written by Alezandra Tsay

translated by Peretz Partensky

Government intervention is necessary to address the problem of excess wheat supply that is threatening Kazakhstan’s grain industry.

With the help of abundant summer rains, farmers in Kazakhstan harvested a record crop of wheat. “National grain yield amounts to 22.7 million tons in bunker weight, which is 5.7 million tons or 34% more than last year’s level,” reported the Minister of Agriculture of Kazakhstan, Akylbek Kurishbayev, at a press conference in October. The numbers speak for themselves. One after the other, the main grain-producing regions, Akmola, Kostanai and North Kazakhstan, reported completion of the harvest campaign with record quantities of grain.

The good news foreshadowed a very serious problem. A global glut has led to a collapse in the grain market, and a lot of unsold grain in the hands of the farmers.  

The current situation in agriculture is dismal. Silos are stalled and overloaded, with practically no shipments. Farmers, who didn’t manage to load grain on the silos, are watching their harvest deteriorate in the open air.  Many farmers are threatened with bankruptcy.

Price fluctuation

In the ensuing situation of crisis criticism has been commonly directed at the actions and policies of “NK Food Contract Corporation” (FCC), a state owned company that acts as the main government agricultural buyer and consolidator for export.

In late August, “Food Contract Corporation” announced the intent to purchase three million tons of grain at the price of 165 dollars or 24,750 tenge per tonne. According to initial statements of the first people of this organization, this valuation would secure “positive income for the agriculture industry and relieve the tension on the grain market, associated with a deficit of cash for farmers to settle credits and land taxes.”

“Expert Kazakhstan Agro” previously predicted that the agreed price would complicate its grain exports (“The bad weather today in the house” Expert Kazakhstan Agro № 5, 2009).

Then in late September, “Food Contract Corporation” announced a revision in its intended purchase price and introduced differential rates based on three tiers of quality at 25, 20 and 18.5 thousand tenge per tonne respectively. Thus, the price of food wheat of the third class was established in the amount of 18,500 tenge ($123 US) per tonne. In addition, the state owned corporation introduced additional parameters of grain quality, the lack of which leads to a discount of $3-5 US per tonne. However, even after announcing the new price scheme, the FCC was in no hurry to actualize the purchase.

Prices in the domestic market began to decline rapidly and reached a level of 11-13 thousand tenge ($73-86 US) per tonne. “Many farmers are beginning to understand that they need to repay the loans, to clear the snow off the roads, purchase fuel, and heat their schools. They begin to sell grain at the prices offered to them. I think this is a normal situation; I would not make conclusions that place total blame on the “Food Contract Corporation”. These are the realities of the market. In the past year the price was 250 US dollars, this year it dropped. We need to be prepared for these fluctuations,” says Nurlan Smagulov, president of Astana Group, which owns “Grain industry” corporation, a major private processor and exporter of grain.

But his view was not shared by some MPs and governors of the grain-producing areas who demanded the FCC made good on their promise to purchase urgently. After numerous public requests, the FCC began the process of procurement. They currently have buyers contracted to 566 thousand tons. However, according to unofficial information, at the time of the article (end of October) the money has not yet made it to the farmers.