License to kill: Grain Union and the Ministry of Agriculture are preparing to destroy the agricultural sector of Kazakhstan

“Who are carry – go on that one, ” says folk wisdom. And we see firsthand the evidence that for 30 years, swindlers of all stripes have been entering the oligarchic paradise on the hunched backs of ordinary Kazakh farmers in Kazakhstan, preventing both the farmers themselves and the industry as a whole from kneeling. Unfortunately, now, under the guise of a coronavirus, another bomb is being prepared that will undermine the already fragile stability in the industry, notes. 

We are talking about a letter from the Grain Union of Kazakhstan to the President of the Republic of Kazakhstan, Kasym – Zhomart Tokaev, with a request to introduce licensing (accreditation) of grain exporters.  

Monsters – Bankrupt

No one will argue with the fact that the agro-industrial complex of Kazakhstan is “carrying” small and medium-sized enterprises on itself. They give 70-80% of different types of agricultural products. And this trend fits well with global statistics, because everywhere in the world it is small family farms that serve as a reliable and sustainable basis for agribusiness.

There are several reasons for this. First, the value of land. Since in most countries of the world it is privately owned, land needs to be bought. Let us recall the words of Mark Twain that the most resourceful resource in the world is the earth, because “the Lord God no longer creates it.”  

So it turns out that the average farmer is limited to very small areas. Buying an additional plot (or even renting) is a very expensive event for him. As a result, it is the small farmer who is interested in increasing labor productivity, since he must make a profit with a limited area. Whereas the latifundist takes in quantity, not quality of management.   

And only in Kazakhstan there was a period when all this was turned upside down – a group of people, taking advantage of their proximity to the authorities, was able to get at their disposal not just tens or hundreds of thousands of hectares of arable land, but millions. Later, these “lucky” from the Forbes list began to be called grain oligarchs.

However, the history of the largest agricultural holdings in Kazakhstan turned out to be sad – they went broke. Why? Precisely because they did not think about increasing labor productivity.

Hence our next argument in favor of small farms.

So, secondly, it is small farms that are more stable, because they are more flexible in organizing production. Elementary, they can quickly decide on the cultivation of those crops that promise great profits. While all the same agricultural holdings sat for years and decades on wheat, draining arable land by monoculture in strict accordance with the proverb “after us, grass does not grow.” 

Thirdly, we turn to the topic of our conversation – it is small farmers who are able to more effectively solve the issues of marketing their products. It is all about the same issue of survival, which forces them to increase labor productivity and look for the most profitable sales options. By the way, another axiom follows from this – small farmers will never sell low-quality products. Because in this business, as they say, “reputation has one life ” I made a mistake one day when I sold low-quality goods (with intent or not, it doesn’t matter) – you fly out of the market because the information about you will immediately become available to everyone, and no one will have any business with you.  

As for large companies, it is much easier for them to implement. Firstly, they don’t really need to think about profitability, because they build even this segment of their activity (as well as production itself) based on state support. This is proved by an example from the recent past, when the then Minister of Agriculture, Asylzhan Mamytbekov, thought of directly subsidizing the budgetary costs of transporting grain for the delivery of crops to ports. Who do you think is the recipient of billions? Of course, the same agricultural holdings, which until then received exactly the same billions of hectare subsidies and other generous bonuses from the state treasury.    

And now the question is – where are all these monsters with millions of hectares of arable land? Go broke! And who survived? Small and medium enterprises. Those who, without a penny of budget money, built their business as efficiently as possible, as a result of becoming the pillar of the entire agricultural sector.

Club of the oligarchs

And now we are smoothly moving on to the question, whose interests are the Grain Union of Kazakhstan defending?

The loud name hides a very narrow, very closed club, uniting large market players, including fragments of those same agricultural holdings ( Olzha- Agro, KazExportAstyk ), which miraculously avoided bankruptcy, “reformatting” in time . But it seems that they did not leave their methods to achieve “prosperity” – they (as before) want to do this not by strengthening efficiency, but by using administrative leverage.

What do you think is the prescribed first line in the “Main Tasks” of the Grain Union of Kazakhstan? Maybe more developed agribusiness of the Republic of Kazakhstan? Or ensuring food security of the country? Or an improvement in economic performance? No matter how! The first task is as follows:  

“Formation of effective interaction with government bodies.”

That is, this club of grain oligarchs does not hesitate to outline its task in establishing close ties with state bodies. It is more understandable – the experience of proximity to the treasury is very extensive for many of them! 

We note one more fact: trying to get in touch with officials (and among them there are always idiots who are not frightened by anti-corruption officials who count on retaliatory courtesies of oligarchs), the Grain Union explains the task of this connection in the need to “protect the common legitimate interests of members of the Union”. 

Again, please note, not the interests of the industry or country, but precisely my interests!

At the same time, he himself informs the Grain Union of Kazakhstan that its members cultivate only 2.9 million hectares of sown area of ​​the country. That is, 16% of the total arable land of the country! It turns out, as we emphasized earlier, this is a narrow group of people who in no way represent the interests of 84% of the country’s agrarians , and only 16% of their own, “club” interests are baked.  

But at the same time, at every opportunity, they manipulate the public consciousness, presenting themselves as the spokesman for the opinions of all the grain-growers of the country! It was under this “brand” in March that the Grain Union of Kazakhstan obtained from the Ministry of Agriculture the right to form lists of companies that receive quotas for grain export during quarantine restrictions. 

Let’s ask the Minister of Agriculture of the Republic of Kazakhstan, Saparkhan Omarov , on what basis he gave this crucial mission to the “club of oligarchs”, which initially designated “protecting the interests of the members of the Union” (controlling 16% of the arable land of the country), and not some organization , which would speak on behalf of most of the grain producers in the country – the remaining 84% !?

We all would very much like to think that the reason for this favor of Saparkhan Omarov to the Grain Union of Kazakhstan is not due to the fact that from 1996 to 2007 he held various positions in the Food Corporation and worked very, very closely (and mutually beneficial) with those large grain companies that today determine the weather in the Grain Union of Kazakhstan.

Narrow neck

Yes, we would really not like to think so bad about the current Minister of Agriculture – but so far we have no chance to think differently. Moreover, one gets the feeling that people are consulting among themselves and calculating how to preserve all the benefits of quarantine restrictions for the future. Indeed, trading in quotas is money, but ridiculous in comparison with what officials and oligarchs can “stir up” together if they “sell” the introduction of export licensing, or even just achieve a scheme with export permission only from licensed elevators.

Let us leave aside all that verbal husk that Grain Union of Kazakhstan is trying to manipulate public consciousness in order to achieve its commercial interests. And we bring to light the only reason that pushes them to redistribute the country’s grain market.

What benefits does the new scheme promise them?

So, the Grain Union of Kazakhstan creates a “narrow neck” for grain exports. In fact, it will be the current quota system – a convenient tool to make money on the coronavirus , while others get sick, suffer and die.  

But replacing quotas with licensing will bring a lot of advantages – there will be an opportunity, firstly, to increase export volumes many times – and, therefore, to earn much more by issuing these permits. Moreover, while with quotas trading, officials and their accomplices had to sit on treason all the time and be afraid that anti-corruption officials would not take them for one place , then licensing is an absolutely legal way to “bother” any exporter. 

But the worst thing is not that the exporters will have to “unfasten” officials, owners of elevators and numerous inspectors who are lining up to “milk” traders. 

The worst thing is that the “narrow neck” creates the Grain Union of Kazakhstan for one specific purpose – also to bend farmers. That is, grain producers. After all, as you know, we produce grain many times more than the domestic needs of the country. The annual export is about 10 million tons. As soon as the “excess” grain does not leave the country in a timely manner, domestic prices for it fall. 

We have done this many times – for example, a couple of years ago during the crisis with wagons. Paralysis on the railway has led domestic wheat prices to fall below cost! And the unfortunate farmers who grew this wheat on their sweat had to sell it in their own tears. Because – at a loss to yourself!

So what awaits us with the introduction of grain licensing? Yes, the same thing. The grain union and its members, owning the elevators, will have no trouble “organizing” problems with shipments abroad under any plausible excuse. For example, “suddenly” it turns out that elevators can’t cope with volumes. Grain prices will immediately go down, because the domestic market will be overstocked.

Who will win in this situation? Yes, it is the owners of elevators (read – members of the Grain Union of Kazakhstan ). They will stockpile all their storage capacities with cheap grain, bringing farmers to their knees. And when the dust settles down – they will sell the goods that they got to the cheap for the hillock at an exorbitant price.

By the way, this is exactly what many years ago Food Corporation did. The scheme of her work was perfected: during the mass harvest, Food Corporation announced the purchase prices for its resources below the market. Since its level was a guide for everyone, the price was falling. ” Food Corporation ” bought grain cheaply – and in the spring and summer of next year sold with furious margins . And everyone involved in such a “business on state assets” walked up the ass in chocolate. While the farmers themselves were sitting head over heels in a completely different substance.

This shameful tradition was interrupted only due to the influence of Russian grain – now its factor is so great that the focus of Food Corporation does not affect the market.

But the licensing tricks of the Grain Union of Kazakhstan (and the Ministry of Agriculture of the Republic of Kazakhstan sympathizing with it) may well influence. And the farmers will be knee-deep in shit again.

On an old rake

Most interestingly, there was an experience of export licensing in Kazakhstan. And then the picture looked exactly as we just outlined:

So, licensing of grain exports was introduced in August 2007, under Akhmetzhan Yesimov as Minister of Agriculture. The license was issued within 10 days upon the provision of a package of documents. This decision was motivated by food security considerations and the need to regulate export volumes.

The Ministry of Agriculture stated then that there was an uncontrolled sale of grain for export, and it was not known whether there would be reserves for own consumption. Moreover, the introduction of the measure coincided with high world wheat prices and, accordingly, with a large volume of exports.

In 2009, the new head of the agrarian department, Akhylbek Kurishbaev, announced that export licensing should be abolished to facilitate the working conditions of exporters. He was supported by deputies of all levels, who announced that the introduction of licensing had crippled small and medium-sized businesses – 70% of traders left the market. Naturally, leaving the “cream” to the large participants, all the same grain oligarchs.

However, the decision on the issue of canceling licenses was delayed, and was adopted only in 2012, already under Asylzhan Mamytbekov as the head of the Ministry of Agriculture of the Republic of Kazakhstan. Many farmers still say that this fact was the only useful contribution Asylzhan Mamytbekov in AIC Kazakhstan.

(We will not argue – indeed, he did a good job. Although, his motives, for sure, were different).  

So, what will the old “licensed” rake lead to? Namely, to what the Grain Union of Kazakhstan is seeking: the departure of competing traders from the market and the collapse of prices. Let us recall that during the licensing period in 2008 – 2012, wheat prices in the domestic market of Kazakhstan were 2 – 2.5 times lower than world prices! That is, if a ton cost $ 180 in a port, then exporters in Kazakhstan offered the farmer a maximum of $ 70. Otherwise, this cannot be called a robbery of producers through mediation with officials!

And what, we want to return to the same? Do you really think so, Mr. Omarov?

We summarize: the introduction of licensing will consolidate the situation when the country’s farmers find themselves in the role of farm laborers for grain oligarchs and officials stuffing their pockets, while farmers can barely make ends meet. Naturally, there will be no talk of any development – since licensed intermediaries will appropriate all the profits, the farmers will have neither the means to upgrade the tractor fleet, nor to introduce advanced technologies. 

Collateral damage

Concomitant damage to the entire economy of the country will necessarily be a decrease in domestic processing of agricultural raw materials. While Elbasy and the President of the Republic of Kazakhstan repeatedly in their Messages reiterate the need to increase labor productivity and increase the export of processed agricultural products by 2.5 times (which is possible only due to the development of the processing industry), the introduction of licensing will simply bury this sector. After all, commodity dealers will control the situation – they will, by habit, drive just raw materials abroad. Judge for yourselves: if prices in the domestic market collapse by a factor of 2 – 2.5, what interest will members of the Grain Union of Kazakhstan sell this grain within Kazakhstan? Better they sell it for export at times more expensive!

What this means for the country’s economy, there is no need to explain: a reduction in employment due to bankruptcy of mills, a decrease in the tax base and other troubles that preserve the agricultural sector in the current plight. 

And what to do, you ask? The answer is simple: the state should not go into business. Moreover, supporting the oligarchs to the detriment of free competition in the market.

Business is a self-regulatory system. To date, Kazakh grain and Kazakh flour is a guarantee of absolute quality for any foreign buyer. It is ideal in terms of composition and phytosanitary safety.

And all this business has achieved itself, without unnecessary control functions from officials. Because the logic here is simple – sell high-quality goods if you want to work in the market for a long time and successfully. The same is true for the price situation – the price of grain within the country is now correlated with the global situation, and depends only on objective reasons, and not on the influence of quasi-state structures like Food Corporation. This allows farmers to feel more confident, because they understand the pricing mechanisms, which means they can calculate risks in advance and make the right decisions.

However, this stability is still fragile. Unfortunately, constantly someone is trying to get into the market and “bend” it under their interests. Naturally, to the detriment of ordinary farmers and minus the development of all sectors.

By the way, the current situation around this Grain Union will become a litmus test for checking the purity and decency of not only officials of the Ministry of Agriculture and personally Saparkhan Omarov, but also of the deputy corps. Very soon, we will see which of the people elected is really with the people – they protect the interests of farmers and honest business, or they sing in unison with corrupt officials and their accomplices. 

Well, in the meantime, we are observing the situation and getting ready to tear off the masks.

Akyn Aulov

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