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  • The Role of KazAgro in the Development of the Agro-Industrial Complex of Kazakhstan

    19.05.2017 | Comments | Economy | 62 Daniyar Nurbayev

    The National management holding KazAgro (Kazagro) was founded in accordance with the Decree of President of Kazakhstan, Nursultan Nazarbayev “On some issues of agribusiness complex development”[1] on 11 December 2006. The Kazagro was created as the main actor of the government’s policy in the agro-industrial complex. The holding invests in to the development of the agro-industrial complex through public funds and through external attracted resources. The holding is totally (100%) owned by the government of Kazakhstan.

    The Kazagro has seven direct subsidiary companies with 100% ownership in their charter capital, through which it supports the development of the agro-industrial complex of the country. These companies are the National Company Food Contract Corporation (FCC), the KazAgroFinance (KAF), the Agrarian Credit Corporation (ACC), the KazAgroProduct (KAP), the Fund of Financial Support of Agriculture (FFSA), the KazAgroGarant (KAG) and the Kazagromarketing (Kazagrom).

    The FCC mainly focused on the grain sector. It regulates the grain sector in order to maintain the food security of the country. In addition, the FCC focuses on the development of the grain export potential of the country by investing in the export infrastructures. The company also carries out different activities, such as the production and processing of cotton in the country but they are not its main activities.

    The KAF is a leasing company and it provides services only to the companies in agro-industrial complex. It provides leasing of agricultural machinery and construction equipment, equipment for agricultural purposes. Additionally, the company provides loans for construction, installation and working capital.

    The ACC provides loans for small and medium sized enterprises (SMEs) in the agro-industrial complex. Along with SMEs, the company also finances individuals that work in the agro-industrial complex. The Kazagro has another company with similar goals. This company is FFSA which also finances small businesses and individuals working in the agro-industrial complex, but the only difference is that it provides micro-credits.

    The other company is the KAP, which focuses on the development of livestock production and promotes the export of these products. The company acts as a mediator. It purchases meat, milk, wood and animal skins from producers then supplies these products in processed form to the domestic market or exports them abroad.

    The KAG protects grain receipts holders from the cases when the receipt issuers, which are grain producers, do not fulfill their obligations underline in the receipts. Finally, the Kazagrom is the company that provides information and marketing support to the agro-industrial complex.

    Overall, according to the consolidated report of the Kazagro for 2015, the assets of all these companies were 1.11 trillion tenge. A year before, the assets of the Kazagro was 946.11 billion tenge, while it was 694.83 billion tenge in 2013.

    Less than a half of these assets (44.5% or 492 billion tenge) were allocated to the agricultural sector directly either in terms of loans or in term of financial leasing in 2015. In 2014 and 2013, the shares of these funds allocated to the agro-industrial complex were 43.56% and 56.08% respectively. However, it is important to note that the Kazagro finances the complex indirectly through credit institutions.  

    Table 1: Loans to the agro-industrial complex, million tenge

     

    2011

    2012

    2013

    2014

    2015

    Loans to consumers of the Kazagro

    273

    320

    390

    412

    492

    Indirect loans to consumers of the Kazagro

     

     

     

    236

    366

    Loans of the banking system

    336

    322

    375

    484

    654

    Total loans to the agro-industrial complex

    582

    599

    718

    880

    1145

    The share of direct and indirect loans of the Kazagro in total loans

    46.9%

    53.4%

    54.3%

    73.6%

    74.9%

    Sources: The National bank of Kazakhstan, the consolidated report of the Kazagro

    As can be seen in Table 1, the Kazagro had indirect loans to the agro-industrial complex in 2014 and 2015, while in the previous year the holding had no indirect loans. The reason of the fact that the holding started providing indirect loans since 2014 was the fact that in 2013 the Organization for Economic Co-operation and Development (OECD) noted in its report entitled “Improving Access to Finance in Kazakhstan's Agrobusiness Sector[2]” that the Kazagro, as a quasi-government organization, competes with commercial banks and impedes their landings. Therefore, the government in its program called “Agribusiness - 2020”, decided that the Kazagro would gradually reduce its direct credits to the agro-industrial complex.

    Table 1 also shows that almost half of total loans to the agro-industrial complex were given by the Kazagro in 2011-2013 (direct and indirect loans), while in 2014-2015 the holding’s share almost reached two-thirds of total loans. The main reason why the holding’s lending to the complex significantly increased was that after a highly proliferate year of 2011, when the country was able to harvest almost 27 million tons of grain and until 2016, the country had been harvesting low amount of grain with low quality (the average level of harvest in these years was 16 million tons)[3].

    Low harvest along with the low quality of grain negatively affected the financial position of the agricultural companies and the commercial banks were not willing to finance these companies due to high risks. Thus, the Kazagro as a holding that has to maintain food security of the country, was almost the only one that could invest in the agro-industrial complex, although some portion of the loans were given indirectly through commercial banks.

    In 2016, the country was able to harvest a high amount of grain (20.6 million tons) with satisfactory quality. This fact slightly improved the financial position of agricultural companies, and the holding plans to provide 60 billion tenge for sewing campaign of 2017, while in sewing campaign of 2016 and 2015 the amount of support were 114 billion tenge and 101.3 billion tenge respectively.  

    Table 2: Productivity of the basic agricultural crops, cattle, and bird livestock

     

    2011

    2012

    2013

    2014

    2015

    2016**

    Large horned livestock, thousand goals

    5,702.4

    5,690.0

    5,851.2

    6,032.7

    6,183.9

    6,247.2

    Poultry, thousand goals

    32,870.1

    33,474.0

    34,173.1

    35,020.0

    35,632.9

    37,838.7

    Sheep and goats, thousand goals

    18,091.9

    17,633.3

    17,560.6

    17,914.6

    18,015.5

    17,947.2

    Horses, thousand goals

    1,607.4

    1,686.2

    1,784.5

    1,937.9

    2,070.3

    2,113.2

    Camels, thousand goals

    173.2

    164.8

    160.9

    165.9

    170.5

    172.5

    Potato, thousand tons

    167.2

    165.9

    181.5

    184.3

    185.5

    190.4

    Olive cultures, thousand tons

    6.7

    6.1

    8.0

    7.8

    8.1

    9.6

    Cotton, thousand tons

    336.0

    379.7

    396.7

    320.7

    273.9

    286.7

    Vegetables, thousand tons

    2,877.7

    3,061.5

    3,241.5

    3,469.9

    3,564.9

    3,795.2

    Wheat, thousand tons

    22,732.1

    9,841.1

    13,940.8

    12,996.9

    13,747.0

    14,985.4

    Grain (including rise) and legumes cultures, thousand tons

    26,960.5

    12,864.8

    18,231.1

    17,162.2

    18,672.8

    20,634.4

    Source: the Committee on Statistics of the Ministry of National economy of Kazakhstan

    The production of grain is volatile and mostly depends on the weather conditions, while other agricultural productions do not depend on weather conditions and grow gradually. For example, as shown in Table 2, the production of vegetables, olive cultures and potatoes have been growing since 2011, while only cotton has also been having volatile production levels. Table 2 also shows that the amount of cattle and bird livestock has also been growing except, horses and sheep and goats. This development in the productivity of the basic agricultural crops, cattle, and bird livestock at some rate was also driven by the support of the Kazagro. For instance, as for the end of 2015, the holding financed 33 billion tenge to poultry farms, 26.4 billion tenge to greenhouses, 19 billion tenge to feedlots and 26.3 billion tenge for the purchase of large horned livestock. In addition, the holding focuses on financing olive cultures. The farmers that produce olive cultures have the top priority and get funds during sewing campaigns.

    Overall, the data that was shown above indicate that the Kazagro is vital for the country’s agro-industrial complex. It is especially important in grain production, which is very important for the food security of the country. However, we should expect that it will further decrease its direct support for the complex, more and more acting as a mediator. This fact that the holding prioritizes financing through commercial banks is very important because it would decrease corruption in the complex and will make the holding more transparent. In addition, the idea of financing the complex through commercial banks decreases the risks of non-repayments of funds, because traditionally commercial banks have better underwriting departments that allow them to exclude bad farmers from financing.


    References

    https://tengrinews.kz/zakon/pravitelstvo_respubliki_kazahstan_premer_min...

    http://www.oecd.org/globalrelations/Improving%20Access%20to%20Finance%20...


    [3] The data from the Committee on Statistics of the Ministry of National Economy of Kazakhstan


    Note: The views expressed in this blog are the author's own and do not necessarily reflect the Institute's editorial policy.

    Tags: Kazakhstan, KazArgo, Agro-Industrial Complex, Economy

Author

  • Junior Research Fellow

    Daniyar Nurbayev

    Daniyar Nurbayev is a research fellow at the Eurasian Research Institute. Daniyar completed his bachelor’s degree in Finance in the Kazakh-British Technical University in 2013. In addition, he holds Masters degree in Finance from the Kazakh-British Technical University (2015).