19-Crisis.
[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.
[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.
Notes
← 1. The Fund for Financial Support to Agriculture is one of the subsidiaries of the former state-owned KazAgro Holding, now under Baiterek Holding.
← 2. The FFSA was merged with the ACC at the end of December 2021 and the functions of microfinance, crop insurance and the function of an agent for “Rural Mortgage” within the framework of the project “With a diploma to the village“, have been transferred to ACC.