During the COVID-19 pandemic, the principles of the functioning of the free market were violated, and each country first of all began to worry about its own food security. Various instruments for regulating exports and imports were introduced. Kazakhstan did not remain aloof from these processes. Moreover, restrictions are still being introduced by the government of the country to this day. ElDala.kz portal spoke with Nurlan Ospanov, Chairman of the Grain Union of Kazakhstan, about how justified these measures are today, and who benefits from them.
“If the introduction of export restrictions is justified, then the government is obliged to use them,” said Nurlan Ospanov. - The question is that there should be real, objective grounds for this. In many cases, some countries play it safe and introduce some restrictions before a clear assessment of the risks. It’s even worse when measures have not yet been taken, but they have already been announced - the market begins to react to such statements. And all systematic work collapses. That is, when it is announced that restrictions are planned on the export of a certain crop, traders try to manage to export the maximum volume. This leads to congestion on the railway. Therefore, we raised the issue in communications with government agencies that they need to be careful with statements, and we found understanding on this issue.
As for the validity of restrictions, I believe that they should be based on a balance of resources. That is, we, government agencies and the business community, must calculate the balance of resources and come to a consensus. We need a clear understanding of what the export rate should be in order for there to be a risk of a shortage of some agricultural raw materials on the domestic market. If we proceed from a single assessment of the balance, then it will be easier for government agencies to make decisions about introducing restrictions, and it will be easier for businesses to accept this decision. Both sides will understand that the decision is correct.
What's happening now? Now we don't understand whether the government is aware of the real risks? Now, we have not yet summed up the results of the harvest, and some government bodies are already beginning to ask whether we have enough raw materials for the domestic market, and whether we need to limit exports. Why rush, because there is no reliable balance yet? You need to act only on real, objective grounds.
Moreover, we believe that the procedure for introducing restrictions on the market, be it exports or imports, should be transparent. We. market participants must know in advance that if such and such conditions occur, the government will take such and such measures. A matrix of sorts must be created. for example, if the harvest is less than a certain volume, restrictions are introduced. Everyone will be ready for this.
If these conditions are not met by the government, chaos ensues in the market.
- Returning to the topic of Russian wheat: its import into Kazakhstan by road has been prohibited since April, and restrictions on its import by rail will begin to apply in October. How does this affect the domestic market of Kazakhstan?
- Market participants and business associations have been talking about the problem of illegal grain imports from Russia since 2020. This flow negatively affected both the incomes of Kazakh farmers and the business of grain traders. And we, together with government agencies, came to the conclusion that a ban on the import of wheat by road will help curb the flow of “gray” grain. The ban was introduced and we saw a positive effect. The ban has been extended for six months, and we consider this decision to be correct.
The fact that restrictions are now being introduced on the supply of wheat by rail is not a ban. Imports are still allowed to licensed elevators for processors and poultry farmers. What does this mean? Now all the grain that will enter Kazakhstan will be accountable. Because grain received at a licensed elevator appears in the state system of electronic grain receipts. It will be clear where it came from and, most importantly, where it went: whether it remained in the country and was processed, or was exported.
Poultry farmers, processors, and traders bring wheat to licensed smog elevators. Here I want to draw your attention: some poultry farmers themselves do not import grain for their own needs, but outsource it, and grain traders carry out the import for them. This activity is also permitted; restrictions do not apply to it. And it is right.
That is, restrictions on the import of wheat by rail will not negatively affect the market, but will only cut off some other part of the “gray” supplies?
- Yes, the restrictions will cut off that illegal wheat that could be imported to unlicensed elevators, and which we would not see in the accounting records.
At the same time, of course, everyone understands that these are measures of an operational nature. Still, illegal grain trafficking must be combated through systemic measures, namely, maintaining state records of grain and its processed products. This needs to be done through amending the Law of the Republic of Kazakhstan “On Grain”.
- This is what the Grain Union of Kazakhstan has been talking about for several years. Is the process moving?
- Yes, we are now working with members of parliament, and they have adopted this bill. Yes, it needs to be improved taking into account the opinions of other market participants. But we see that all parties have a desire to systematize the work to combat illegal grain trafficking. And since we all want to do it, sooner or later we will do it. I would like this to be done quickly.
- The situation with imports is clear. Now to exports: in Kazakhstan, from the beginning of 2023, there is an export duty on shipments of sunflower seeds abroad. At the same time, the Ministry of Trade of the Republic of Kazakhstan promised farmers that, in parallel with the duty, an export quota would be introduced. within which it will be possible to ship a certain volume of sunflower seeds abroad without charging an export duty. However, the quota was never established. How has this impacted, and continues to impact, sunflower farmers?
- The decision to introduce an export duty of 100 euros per ton was made during a discussion with members of the business community. At that moment it was correct, since the rate of export of sunflower seeds was high. Although the harvest was high. Yes, the government had the right to concern itself with the issue of curbing the pace of exports and leaving part of the harvest for domestic processing.
We agreed with these concerns and said, okay, let's calculate how much sunflower the domestic market needs, taking into account the fact that our processors import part of the raw materials from Russia. Let's draw up a balance of supply and demand on the domestic market and determine how much seeds we can export. Then the calculation was at the level of 330 thousand tons. Everyone agreed with this approach, including government agencies. And we waited for a decision, but it turned out like this, as you said - the tariff quota was never introduced. It’s completely unsightly for a government agency to agree on one decision and publish a completely different one.
This is the background. As soon as the decision came into force, we, together with our colleagues, began to work with the Ministry of Trade and the Ministry of Agriculture to finally justify the need to introduce a tariff quota. we succeeded with varying degrees of success. We brought this discussion to the Intergovernmental Commission, and the Ministry of Agriculture agreed with us on the need to introduce a tariff quota. We just differed in volumes. What’s interesting: the IMC is carried out on the initiative of a government agency, in this case the Ministry of Agriculture. The Ministry of Agriculture proposes to introduce a tariff quota. And the IMC, which consists of vice-ministers of various ministries headed by the Minister of Trade, makes a decision that considers it correct not to introduce a tariff quota), without taking into account the opinion of the relevant ministry - the Ministry of Agriculture. This is an interesting case, and you need to think about how correct it is, how much it needs to be changed.
What happened in the end? We, traders, cannot enter the sunflower seed market, because in the current situation it is impossible to trade on foreign markets. That is, if we buy sunflower seeds at the price that our farmers want (and they want a fair price - the world price), then taking into account the introduced duty of 100 euros per ton, we will not be able to sell this sunflower abroad. So, traders left the market, only butter makers remained.
- There is only one buyer left on the market.
- Yes, only a butter maker. And it is clear that in this case he has a choice - either to buy raw materials on the domestic market or to import from Russia. He imports Russian seeds and tries to adjust the price of our domestic market with the Russian one. And we saw that during the year, domestic prices for seeds decreased with noticeable progression.
Then, when weak demand from oil producers became obvious in our domestic market, the farmer had no choice but to export the seeds and pay an export duty. This mainly happened before the sowing season, because people needed money. That's when the concept of a fair price appeared. Chinese buyers gave us a price, traders calculated their costs, and it turned out that it was at least 200 thousand tenge/ton. But taking into account the export duty of 100 euros (50 thousand tenge), farmers were left with only 150 thousand tenge.
- That is, our farmers lose 50 thousand tenge on each ton.
- Yes. In essence, the government introduced an additional tax on the income of agricultural producers with this duty. What do we have now? The fair price for sunflower seeds, which farmers consider exportable, is 200 thousand tenge/ton, and oil producers offer only 135 thousand tenge. So consider how much our farmers are underearning. These losses are especially critical this year, when bad weather led to huge crop losses.
- Oilseeds can pull many farmers out of a financial hole.
- We could have pulled it out. But...
- What are the prospects in this matter? Are there currently any discussions with the government about changing these restrictions on seed exports?
- Yes, it is, with the participation of business associations and the Atameken NCE. I want to say that, unlike government agencies, we are ready to make compromises. The sunflower harvesting season begins in October, and it is very important that at this moment there is a fair price on the market. This can be achieved only by ensuring the presence of two buyers in the market - not only oil producers, but also traders. But government agencies now have one position - we have processing, and we will help processing. We say: okay, if your principled position is not to introduce a tariff quota, we offer another option - to reduce the size of the export duty. We agree to this for the sake of a compromise solution to maintain the export duty in the amount of 10 thousand tenge. You will get into the farmer's pocket, but for 10 thousand tenge, and not for 50 thousand.
This decision will allow traders to enter the market, who will give fair prices to the seed producer and support them in the current difficult season.
For farmers growing seeds, the most important time is from November to March. In March, farmers need money for sowing, and from March it is more difficult to store the seeds - they lose quality. Therefore, our proposal to reduce the duty and revive seed trade from November to March is in the interests of farmers. And if the government, represented by the Ministry of Trade, is inclined to compromise and not to push its position, this solution is ideal. This decision is supported by business associations, the Atameken National Chamber of Entrepreneurs, the parliamentary corps, and the Ministry of Agriculture (although we are still discussing with them how much to reduce the duty). Only the Ministry of Trade and one association are against this decision.
I think that the head of state, seeing this situation, will help the business community reach a compromise solution. To do this, the Ministry of Trade needs to turn its face to business and reduce the export duty.
- This is especially important now, when we have such a problem with harvesting, and all government agencies are discussing how exactly to help farmers. Removing artificial obstacles to the export of agricultural products is precisely the measure that would be effective and actually work.
- And most importantly, this decision needs to be made now, so that from October, from the start of sunflower harvesting, the market already understands how it will work this season. And the government will still have the opportunity to regulate export volumes. If monitoring shows that too much volume is being exported, no one is stopping the duty from being increased again in February. But we are confident that there will not be such export volumes as last year, because today we have questions about the capabilities of the transport infrastructure. Therefore, I think that until March we can safely keep duties at 10 thousand tenge/ton. And then you have to look at the dynamics - increase the size or leave it in the same form.
- Returning to the topic of problems with the wheat harvest this season. Yes, it is lower than usual, but nevertheless it is sufficient to cover domestic consumption and ensure supplies to foreign markets. What risks are there - will government agencies begin to get nervous prematurely by introducing some restrictions on wheat exports?
- Unfortunately, we always have such risks. Even when the harvest is high, restrictions can follow, as we have seen. Regarding wheat this season: some government agencies may think that it would be right to introduce regulation. Moreover, in some MI there is information that flour has increased in price. If some hotheads take this at face value, they may initiate some measures to regulate wheat exports. But we believe that this will be fundamentally wrong. If you look at the rise in flour prices, you need to understand why this is happening. Perhaps this is due to the fact that problems have now arisen with the supply of wheat from the northern regions of Kazakhstan to the flour-milling southern regions due to inconsistency with plans for rail transportation within the country. Tomorrow supplies will improve and prices may go down. If they don’t go down, it will mean that someone will benefit from warming up the market and driving up flour prices. Here it is important for the government to understand the reasons for the increase in flour prices and, if necessary, include a mechanism for antimonopoly proceedings.
As for food wheat, the balance will be finally clear after the harvest is completed. Now I can give the following figures6, given that the domestic market of Kazakhstan needs food grain in the amount of 1.7 million tons; our carryover balance from last season alone amounted to at least 2.7 million tons. And plus, before the rains started in August, we collected about 6 million tons. Therefore, we have enough wheat for domestic needs. Therefore, there are currently no objective reasons for rising flour prices. Price increases can only be speculative. I think that in the Ministry of Trade and the Ministry of Agriculture there will be specialists who will really evaluate all the trends and make adequate decisions.