03 april 2020
6 min

What governmental assistance is required for agricultural producers of Kazakhstan to make a breakthrough?

What governmental assistance is required for agricultural producers of Kazakhstan to make a breakthrough?

On March 31, associations and unions representing agricultural producers of Kazakhstan, including AIELE Meat Union of Kazakhstan, ALE Grain Union of Kazakhstan, ALE Farmer's Union of Kazakhstan, ALIE Union of Poultry Farmers of Kazakhstan and others addressed the President of Kazakhstan Kassym-Jomart Tokayev. In the address, farmers voiced their proposals on the necessary measures of state support for the rapid development of the country's agricultural sector in the current conditions.

Among other things, agricultural producers declared the need for additional financing of the industry, lending under the guarantees of akimats, the introduction of export quotas and ensuring the transparent sale of agricultural products within the country.

To get a comment on this topic, we took an interview with the chairman of the Union of Potato and Vegetable Growers of Kazakhstan Kairat Bisetayev.

The main purpose of the appeal

“With this appeal we wanted to express our position, which is, firstly, business today understands where it needs to move, what needs to be done in agricultural sector. We have a clear understanding of what we need to develop in every branch of agriculture: vegetable growing, grain growing, livestock raising, and cotton growing and so on. We are ready for dialogue, ready to work in one team with the Government.

The second position, why we signed this address is that we wanted to state that the task of developing agriculture does not fall on the Ministry of Agriculture alone. We have not opposed to them. There are no fundamentally new things in our proposals. For all the positions that we voiced in the address, we have a full understanding with the Ministry of Agriculture. However, we see that the efforts of one ministry are not enough. Today there is no team, joint work of the entire Government to resolve these issues. It takes a lot of time to prove to other ministries the need for certain measures to be taken in agriculture”, stated Kairat Bisetayev.

According to him, agricultural producers would like the Government to work as one team on the issue of agricultural development.

“It is necessary that all ministries help the Ministry of Agriculture and to have it under the control of the President himself. If everything related to agriculture works like this, then we have the prospect of making a serious and quick advancement. This is the main point of our appeal”, said Kairat Bisetayev.

Working capital increase

“Today we are not so much asking for an increase in government subsidies, and so on. We need other things. Today we have a very strong underfunding of working capital. This problem is common for not only potato and vegetable growers, but agriculture in general, the whole economy of Kazakhstan today is facing it. This greatly affects our development, our activities. We stated that this is repayable money, however, only a limited number of farms have access to finance” Kairat Bisetayev stated.

He noted that there is a certain pool of farms that have good pledges and a reputation, but not even half of all producers are included in this pool.

“That is, it is somewhere in the range of 15-25% of farms that receive normal working capital financing, loans today. The bulk of agricultural producers, for various reasons, unfortunately, do not have access. Someone had a bad credit history, there were some problems, crop failures, mistakes. Today, financial policy is structured in such a way that if you stumble once, you get black listed, and getting out of there is almost impossible. Today, lending to a person from the street who has never done anything is easier than to lend to a person with extensive experience with some kind of “screw-up”. They cannot get financing. Such a system impedes the development of farms. It is necessary to provide working capital on an unsecured basis. Local executive bodies need to be aware of this issue so that we can jointly resolve them. There are many tools to enable entrepreneurs to get loans”, says Kairat Bisetayev.

We remind that on March 31, the President of the Republic of Kazakhstan, Kassym-Jomart Tokayev, made a statement regarding the strengthening of measures to support citizens and business representatives in the crisis period.

Thus, the Head of State instructed to carry out spring field work in a timely manner and support agricultural producers.

“70 billion tenge will be allocated from the budget and communicated to farmers through the Agrarian Credit Corporation JSC. The rate for end borrowers will not exceed 5%. I instruct you to invest an additional 100 billion for these purposes in the framework of the program "Economics of simple things." The final rate under this program has been unified across all sectors and amounts to 6%. First of all, it is necessary to support small and medium-sized farms” the President stated.

Kairat Bisetayev commented on the voiced support measures.

“We support these measures, but now we have such a situation that the money that is allocated annually through KazAgro is not fully utilized. There is money, but our farmers do not meet the requirements set by the Agrarian Credit Corporation or second-tier banks for this money. There are very stringent requirements. The President says that additional money will be allocated under the program “Economics of simple things” to replenish working capital. This is very good, but we add that measures to increase the number of farmers to whom these funds will be available are needed. This is a difficult question, all banking standards must be observed, liquid collateral is needed, real estate, there are very few such borrowers. Since the President sets the task of giving more money, we must use it, and in order to use it, we need the appropriate measures of the Government", states Kairat Bisetayev.

At this point, he noted that forward purchasing (for crops) of products from agriculture producers through social-entrepreneurial corporations (hereinafter referred to as SECs), as well as fixed export volumes guaranteed by relevant intergovernmental agreements, can help in solving this issue.

More on this will be discussed below.

Alternative channels for the sale of agricultural products

“The second issue that concerns us today is the distribution routes. We transparently grow our products, pay taxes, bookkeeping, have warehouses, everything is transparent with us. But products get from us to the final consumer through gray bazaar schemes. We do not know how many intermediaries there are, how the price is formed there. Today it turns out that the lion's share of the profits from our business is received by representatives of these gray schemes. To make commodity prices lower, but at the same time to increase the profitability of the farmers themselves, it is necessary to create transparent distribution routes”, continued Kairat Bisetayev.

According to him, there are several options for resolving this issue.

“For example, forward purchasing contracts (forward purchase of future crop) through social and entrepreneurial corporations are exactly what we offer in this appeal, and we say that if the SEC finances us today, then the local akimat will have leverage over certain products so they could formulate prices in the domestic market.

SEC will be able to gradually build relations with retail chains. At the same time, we say that we do not need to be replaced, we do not need potatoes, vegetables be transported somewhere in the region, have SEC build warehouses, bear risks associated with storage and so on. None of this is needed, we have warehouses, and we are ready to release products in the right amount from our warehouse to where the SEC says within nine months. We take all the risks, but we need to arrange it correctly”, says Kairat Bisetayev.

It is worth noting that the Head of State Kassym-Jomart Tokayev in his address also raised this issue.

“Akimats and the Government (through the“ State Food Corporation”) should establish a mechanism for guaranteed purchase of products from domestic agricultural and processing enterprises at least 6 months in advance, i.e. introduce the so-called "forward purchase" or "purchase for the crop." It is necessary to determine a clear mechanism for the integration of enterprises along the entire chain - from the field to the counter and provide them with soft loans. Business, in turn, must take on counter obligations to ensure production volume, maintain prices, maintain employment, etc.", the President of the Republic of Kazakhstan instructed.

According to Kairat Bisetayev, among the options for creating alternative distribution channels for products there is also the construction of wholesale distribution centers in every major city.“

This is a transshipment point, a very mobile structure, into which various food products from agricultural producers and distributors come every day. Every day we can import products there, and all the retail that is in the city will be able to purchase products for themselves. Everything should be transparent. The government will understand at what price the product comes in, at what price it comes out. We are ready to work like that. However, there is something to work on. This is not the work of the Ministry of Agriculture; this is the work of the Ministry of Trade, the Ministry of National Economy, Ministry of Finance, local executive bodies. We urge that we are ready to resolve these issues”, said Kairat Bisetayev.

Fixed export

“The third issue that interests us today is export. Today we are ready to subscribe to specific export volumes for each month, but this requires interest from the Government in order to conclude relevant intergovernmental agreements with other countries, for example, Uzbekistan. At least in a pilot project, at least for potatoes, to work out such a scheme when, for example, we can accurately announce the volumes, dates and prices at which we will supply the products. We will undertake all the rough work, we will store it, load it into the wagons, but let, for example, the Food Corporation be the shipping and finance operator. We are not against this, but it is important for us that there is a guaranteed realization of the volumes, surpluses that we have. Today, these issues are often resolved through gray schemes, when resellers from Uzbekistan come, buy products at the same price, somehow get customs clearance already in their country, and then sell at completely different prices. How does all this go? Who makes money on this? There are the questions. For this we need teamwork, operational work, we all must do this. Our appeal went public in order to spur the Government to operational work on these issues, and not leave everything on the shoulders of the Ministry of Agriculture”, said Kairat Bisetayev.

In the future, we will continue to publish materials on current affairs and issues in agriculture, conducting spring field work, the impact of the coronavirus epidemic on the industry, etc.

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