The conflict between Russia and Ukraine has not affected Kazakhstan directly, but the citizens already feel economic consequences of the war.
Kazakhstan being the active buyer of food in the Eurasian trading ecosystem has lost access to cheap food stock from Russia and Belarus. Tenge devaluation has aggravated the situation. Domestic market responded by domestic and imported product price jump. According to expert forecasts, after the first shock the food market of Kazakhstan should expect a new wave of price hikes.
How have anti-Russian sanctions affected ordinary Kazakhstanis?
A complex geopolitical situation has hit the Kazakhstanis in the pocket. In March 2022, Kazakhstan faced a staple food price surge. Amid the unrest in the middle of the month, people were panic buying sugar, cereals, flour. Supplies to stores from warehouses were on schedule, but they were bought so quickly that shelves with such goods were empty most of the time.
“There is no shortage of sugar at warehouses, and the absence of this product on the shelves can be explained by the fact that in the last few days consumers bought five times more sugar. Therefore, supermarket shelves are devoid of this particular product. The level of consumption did not grow, but the purchasing power increased significantly. This is the information provided by the Magnit retail chain. From now, supplies of white sugar will be according to the existing schedule,” Yerzhan Kazanbaev, chair of the Trade Committee of the Ministry of Trade and Integration of Kazakhstan, said at the press conference in Nur-Sultan.
According to express information from the Bureau of National Statistics of Kazakhstan as of March 29, socially significant food products in the republic went up by 11.4 per cent from January and by 9.1 per cent from early March. In early spring of 2020 and 2019, there were no such surges, which proves the presence of exceptional growth factors.
Statisticians use three time spans to analyse prices: short-term (for one month), mid-term (from the beginning of the year) and long-tern (in the last 12 months). The first two options not only prove the rise in commodity prices, but also show the results of panic buying and deficit. The annual rate, as the ‘total’ in pricing math, shows the real objective changes.
Thus, in the short run, prices of all 19 socially significant products (the list of commodities is approved by the government of Kazakhstan – author’s note) went up in March. The minimum price rise was for sunflower oil (3 per cent), meat (2.6 per cent), flour (3.4 per cent) and bread (3.4 per cent). Cereals prices went up by 5-7 per cent on average, milk and chicken – by 6-7 per cent, potato and carrot – by 15 per cent. The biggest price jump was for sugar (35 per cent), onion (32 per cent) and cabbage (50 per cent).
Looking at the annual figures, the mean growth value will be 18.6 per cent. From March 2021, flour, bread, macaroni, dairy butter, kefir prices went up 10 per cent in Kazakhstan. Such commodities as buckwheat, potato, onion, poultry meat went up by 30-40 per cent. The products with skyrocketed prices are sugar (52 per cent) and cabbage (187 per cent).
In the last working days of March, the national government held a session regarding the current situation with price increases. It voiced the results of checks of stores by special monitoring groups. 749 entrepreneurs turned out to raise prices exceeding the acceptable 15 per cent retail mark-up. Some businessmen took the occasion of panic buying to derive benefit. The mark-ups were found on sugar – up to 40 per cent, vegetable oil – up to 35 per cent, vegetables – up to 25 per cent. There were also problems with wholesale suppliers and manufacturers. Specialists of the anti-monopoly agency mounted investigations of eight large-scale companies that raised prices unreasonably.
Are there food reserves in Kazakhstan?
According to current data of the Ministry of Agriculture of Kazakhstan, there are food reserves in the country. All 19 items are in stock. The republic has 1.4 million tonnes of socially significant products, most of which are available at manufacturers and warehouses of retail chains. On January 6, 2022, the country imposed a six-month ban on the export of cattle. The export of potato (including potato seeds) is limited by quotas until May 1, of sunflower seeds until July 1.
According to Vice Minister of Agriculture Zhenis Oserbai, who spoke at the briefing meeting of the Central Communications Service of the President of Kazakhstan, food reserves are replenished every day, as necessary. The country has enough raw materials to produce cereals, flour, enough cattle stock to provide the population with meat and dairy products.
The matrix of production and import of food products in Kazakhstan (according to the official data of the Bureau of National Statistics of Kazakhstan as of January 2022) shows that domestic producers meet home market needs for primary processed products (flour, cereals, milk, meat) almost in full. In case of complete economic embargo, domestic production will be enough.
However, Kazakhstan produces insufficient amount of high-level processed products (cheese, curd, sausage, canned meat, sugar). Deficit of domestic products is met by imports. For example, the country provides itself with sugar for 35.8 per cent only (42 per cent in 2021), with fish for 47.6 per cent, with sausage for 62.3 per cent.
These findings based on official statistical data are also confirmed by industry associations.
Milk
“As to white foods, namely milk, kefir, cream, fermented baked milk, we have complete food security in these products. Our domestic production amounts to 95-96 per cent, and we do not depend on imports here,” Vladimir Kozhevnikov, Executive Director of the Dairy Union of Kazakhstan, said to CABAR.asia. “As to the deep processing, we depend on imports of dairy butter by 18.1 per cent, of cheese by nearly 50 per cent. Dairy premium products partly need imported components, which are difficult to get.”
According to the speaker, Kazakhstan has problems with powdered milk supplies. The domestic production cluster in Kazakhstan has almost collapsed, the country produces only 5-6 per cent of its needs. It mostly depended on imports.
“Thus, we used to receive powdered milk from Belarus, partly from Russia, Ukraine. But our supply chains were broken because of the latest events. We have temporary problems in this context, but I think we will find new options. So, I think Kazakhstan may become a hub for the supply of some products, which are not supplied to Russia now. They can now be delivered via Kazakhstan,” Kozhevnikov said.
Meat
The situation with meat products is the same. According to Askar Zhubatyrov, Executive Director of the Meat Union of Kazakhstan, just a few years ago Kazakhstan reached full supply of meat.
“It’s not a problem for Kazakhstan now to provide the population with meat products. Our production outputs improve every year; the government adopted the ‘Agribusiness-2020’ programme. We imported some meat, but it did not have any impact on pricing in Kazakhstan. I can say that price rises in Russia and Kazakhstan are inevitable. At least, in the short run,” Askar Zhubatyrov said.
Speaking about the impact of imported meat on prices in Kazakhstan, the head of the industry association means beef from Belarus, which was delivered in transit to the republic via Russia. It amounts to nearly 48 per cent of all imported meat in the country. The meat from Belarus was cheaper than in Kazakhstan even including logistical costs. This import helped curb the price rise in the domestic market of Kazakhstan.
“There are risks of meat price rise in Kazakhstan due to reduced supplies from Russia. We forecast the ban on meat exports by Russia (as of early April, no official ban was imposed – author’s note). It has already started. I have talked to wholesalers from Russia, they already have drops in volumes. […] Russian producers have already reacted to these factors. For example, Miratorg company raised prices by 10 per cent. Of course, it will also affect Kazakhstan,” the executive director of the Meat Union of Kazakhstan said.
Grain crops
According to the speaker, the situation with grain crops may have a big impact on meat producers. On March 14, Russia imposed a temporary ban on the export of wheat, rye, barley, maize. It will last until the end of summer. This is a bad news for Kazakhstan.
Despite the fact that the republic provides itself with grain crops and exports them to other countries, Russian import was important for meat and flour producers in Kazakhstan. Many flour millers and farmers preferred to buy cereal crops from Russian suppliers rather than from Kazakhstan ones. The reason was that Russian grain crops was cheaper and balanced the domestic market of Kazakhstan. Now they have only one option – to buy from domestic producers.
“It all leads to the price rise. According to some forecasts, one tonne of wheat in Kazakhstan could rise up to 20 per cent. Too much aggregate data is available now, it is difficult to forecast the policy and how the situation will develop further. However, it will definitely have impact on prices,” Askar Zhumatyrov said to the journalist of CABAR.asia.
Sugar
Sugar industry of Kazakhstan faces systematic challenges. Domestic production amounts to 43 per cent of the demand, and the rest comes from Russia, Belarus, other countries. From March 14, Russia has restricted export of white sugar. Kazakhstan has a quota for the supply of white sugar and raw sugar in the volume of 250 thousand tonnes.
The republic has four sugar mills – Aksu, Koksu, Taraz and Merkent. They can produce white sugar both from sugar beet and from cane raw sugar. But the volumes of sugar beet in Kazakhstan are not sufficient because crops are small in area, and are gradually reducing.
According to the Association of Sugar, Food and Processing Industries of Kazakhstan, in 2021, the planned sugar beet area in the country was 22.5 thousand hectares, while the actual area was 14.5 thousand hectares. In 2022, 12.3 thousand hectares of land are planned for this crop. It will let produce only 55 thousand tonnes of sugar, whereas the need of Kazakhstan in this sweet product is over 500 tonnes per year.
According to Aizhan Naurzgalieva, chair of the Association, the key problems in the sugar industry are the lack of irrigated lands for sugar beet planting and water supply problems in sugar beet growing regions. According to the Ministry of Agriculture, the annual volume of production of this root crop in Kazakhstan is 350 thousand tonnes. And to meet the domestic demand for beet sugar, the output must be 10 times more, i.e. 4 million tonnes. Therefore, the sugar mills often stand idle due to the lack of raw materials, and work only in the beet harvest season or once the raw materials are delivered.
The state grants subsidies to the industry, but this so-called “operating” money is not enough for such large-scale investment projects as construction of new irrigation systems, dams, water files, purchase of equipment. According to Zhenis Oserbai, Vice Minister of Agriculture, the budget allocated 7 billion tenge (16 million dollars) for subsidies to sugar beet producers in 2021.
However, to reach production of 4 million tonnes of sugar beet, a separate programme with implementation period of 10 years should be developed, Naurzgalieva said. According to her, irrigated lands within a 100-kilometre radius should be either transferred into ownership of mills or leased for a long term, and large service and purchasing centres and new irrigated areas should be built.
“Producers should have irrigation subsidies increased up to 70 per cent, privileges for transportation by railway. These are minimum supportive measures compared to the preferences provided by the governments of Russia and Belarus to their sugar producers. Therefore, their sugar industry is well developed and they focus on export,” she said.
At the end of March, the Association addressed a letter to the government, where it provided the analysis of the situation and suggestions on modernisation. It has received no reply so far.
“Crop areas should be increased, not decreased. During the meeting with farmers at the end of March, the minister of agriculture said that the ministry has such plans. We hope we can fulfil them next year. The agency also said that they will turn to EEC with a suggestion to prolong quotas for raw sugar import from Russia until March 2023 and to increase it up to 500 thousand tonnes. This volume of raw sugar would be enough for our processing plants to produce enough sugar (including beet sugar),” Aizhan Naurzgalieva said.
According to her, the situation with interruptions in supplies of imported products can become both a challenge and growth point for producers in Kazakhstan. This is an opportunity to develop the niche, to reach high quality of commodities and replace imports. However, it needs assistance from the state because modernisation of production is quite a cash-consuming process. According to Aizhan Naurzgalieva, it is high time for the creation of a separate Food Industry Committee that would be resolving food security issues.
The government responded to the March price spikes. Specialists of the Ministry of Agriculture developed a Food Security Plan for 2022-2024. It consists of 31 events to ensure physical and economic availability of food, its security.
According to minister of agriculture Yerbol Karashukeev, who submitted the plan to the government, crop production will be diversified in the next three years. Oil crop, potato and feed crop areas will be increased. It is planned to continue increasing livestock number in cattle production. New investment projects will be focused on creation of new vegetable store capacities. Unfortunately, the state plan does not address the “weak” point of the national food industry, i.e. processing.