Kazakh wheat is losing competitiveness in foreign markets, and also within the country due to high production costs. Farmers are suffering losses and are wondering where to get money to implement advanced agricultural technologies that will allow them to increase yields and avoid ruin. And at this moment, individual hotheads periodically throw ideas into the information space about introducing an export duty on wheat. Recently this proposal was voiced again.
Why at the moment these words no longer sound just like stupidity, but like economic sabotage, let’s figure it out together.
The initiators of this idea are haunted by the thought that the countries of Central Asia (primarily Uzbekistan) are developing their own flour-milling industry by processing Kazakh wheat. They believe that Kazakh grain should be made expensive for neighbors, thus forcing them to purchase flour from Kazakhstan, the export of which will not be subject to duty.
It is proposed to set the duty at 20%. At the current price level, it's about $50.
However, this proposal looks at least naive, since it is based on the assumption that Central Asia has no other sources of grain other than Kazakhstan.
Yes, indeed, now the supply of wheat from Russia to Central Asia does not make economic sense, but only for one reason - Russian grain is subject to duty (its amount, by the way, is only $30 per ton), but Kazakh grain is not. Thanks to this, our grain is cheaper than Russian grain, and Central Asia buys it.
What will happen if a duty is introduced on the export of Kazakh wheat? It’s very simple - Russian grain will become cheaper, even taking into account the costs of transit through the territory of Kazakhstan. And Uzbekistan, instead of buying Kazakh flour, will begin to buy and process Russian wheat.
In this case, Kazakh grain exporters will have only one choice - to reduce the price of grain purchases on the domestic market of Kazakhstan by the same $50 per ton in order to offer grain to Central Asia at the same price. This means our farmers will begin to lose more than 20 thousand tenge per ton. If today they sell high-quality grain, conditionally, at 130 thousand tenge/ton, then tomorrow they can only count on 105-110 thousand. This means minus 20% of profitability just out of the blue.
We saw a similar example with the introduction of an export duty on sunflower - after that, the price of sunflower seeds fell by exactly the same 100 euros per ton, depriving farmers of part of the profit.
In the current conditions, when farmers are barely making ends meet after the problematic 2023 harvest, a further decrease in profitability could simply finish off many farms.
The proposals made to introduce an export duty on wheat are especially harmful because preparations for the sowing campaign are currently underway. If the authorities begin to seriously discuss this irresponsible proposal, then some farmers may refuse to sow altogether, rightly believing that the decrease in the profitability of already low-margin production simply will not allow them to pay off the loans in the fall that they are now taking out to purchase seeds, diesel fuel, fertilizers and agrochemistry.
The most interesting thing in this whole story is that it is not clear who will benefit if an export duty is introduced. At first glance, Kazakh flour millers, who seem to need cheap raw materials, may be interested in this. But the fact is that Kazakh mills have been feeding heavily on Russian wheat for several years in a row. Thus, in 2023, more than 2 million tons of wheat from the Russian Federation were imported into Kazakhstan. Most of it went to flour mills for processing. So the availability of local raw materials is neither hot nor cold for them.
The introduction of a duty will also not bring any benefit to the state. Yes, the budget can be replenished (by about $350 million per year), but only for a while. As soon as agricultural enterprises begin to go bankrupt one after another and refuse to pay their loans, the country’s budget will have to spend much more to, firstly, save credit institutions, and secondly, support the farmers themselves. Otherwise, there will be a final undermining of Kazakhstan’s food security, rising unemployment in rural areas and a wave of migration to cities.
So who might benefit from the introduction of an export duty on wheat? So far, only Russia seems to be the obvious beneficiary. After all, if Kazakhstan does this stupidity and closes its own path to its traditional sales market in Central Asia, then Russia will immediately occupy the vacated niche with great pleasure, which needs to put its record harvests somewhere.
That is why the proposal of hotheads to introduce an export duty on Kazakh wheat looks like economic sabotage against their own country. I would like to ask the competent authorities of Kazakhstan to check these talkers for connections with foreign states. Suddenly they talk their nonsense not out of stupidity, but out of malicious intent.