A profile of Kazakhstan's agricultural reforms

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Geography and history

Almost three-quarters the area of western Europe, Kazakhstan is the second-largest, after the Russian Federation, of the 15 former USSR republics. Kazakhstan lies south of a 6 000km long border with the Russian Federation.

Kazakhstan's history and economy are closely tied to Russia. Russia settled Kazakhstan in the nineteenth century, establishing the present-day capital, Almaty (known as Alma-ata before independence in late 1991) in 1854.53 Today, Kazakhstan is the only former USSR republic with a titular nationality that does not constitute a majority of the population - comprising, as it does, only about 42 percent in the country as a whole and less than 30 percent in most of the oblasts (provinces) that border the Russian Federation. The percentage of Kazakhs is, however, increasing, largely because of the outmigration of Kazakhs of European origin. In 1994, Kazakhstan lost over 1.5 percent of its population of nearly 17 million.

Resources in agriculture

Land resources. Over 80 percent of the land area of Kazakhstan is classified as agricultural land. Of this, 80 percent is pastureland, about 35 million hectares (18 percent) are arable and 4.5 million hectares (2 percent) are meadowlands. There are also approximately 120 000 hectares of orchards and vineyards. Kazakhstan irrigates approximately 2 million hectares of land. The country had half the pastureland but only 15 percent of the arable land of the former USSR.

Kazakhstan's overall average precipitation is only 250 mm per annum. The two major agricultural zones are in the wetter north and in the south, where crop farming depends almost entirely on irrigation. The north's fertile chernozem soils have been cultivated with spring grains since the nineteenth century. The Virgin Lands Campaign (1954-60, see Box 5) expanded cultivation to more marginal land.

The warmer southern agricultural zone grows both spring and winter grains, irrigated by waters from the Tyan'-Shan and Altai mountains. Much of agriculture was expanded by large-scale irrigation works during the Soviet period. A relatively small amount of cotton is grown here, as are both winter and spring grains, fruit, vegetables, tobacco, sugar beet, potatoes, soybeans, rice and maize for grain.

BOX 5
TWO SCENARIOS OF REDUCED DRYLAND FARMING IN NORTH KAZAKHSTAN

During the Virgin Lands Campaign in Kazakhstan (1954-60) 25.5 million hectares of fragile virgin grasslands were ploughed up and seeded. In just a few years the increase in area sown to spring wheat in Kazakhstan roughly equalled the total combined wheat area of Canada and Australia.

From a peak of over 25 million hectares in the mid-1980s, sown grain area declined (rapidly since 1991) to only 20.7 million hectares in 1994. A concept paper of the Kazakhstan Agricultural Academy of Sciences foresees further reduction, based on emerging economic relationships, to 16.3 million hectares. This development would largely eliminate production in Region III of the map. The poorly developed light-chestnut soils of this region characteristically receive less than 300 mm of annual precipitation and yield under 500 kg per hectare. An alternative scenario developed by the Institute of Soil Management suggests that long-term dryland grain farming is sustainable on only 13 million hectares, mostly on the chernozem soils of Region I, a region characterized by 350 to 400 mm of annual precipitation.

Sources: Glavnoe Upravlenie Geodezii i Kartografii and Institut Zemeldelia Akademii Nauk Respubliki Kazakhstana

Figure 10

BOX 6
THE CENTRAL ASIAN REPUBLICS: AGRICULTURE, TRANSITION AND DEVELOPMENT

For centuries the five Central Asian Republics (CARs) Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan have shared a common history and geography. The dominant physical feature of the area is its aridity, making the great river system flowing from the high mountains of the northwest frontier of the Indian subcontinent into the Aral Sea of fundamental importance. Today, much of the region's population lives in the oases along the rivers. In the past, the area has sustained important civilizations based on irrigation and forming part of the overland route across Asia.

During the 70 years of USSR membership, the CARs were closely integrated into the Soviet planning system, producing and processing raw materials for export. Although each had separate republic status, the planners in Moscow treated the region as a whole, determining the location of economic activities, transportation networks and water policy.

Since their independence from the former USSR in 1991, the CARs have shared two common challenges: the transition to a more market-oriented economy and the need for economic development. The CARs are facing problems similar to those of other countries in transition to a market-based economic system. These include how to establish macroeconomic stability with an appropriate incentive and property rights structure, how to stabilize the aggregate price level and how to allow economic agents to claim financial returns based on their efforts. However, agriculture is playing an especially important role in the CARs because of the sector's past contributions and its present fragile state.

The USSR centrally planned model collectivized and specialized agriculture, transforming the CARs into monoculture economies based primarily on cotton. (The exception was Kazakhstan, where cereal farming was greatly expanded under the Virgin Lands Programme.) From 1960 until the early 1980s, planners expanded the total irrigated area of the five republics by 60 percent or some 3 million hectares, dedicated mostly to cotton. The CARs produced 80 percent of the USSR's cotton output, with production concentrated in Uzbekistan, Turkmenistan and Tajikistan.

This irrigation-based cotton monoculture resulted in negative economic and environmental consequences. For example, the rapidly expanding irrigation projects reduced the river flow that reached the Aral Sea to less than one-tenth the 1950s volume. By 1990, the volume of the Aral Sea had fallen to less than a third of its 1960s volume and the surface area had declined by 45 percent, while the salinity content nearly tripled. Salinization is the major cause of declining crop yields. Average cotton yields in the CARs declined from over 2 800 kg per hectare in the late 1970s to 2 300 kg by the late 1980s, in spite of increased application of fertilizers. While fertilizer application could not reverse the declining yields, it did increase contamination of underground water.

How to balance a fragile resource base with their rapidly growing populations' need for jobs is the key agricultural development issue facing all the CARs; and one that requires an agreement among the five republics. For instance, even to stabilize the Aral Sea at its current reduced size involves decreasing irrigation withdrawals throughout the region. All the CARs have experienced large production losses in the early 1990s and the prospect of further unemployment is politically difficult to address.

Other sustainable agricultural issues also require immediate policy attention, but are less daunting. For example, livestock productivity throughout the region is about half that of western Europe, suggesting productivity gains are possible. However, since much of the pastureland has been degraded, herd sizes will have to be reduced to ecologically sustainable levels.

Source: R. Pomfret. 1995. The economies of Central Asia. Princeton, NJ, Princeton University Press. Pomfret analyses the CARs as a regional economy and also each country's economic performance, structure and policies both before and after independence.

Livestock. Its extensive pastureland allows Kazakhstan to support high numbers of ruminants. The structure of meat consumption in Kazakhstan has remained fairly stable; approximately 46 percent of meat consumed is beef (compared with 44 percent for the former USSR), 18 percent is mutton (5 percent in the former USSR), 4 percent horse meat, 17 percent pork (33 percent in the former USSR) and 13 percent poultry (compared with 16 percent in the former USSR).

Labour, nationalities, capital and farm organization before the reforms. At the beginning of the 1990s, Kazakhstan had approximately 2 100 state farms, with an average area of 80 000 hectares, 14 000 hectares of which were arable. In 1991, the "average" state or collective farm owned 90 tractors, 35 grain combines, 50 trucks, several thousand cattle, 10 000 sheep and 700 to 800 pigs. Most of the approximately 400 collective farms were created from farms pioneered before the revolution.

In 1993, 1.3 million people were directly engaged as full-time workers in agricultural enterprises, somewhat more than the number of employees in industry. Kazakhstan ranked eighth among Soviet republics (after the Transcaucasia and Central Asia) in terms of the share of population employed in socialist and private agriculture and second among Soviet republics (after Moldova) in the share of agriculture in gross social product (25.8 percent).

Kazakhstan's roles in agricultural production and trade in the former USSR

In the 1980s, Kazakhstan produced just over 7 percent of total Soviet agricultural gross product, third after Russia and the Ukraine. Kazakhstan produced 1213 percent of the grain and a higher share of the valuable durum and hard spring wheats used for pasta. However, Kazakhstan's overall grain yields have exceeded 1 tonne per hectare in only one-third of the years since 1954. In addition to variable, often disappointing yields, Kazakhstan's grain crops have suffered from frequent transportation and quality problems, thus being partly responsible for the USSR's dependency on foodgrains imported from abroad.

Approximately 10 percent of Kazakhstan's former annual meat production of nearly 1.5 million tonnes was exported, much of it to the populous neighbouring Central Asian Republics. Besides meat, also wool, skins and hides are important livestock exports. The republic imported protein meal, vegetable oil, sugar, canned and processed foods and dairy products.

Kazakhstan participated in the highly integrated Soviet agricultural inputs complex, producing some dryland implements, and about 10 percent of the former USSR's phosphate fertilizer. Kazakhstan imported other implements, such as wheeled tractors and grain combines, as well as feed additives, veterinary medicines and plant protectorants, including large amounts of herbicides for grain production in northern Kazakhstan.

Although western Kazakhstan produces oil, which it exports to the Urals region, most petroleum products for northern Kazakhstan's agriculture come from western Siberia. Movement towards world prices for Russian oil has been the single most important factor affecting Kazakhstan's agriculture and leading directly to a reduction of sown and harvested area.

The political and macroeconomic context of agricultural reforms and policy

Political context. The most important political institution in Kazakhstan has been the presidency. Unlike the Russian Federation, where the central bank was at first under the control of parliament, the National Bank of Kazakhstan (NBK) has been under the control of the presidency. This has allowed the president relative freedom to pursue consistent macroeconomic policy. In October 1994, after parliament's vote of no confidence in the old government, the president appointed a western-trained Kazakh economist as prime minister. The cabinet appears committed to stringent fiscal and monetary policies, more rapid privatization and competition.

Kazakhstan has been an important proponent of closer economic and political ties among the former USSR countries. Ready to sign the `'Union Treaty" that would have preserved the USSR, the president of Kazakhstan asked to be included as a charter member of the Commonwealth of Independent States (CIS) when the USSR broke up in 1991. Kazakhstan adopted a separate national currency, the tenge, in November 1993, when its parliament could not agree to the Russian Federation's conditions for its remaining in the rouble zone.

Kazakhstan formed a customs union with Uzbekistan and Kyrgystan in 1993, and another with the Russian Federation and Belarus in early 1994.

Stabilization policy. Inflation in the second quarter of 1994 averaged 35 percent per month and hit 46 percent in June of the same year, while the tenge depreciated to one-tenth its January value. In mid-1994, the president of Kazakhstan declared his support for "shock therapy". As a result of restrictive macroeconomic policies, inflation declined to 10 percent in December 1994,8 percent in February 1995 and 3 percent in April 1995. The tenge, freely traded since its introduction, depreciated an average of only 4 percent per month on the interbank auction during the second half of 199458

To restrain the overall budget deficit, which had widened to 7 percent of GDP, the government reduced expenditures to 17 percent of GDP in 1994, versus 25 percent in 1993. Almost all remaining agricuItural subsidies (including those on bread and mixed feed after October) fell to these cuts. NBK discontinued its practice of refinancing interenterprise arrears through money expansion, after such an operation in spring 1994 had fuelled inflation. Having begun the auction of credit in 1992, by December 1994 NBK was auctioning 70 percent of all credit. At the end of April 1995, the bank auction rate, to which refinancing was aligned, was 140 percent. In February 1995, directed credits (of which agriculture had been a primary recipient) ceased altogether.

GDP in constant prices fell by one-quarter during 1994 and the real unemployment rate was estimated at 7.4 percent of the labour force in early 1995. However, along with the positive experience regarding price inflation, official figures showed industrial production turning up as of September 1994, and increasing by 1-3 percent monthly in the last quarter of 1994. Forecasts indicate a continued decline in GDP in 1995, but by less than half that of 1994. The government maintains that in the third and fourth quarters of 1994 the standard of living as measured by the real average wage stabilized (Table 12).

Privatization and the creation of markets

The division of property rights is a difficult process taking place in a political setting which is not yet fully open and democratic. In addition, citizens of the former USSR emphasize the psychological difficulties of the transition. The Soviet state developed a peculiar interdependent relationship with managers, workers and consumers, which helps to explain the current mix of attitudes towards the creation of real private property rights and responsibilities. Key mechanisms in planned agriculture were the mandatory state procurement quotas and the reciprocal system of "material technical supplies" supported by planned prices and soft credits. Now, budgetary austerity has become the major force shaping the privatization of agriculture and the related issues which are discussed below.

Farm and production: prices and profitability. Compared with 1993, Kazakhstan's aggregate farm production in 1994 declined 23 percent in real terms to 98.8 billion tenge (about US$2 billion). The decline had been 10 percent in 1993 and 2 percent in 1992. Grain production fell by 24 percent. Although it is becoming more and more difficult to measure accurately the increasingly private livestock output, official estimates indicate that meat production fell by 20 percent and milk production by 6 percent in 1994. The drop in livestock inventories during 1994 (numbers of cattle decreased by 14 percent, cows by 8 percent, swine by 19 percent and sheep and goats by 27 percent) presages further production declines in 1995. This disinvestment results in part from the cash crisis of many farm workers who were paid primarily in kind and sold livestock at distress prices.

Rapid inflation has made questionable the quality of statistics on cost and profitability. However, 1993 statistics showed that the profitability of state and collective farms (actual profit as a percentage of cost, including normed profit) was -1.3 percent, with crops generally profitable and livestock products unprofitable. The primary reason for declining farm profits is that input prices have risen more rapidly than farm prices since price liberalization in 1991-92. For example, in 1992 it took 1.2 tonnes of wheat to purchase 1 tonne of fuel, a ratio that rose to 3.6:1 in 1993 and stayed at roughly the same in 1994.6° In 1994, however, industrial and farm prices increased at about equal rates (20.4 times, versus 19.0 times), and the terms of trade for livestock in particular appeared to be rising in 1995, because of reduced supplies combined with consumers' stabilizing incomes.

TABLE 12
Macroeconomic performance

Indicator 1992 1993 1994 1995
(estimate)
GDP at constant prices (% change) -13.0 -15.6 -25.0 -11.0
Consumer prices        
(Period average, % change) 1 381 1 571 1 826 165
(End of period, % change) 2 567 2 166 1 048 40
Wages and social benefits (tenge, end of period)
Minimum wage/pension/ unemployment 2 30 260 900
Real minimum (December 1991 = 100) 10 7 5 13
Average wage 27 384 3 392 4 291
Real average (December 1991 = 100) 110 70 60 59
Exchange rate (tenge/US$)
(Period average) ... 2.8 36.1 69.4
(End of period) ... 6.3 54.3 78.0

Source: State Statistics Committee and Ministry of Finance of Kazakhstan and World Bank staff estimates May 1995

State budget subsidies and credit. During 1993, the Ministry of Economy estimated agricultural producers' subsidies from the budget at over 600 million tenge (about 2 to 3 percent of GDP). Approximately half of this represented subsidies for interest, operating expenses and fuel; the remainder was compensation for losses in livestock production. In 1994, significant budget subsidies for agriculture were limited to the input subsidy for mixed feed for some livestock producers and subsidies implicit in procurement quotas, which were retained only for grain products. In October 1994, these budget subsidies were removed, precipitating an immediate tenfold increase in retail bread prices.

In 1993, about one-third of NBK's directed loans had been for agriculture, at highly favourable rates (i.e. from 25 to 90 percent per annum, while inflation stood at approximately 2 000 percent). In February 1994, NBK froze the interest on and refinanced approximately 10 billion tenge (then worth approximately US$500 million) of farm debt. By September 1994, agricultural debt totalled over 26.8 billion tenge, mostly owed to suppliers. A sum of 1.5 billion tenge (then worth US$30 million), equal to approximately one-half the 1994, wage bill was owed to workers on state farms.

In August 1994, the president issued a decree requiring the Ministry of Agriculture and Agrobank to identify "chronically non-profitable" state farms and agrobusinesses and arrange their auction to persons who would take over their debts. Approximately 1 200 such firms were identified by early 1995, 256 of these were to be put up for early auction. Liquidation and restructuring was to be carried out by an agricultural restructuring fund formed to handle bad debt in the process of reforming Agrobank to put it on a commercial basis 65

Privatization. When the USSR was dissolved and Kazakhstan gained independence in 1991, there was a phase of rapid privatization, initiated at the provincial level. This Stage I devolved too much power to the oblast governments, which in the north were at the time threatening to seceed from Kazakhstan to join the Russian Federation. A formal Stage II of the National Privatization Programme, announced in 1993 to last until 1995, sought to subject privatization to more clearly defined procedures overseen by the Republic State Property Committee (SPC) with its own territorial (as distinct from oblast) committees. A constitutional amendment eliminated the previous concept of municipal property, which had been under the control of oblast governments, leaving only two categories of property, state-republic and private.

Procedures were outlined for the privatization of small firms (of less than 200 employees) and large firms (of between 200 and 5 000 employees), as well as for case-by-case privatization of those national industries (primarily mineral) where foreign investment might be expected. Following criticism of SPC, in March 1995 the president of Kazakhstan removed authority for privatization from this body and assigned it to other state organs.

By the end of 1994, approximately 10 percent of an estimated 30 000 small businesses had been sold by auction or tender. Compared with the Russian Federation, the mass privatization programme in Kazakhstan started late. The distribution of privatization coupons to citizens began only in 1994, but was largely completed by the end of that year. One-quarter of the coupons had been invested in just under 200 investment privatization funds which by April 1995 had acquired about 500 large enterprises.

In early 1995 the prime minister declared his support for accelerated democratic privatization by the coupon system, with the state acquiring less revenue from sales of state property. The government hoped to liquidate government shares in just under a dozen agriculturally related joint-stock or holding companies during 1995.

Farming and related agrobusiness have been treated somewhat separately, but within the general purview of the State Property Committee. The National Privatization Programme for 1993-95 has several distinctive features for farming and agrobusiness:

TABLE 13
Progress of the land reform in Kazakhstan in 1991-94: landholders by types and landholdings ('000 hectares)

  January 1991 January 1992 January 1993 January 1994 June 1994 January 1995
Peasant farms   2 480 8 877 16 020 20110 22 512
Land area 104.0 1 615.1 5 355.2 6 424.9 7123.5 7 828.4
Orchard ('000s) 743.0 998.5 1 280.7 1 286.4 1294.9  
Land area 59.0 81.9 107.6 112.3 113.3  
Gardens ('000s) 499.3 790.2 962.4 989.6 1099.0  
Land area 42.6 68.2 83.7 86.5 102.8  
Private plots ('000s) 1 883.0 1 949.4 2 028.0 2 164.1 2225.5  
Land area 193.6 199.0 231.3 246.5 250.0  
Agricultural cooperatives and small enterprises 16 132 919 872 916  
Land area 16.5 275.8 21 505 4172.4 4 288.8
Other non-state agricultural entities     646 727    
Land area       42 671 47782.3  
Subsidiary agricultural enterprises       1 367 1 418  
Land areas       1 880.9 1 918.7  

Sources: Ministry of Agriculture and State Statistics Committee, Republic of Kazakhstan

TABLE 14
Privatization of state farms in the Republic of Kazakhstan, 1993-94

State farms at start = 2 120 1 July 1994 1 January 1 995
Total privatized 923 1 363
Of which privatized during 1993-94 (Stage 11) 473 891
From which were created:
Total independent enterprises 1 355 4 344
Small enterprises 296 2 331
Agricultural cooperatives 32 487
Stock associations 122 295
Collective enterprises 698 1 082
Partnerships 56 148
Other 151 1
Non-privatized state farms 1 197 757

Source: Ministry of Agriculture, Republic of Kazakhstan

This measure was extended and then subsequently dropped by the government, after criticism from parliament and the press.

Demise of state orders and emergence of a market for farm commodities. State procurement and subsidies for livestock products were eliminated in December 1993. Table 15 shows the effect of the elimination of subsidies and the freeing of state retail prices. In December 1993, average prices paid to farms by procurement agencies exceeded retail market prices by 30 to 100 percent, but these prices had converged by July. The State Statistical Committee (SSC) indicated that from January to October 1994 the volume of farm sales through channels other than the state system increased by 34 percent for meat and 57 percent for milk and remained almost constant for eggs, despite the decline in total marketings of each by approximately 20 percent, compared with the same nine months of 1993. State grain procurements, approximately 15 million tonnes in 1990-91, were reduced to 7 million tonnes in 1993 and 5 million tonnes in 1994. By late 1993, farms had experienced the harmful effects of inflation combined with slow payment from state purchasers. The finance ministry refused to provide credit for the entire 1993 grain procurement plan. Farms wanted to sell grain to Astyk (the state grain procurement and processing entity) at the posted state price, but reportedly sold grain for cash to private traders for half the posted state price. In October 1994, the government eliminated retail bread and wholesale flour subsidies. For 1995 the government has no mandatory grain procurement and plans to buy only 700 000 tonnes for state security stocks, etc. at commercial terms. Food processing and storage. While a number of alternative processing and storage enterprises, including the growth of ''mini" plants (such as flour mills and sausage and cheese plants) have developed on farms, special interest falls on the privatization of interprises of the state processing and marketing system, which still have the bulk of processing and storage capacity.

By early 1995, the state had adopted a plan to auction off all but 19 of Astyk s 364 grain elevators and half its flour mills and macaroni plants by September 1995. Additional plans were being developed for auctioning off food and meat and dairy processors which, after price liberalization, became desirable objects of private ownership.

TABLE 15
Average farm value of products by market channel before and after price liberalization, December 1993 to July 1994

 

Tenge per tonne

Percentage change
  Dec 1993 Jan 1994 July1994 Jan/Dec July/Dec
Livestock and poultry (carcass weight)
Average all channels1 1 949 ... ... ... ...
Procurement organs 2 103 3 292 11 558 157 550
Green Market 986 2 536 10 636 257 1 079
Dairy products
Average all channels 336 704 2 366 210 704
Procurement organs 381 681 2 388 179 627
Green market 293 1 324 2 439 452 832
Eggs
Average all channels 99 292 1 078 295 1 089
Procurement organs 104 292 1 092 281 1 050
Green market 181 285 1 037 157 573
Potatoes
Average all channels 292 ... 1 910 ... 654
Procurement organs 315 ... 2 339 ... 743
Green market 401 ... 2 203 ... 549
Grain products²
Average all channels 109 178 3 441 163 ³ 405
Procurement organs 138 190 3 1100 138 ³ 797
Green market 97 155 3 632 160 ³ 652
Exchange rate: 1 tenee/US$5.7   9.3 45    

Source: Ministry of Agriculture, Republic of Kazakhstan. "All channels" includes traditional procurement organs, green (city) markets, barter and sales through restaurants Effective procurement prices are overstated because of arrears in payment by procurement organs and high overall inflation.
¹ Estimated from data for price per live weight, using 0.59 as the average ratio of carcass to live weight for meat of all types in Kazakhstan. 1990-92.
² Not decontrolled until October 1994
3 February 1994

The national privatization programme provided that a portion of shares in food processing enterprises be available on privileged terms to the farms supplying them. This policy of vertical ownership was apparently abandoned by SPC by early 1995.

This provision had been promoted by agricultural interests which thought that the refusal to accept unwanted production (of milk, etc.), which had become common by 1992, stemmed from the processors' exercise of monopoly power and not from the limits of market demand. However, the burgeoning excess stocks and financial losses of processors have since demonstrated the more pervasive problem of non-profit behaviour; competitive privatization is likely to lead to extensive cost cutting and commercial pricing.

Trade in agricultural products in the "near" and "far abroad". From 1986 to 1990, Kazakhstan exported approximately 9 million tonnes of grain annually. The United States Department of Agriculture estimates that Kazakhstan exported approximately 7.7 million tonnes of its bumper 1992 crop, and about 6 million and 5 million tonnes from the 1993 and 1994 crops, respectively. Official statistics show no grain exports to the so-called "far abroad" (countries outside the former USSR), but other sources, including published state agreements, document sales to such countries as Poland, Lithuania, the People's Republic of China, Afghanistan, Iraq, the Islamic Republic of Iran and Turkey. Some of these sales are handled by western grain traders who arrange credit.

Ascertaining the average grain price received by Kazakhstan's farms in order to make comparisons with world prices is not easy given poor statistics, the high rate of inflation and uncertain transport costs. The World Bank attempted to estimate 1993 state procurement prices as a percentage of world prices of about $ 130 per tonne. During harvest (September to October) state prices were approximately $65 a tonne, hut this was reduced to about one-quarter of the world price after payment delay and inflation were taken into account.' Problems with ascertaining the price for grain sold outside the state system arise from the fact that so much of it is bartered or registered at fictitious prices to reduce tax liability. In 1994, the state required a review of contracted export prices to reduce tax evasion and the incidence of individual farm directors selling grain cheaply and taking side payments from traders. However, these problems are likely to exist until full privatization is achieved.

The external trade of grain and agricultural products seems to be improving agriculture's terms of trade. All state trading agreements for grain and associated export licensing through the Ministry of Industry and Trade were eliminated in November 1994, and in January the president decreed that any person or firm could engage in the trade of any goods, except certain strategic ones. An official of the Almaty International Agricultural Commodities Exchange (AIACE) reported that by early 1995 average elevator prices paid to farms for wheat had risen to a minimum of US$77 per tonne and an average of $90.

At the same time, governments of the northern oblasts continue to "tax" grain exports in various ways. In addition, while Astyk has been virtually eliminated, exports of agricultural commodities (now including wool, hides and cotton) remain subject to price controls and hard currency taxation.

Long-term policy objectives

The exposure of Kazakhstan's agriculture to world prices for inputs and products has revealed a high-cost structure of production. Measures taken to restructure will affect the chances of Kazakhstan developing participatory democracy, a healthy and viable agricultural and food economy and a proper division of labour between market and government. The following specific policy areas, which have been the subject of domestic discussions and the observations of international agencies working in Kazakhstan's agricultural sector, are worthy of special attention.

Livestock restructuring for lower cost. At 71 kg per caput, Kazakhstan's 1991 meat consumption was sixth-highest in the USSR and about the same as that of the United Kingdom; higher than would have been predicted from Kazakhstan's per caput GDP (which was about one-quarter that of the United Kingdom) had it been a market economy. This level of consumption reflected both subsidies and the absence of competing consumer goods. Meat consumption declined to 59 kg in 1993 and 1994 and will probably continue to decline in 1995 as livestock herds have decreased and consumption levels in 1994 were largely maintained because of distress slaughter.

It is important that new levels of livestock product consumption be sustainable by market demand and that, in the process of arriving at this new equilibrium, restructuring reduces the cost of production and processing and improves distribution. A discussion of the prospects for poultry meat offers several lessons. Before 1991, Soviet pricing implicitly taxed poultry meat and subsidized red meats. While most other livestock products have been unprofitable, in part because of the increase of the relative price of grain, poultry meat has been just profitable because of a better feed conversion rate. New market prices, including higher relative feed prices and high real interest rates, should promote more efficient feed conversion for all livestock production and should especially promote poultry. A private feed industry, working with free market prices and responsive to a long-pent-up demand for protein, already shows signs of developing.

Concerns of sustainable agriculture. Kazakhstan has 28 million hectares of land susceptible to wind erosion and 80 000 hectares, including lands in the Aral Sea basin, which have been abandoned because of salinity. It is calculated that under the present methods used in northern Kazakhstan, for every tonne of grain produced, 1.5 tonnes of soil humus are expended. After 40 years of virgin soil exploitation, the humus content may have been reduced by one-third. Various research institutes disagree on what the optimal sown area in northern Kazakhstan should be (see Box 5,p.175). Adjustments from past price patterns indicate that the area resown to grass will continue to expand, as will that of fallow and legumes in rotation.

Food processing. Kazakhstan needs to improve livestock products (including exported raw wool and hides) and cotton processing and to increase the level of packaging and processing in order to employ rural labour, compete with foreign imports and reduce retail food costs. As the economic crisis ends, these industries may begin to attract long-interested foreign investment on a commercial basis, as long as there are a free market and effective legal structures.

Finance and private property for land. AgricuIture, like other Soviet economic sectors, was characterized by high, inefficient capital intensity, because investment in both fixed and variable inputs was financed by soft state credits.

A poll indicates that 75 percent of Kazakhstan's citizens now favour private landownership, and the constitutional prohibition against private landownership may be resolved by referendum in 1995.73 Private landownership is given such importance because, first, full private landownership is a great ideological symbol, without which no entrepreneur is fully sure that the system has fundamentally changed. Second, landownership gives a "place" to ethnic Russians and others who are uncertain about their position in a possibly more nationalistic Kazakhstan. Third, landownership will encourage the development of a finance system for agriculture. Discussions in Kazakhstan reveal that entrepreneurs are afraid to invest their own money in agriculture without controlling the land. Although experience elsewhere shows that the value of agricultural land in transitional economies is low and so offers little mortgage security, borrowers who put up as collateral the land on which they have built are probably good credit risks.

A correct role for government in agriculture and rural communities. Many of Kazakhstan's branch ministries are being liquidated. The agriculture ministry will probably remain, although much changed, with a proper division of business (or, as it is put in Kazakhstan, khozyastvennye) from regulatory and informational tasks. While doing the vast amount of administrative allocation of capital investment distributing inputs and output plans, the Kazakhstan Ministry of Agriculture has not in the past done well those things which should now be emphasized. Among these would appear to be:


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