Fulfillment of President’s instructions: Ministers of Trade and Agriculture reported on ensuring food security

July 26, 2022, at the site of the Central Communications Service, a joint briefing was held by Deputy Prime Minister - Minister of Trade and Integration of Kazakhstan Bakhyt Sultanov and Minister of Agriculture of Kazakhstan Yerbol Karashukeyev. The main topic of the report was the implementation of the instructions of the Head of State regarding ensuring food security for socially significant food products.

Starting his report, the Minister of Trade and Integration noted that the task of a modern market trading system is to ensure fair and predictable pricing on the shelves. As you know, the basis of an effective system is the observance of the common interests of all participants in the value chain of producers and traders, carriers, sellers and consumers.

“Violation of these principles leads to the physical availability of goods, excessive demand, rising prices and, as a result, to a violation of consumer rights. In such a situation, the state is forced to intervene and acts as a regulator in order to balance relations between the participants. To this end, the government adopted a program of anti-crisis measures, sought to keep and reduce inflation,” Bakhyt Sultanov said.

The head of MIT explained that the Law "On the regulation of trade activities" provides for the establishment of marginal prices for socially significant food products, trade allowances and export restrictions.

There was also an increase in fiscal measures, ensuring the physical availability of goods and ensuring forward purchase by a certain region of the necessary volume of goods for consumption during the sowing period. As the minister emphasized, the resources of local executive bodies are sufficient for this.

According to the head of the trade department, the saturation of the market with the necessary goods will be facilitated by measures to stimulate the production and processing of demanded goods, this is the task of the sectoral state body.

Development of the sugar industry

“As you all know, Kazakhstan is import-dependent in terms of sugar. We produce only 7% of the total sugar consumption from domestic beets, the rest we import in the form of sugar from the Russian Federation and raw sugar, mainly from Brazil and a number of other countries. Despite the fact that a number of programs for the development of the sugar industry were previously adopted and implemented, we failed to stimulate production in order to fully meet domestic demand,” Deputy Prime Minister Bakhyt Sultanov said.

According to the vice-premier, he will personally control this issue, including the policy of stimulating and subsidizing the production of food products.

The Deputy Prime Minister also said that clear steps have been identified for the development of the domestic sugar industry.

“Our goal is to increase the production of sugar from domestic raw materials, thereby reducing import dependence. First, we need to provide our domestic sugar factories with raw materials as much as possible. Of course, in the first years we will import raw sugar. To do this, long-term contracts will be signed directly with manufacturing plants from India and Brazil,” the Deputy Prime Minister emphasized at the CCS briefing.

During the report, the Minister of Trade and Integration also noted the importance of developing a resource base with transparent and predictable pricing.

“We want to ensure that our sugar refineries have the opportunity to receive raw materials not at exchange prices, but at fixed prices. This will give predictability of prices in the domestic market,” Bakhyt Sultanov said.

Secondly, the department is faced with the task of protecting domestic production from external factors. As the head of MIT said, it is necessary to create conditions and guarantees for domestic business in order for the production and processing of sugar to become profitable.

As a support measure, we consider the introduction of a minimum level of control prices. This will avoid dumping by imports and will support production in the next few years.

“Third, it is the development of the domestic raw material base. This is a very important direction. Of course, for this we need large investments in the material and technical base. Here the Ministry of Agriculture already has a clear vision and calculations,” said Sultanov.

The total amount of subsidies for four years will amount to about 160 billion tenge. At the same time, it is expected to attract about 400 billion tenge of investments to the industry. In general, by 2026 it is planned to increase the production of domestic sugar by 7 times and bring this volume from 35 thousand tons to 253.

“Fourth, this is pricing. Today, the pricing of sugar will be influenced by imports of raw materials. In this case, work to reduce the primary cost of raw materials will be carried out through the conclusion of direct and long-term contracts,” the head of the Ministry of Trade noted.

At the same time, work is underway to reduce logistics costs by negotiating to increase the capacity of the Trans-Caspian International Transport Route, in particular, agreements have been reached with Iran to provide a discount of 44%. At the same time, in order to prevent the negative impact of the existing sanctions against Iran, negotiations are underway with the United States and the European Union.

Effective interaction of all links, namely the expansion of its own raw material base and the modernization of sugar refineries will provide fair pricing in the market.

“It is vital for us to diversify production, supply channels for raw materials and establish effective sales. For this, an analytical single platform will be used, which I will report on later,” the Minister of Trade and Integration of the Republic of Kazakhstan emphasized.

According to the plans of the Ministry, with the full development of the industry and with the growth of production volumes, a food belt will be provided, there will be no interruptions, the risks of shortages and an increase in the cost of sugar will decrease.

Given this, it is important to establish an efficient supply chain of participants and create a modern trade infrastructure, the minister said.

National commodity distribution system

According to Bakhyt Sultanov, today there is a problem of lack of relationship with farmers, SECs and retail chains. Therefore, the task of creating the National Commodity Distribution System is to build an efficient and integral trade and logistics infrastructure from the manufacturer to the retailer. For these purposes, it was planned to create 24 wholesale distribution centers.

Today, due to changes in the terms of financing and revision of the level of obligations of the state under the PPP agreement, the approaches of this model have been revised.

1. MIT completely abandoned the construction of agro-logistics centers. Modernization, construction of vegetable stores and provision of storage of fruits and vegetables will be carried out by agricultural producers themselves.

At the same time, the Ministry of Agriculture will take measures to encourage domestic farmers to modernize existing and build new vegetable stores by increasing investment subsidies from 25% to 50%. For small budgetary funds, more private storage facilities will be stimulated.

2. Creation of a unified information system, to which the operating private 9 ORCs, wholesale markets, vegetable stores, retail chains, food producers and SECs are connected.

A unified information system will make it possible to promptly resolve issues of internal product flows between regions, eliminate excess goods in some and shortages in other areas.

It will also allow legalizing today's shadow turnover and, due to the transparency of the movement of goods, among other things, will reduce the risks of price fluctuations. In parallel with this, work is underway to ensure the workload of the existing modern storage areas.

3. If it is necessary to build additional facilities of wholesale distribution centers in the regions, alternative options will be considered together with the akimats, including with the involvement of new investors.

“Today, the volume of financing of the “circulating scheme” is 86.5 billion tenge, the share of influence on the market was 4%. However, even such a small amount indicates the effectiveness of this mechanism. An example is the Karaganda region. In April, a contract was signed for the supply of retail potatoes in the amount of 2,709 tons at a set price of 85 tenge. And at the local market, the price set by the merchants was 175 tenge. As a result, the average price in the market was 135 tenge. I note that this was the lowest price in the regions,” said Minister of Trade and Integration Bakhyt Sultanov.

As the head of the ministry noted, today there is a downward trend in prices for potatoes, carrots, cabbage, all this is the result of the conclusion of a preliminary contract under the "turnover scheme".

“We intend to ensure that the population and businesses are informed as much as possible about the specific prices set by market participants. This guarantees the efficient use of funds by retail chains, manufacturers and suppliers. On behalf of the Head of State, we are also analyzing the balance of production and consumption. Coordination of work in this direction is under my personal control,” the Deputy Prime Minister assured.

Market control

On behalf of the Head of State, this May, the Prosecutor General's Office completed inspections of 122 markets. As a result of the audit, according to the minister's report, a number of systemic problems were identified. It:

1) the lack of regulation of the activities of the owners and administration of markets;

2) high rental rates for a trading place (up to 15 thousand tenge per day);

3) imposition by the administration of the market of affiliated providers for the provision of additional services.

Cases of creation by market participants of an artificial shortage of goods and manipulation with prices have been noted.

To solve these problems, the Ministry of Trade and Integration, together with the General Prosecutor's Office, interested state and local executive bodies, developed the relevant legislative amendments of the following nature:

1) vesting the owner of the market with personal responsibility for organizing trade;

2) establishment of qualification and infrastructure requirements for markets;

3) creation of an information system that will ensure competitive and free access of domestic producers to retail space.

“These norms are included in the draft law on the implementation of certain instructions of the Head of State, which is now under consideration by the Mazhilis of the Parliament. We expect its adoption during the autumn session,” Deputy Prime Minister Sultanov said.

During the report, the head of the Ministry of Trade also said that, in accordance with the instruction of the Head of State, by the end of the year the Government will present legislative initiatives aimed at supporting domestic agricultural producers in selling products to large retail chains. Thus, measures to ensure access to counters, regulation of allowance thresholds and reduction of the number of intermediaries.

Another project is the Qdata analytical trading platform. It analyzes and monitors the state of domestic trade, infrastructure load, import / export dynamics, changes in prices for goods and services, and provides government agencies with high-quality analytics.

“Second, it creates fair competition for business. And the consumer will have the opportunity to purchase quality goods at affordable prices. Today, thanks to this platform, the Government has a single source of information on commodity stocks, production and consumption volumes by region. In turn, based on the available information, it is possible to quickly regulate the market, make effective and correct decisions, and identify other risks,” the head of the trade department emphasized.

In general, it is expected that the implementation of the planned measures will ensure food security, stabilize prices and ultimately have a positive impact on the well-being of citizens.

In addition, the ministry is working in other areas. For example, technical standards and certificates aimed at improving the quality of goods in the course of technical regulation, consumer protection issues, expanding relations with the external market, including the protection of national interests in integration processes.

In turn, the Minister of Agriculture of Kazakhstan Karashukeyev reported that this year, despite the availability of the necessary volumes of production and the absence of a deficit in the domestic market, there was an increase in prices for sugar and vegetable products.

Onion became the anti-leader in terms of price growth among vegetable products. At the same time, onion stocks in the domestic market were and remain sufficient. So, with a monthly demand of 25.9 thousand tons, onion stocks today amount to 34.4 thousand tons.

“Since June, the collection of early onions has been carried out. The total gross harvest of early ripe onions is expected to be more than 90 thousand tons, of which 35.2 thousand tons have been harvested to date. By the end of July and in the first half of August, it is planned to harvest more than 50 thousand tons of onions. I would like to note that recently the issue of introducing restrictive measures on the export of onions, which is not supported by the Ministry, has been discussed. In addition, at present, the Ministry, together with the akimats of the Turkestan and Zhambyl regions, is working to conclude contracts between onion producers and akimats of regions and cities. Following the results of the meetings, the selling price of onions was reduced from 220 tenge to 110 tenge/kg,” the Minister of Agriculture informed.

In addition, starting from September, the collection of autumn onions in the amount of 1 million tons will begin, which will fully meet the needs of the domestic market and make it possible to ship certain volumes for export.

Thus, Karashukeyev noted the sufficiency of onion volumes and the absence of the need to introduce restrictive measures.

As for potatoes, the monthly demand of the domestic market is 152.7 thousand tons. According to akimats, to date, potato reserves amount to 124.9 thousand tons. Since June, early potatoes have been harvested. The total gross harvest of early ripe potatoes today is 270.9 thousand tons. In the first half of August, it is planned to collect 7.8 thousand tons. It should be noted that the early potato harvest contributed to market saturation and stabilization of potato prices. Thus, since the beginning of the month, the retail price has decreased by 5% (from 184 tenge/kg to 179 tenge/kg).

“Starting from September, the collection of autumn potatoes will begin, the volume of which will be more than 4 million tons, which will fully meet the needs of the domestic market and make it possible to ship certain volumes for export. The situation is similar for cabbage and carrots. That is, the volumes of early cabbage and carrots are sufficient to supply the domestic market before the autumn harvest. At the same time, starting from the last ten days of August, the autumn harvest of vegetable products is expected to enter the market,” the Minister of Agriculture explained.

The head of the department dwelled on the current sugar situation. At the end of last year, the provision of the domestic market due to its own production amounted to 42%, of which 191 thousand tons or 35% was cane sugar, 36 thousand tons or 7% - beet sugar.

“I want to note that thanks to state support measures, the provision due to our own production increased by 17% over the year from 139 to 227 thousand tons. This year, it is expected to produce about 44 thousand tons of beet sugar and 225 thousand tons of cane sugar. Thus, self-sufficiency is predicted at the level of 49%,” Karashukeyev emphasized.

Currently, there are 4 sugar factories in the country with a total daily capacity of 2.4 thousand tons of cane and 8.7 thousand tons of sugar beet.

At the same time, due to the lack of raw materials, the workload of factories remains at a low level.

The main reason for the decline in the yield of sugar beet is the reduction in sown areas. So, if in the post-Soviet period the area under sugar beet was 85 thousand hectares, then by 2014 the area of ​​sugar beet in the country has sharply decreased to 1.2 thousand hectares.

This is due to the low marketability of sugar beet farms, the high cost of cultivation, the lack of water resources, the deterioration of irrigation networks and other factors.

There is also a low profitability of sugar beet production compared to other crops, which makes it less attractive for agricultural producers.

According to the Minister of Agriculture, cost analysis has shown that sugar beet production is unprofitable without subsidies, and the profitability of sugar beet production is ensured only thanks to existing subsidies.

As you know, starting from March, the demand of the domestic market is met by the production of raw cane sugar and the import of white sugar within the framework of the tariff relief.

To date, 250 thousand tons of the allocated quotas for duty-free import of white and raw cane sugar have been distributed, of which 110.9 thousand tons of raw sugar and 139.1 thousand tons of sugar. The procedure for the distribution of the remaining volumes of the quota in the amount of 100 thousand tons is at the final stage.

Participants of foreign trade activities within the quota on the territory of Kazakhstan imported 138.3 thousand tons or 55.3%, including 99.2 thousand tons of raw cane sugar and 39.1 thousand tons of white sugar.

In accordance with the amendments introduced to the Quota Distribution Rules, work is underway to cancel unused quotas. Thus, according to preliminary data, the volume of the canceled quota will be about 27 thousand tons, which is planned to be subsequently distributed among the producers of sugar-containing products, which will simultaneously stabilize prices for sugar-containing products due to exemption from sugar duties, as well as prevent a decrease in the workload of processing enterprises . This issue will be submitted to the next meeting of the Interdepartmental Commission on Foreign Trade Policy and Participation in International Economic Organizations.

Thus, in just 4 months from the allocated quota:

  • out of 71.4 thousand tons of sugar, trading companies mastered 23.9 thousand tons or 33.5%;
  • out of 110.9 thousand tons of raw cane, sugar factories mastered 99 thousand tons or 89%;
  • out of 48.7 thousand tons of sugar industrial consumers mastered 17 thousand tons 35%;
  • out of 19 thousand tons of sugar, the Food Corporation mastered 5.5 thousand tons or 29%.

The main reason for the long development of the quota is:

  • the sale of sugar by sugar refineries in Brazil only on prepayment and in large volumes;
  • the need to connect transnational companies due to the high risks of making prepayments and freezing large sums of money for a long time;
  • the sale of sugar on world markets by large transnational companies such as the Louis Dreyfus Company and others.

In addition, transnational companies buy sugar in Brazil in ships of 60 thousand tons and transport it to the Black Sea ports; already from the Black Sea ports, transnational companies sell sugar locally to the CIS countries in smaller volumes.

Also, one of the main reasons for the long development of the quota is the problems associated with logistics that have arisen due to the current geopolitical situation in neighboring countries.

So, if earlier, with traditional imports from the Russian Federation and the Republic of Belarus, the delivery time for white sugar was from 4 to 10 calendar days, now, after the Russian Federation has taken measures to impose a ban on the export of sugar, the delivery time for sugar from third countries reaches 90 days.

According to Karashukeyev, sugar and raw sugar are currently imported from Brazil and India, which are the largest cane producers in the world with a production volume of about 800 million tons, or about 60% of world production. The limited capacity of Georgian ports, the lack of infrastructure and transport ships, leads to a transport collapse.

“When importing sugar from India, there is also an accumulation of cargo at the Afghan border crossing at Hairatan, which leads to a delay in the procedure for processing and loading goods. Thus, all previously established logistical ties were disrupted, which led to the lengthening of logistics and the timing of the supply of sugar and raw materials to Kazakhstan. The current situation also led to an increase in sugar prices. Thus, there is an increase in the cost of raw cane on the exchange, transport costs, as well as processing costs,” the head of the Ministry of Agriculture said.

For example, the cost of raw cane is about $476, which is almost 2 times more than in 2020. Logistics costs increased 2.6 times from $110 to $290. These facts led to an increase in the cost of cane sugar from domestic sugar factories.

So, today the factories sell sugar at 450 tenge per kg. At the same time, the cost of sugar, taking into account a 15% trade allowance for a wholesaler and 15% for a retailer, should be about 595-600 tenge/kg.

At the same time, as part of measures to stabilize prices, the stabilization funds of the regions are selling sugar at a low price. This leads to an excessive purchase of sugar. It also notes the sale of sugar by SEC regions at a price below cost. For example, in the Pavlodar region, the stabilization fund sells sugar at 416 tenge per kg at a purchase price of 448 tenge, Kyzylorda - at 370 tenge at a purchase price of 450 tenge per kg. Almaty region sells at 276 tenge/kg, Aktobe region at 363 tenge/kg, Mangystau region at 400 tenge/kg. These actions on the part of akimats lead to the emergence of excessive demand and social tension.

At the same time, the Minister of Agriculture noted that there is a sufficient amount of sugar on the domestic market at a commercial price, which is sold in a market economy.

In general, the balance of sugar in the republic shows a positive balance. Since January of this year domestic sugar factories produced about 120 thousand tons of raw cane sugar, which is 19% more compared to the same period last year.

Stocks at the beginning of July amounted to 27.8 thousand tons, by the end of the month, production of 37 thousand tons of sugar is predicted. Imports within the quota will amount to 33.3 thousand tons. Thus, the total availability of sugar in the domestic market will be 98.1 thousand tons, while the demand is 69.8 thousand tons. Thus, the security of the market will be about 140%. As for the balance of sugar for August, the forecasted demand will also be 69.8 thousand tons, which is the maximum volume of consumption.

Carryover balance of sugar in the republic at the beginning of August will be 35.1 thousand tons, import of white sugar is expected at the level of 42.2 thousand tons. According to the sugar factories, it is planned to produce about 41 thousand tons of sugar. The total supply of sugar in the republic, taking into account the reserves of the local executive bodies, will be 118 thousand tons with a market supply of -169%.

Karashukeyev also dwelled on the issue of prolongation of restrictive measures for the export of farm animals. Earlier, the Ministry of Agriculture proposed the introduction of quotas for the export of cattle and small cattle.

“According to statistics, as of July 1 of this year, the number of cattle is 9.9 million heads, of which 4.5 million heads are cows, the current year's offspring is 3.1 million heads. The rest of the livestock in the amount of 2.3 million heads are sires, heifers, heifers and bulls of previous years,” the Minister of Agriculture emphasized.

At the same time, according to the ILI data, the number of bulls aged from 12 months to 2 years is 675 thousand heads, and rams - 1.1 million heads.

In order to support and increase the income of farmers, it was proposed to establish a quota of 30 thousand heads for the export of bulls, which is only 4.4% of the number of bulls and 60.0 thousand heads of rams, which is 5% of the number of rams.

The remaining 95% of bulls and rams are sufficient to meet the internal needs and load the meat processing enterprises.

At the same time, the Interregional Commission for Foreign Trade Policy and Participation in International Economic Organizations did not support the proposal of the Ministry of Agriculture of the Republic of Kazakhstan on quotas for farm animals and a decision was made to prolong the ban on the export of cattle and small cattle.

“I would like to once again note the absence of a shortage of food products in the domestic market and the availability of food supplies necessary to cover the needs of the population. The issue of food safety is under constant control of the Ministry,” Karashukeyev concluded.

Answering journalists' questions, the vice-premier said that Kazakhstan intends to protect sugar factories from foreign dumping.

“Today, in the season when they no longer consume domestic beets as a raw material, they start looking for raw sugar, this is an exchange commodity, they work at spot prices, snatch out contracts, and at the same time there is a risk when dumping, that is, cheaper sugar comes from neighboring countries. This does not allow our factories to breathe, they are forced to stop at such moments,” Sultanov said.

The issue of interruptions in sugar supplies to the regions was also commented on.

“In general, the volume of supplies and the availability of this product on the market always exceeds the consumption in the country. But there are interruptions in deliveries to the regions, redistribution among the regions. Therefore, we hold videoconferencing with local executive bodies twice a week in order to manually regulate these processes,” Sultanov said.

Journalists also asked the ministers about the personal purchase of products and whether they noticed their rise in price.

Bakhyt Sultanov stressed that, as a family man, he is obliged to ensure food security in his own home. When the minister has the opportunity, he visits markets and shops on weekends.

“We have certain culinary preferences, like every family. Of course, we buy, we have an idea of ​​the prices. And if we talk about the cost of baskets, then, of course, it has increased, and we see food inflation in a number of products. I see that prices are rising,” the Minister of Trade said.

Minister of Agriculture Yerbol Karashukeyev admitted that he and his wife do not have enough time to buy food.

“Probably once a month, on Sunday, I can afford to go and buy food with my family. We always buy food only from Kazakhstan. A certain rise in prices, of course, is felt. This year, from what we bought for vegetables, for potatoes and carrots, prices were stable. There wasn't much excitement for them. This is due to the measures taken by the ministry,” said Yerbol Karashukeyev.

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