written by Alezandra Tsay

translated by Peretz Partensky

Part 1 here. Part 2 here.

Harvest and weep

The situation facing the producers is catastrophic. On the market there are practically no buyers, with the exception of flour mills, but they buy small quantities 50-200 tons. In all of Kazakhstan, there are about 600 mills. If last year they purchased about 5 million tons of grain, this year’s purchase of grain will be reduced to 4 million tonnes, due to the weakening of exports. Traders are not yet willing to close on purchases, waiting for further decline in the grain. The price has already dropped substantially. “Today, many agricultural producers, particularly small producers because of the ongoing chaos in the grain markets are in distress, literally on the verge of bankruptcy because they were forced to sell the crop below cost (at 10-12 thousand tenge per ton),” – Peter Dmitrienko points out in his deputy’s request to the Prime Minister.

Despite a larger harvest, the quality is worse than last year. It rained during the harvest season and the collected grain was moist. This created additional costs for drying at the silos exacerbating the lack of them.

“Now the small farmers, who did not manage to deliver their grain to the silos, have to keep their grains in their stores where it is getting progressively ruined. I think there have already been loses,” said an anonymous source. In addition to the silos, there is a shortage of grain carriers, even to transport the grain within the country, which could save some wheat from spoiling. “The situation with the train cars is complicated, exports have not yet begun, but we are already experiencing a great shortage of cars. I think this question will be hard to resolve,” said Alexander Malov, General Director of trading company Vitalmar Kazakhstan.

“It is already clear that farmers will be unable to repay loans made in the structures of KazAgro as the low price and lack of buyers leave them without funds. Insolvency projections in the fourth quarter will lead to a chain of non-payment of wages, tax credits, which in turn will lead to a deterioration of the situation in the regions,” stated deputy Zheksenbai Duysenbay in his report. He added that the indebtedness of peasants to the subsidiaries of KazAgro is about 250 billion tenge. “In this connection the question arises: what are we going to sow for the future?” – Mr. Duysenbay asks.

One of the market participants, who requested anonymity, believes that the whole agriculture industry is under threat. “The acute issue is bailing out the peasant farmers, who are now wondering why they should sow if there is nowhere to sell. The state has promised to buy at $ 165 per ton and has, in fact, deceived us. We can lose an entire industry. The streets will again crowd with people and the crime rate will increase with unemployment,” he morosely remarked.

More transparency

Criticism of the Ministry of Agriculture’s policies towards the farmers was heard for the first time last year, when wheat prices fell sharply after a rapid take-off. Many farmers were not ready for this development. Market participants believe that the Ministry of Agriculture bolstered the idea that grain prices will be consistently high. Farmers got accustomed to the price of 200-300 dollars per ton of wheat and did not expect such a drop.

Some questions surround the actions of the FCC. Their delay in procurement and the lack of transparency in the pricing policy caused instability in the market and poor price stabilization. “As for the “Food Contract Corporation”, to me, as a participant in the market, we would like them to communicate their policies more clearly to everyone involved – most importantly whose grain will be bought and through what transparent mechanism – will they buy from big or small producers, how much and when,” suggested Mr. Smagulov. The non-transparent policies and the failure of the early promises have led to disastrous consequences on the grain market.

Now the Government is hastily trying to find a way out of the situation. In early November, Karim Massimov ordered to pursue the extension of loans to farmers at the expense of the National Fund. “I instruct the Ministry of Agriculture, KazAgro and agricultural areas: the first issue of the 2010 extension of the money that we gave from the national fund. The second question: work together with the Grain Union to use grain as bank collateral,” said the prime minister.

But the Government’s first priority is to find export markets and to support farmers.

The head of the Ministry of Agriculture has already announced that “progress is being made on the question of purchasing the grain for up to six million tons”. “This is about 30% of the amount of grain produced. It will be purchased by the FCC,” said the Minister. He added that he has positively advanced the question of an additional purchase of one million tons. This grain will be purchased from small producers. So now the size of government procurement of four million tonnes. According to the head “KazAgro”, it will help alleviate stress on the grain market.

Some market participants believe that price for grain on the domestic market will fall. On the one hand – this is a blow to farmers, on the other – lower prices will yield some exports. “I think we will see some exports to the Black Sea this year, and the prices will have to fall another 20%, as transportation to the Black Sea ports is very expensive. The average pay for logistics is $110 per ton. I am sure that this year will be very difficult. But grain exports should increase, otherwise we’ll have to store and carry over to next year,” stated Mr. Malov.

Government is trying to facilitate exports in this direction by decreasing customs cost for the transportation of grain. “What has been decided to allocate five billion tenge of the Government budget to fund customs tariff reduction to encourage transport of grain to the Black and Baltic Seas,” informed Minister of Agriculture. He added that the price reduction will be developed and outlined by the Ministry of Transport and Communications.

The long term perspective for Kazakhstan involved a target of increasing export channels and insuring their sustained operation. For this it’s necessary to resolve the supply of grain transport machinery, which is always lacking. To develop and maintain these export markets will require a lot of determined work. And if that doesn’t happen, another bumper crop just might starve the entire industry.