Kazakhstani agricultural industry: Growth before stress?
Prior to entering the WTO, agriculture should “gain muscle” and “collect fat”
The agricultural sector of the Kazakhstani economy, along with its related branches, should stand on its own two feet. In the recent few years, the industry has been achieving a certain output, which many farmers had forgotten over the past 15 years. Thus, according to the State Statistics Agency of Kazakhstan (SSA), in 2004 the volume of gross production of the agricultural industry exceeded the 1995 level of that indicator by 15.5%, and totaled KZT 699 bln. Although at that time, the ever-present critics stated that the volume of growth over that ten-year period was not so high. Moreover, such output is incomparable with that during the Soviet five-year plans. However, these critics are being deceptive. And, that era has been archived. The very fact of maintaining stable growth in such an industry during a transition period is important in and of itself.
Furthermore, enough new statistical figures have recently been released. Akhmetzhan Yesemov, Minister of Agriculture, gave out many statistics during the 3rd Investment Summit in Almaty, which occurred during the summer of this year. He particularly declared in his presentation that the gross production volume of the agricultural sector in 2005 was KZT 764.8 bln, which was 37% more than in 2002. The comparison shows a more noticeable jump in growth than for the ten-year period. And, what is the use of speaking about the annual indicators, when this 37% seems good enough.
Public officials confirm that the most important aspect is not growth itself, but the social and economic benefits of having “solved” the question of achieving security as regards staple foods. Moreover, pertaining to a number of products, domestic production noticeably exceeds national consumption rates, including grain production – by 300%, potatoes – by 140%, fruit and vegetables – by 87%, rice – by 30%, milk – by 20%, and meat products – by 5% (the livestock population has increased by an average of 5-7% over recent years, while the level of meat processing has averaged 4-5% growth).
This is all great, but one must remember what Kazakhstan had to go through during 1998, when record lows in the production of grain brought forecasts that with one more similar production year the country would need to import bread. What the meat and dairy sectors of the industry would have faced in turn is quite clear.
Now, everything seems like it will be fine. Yet, we remember the saying about statistics, “There are lies, there are damn lies, and then there are statistics.” Though, do we really need to recall this? After all, this is the real problem with our agricultural industry. In connection with this, two mutually exclusive practices exist – misreporting actual yields and concealing a portion of the harvest. Unsubstantiated information on such important issues occurs, such as when on December 26, 2003 Evrasiya ORT, the local broadcast version of Russia’s ORT television channel, made a special report that in Kostanai oblast of northern Kazakhstan the harvest volume was misreported by 1.5-2 mln tons. A farmer who was interviewed during the broadcast spoke of how local authorities had made them misrepresent yields. Three years have passed, and we still cannot confirm whether or not such practices occurred all over, and indeed may still be utilized. Although, many still believe this to be true. The tradition remains from the Soviet era. So, why should we now continue it? In the past, the practice was for the benefit of general secretaries. Making oneself appear bigger resulted in the allocation of credits and fuel, probably at cut-rate prices. At the same time, they say, there is another practice in which farmers try to conceal a portion of their harvest. Why this happens only God knows. Possibly, so that the farmers may sell off the hidden quantities on their own, potentially on better conditions, and perhaps because such methods are needed today in order to survive in the village.
Along these lines, current agricultural statistics may not necessarily be accurate. Effectively, the numbers are confirmed with the participation of regional and district administrators, who are responsible for collecting information on farming. This is a good practice, but does it work? Can they manage to account for everything? On the one hand, farmers have established the tradition in connection to their dissatisfaction for when the government wants to count something, and on the other hand, the steppe is just too big. Livestock will only be rounded up when the counters come. Some serious national experts treat the collected data with great caution.
Let us assume that there actually is growth in the agricultural industry. But, first of all, how stable is it? Referring to statistics for grain harvests, when comparing the annual data for 1995, 1998, 2003 and 2004 the country’s production has been quite unstable, subject to fluctuations. As one commentator noted, “The teeth on the saw are of dissimilar size.” Considering cattle breeding, a very peculiar situation occurred in the first half of 2005. At that time, during a conference in which social and economic development for the first quarter was summarized, Yuri Shokamanov, first deputy chairman of the SSA, explained the situation on livestock, in which a reduction in growth occurred in relation to the analogous period of 2004. This happened, as experts explained, as a result of the long winter, resulting in not enough feed for the cattle, which required a culling of the population. Observers rightly asked the logical question, “If there is annual growth in the cattle population, how can there be at the same time a problem with feed supplies?” Is there not some sort of planning, even at the level of the individual farmer? At that time, statisticians offered up the answer, “The opportunities for farmers continue to decrease: old equipment has deteriorated, purchasing new machinery is too expensive, and so they are able to collect less feed each subsequent year.” Therefore, the slaughtering of cattle occurs earlier in the year, such as happened in the current year due to severe cold. Is it possible to speak about sustainable growth in such a situation? How confident can we be, that there will not be several such cold winters consecutively, thus destroying any potential for growth?
Turning to statistics again, according to the data the SSA released last year the number of cattle in 2004 decreased by 24% in comparison with 1995, sheep and goats by 32%, and swine by 20%. Additionally, meat processing in 2004, as compared with 1995, decreased by 25.2%, while milk production dropped in the same period by 1.3% (from this, how can the extra 20% mentioned above be derived? Perhaps it is due to the decrease in the nation’s population?). Here, our opponents may initiate the casuistic argument that during Soviet times the livestock program of the republic was organized not just to meet local needs, but was instead part of the supply chain for the All-Union program. Therefore, a certain decline in comparison with the Soviet period is to be expected. This last argument would be a correct objection [to the current state of affairs] if not for one point – the falling volume of livestock as compared not with the Soviet period, but instead with 1995. In making a comparison with 1990, the gap widens.
What else can be considered? A paradoxical situation comes into being, when upon the achievement of self-sufficiency the production of vegetables exceeds consumption by 87%, and in rice by 30%, milk by 20%, meat products by 5% (note the above), while the share of imports from Kyrgyzstan and Russia, both in processed and raw forms, remain quite high on our market. Possibly, here we run across a problem in the quality of our domestic production.
We need not put too much energy into this subject, instead remembering what public statements were repeatedly made by a quite authoritative personage, Anatoliy Popelyushko, president of the company Rakhat, who many times noted the poor quality of domestically produced flour, sugar, butter, and a number of other products used in the food processing industry. Three years ago, the following statement was published in relation to this concern, though the situation has hardly changed since then: “The problem is being aggravated with the import of foodstuffs, along with a serious issue pertaining to the quality standards of domestic production, due to which bans are in place on Kazakhstani production within the Special Economic Zone, and by some indicators, certain production, such as that of meat and processed meat products, the quality rates surprisingly low.”
Regarding the quality of grain, as a basic export product of the agricultural industry, the case is not so simple. Official agencies and individuals concerned with this problem have confirmed that the quality of seeds has been improving each year, as sewing poor quality seeds is prohibited by law, with this proscription extending in the current year to include planting seeds brought from other regions. However, according to Irvin Gossen, a laureate of the Lenin Prize and academician of the National Academy of Science of the Republic of Kazakhstan (NAS RK), the domestic seed growing industry must continue to adequately develop in accordance with previously assigned goals. He says, “Presently, the average germination of spring seeds, in the majority of cases, amounts to 40%, whereas this number should be at 80%. Equipment used in the seed growing industry has become obsolescent, and before entering the WTO, this machinery should be modernized in order to guarantee [the nation’s] competitiveness on foreign markets.” The creation of centers for the preservation of the gene pool of spring and winter grain varieties in the regions of Kazakhstan has been envisaged by the law “On grain” and by the Agricultural and Food Program for 2003-2005, though this project has yet to be fulfilled. Only recently have such programs begun to be implemented. A high priority exists in protecting crops from quarantined plants. For this reason, some experts consider that we are exporting less to the near and far abroad than is possible.
The achievement of unity [in standardizing production] seems not so complete, but everything is connected. In the absence of independent, clear successes, stagnation has consistently encroached and recoiled, among other tendencies. Let us consider a non-Kazakhstani opinion on this situation. In the summer of 2006, during the visit to Almaty of Mike Johannes, U.S. Secretary of Agriculture, for negotiation on Kazakhstan’s entry into the WTO, he was asked the question of why American investment into the Kazakhstani agricultural sector has not been made. He, in response, explained everything simply: our [Kazakhstani] agricultural sector has less profit potential than the oil and gas sector. Additionally, investors need to have a higher level of sophistication concerning risk management when taking important decisions. In order to draw investment into the agricultural industry, the profits from which pale in comparison to that of oil and gas, there should be more work and effort done.
The domestic agricultural industry can be compared to a farmer standing at a crossroad with several directions. The choice does not much depend on him. The first potential is the path that the country should take after Kazakhstan enters the WTO, which requires the maximum level of state support. The second possibility is the same, but without such assistance from the government (the decision is being made by our trade negotiators in preparation for the WTO, but this is occurring behind closed doors). The third way, which could be the best, is what occurs if negotiations continue to drag on, leaving the nation’s agricultural sector to operate on its own. With the help of a fair and methodical government, the possibility exists to prepare for competition on the domestic market, and then having “gained muscle”, or at least having “collected fat”, try to move beyond [state assistance]. However, this help should be made available to both large landholders and to regular farmers alike.