Kazakhstan’s agricultural producers are preparing for measures of last resort. The governmental plans to introduce a disposal fee for agricultural equipment have caused much discontent among the farmers. They have already written a letter addressed to the country’s second President and are prepared to defend the interests of the sector to the bitter.
The possibility of introducing a disposal fee for imported agricultural equipment has been discussed for years. It looks like now the issue is reaching the final stage. The fee was supposed to have been introduced starting from July 1, 2019, however, most agricultural producers spoke against it and the introduction of the fee was postponed. Nonetheless, agricultural producers worry that the postponement will not last for long – the introduction of the fee is being lobbied too vigorously.
“We have signed a letter to the head of the state Tokayev Kasym-Zhomart Kemelovich on behalf of eight associations (agricultural producers from different agricultural sectors). This is 95% of the business. We are against the disposal fee introduction”, said the head of the Kazakhstan Meat Union Maksut Baktibayev at the recent press-conference.
“Introducing the disposal fee will make the modern technologies and equipment inaccessible for producers. We are throwing them back. However, the task of increasing the agricultural productivity by 2.5 times by the year 2021 set by the Leader of the Nation is still topical. So, on one hand, there is this task, on the other – there is the measure that makes it impossible for this task to be completed”, said the head of the Grain Union Nurlan Ospanov in support of Baktibayev.
Why do the agricultural producers oppose this initiative so adamantly?
It is true that the agricultural equipment used in the fields today is quite worn down – up to 80%. The rate of the annual equipment renewal does not exceed 3-5% even though the minimal rate should reach about 10%. The explanation is simple – agricultural producers do not have enough resources.
Today the Kazakh agricultural producers buy both the imported and the domestically-produced equipment. The latter, one must note, cannot really be called “made in Kazakhstan” since the country has six factories engaged in assembling only (the localization level hardly exceeds 35%). In other words, this is but a “screwdriver production”. Large quantities of the ready-for-service agricultural equipment as well as the accessory equipment are imported from Russia, Belarus and other countries every year.
Just a while ago, the position of the Ministry of Agriculture was unequivocal – farmers needed to renew the agricultural equipment and the state provided favorable leasing terms through KasAgro’s affiliated structures. But the decision what to buy – a filed engine Belarus 82 produced by Kazakhstan’s SemAZ or a US-made JD W660 was made by the farmer himself.
Umirzak Shukeyev who headed the Ministry of Agriculture from 2017 to the beginning of 2019 was direct in his assessment of the situation: “We are deceiving ourselves by saying we have our own agricultural machinery industry. We have component assembly. Why do we need to support it? Apart from that, we do not consider it right to tell the farmers what to buy and where to buy it. If they want it cheaper, let them buy the Russian-made equipment. If they want it more expensive and more productive, let them buy the US-made one”.
By the way, the Kazakh agricultural machinery producers are already receiving a lot of subsidies. According to the farmers’ estimates, the total size of the subsidies constitutes 52-57% of the cost:
- zero accessory equipment custom duty (for suppliers of the Western-produced equipment, the duty constitutes from 5% to 10%);
- exemption from VAT (the Western-produced equipment suppliers pay 12%);
- the disposal fee to constitute 0% (for suppliers of the Western-produced equipment, the fee is supposed to constitute from 10% to 30%);
- leasing and loans – the quasi-governmental companies provide 5% loans for the purchasing of the domestically-produced agricultural equipment;
- the investment subsidies for those who buy the domestically-produced equipment – 20% from the republican budget + 10% from the regional budget.
This subsidies package was pursuing only one goal – to increase the localization and to cheapen the costs against the imported equipment. However, this did not happen: the Kazakh equipment producers are raising prices together with the importers. For example, the aforementioned field engine Belarus 82 assembled at Kazakhstan’s SemAZ at the cost of 3.1 mln tenge in 2014 took a jump to 6.7 mln in 2017 while the US-made JD W660 that, in 2013, cost 60 mln tenge went up to 132.7 mln tenge in 2017.
The farmers are convinced that introducing the disposal fee will not result in the reduction of the agricultural machinery costs. Moreover, they call the new initiative an additional tax imposed on the real sector of the economy.
“How are they promoting the introduction of the disposal fee? They say it is an instrument for the environmental protection. But around here it is used as an additional tax imposed on the real sector of the economy. In Kazakhstan, 70% of the agricultural equipment is more than 15 years old and it is still being used in the fields. Allegedly, the introduction of the disposal fee will stimulate people to give away the equipment for reprocessing for which they will receive 300-400 thousand tenge. In reality, we have taken inventory of all the equipment, the one that does not work has been used for spare parts or utilized a long time ago. Therefore, the problem of the harvesters that are uselessly rotting in the fields does not exist”, says Maksut Bakitbayev.
The government sees the situation in quite a different light. Vice-Minister of Industry and Infrastructural Development Amaniyaz Erzhanov said at the briefing that the introduction of the measure is necessary – for the development of agriculture and the agricultural machinery industry. Citing the Russian and Belarussian cases, he stated that it was this measure that “was productive in stimulating the investments in the agricultural machinery industry development”.
The Vice-Minister also underscored that the National Entrepreneurs Chamber Atameken had supported this initiative albeit with the following stipulations:
- to postpone the introduction of the disposal fee for one year;
- not to introduce the disposal fee for the equipment that is not produced in Kazakhstan or is produced in insufficient quantities;
- not to introduce the disposal fee for the already registered agricultural equipment;
- to introduce a subsidy – 25% of the cost of the equipment;
- to develop a subsidy program for the purchasing of the equipment at a low interest-rate;
- to introduce a discount voucher program for utilizing old agricultural equipment;
- to include the localization clause.
“The disposal fee will be imposed only on the newly purchased and imported equipment”, said Erzhanov, “these are harvester threshers and field engines. I think if we satisfy the demands of the market with the domestically-produced different-purpose agricultural equipment, the prices for agricultural machinery will not go up. This does not apply to the agricultural products and especially to the products that do not have to do with crop-farming. Therefore, the introduction of the disposal fee means the localization of the previously imported agricultural equipment models by means of creating new and expanding the existing businesses, lowering their costs, building a full-scale system of the old equipment utilization in the country. To the farmers, the introduction of the disposal fee means the renewal of the equipment by means of the discount voucher and the subsidized leasing for the purchasing the domestically-produced machinery and preserving the price for the domestically-produced equipment via the stimulation measures”.
One should not overlook one very important detail of the story – the disposal fee in Kazakhstan is collected by Operator ROP LLP.
This is the country’s only operator of the Increased Obligations of Manufacturers and Importers program. Its monopoly status in the field has been secured by the governmental decree.
The official site of the company does not provide any kind of information about its founders, top-management, etc. However, according to the eGOV.kz data, initially, Operator ROP LLP had two participants – Kazakh citizen Shynar Muktarova (a physical body) and Eco Waste Solutions LLP (a legal body in which the aforementioned Shynar Muktarova was the only participant as well). September 7, 2015 was the company’s registration date.
Interestingly, the company was re-registered on June 14, 2017, and a certain Svitlana Korotenko became its new head in charge. With that, the date of the company’s initial registration is listed as November 30, 2015.
The company is not particularly active in the public domain. According to the Kazakh media, it is impossible to obtain information on the funds received, the vouchers given out and, especially, on the funds spent (the funds received as fee payments are supposed to be used for environment protection related events). To learn more on the subject, click here – text available in Russian and Kazakh).
In the meantime, based on the information provided by our insiders, it is no other than Nursultan Nazarbayev’s youngest daughter Aliya Nazarbayeva who is standing behind this company.
Over recent years, Aliya has been showing a special interest in the environmental issues – at public events, she appears as the head of the Presidium of the Association of Ecological Organizations and the head of the supervisory board of the International Center for Green Technologies and Investment Projects. She is also a co-author of the 10-11th grade textbook called “Ecology and Sustainable Development”, the elective 6-7th grade course “Ecology Culture”, the educational and developmental program “The Green Planet of Childhood” for pre-school and elementary school children.
By the way, the agricultural producers have already made the calculations: about 150 tenge’s worth of agricultural equipment is bought all over the country every year. With the 10% disposal fee, Operator ROP is to receive additional 30 bln tenge (more than $78 mln) a year.
Will this not too shabby a sum end up in Nazarbayev’s youngest daughter’s pocket?
It’s no wonder that farmers are outraged.