Kazakhstan Food And Drink Report Q3 2010
May 12. OfficialWire
The Kazakh government looking to diversify the non-oil sector by investing in developing strategic industries, as well as the national infrastructure, which is good news for the country’s agriculture industry. We believe Kazakhstan is a growing force in the global grain trade and, combined with an improved economic and political outlook, looks primed for international investment.
Kazakhstan is the world’s ninth largest country (and the largest landlocked nation), with 74% of its surface area suitable for farming, which lends itself well to a robust and profitable agricultural industry. Approximately a third of Kazakhstan’s population of 16mn is involved in agricultural production but the industry accounts for just 6% of GDP. Efficiency and quality are still major concerns due to low levels of mechanised farming and environmental issues relating to poor soil quality and overexposure to harmful chemicals used in the flourishing energy sector. Recognising the importance of this industry, the government is now looking to reverse this situation through enhanced distribution of grain, seed subsidies and fertilizer offers.
However, a number of challenges do remain, including the vast size of the country and poor state of its infrastructure, which will have important implications for supply chain management. The government is looking to aid local farmers through a series of measures, such as enhanced distribution of grain, seed subsidies and fertilizer offers. In March 2010, it was announced that the government intends to double shipping subsidies in order to help grain producers boost exports. Although Kazakhstan is the top grain producer in the Central Asian region, the country’s exports to neighbouring countries have been limited due it being landlocked.
Another challenge is overcoming the traditional eating habits of domestic consumers, which can reduce demand for pre-packaged foods, may limit returns for food companies and farmers and restrict investment in those products. Furthermore, increasing oil prices could lead to greater production costs for international firms so far exempt from government subsidies. Despite these limitations, however, grain still plays a vital role in the domestic economy and evidence suggests this is increasing. Exports have started to new markets in recent months, including to the strategically important Chinese market. In March 2010, it was announced that Kazakhstan will start exporting grains to South Korea, having reached a preliminary agreement with the South Korean company Samsung to supply almost 300,000 tonnes of grain to the country.
We believe that Kazakhstan is poised to provide further investment opportunities to large agribusiness multinationals as it takes advantage of vast uncultivated crop lands. Our optimism is buoyed by a 21% GDP per capita growth forecast through to 2011 and by government declarations of increased investment of oil revenues in long term industries, including agribusiness. With a number of agribusiness multinationals hungry for new markets to invest in and the government’s increasingly favourable policies, Kazakhstan’s agriculture industry looks set for major growth.