During his March visit to Rodina Agrofirm LLP belonging to famous entrepreneur Ivan Sauer, Vice Prime-Minister and Minister of Agriculture Umirzak Shukeyv shared his nearest plans with the journalists.

Here is a quote from the Kazinform information agency (text in bold – Kazakhstan 2.0).

“I have just visited the farm to observe and ask for advice. This, of course, is not a problematic business, but Ivan Adamovich (Sauer) knows all the problems of the industry well. Three days ago, I met with the milk producers, the meat producers, today I am meeting with the poultry farmers as well. So, there is a kind of testing of the new subsidies rule. Now the rules have been worked out, they are published on our website, the discussion is under way. Not everybody is happy, which is understandable; we are getting rid of some ineffective subsidies, adding some other subsidies, hence the discussion”.

“In the future, we are moving to the so called “Green Basket” system when all the subsidies that have to do with the physical indicators such as kilograms, tons, or heads must go. Only the subsidies that have to do with credit easing, infrastructure building, in other words those that directly influence the production market price, should remain, but this is in the future.

“Last year, according to his words, out of the 65 types of subsidies, 11 were cancelled, only 54 remained. “We see another 15 subsidies that could be cancelled. They are all physical subsidies. The per hectare subsidies can go for sure, there are now only four of them – cotton, rice, feeds – and these subsidies are being cancelled. We believe there is nothing to discuss here. The per hectare subsidies, for example, are distributed evenly and we must increase the labor productivity level”, says Umirzak Shukeyev.

First Deputy Minister of Agriculture Erlan Nysanbayev also spoke with the press. At the Astana briefing, he said that the Ministry is to strictly control the appropriate use of the fam lands via the distant space monitoring.

Here is a quote from the Sputnik news agency (text in bold – Kazakhtsan 2.0).

“This year, we are to create a geoportal to monitor the effective use of the farm lands. The geoportal will allow us to monitor things from space on an everyday basis”. “In the case the lands are not being used, the enforcers will impose fees. Thus, we are to have a complete control over the matter”.

Judging from the words of the Minister and Deputy Minister of Agriculture, they are heading towards:

• increasing the labor productivity in the industry;
• introducing the market mechanisms to support agricultural producers;
• toughening control over farm land owners and renters.

Thus, Shukeyev and his team members have started to implement the plans and intentions that Umirzak Shukeyev presented on February 13, 2018, at the Kazakhstan Government meeting devoted to the execution of Nursultan Nazarbayev’s requests of February 9, 2018.

One would like to believe that Shukeyev’s appointment as the Minister of Agriculture and the strengthening of his positions in the state apparatus via combining his main job with the post of Vice Prime Minister could change some things in the industry. All the more so, since he is currently one of the most experienced and qualified managers in the country. One should not forget, however, that the Kazakhstan agricultural industry is now in a long-standing crisis whose end, so far, is not to be seen.

The previous business model created at the end of the 1990s that was based on the three principles – the large and super-large companies’ (usually grain producers’) domination, the state support of the agricultural industry, and the extensive use of the farm lands and other resources – had failed. A new model, however, has not yet appeared on the horizon. And Nazarbayev’s changing of the Ministers of Agriculture is nothing but his attempt to find this new model.

On the surface, the failure resulted in the de facto bankruptcies of the country’s three largest agricultural holdings – Ivolga LLP, Alibi, and KazExportAstyk. But it certainly did not stop there. Today, most Kazakhstan agricultural producers (first of all those specializing in grains and meat and dairy products) are experiencing serious problems. The major one is the fact that the producers themselves and their products have not been competitive at the global market (perhaps with the exception of the food grains) and now they are starting to lose to their regional competitors, first of all, to the Russian producers.

However, today it is hard to find a new model of conducting business in the Kazakhstan agricultural industry. Not only because the country is located at the center of the Eurasian continent and, therefore, has to make its way through the neighboring countries’ markets (that do not want to see the Kazakhstan producers on their territory) to gain access to the global market. Not only because of the investment deficit and the exhaustion of the main funds, the low labor productivity, and the high level of the risks in the industry due to the complex climate conditions. There is also the fact that Akorda had to impose a moratorium on granting farm land ownership rights to both foreign companies and the Kazakhstan companies with foreign participation.

As a result of this memorandum, the agriculture’s investment attractiveness had been decreased dramatically for all the kinds of investors. In particular, it means that the modern precision technologies will have to be bought for the market price since they cannot be received within the framework of the mutually beneficial cooperation. The accelerated renewal of the agricultural machinery will be realized via the state funds and the quasi-government agencies. The development of livestock farming and the intensive introduction of the irrigated lands will have to be done via the unscientific methods while the attempts to penetrate that same Chinese market will be met with the justified resistance on the part of the Chinese business that is banned from Kazakhstan.

This disconnect between the economic and political aspects of Akorda’s agricultural policy leads to the fact that the Kazakhstan business is to be left in an extremely disadvantageous position in relation to its Russian competitors. Both Russia and Kazakhstan neighbor China having the long common border and being equally interested in accessing the China domestic market which by the way is the biggest one in the world in terms of the consumer count. Given that, the Chinese business is already operating in Russia (including the agricultural industry) which, although it raises some concerns in society, is not prohibited on the state level. Whereas, in Kazakhstan, the picture is quite a different one.

It looks like, for the next ten years (or may be longer), the Kazakhstan agricultural industry will be “stewing” in its own juice being blocked in the North by Russia (as it already happened with the grains in 2017) and bearing against the “iron barrier” of China since the latter has always and in every way supported the expansionist intentions on the part of the domestic business even in the far-away Africa and the Latin America. Of course, for China, it is only fitting to do it in Kazakhstan as well. Therefore, the Kazakhstan entrepreneurs will have to reform and transform in the conditions of the narrow regional market. And it is not at all certain that they will be able to do it even taking into consideration the increase of Akorda’s support.

Considering all this, Umirzak Shukeyev and his team will only do what they can. Specifically –

• rely on the Kazakhstan business groups that feel competitive, have the resources (human, financial, industrial, lobbying) to fight for the domestic market and penetrate the external markets;
• reformate the state support in order to stimulate the business-structures that have potential for the growth of their own industries and sales;
• reduce spending of the state and credit resources on the support of the business-structures that are kept afloat only thanks to the lobbying possibilities of their owners and managers;
• break into the Chinese market;
• to at least some extent implement the four sub-programs that Umirzak Shukeyev listed as the major ones at the February 13 Government meeting: the implementation of the new precision technologies, the accelerated renewal of the agricultural machinery, the livestock farming development, the intensive introduction of the irrigated lands.

One must acknowledge that this is a reasonable approach that has always been demonstrated by Umirzak Shukeyev during his time in the state apparatus and the quasi-government agencies. However, he will have hard time trying to change the situation in the industry since he has found himself is a catch 22 situation: the serious investments in the Kazakhstan agricultural industry whether domestic or foreign will only come if the investors can be sure it is all worth it and there is no foul play.

In order for the industry to become sustainably profitable, it needs to be reformed and cardinally so. Not only by introducing new technologies and the creating new industries but by improving the qualifications and changing the minds of the management and hired workers. Therefore, we are in need of gigantic investments in everything including the human capital. But how can these investments come to the country if the foreign investor is practically unable to take possession of the key element of the industrial process – the land? And the Kazakhstan investor (although, theoretically, he can do so) is contained by the absence of the farm land market as such.