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Farm restructuring and agricultural recovery in Kazakhstan's grain region: An update

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Against the rising global concern of how to achieve sustainable output expansion in food, we document the main outcomes of post-Soviet agricultural recovery and restructuring in the Kazakhstan grain region. Together with an expansion of cropland area and increasing capital input, real agricultural value added has almost doubled within the recent decade. Privatisation legislation has allowed private ownership of land. However, access to state land and capital continues to be strongly regulated, and private lenders even turn away from agriculture. There are now three dominant groups of agricultural producers in the region: large agricultural enterprises and smaller individual farms mostly engaged in grain, and tiny household economies focusing on vegetable and live-stock. While agricultural enterprises have been growing more persistently than individual farms in recent years, average land productivity of both farm types is practically identical and wheat yields are even higher in individual farms. Both vertically and horizontally integrated agroholdings have emerged among the agricultural enterprises and have brought outside investment and management to the region. With stable employment in agriculture, nominal consumption spending of rural households has tripled over the last decade and has risen much faster than the costs of living. While North Kazakhstan looks much like a success story, constrained factor markets are likely to dampen further growth. The Kazakh government should improve the legal conditions for a functioning land rental market, avoid driving commercial lenders out of the market, and make sure that future access to qualified labour in agriculture is warranted. --
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Leibniz Information Centre for Economics
Petrick, Martin; Wandel, Jürgen; Karsten, Katharina
Working Paper
Farm restructuring and agricultural recovery in
Kazakhstan's grain region: An update
Discussion paper // Leibniz Institute of Agricultural Development in Central and Eastern
Europe, No. 137
Provided in Cooperation with:
Leibniz Institute of Agricultural Development in Central and Eastern
Europe (IAMO)
Suggested Citation: Petrick, Martin; Wandel, Jürgen; Karsten, Katharina (2011) : Farm
restructuring and agricultural recovery in Kazakhstan's grain region: An update, Discussion
paper // Leibniz Institute of Agricultural Development in Central and Eastern Europe, No. 137
This Version is available at:
http://hdl.handle.net/10419/50553
DISCUSSION PAPER
Leibniz Institute of Agricultural Development in
Central and Eastern Europe
Farm Restructuring and Agricultural
Recovery in Kazakhstan’s Grain Region:
An Update
Martin Petrick, Jürgen Wandel,
Katharina Karsten
DISCUSSION PAPER NO. 137
2011
Theodor-Lieser-Straße 2, 06120 Halle (Saale), Germany
Phone: +49-345-2928 110
Fax: +49-345-2928 199
E-mail: iamo@iamo.de
Internet: http://www.iamo.de
ii
PD Dr. Martin Petrick is acting head of IAMO’s Department of External Environment for Agri-
culture and Policy Analysis. His major fields of expertise include the evaluation of agricultural
policy measures, public action in rural development, and structural change in agriculture.
PD Dr. Jürgen Wandel is a senior research fellow in IAMO’s Department of Agricultural Mar-
kets, Marketing and World Agricultural Trade. His current work focuses on economic transition
in CIS countries, institutions, competition and business groups.
Katharina Karsten, M.Sc., is a research fellow in the Department of External Environment for
Agriculture and Policy Analysis at IAMO, working on farm organisation in the CIS countries.
Address: Leibniz Institute of Agricultural Development in Central and Eastern Europe
(IAMO)
Theodor-Lieser-Straße 2
06120 Halle (Saale)
Germany
Phone: ++49-345-2928-120
Fax: ++49-345-2928-199
E-mail: petrick@iamo.de
Internet: http://www.iamo.de
Discussion Papers are interim reports on work of the Institute of Agricultural Development in Central
and Eastern Europe and have received only limited reviews. Views or opinions expressed in them do
not necessarily represent those of IAMO. Comments are welcome and should be addressed directly to
the author(s).
The series Discussion Papers is edited by:
Prof. Dr. Alfons Balmann (IAMO)
Dr. Stephan Brosig (IAMO)
Prof. Dr. Thomas Glauben (IAMO)
Dr. Daniel Müller (IAMO)
Prof. Dr. Heinrich Hockmann (IAMO)
PD Dr. Martin Petrick (IAMO)
ISSN 1438-2172
iii
Abstract
Against the rising global concern of how to achieve sustainable output expansion in
food, we document the main outcomes of post-Soviet agricultural recovery and restruc-
turing in the Kazakhstan grain region. Together with an expansion of cropland area and
increasing capital input, real agricultural value added has almost doubled within the re-
cent decade. Privatisation legislation has allowed private ownership of land. However,
access to state land and capital continues to be strongly regulated, and private lenders
even turn away from agriculture. There are now three dominant groups of agricultural
producers in the region: large agricultural enterprises and smaller individual farms
mostly engaged in grain, and tiny household economies focusing on vegetable and live-
stock. While agricultural enterprises have been growing more persistently than individ-
ual farms in recent years, average land productivity of both farm types is practically
identical and wheat yields are even higher in individual farms. Both vertically and hori-
zontally integrated agroholdings have emerged among the agricultural enterprises and
have brought outside investment and management to the region. With stable employ-
ment in agriculture, nominal consumption spending of rural households has tripled over
the last decade and has risen much faster than the costs of living. While North Kazakh-
stan looks much like a success story, constrained factor markets are likely to dampen
further growth. The Kazakh government should improve the legal conditions for a func-
tioning land rental market, avoid driving commercial lenders out of the market, and
make sure that future access to qualified labour in agriculture is warranted.
Keywords: Agricultural productivity, agricultural transition, farm organisation, Ka-
zakhstan.
JEL-codes: O13; P32; Q12; Q15.
v
Table of contents
Abstract..........................................................................................................................iii
Executive summary...................................................................................................... vii
1 Introduction...............................................................................................................1
2 Agricultural recovery in the North-Kazakh Grain Region: an overview............5
3 Restructuring policies after 1990...........................................................................13
3.1 Farm restructuring legislation and its main outcomes ......................................................... 13
3.2 Agricultural policy environment.......................................................................................... 20
4 The emerging farm structure.................................................................................25
4.1 Empirical patterns of farm restructuring.............................................................................. 25
4.2 Performance of different farm types .................................................................................... 30
4.3 The role of agroholdings...................................................................................................... 35
5 Social impacts of agricultural recovery ................................................................39
5.1 Regional employment and household welfare ..................................................................... 39
5.2 Farm restructuring and poverty reduction: identifying the pathways .................................. 44
6 Conclusions..............................................................................................................49
6.1 Summary of findings............................................................................................................ 49
6.2 Policy recommendations...................................................................................................... 50
6.3 Future research needs...........................................................................................................51
Acknowledgements........................................................................................................53
References ......................................................................................................................55
Appendix: Farm case studies........................................................................................57
Executive summary
The evidence presented in this study documents a widely positive development of agri-
cultural production in the three major grain producing provinces of Kazakhstan (the
North-Kazakh Grain Region, NKGR). With the exception of the drought year 2010, ag-
ricultural output has consistently increased (Figure I). Together with an expansion of
cropland area and increasing capital input, real agricultural value added has almost dou-
bled within a decade.
While hesitant in the early transition period, privatisation legislation has now allowed
private ownership of land and has put the basic preconditions for a capitalist mode of
agricultural production into place. There are three dominant groups of agricultural
producers in the NKGR that emerged from the restructuring processes of the transition
period. The first group consists of large agricultural enterprises in the form of limited
liability partnerships, the second group of smaller individual farms, and the third of tiny
household economies. Agricultural enterprises cultivate about 10,000 ha per farm on
average and control almost three quarters of agricultural land in the NKGR. Individual
farms emerged as a new type of producer in the process of land privatisation and culti-
vate one quarter of the land, with an average farm size of around 560 ha. Household
economies mostly engage in labour-intensive vegetable and livestock production. In re-
lation to the other two types of farming organisations, agricultural land use by the latter
is minimal, but their share in agricultural output is about 40 percent.
Figure I: Contribution of different farm types to Gross Agricultural Output,
North Kazakh Grain Region (billion tenge in 2000 prices)
0
50
100
150
200
250
300
350
2004 2005 2006 2007 2008 2009 2010
Agricultural enterprises Individual farms Household economies
Source: Authors’ calculations based on official statistics, see Figure 15 in main text.
Compared to other post-Soviet countries, Kazakhstan is distinct in having established
a significant individual farm sector side-by-side with the reformed agricultural enter-
prises in its primary grain producing region. While agricultural enterprises have been
growing more persistently than individual farms in recent years, average land productiv-
ity is practically identical and wheat yields tend to be even higher in individual farms.
Registration procedures for individual farms are simpler and tax obligations lower than
for enterprises. However, among government officials, an ideological bias against indi-
vii
viii
vidual farming seems to prevail. Both vertically and horizontally integrated agrohold-
ings have emerged among the agricultural enterprises and have brought outside in-
vestment and management to the region. While we document some of the agrohold-
ings’ activities, which are chiefly in grain production and trade, they are generally little
transparent and few substantive statements about their real impact in rural areas can be
made.
Government support to agriculture has been rising recently, and is based on a highly
centralised system of area-, output-, and input-related subsidies. The government is also
engaged in grain procurement and storage to achieve national food security goals, but
does no longer interfere in on-farm production decisions. Subsidised funding for agri-
cultural investments is provided through the state-owned holding KazAgro. These sub-
sidies offer the agricultural sector access to the governments’ tax receipts and oil reve-
nues. However, the implementation system chosen gives little room for the type of de-
centralised market institutions which have advantages in information processing, are
less prone to elite capture and have been instrumental for sustainable rural development
in other contexts. Despite the still tremendous financing needs, private lenders even
turned away from the agricultural sector.
These partly questionable government activities notwithstanding, agricultural recovery
in the NKGR has brought clear and measurable benefits to the rural population. With
stable employment in agriculture, consumption spending by rural households has tripled
over the last decade and has risen much faster than the costs of living (Figure II). Real
monthly consumption expenditures by rural households doubled between 2003 and
2009, and are higher than in Kazakhstan on average. Poverty went down considerably,
from 40 percent of households below the regional poverty line in 2002 to about five
percent in 2010. Much of this positive development is likely due to rising food prices,
which trickle down to rural households, and increasing labour scarcity in rural areas.
Figure II: Consumption spending and cost of living for rural households in
North Kazakh Grain Region (2003=100)
0
50
100
150
200
250
300
350
2003 2004 2005 2006 2007 2008 2009
2003=100
Rural consumption spending NKGR Cost of living NKGR
Source: Authors’ calculations based on official statistics, see Figure 24 in main text.
ix
Policy recommendations
Access to land and capital for agricultural producers continues to be constrained by
strongly regulated and governmentally controlled allocation systems. While land sales
are now possible in principle, such transactions require large capital investments and a
long-term planning horizon. Rural entrepreneurs rarely fulfil these conditions, so that
land sales remain few. For more immediate adjustments in land use, the development of
land rental markets is desirable. However, the legal provisions for such rental transac-
tions are not sufficient. In particular, to what extent privatisation beneficiaries in the
NKGR who contributed their share to the stock of an agricultural enterprise under the
2003 legislation can still engage in land rental markets is unclear. Furthermore, land
shares cannot be contributed to individual farms. It is also unknown to what extent lease
and sublease of land are still carried out informally, contrary to the 2003 land code pro-
visions. More transparency and firmer as well as more practical legislation that creates a
level playing field for all farm types would likely stimulate land rentals and thus lead to
further efficiency gains in the medium term.
The state agency KazAgro appears to be one of the few viable sources of finance for
many farmers, as commercial banks have partly withdrawn from the agricultural sector.
However, it is unlikely that state-administered credit supply is very effective in target-
ing the most promising investments in agriculture. While some agricultural enterprises
apparently have access to outside equity, many individual farmers would benefit from a
more competitive and less centrally administered agricultural credit system, possibly
based on (true) cooperative principles.
Many farmers interviewed in the case studies were concerned about future access to
qualified labour. The Kazakh government should make sure that future labour de-
mands in terms of educated people in working age can be met. A review of the demo-
graphic outlook for rural areas is recommended.
Recent increases in agricultural policy spending have led to a wide array of measures,
including various types of input subsidies and production-related direct payments. To
what extent these measures follow a consistent sector strategy with specific policy
goals is not visible and the effectiveness of the measures thus difficult to evaluate.
Many are hardly compatible with WTO requirements. A more focused and less distor-
tionary policy approach is recommended. Systematic upgrading of the rural transport
infrastructure is likely to have a more beneficial long run impact than indiscriminate
subsidy distribution.
Future research needs
Labour supervision and the design of incentive-compatible employment contracts are
persistent issues for many managers. In this management field, little systematic knowl-
edge is available about actual practice and possible options, including new technologies
based on satellite imaging.
If labour is becoming scarce in rural Kazakhstan, this sheds new light on some strategic
notions of rural development. Traditionally, in order to raise living standards, rural ar-
eas with abundant labour would have to generate off-farm employment opportunities
and/or depend heavily on (regional) migration opportunities in more dynamic urban ar-
x
eas. In view of stable population numbers and strongly rising incomes, it is an open
question whether this is an appropriate strategy for Kazakhstan.
No disaggregate, farm-level data is available that allows substantial comparisons in the
performance of agricultural enterprises, individual farms and household economies. As
a result, no definitive statements can be made about which type of organisation is more
beneficial in terms of productivity, employment and income generation, more innova-
tive, and better suited to meet the demands of modern food chains. Given the tremen-
dous range of farm sizes observed in a homogenous natural and political environment,
the NKGR represents a potentially fruitful object to investigate long-standing analytical
issues concerning the relative advantages of small versus large farms.
There is clear evidence that many households produce a surplus to their subsistence
needs which is sought by, for example, urban consumers. In which way these household
operations could and should be commercialised and what this means for other types of
agricultural producers needs to be investigated further.
More research on the interactions among different types of agricultural producers is
also needed because they may become crucial for future agricultural development in the
NKGR. If linkages indeed provide mutual benefits for the involved parties, they may
turn into resource-providing contracts, i.e. arrangements that allow input flows from
larger to smaller businesses in exchange for some output relevant for the larger busi-
ness. In addition to traditional inputs such as fuel or feed, which are fully commercial-
ised today, this could also be knowledge, access to risk management tools, or storage
and marketing logistics. The output provided by the smaller business could be some ef-
fort-intensive (intermediate) product, such as raw milk, or simply labour force. If there
are economic advantages in keeping different types and sizes of producers separate, it is
likely that a more refined network of contracts may emerge that exploits the compara-
tive advantages of each organisational type. However, if there are no such economic
benefits to separation, the mutual relationship is more likely to be one of competition
and ultimate takeover by the stronger party. A third option is the increasing specialisa-
tion of different farm types in various product segments.
There is little information about who has entered agricultural production in North Ka-
zakhstan and why. The explanations range from external investors bringing their own
management, over various “local” entrepreneurs who have been more or less engaged in
agricultural activities in the past, to household members who continue small-scale op-
erations in vegetable and livestock to make their own living but also earn some revenue
from surplus sales. As farm enterprises in the NKGR have persistently been created and
dismantled recently, and given the importance of the management for successful farm-
ing operations, this is a question of actual relevance. Relative political power and access
to information and resources by these different types of managers may well have impli-
cations for future structural change in agriculture.
1 Introduction
Recent price hikes in agricultural commodities worldwide brought the issue of global
food security back on the political agenda. They also led to a rediscovery of the agricul-
tural sector not only as an essential resource for human livelihoods, but also as a poten-
tially profitable investment target. Moreover, claims were made that productivity in-
creases would only be possible if small-scale farms were replaced by commercial large-
scale agro-firms (Collier, 2008). However, media reports on increasing interest in farm-
land by both private and public investors at the same time raised concerns about the so-
cial and economic implications of massive agricultural transformations for rural socie-
ties (for a summarizing account see Deininger et al., 2011). In this debate, the successor
countries of the Soviet Union play a special role for at least three reasons. First, particu-
larly the bigger ones of these successors hold currently untapped land reserves suitable
for food production. Much of this land fell out of production in the course of economic
transition. Second, productivity of the land that was not idled had declined considerably
in the 1990s. Both cropland expansion and (re-)intensification thus appear to be promis-
ing strategies for boosting food supply and possibly exports in these countries. Finally,
in all land-rich successors, a specific post-socialist farming structure emerged from the
restructuring attempts of the transition period. The conventional description of this
structure is that large and only partly reformed successors of the former socialist farms
coexist with household plots mostly geared to subsistence needs (Lerman et al., 2004).
However, following the Russian ruble devaluation of 1998 and the more recent food
price boom, the economic environment in rural areas changed and productivity levels
went up again. The economic and social consequences of this agricultural recovery in
terms of productivity, farm organisation, and rural income generation are largely un-
studied so far.
Against this backdrop, the current study takes a fresh look at agricultural development
in the Central Asian Republic of Kazakhstan. Already now, Kazakhstan is among the
world’s ten largest producers and five largest exporters of wheat (OECD 2011, 99). To-
gether with Russia and Ukraine, it is considered as a future main player in world grain
supply. About 80 percent of Kazakhstan’s wheat is produced in the three north-Kazakh
provinces Akmola, Kostanay, and North-Kazakhstan, two of which have borders with
Russia. In the following, we label these three provinces the North-Kazakh Grain Region
(NKGR). This region covers about 440,000 km² and hosts a population of 2.3 million
people. First developed under the Soviet Virgin Lands Campaign in the 1950s, the
sparsely populated region suffers from problematic climate conditions for crop produc-
tion, notably a high risk of drought as well as early and late frost. Grain yields during
Soviet times were highly volatile and remained below 10 dt/ha on average. After na-
tional independence, the grain factories established under Soviet rule fell into crisis and
substantial issues of privatization and restructuring were raised. However, partly aided
by its oil revenues, Kazakhstan managed to avoid the political instability or paralysis
typical of other Central Asian republics. In the new millennium, together with rising
food prices, political stability went hand in hand with a notable recovery of agricultural
1
2
production in the NKGR.
1
While the global financial crisis reached Kazakhstan already
in 2007, it was weathered comparatively well. Contrary to the situation in other former
Soviet republics, the socialist farming structure was neither preserved nor dismantled
completely. It was rather reformed gradually and has evolved into a tri-modal structure
consisting of large agricultural enterprises, smaller individual farms, and tiny household
plots.
While North Kazakhstan is a success story in terms of recent agricultural productivity
increases, it also represents an interesting field of study for more fundamental issues in
farm organisation and intensification that are of global relevance. Total cropland area in
the NKGR has increased by one half since 2001, agricultural value added doubled, and
investments in farming operations even went up fivefold in the same period. It is thus an
area where substantial agricultural intensification has taken place recently, also by ex-
tending farming into lands that fell idle after the collapse of socialism. At the same time,
farming organisation has changed significantly. On the one hand, a new layer of indi-
vidual farms has emerged which now cultivate about one quarter of agricultural land.
2
On the other hand, agriculture in the NKGR has become the target of outside investors
who began to establish huge vertically integrated grain companies, so called agrohold-
ings. In this study, we document some of the main outcomes of agricultural recovery
and restructuring in the region. We shed light on the political reforms that formed the
background of this process and that led to the diverse agricultural structure observed to-
day. Furthermore, we investigate the social and economic implications of agricultural
restructuring for the population living in rural areas of the NKGR. By focusing on the
NKGR, we avoid statements about average developments in Kazakhstan as a whole,
which are highly problematic given the regional diversity of agricultural production and
farming structures. In several respects, we thus update Gray’s (2000) thorough review
of farm restructuring progress undertaken by the end of the first transition decade.
The quantitative part of the study is based on statistical information mostly taken from
the Kazakh National Statistical Agency, data which has not been published in English
before.
3
In addition to this data, we utilise a number of key documents prepared by in-
ternational organisations on agricultural development in Kazakhstan (in particular
Dudwick et al., 2007; Gray, 2000; USAID, 2005) as well as first-hand experience from
a study tour to the NKGR conducted by the authors in April/May 2011. Farm case stud-
ies are documented in the appendix to this study.
The study is organised as follows. Section 2 gives an overview of overall agricultural
development in the NKGR by presenting a number of key statistical figures on output
1
For many Western observers, there has been actually too much stability in Kazakhstan, given that the
President of Kazakhstan, Nursultan Nazarbayev, has been in office for 20 years now, and with democ-
ratic elections playing a comparatively minor role in the Kazakh political system.
2
Following established terminology in Russian, these individual farms are called “fermer” or “peasant”
farms in Kazakhstan. However, unlike the conventional understanding in other development contexts,
these farms are neither operated by peasants in the classic sense nor are they small. We therefore use
the more neutral terminology “individual farms”, indicating operations run by a natural person rather
than an incorporated agricultural enterprise.
3
The Kazakh Statistical Agency has set a benchmark in publishing a host of statistical information as a
free download at www.stat.kz
. This includes all major statistical yearbooks issued in recent years as
pdf’s, as well as more regionally differentiated data collections and studies. This material is usually
published in Russian and, more recently, in Kazakh. We give the exact source of our data next to each
figure presented in the text.
3
and factor use. In section 3, the main steps of farm restructuring and agricultural policy
after 1990 are summarised. Section 4 takes current statistical data on structural change
to characterise and tentatively evaluate the different farming organisations present in the
NKGR today. Section 5 looks at the social implications of agricultural restructuring and
section 6 concludes.
2 Agricultural recovery in the North-Kazakh Grain Region:
an overview
In the past decade, agricultural production in the NKGR has displayed a remarkable re-
covery from the earlier transition crisis. Based on official statistics, we portray the main
aspects of this recovery in the subsequent section. We start with land use. The overall
reduction of cropland area after national independence was substantial. In 2000, it had
decreased to about one half of its 1990 value in Kazakhstan as a whole, and to about
two thirds in the NKGR. However, agricultural land use has been expanding consis-
tently since 2001. It picked up again in the early 2000s and increased by almost a half
between 2000 and 2010 (Figure 1). This is about 80 percent of the 1990 value. As the
parallel increase of the lines for the NKGR and Kazakhstan as a whole demonstrate, al-
most all cropland expansion in Kazakhstan took place in the NKGR. Since 2000, about
five million ha of cropland have been put into production again.
Figure 1: Cropland area (million ha)
0
5
10
15
20
25
30
35
40
1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
North-Kazakh Grain Region Kazakhstan
Source: Authors’ calculations based on: 2000-2010: electronic table provided at www.stat.kz; 1990: Sta-
tistical Yearbook 50 Years Start of the Virgin Lands Campaign 1953-2003, Almaty 2003.
Along with cropland expansion went an increase in input use. Figure 2 shows the rise in
mineral fertiliser application. Starting from a practical absence of application in 2000,
now about five percent of all cropland receive fertiliser, though with considerable an-
nual fluctuation. The Kazakh Statistical Agency reports doses in the range of 30 to 40
kg pure nutrient per ha (Statistical Yearbook of Agriculture, Forestry and Fishery in Ka-
zakhstan 2005-2009, 143). A possible explanation for the notable dip in 2008 is liquid-
ity shortages, as the global financial crisis led Kazakh banks to drastically cut down
their short-term lending early in the crisis (Box 1).
5
6
Figure 2: Area on which mineral fertiliser is applied (percent of cropland
area)
0
1
2
3
4
5
6
7
8
9
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
North-Kazakh Grain Region Kazakhstan
Source: Authors’ calculations based on: 2000-2004: Statistical Yearbook of Agriculture, Forestry and
Fishery in Kazakhstan 2000-2004, 229; 2005-2009: Statistical Yearbook of Agriculture, Forestry
and Fishery in Kazakhstan 2005-2009, 142.
Box 1: A chronicle of recent economic shocks
August 2007: The first wave of the global financial crisis hits Kazakhstan, leading to plummeting stock
indices and real estate prices in the cities. In the course of the crisis, Kazakhstan experiences an economic
recession (in 2008/2009) and substantial pressure on its banking system as well as its currency exchange
rate. Short-term lending to agriculture declines substantially.
April 2008: After spiralling global food prices, the government imposes a temporary export ban on
grains. The ban is lifted on 1 September 2008. No further trade restrictions have been enacted since.
February 2009: As a result of the financial crisis, the Kazakh tenge (KZT) loses 20 percent of its ex-
change value against the USD. More recently, the exchange rate has floated around 145 KZT/USD. In
2009, KazAgro, the state development agency for agriculture, receives extraordinary financial support
from the government’s National Welfare Fund. The latter accumulates the state income from oil sales.
Summer 2010: An extreme drought leads to severe harvest losses and reduced grain exports.
Sources: Economist Intelligence Unit; D. Oshakbayev, personal communication; Lillis 2008.
Between 2003 and 2009, investment in agricultural fixed assets increased five-fold
(Figure 3). Relative to Kazakhstan as a whole, alm
ost all the increase in investment oc-
curred in the NKGR. In practice, this primary meant investments in buildings and ma-
chinery, leading to a substantial upgrading of farming technologies (Box 2, Picture 1).
7
Figure 3: Investment in agricultural fixed assets (billion tenge)
0
10
20
30
40
50
60
70
80
90
2003 2004 2005 2006 2007 2008 2009
North-Kazakh Grain Region Kazakhstan
Source: Authors’ calculations based on: 2003-2007: Statistical Yearbook Regions of Kazakhstan in 2007,
388; 2008-2009: Statistical Yearbook Regions of Kazakhstan in 2009, 368.
Box 2: Grain production technology in the NKGR
Under the dry climatic conditions of North Kazakhstan, timely and moisture-conserving field operations
are of crucial importance for successful plant production (Longmire and Moldashev, 1999). This in turn
requires appropriate production technologies.
“Enbek Bereke”, a 12,000 ha crop farm 150 km north of Astana, uses latest zero-tillage technology of
Western origin and a non-selective herbicide for clearing the weeds before sowing. The sowing campaign
is from May 5 to June 5, there is one additional spraying operation using a self-propelled sprayer. Fertil-
iser is applied simultaneously with sowing. Machinery operations are monitored by a full-fledged GPS
imaging system.
“Saratomar” individual farm also uses zero-tillage technology and cultivates 650 ha of wheat in monocul-
ture, with the occasional exception of oats or peas to fix nitrogen in the soil. A GPS-based system is used
to control spraying operations and the performance of tractor drivers. It is not used for sowing, as the
sowing campaign is only one week. According to the agronomist, the minimum subscription to GPS ser-
vices is one month, so it is too expensive for such a small farm.
Over recent years, the manager of “Beloe Osero” individual farm has continuously increased his stock of
used farming machinery, generally of Soviet origin (e.g., three K-700 tractors). He recently bought two
new combine harvesters. For keeping his machinery park running, he has gathered an arsenal of second-
hand and partly dysfunctional machinery on his farm, which is used as a reservoir of spare parts. Improvi-
sation is often necessary, but his staff is used to such working conditions.
Source: Case studies 1, 4, 6, appendix.
8
Picture 1: Modern drilling equipment on agricultural enterprise
Photo by Martin Petrick 2011.
Figure 4: Wheat yields (dt/ha, three-year moving average)
0
5
10
15
20
1989 2001 2002 2003 2004 2005 2006 2007 2008 2009
Kostanay North-Kazakhstan Akmola Kazakhstan
Source: Authors’ calculations based on 1990: Statistical Yearbook 50 Years Start of the Virgin Lands
Campaign 1953-2003, 83; 2000-2002: Statistical Yearbook of Agriculture, Forestry and Fishery
in Kazakhstan 2000-2004, 210; 2003-2010: electronic table provided at www.stat.kz
.
In response to intensified land use and increased use of fixed capital, crop yields have
stabilised above the levels reported under Soviet rule in the late 1980s (Figure 4). This
is at least true for the more northern and thus climatically favoured regions North-
Kazakhstan and Kostanay, where the three-year moving average yields of summer
9
wheat have reached levels of 13 to 14 dt/ha.
4
The more southern and thus drier region
Akmola stands at about 9 dt/ha.
With fluctuations, grain prices doubled between 2001 and 2009 (Figure 5). However, in
the same period, nominal wages in agriculture rose even faster to about four and a half
times their 2001 level. Production costs thus increased perceptibly as well. Neverthe-
less, reflecting the trends in land expansion and intensification, real agricultural value
added (the real regional product of agriculture) in the NKGR has also almost doubled
since 2002 (Figure 6).
Figure 5: Grain prices and wages in North Kazakh Grain Region (2001=100)
0
50
100
150
200
250
300
350
400
450
500
2001 2002 2003 2004 2005 2006 2007 2008 2009
Grain prices Wages in agriculture
Notes: Grain index is simple average of provincial grain indices for Akmola, North-Kazakhstan and
Kostanay, wage index is average weighted by employees in agriculture in these provinces.
Source: Authors’ calculations based on 2001-2004: Statistical Yearbook Regions of Kazakhstan in 2005,
96, 429; 2005-2009: Statistical Yearbook Regions of Kazakhstan in 2009, 114, 383.
4
The three-year moving average in a given year is the mean of the previous, current, and subsequent
years, calculated for all years for which both neighbouring values are available.
10
Figure 6: Agricultural value added (billion tenge in 2000 prices)
0
50
100
150
200
250
300
350
400
450
500
2001 2002 2003 2004 2005 2006 2007 2008 2009
North-Kazakh Grain Region Kazakhstan
Note: Nominal product deflated by agricultural sales price index.
Source: Authors’ calculations based on 2001-2003: Statistical Yearbook Regions of Kazakhstan in 2005,
203, 207; 2004: Statistical Yearbook Regions of Kazakhstan in 2007, 196, 200; 2005-2009: Sta-
tistical Yearbook Regions of Kazakhstan in 2009, 191, 195; Agricultural sales price index pro-
vided at www.stat.kz
.
Figure 7: Kazakh wheat exports
0
1
2
3
4
5
6
7
8
9
2000/200
1
20
01
/
20
0
2
2
0
02
/
20
0
3
2003/200
4
20
04
/
20
0
5
2
0
05
/
20
0
6
2006/200
7
20
07
/
20
0
8
2
0
08
/
20
0
9
2009/201
0
20
1
0/
2
01
1
2
011/2012*
Million tons
Note: Figures based on marketing years; * 2011/2012 are projections.
Source: USDA, PSD Online database.
The previous figures draw a consistent picture of cropland expansion, agricultural inten-
sification and productivity increases in the NKGR. These in turn provided the basis for
increasing wheat exports which made Kazakhstan an important player on world grain
markets (Figure 7). Which were the drivers of this notable recovery? While output
11
prices went up in line with global trends, Figure 5 shows that this is only part of the
story, as wage expenses increased even stronger. It is likely that substantial restructuring
processes in the agricultural sector contributed much to the positive developments.
These are therefore investigated in the subsequent chapter.
3 Restructuring policies after 1990
3.1 Farm restructuring legislation and its main outcomes
During the past 20 years, land reform legislation in Kazakhstan underwent a major para-
digm change. In the 1990s, the paradigm was that all land remained in state ownership,
while formal shares in former collective farm land were rented to rural citizens on a
long-term basis. These land shares could be used for own cultivation or leased to end
users in a secondary transaction. After 2001, the paradigm shifted towards full private
ownership of land and limitations on the rental terms of state land. Since then, a land
sales market has emerged, but it has remained thin. Most land is still rented from the
government at a normatively set low price. A complete transition to widespread private
ownership and transactions in land has not materialised yet. Even so, substantial restruc-
turing of farms has taken place, and a tri-modal farming structure of agricultural enter-
prises, individual farms, and household plots has emerged. Table 1 summarises the main
steps in this process.
1990-1994: Early reform steps, little profound restructuring
The early transition period was characterized by many formal rather than substantial
changes. Collective farms were registered as private legal entities, but the farming proc-
ess often remained unchanged (Gray 2000, 13). As early as May 1990, the government
enacted the first national law “On Peasant Farms in the Kazakh Socialist Soviet Repub-
lic” (Table 1). According to this law, it was legal for workers to leave the collective
farms and to start individual farming, based on inheritable use rights to land. In 1992,
the Kazakh government formally allowed managers of the collective farms to transform
the large farms into smaller agricultural enterprises. Such enterprises could be joint
stock companies, collective enterprises, and producer cooperatives (USAID, 2005, 3).
In 1993, farm input markets were widely liberalised. The state continued to control out-
put prices and quantities, at the same time providing soft credits to unprofitable farming
operations. These circumstances triggered the severe farm solvency crisis of the follow-
ing years, which would lead to widespread land abandonment and the frequent collapse
and re-establishment of farm organisations (Gray 2000, 7, 10).
In 1994, a decree was passed which stipulated that 10 percent of state farm property
were handed over to the former directors that had served as such for at least 20 years. It
was a form of gratification. Another 10 percent of the former collective land was at the
disposal of the farm directors for 5 years. The remaining 80 percent was intended to be
distributed among farm members. By 1995, most state and collective farms had for-
mally disappeared, although little actual restructuring had taken place. The first individ-
ual farms had emerged. Usually they were created by the management staff of former
state farms (USAID 2005, 4).
13
14
Table 1: Main reform initiatives and their effects on farm restructuring
Year Reform initiatives Restructuring outcomes
1990 National law “On peasant farms in the
Kazakh SSR”. Legalisation of individual
farming based on inheritable land use
rights.
First spontaneously created individual farms,
mostly by state farm cadres.
1991 National independency, followed by re-
form legislation in various areas.
Start of formal conversion of state and collective
farms into producer cooperatives and other legal
forms, little substantial restructuring.
1993 Liberalisation of input markets, output
prices and quantities remain controlled
by government, continuing soft budget
constraints. Elimination of collective
form of property.
Origin of liquidity crisis in agriculture.
1995 Law “On land” institutes share privatisa-
tion. Withdrawal to form individual
farms is allowed.
Government ownership of land, but rural residents
obtain up to 99-year leasehold of “conditional
land shares” without specific demarcation of
plots. Three options: (1) creation of an individual
farm, (2) formation of an agricultural enterprise,
(3) sublease to other users. Inheritable private
ownership of household plots and dacha land is
acknowledged.
1997 Government instructions encourage for-
mation of agricultural enterprises and
“personification” of land.
Shares are increasingly transferred into limited
liability partnerships, lottery procedures to allo-
cate land plots to individuals prove difficult.
1998 Application of bankruptcy procedures as
response to widespread insolvencies.
Conversion of most producer cooperatives into
limited partnerships, concentration of formal own-
ership into hands of management following offi-
cial recommendations, new management and out-
side investors become active, but creation of indi-
vidual farms is also accelerated.
2001 Terms of lease for existing and future
contracts reduced to 49 years, an-
nouncement that subleases will have to
be terminated.
Increasing uncertainty about security of land ten-
ure.
2003 New land code adopted, introducing pri-
vate ownership of farmland. Sublease of
shares prohibited, land either to be self-
cultivated or contributed as capital share
to agricultural enterprise, “merging small
farms campaign”.
Implementation in 2005, preferred option of for-
mer sub-lessors is to contribute to stock of agri-
cultural enterprises, but creation of individual
farms is also exercised.
Source: Authors’ compilation.
1995-1997: Share privatisation, emergence of limited partnerships
In 1995, the law “On land” formalised land privatisation to rural residents, that is farm
workers and staff, pensioners, as well as persons working in the social sphere such as
doctors and teachers. The law enabled beneficiaries to lease “conditional land shares”
for a period of 3 to 99 years from the government, but purchase and private ownership
of land were not allowed. Thus, the state remained the legal owner and could reclaim
land that was not cultivated for a period of three years. The main legal options for hold-
15
ers of conditional land shares were as follows: (1) Shares could be joined to form an ag-
ricultural enterprise; (2) shares could be redeemed to withdraw land plots in order to
form individual farms; and (3) shares could be subleased to other users. The specific lo-
cation of land shares was usually not known. This fact facilitated the buyout by large
investors (Gray 2000, 9). By 2002, 18 percent of shareholders had exercised option (1),
mostly former managers and their collaborators (Dudwick et al. 2007, 46). Option (2)
was exercised by 29 percent of beneficiaries, usually people with some farming experi-
ence. Option (3) was exercised by 28 percent, mostly pensioners and people without ag-
ricultural background, but also farm workers. For the latter, it provided a way to partici-
pate in the assets of the former collective farms, in addition to their salary. With regard
to household plots and dacha land, inheritable private ownership was granted immedi-
ately with implementation of the law (USAID 2005, 4).
In this period, a legal form of corporate farming emerged that would play a dominant
role in the NKGR, the limited liability partnership (Gray 2000, 8). This form of partner-
ship allowed the concentration of shares in the hands of the director and was widely
supported by government authorities. It was a means to continue large scale farming op-
erations under post-socialist conditions without having to deal with a large number of
decision makers (as formally required in producer cooperatives). In the coming years,
such limited partnerships would form the backbone of agricultural enterprises in the
NKGR. Together with joint stock companies and producer cooperatives, they represent
the group of agricultural enterprises. They are legal persons recognised by the Civil
Code (Box 3).
In 1997, the government gave instructions to issue land titles to the rural population, and
to promote the demarcation and thus “personification” of land (Gray 2000, 9). However,
the procedure based on drawing a lottery was difficult to administer and proceeded
slowly, usually only when individual farms were created (USAID 2005, 29).
1998-2002: Bankruptcy procedures accelerate restructuring, coexistence of corpo-
rate and individual farms
A result of half-hearted restructuring and adverse price policies (Pomfret 2008) was that
by 1998 most corporate farms were loss-making and illiquid. The government enacted a
procedure of bankruptcy proceedings (see Gray 2000 for a thorough review). This time
it aimed more at supporting profitable farms and at abandoning farms that were not vi-
able. The latter were taken through a bankruptcy procedure. This period saw the wide-
spread conversion of producer cooperatives into limited partnerships, and the concentra-
tion of formal ownership (land shares) into the hands of directors. It often went hand in
hand with the installation of new outside management, purchases by outside investors
including input suppliers, fragmentation into smaller units, and the collapse of farming
in the least favourable regions (Gray 2000, 15-17; Picture 2). Similar to the situation in
other post-Soviet countries, farm workers and other lower-rank beneficiaries were likely
the least informed about their options and the consequences of their choices (Dudwick
et al., 2007, 50; Petrick and Carter, 2009). Even so, the creation of individual farms was
also accelerated, so that among the registered farms a significant number of both corpo-
rate and individual farms began to coexist. As household economies continued to con-
tribute a significant share in gross agricultural output (see section 4.1), a tri-modal agri-
cultural structure had emerged.
16
Picture 2: Obsolete grain storage
Photo by Martin Petrick 2011.
Box 3: Background legislation on farm organisation and land use
The Civil Code of the Republic of Kazakhstan (first passed in 1994) recognises four types of legal per-
sons (ch. 2, §2): economic partnerships (khoziaistvennoe tovarishchestvo), joint stock companies
(aktsionernoe obshchestvo), producer cooperatives (proizvodstvennyi kooperativ), and state enterprises
(gosudarstvennoe predpriiatne). All these forms are also present in agriculture, although in very unequal
proportions. In addition, there are individual farms (krest’ianskoe (fermerskoe) khoziaistvo) treated as
natural persons, and simple partnerships of natural persons (prostoe tovarishchestvo, ch. 12). Registration
procedures for natural persons are simpler and tax obligations lower.
The 2003 Land Code of the Republic of Kazakhstan states that (art. 3):
“Land in the Republic of Kazakhstan is in the public domain. Plots can also be privately owned on terms,
conditions and limits established by this Code.”
Owners can be the state, individual citizens, and non-state entities (art. 20). Furthermore, “the owner
owns the rights to possess, use and dispose of the land belonging to him” (art. 21). Ownership may be
granted by the state and can be transferred by civil law transactions (i.e., purchases), by inheritance, or
can emerge from the reorganisation of legal entities (art. 22). Foreigners may own land, but must not use
it for agricultural production (art. 23). In addition, there are land use rights which are provided by the
state and which can be granted permanently, temporarily long-term (5-49 years), and temporarily short-
term (up to 5 years) (art. 32; 35). However, transactions among land users in temporary land use rights for
agricultural production are explicitly prohibited, except for mortgaging and for contributing them to the
capital stock of an agricultural enterprise (art. 33).
Kazakh citizens can buy or lease land for up to 49 years in order to establish an individual farm (art. 101).
By this legal provision, a farmer is assumed to self-cultivate the farm, have specialised agricultural
knowledge and practical farming experience, and reside in geographical proximity to the farm. Individu-
als who contributed their land use right to the capital stock of an agricultural enterprise, to a partnership
or to a production cooperative, have the right to withdraw it in kind or be financially compensated for it.
Source: Online legislation at http://www.minjust.kz, see also http://www.pavlodar.com.
In 2001 a new law on land was introduced due to which the maximum lease period di-
minished to 49 years instead of 99 years. This alteration applied not only to future leases
but also to existing ones. In addition, it was announced that subleases of land would
17
have to be terminated. These changes marked the start of a paradigm shift towards full
private ownership of land and a turn away from share privatisation exercised so far. As
a result, considerable uncertainty about future land tenure options was raised among the
rural population (USAID 2005, 6).
After 2003: Implementation of new land code, recognition of private land owner-
ship, prohibition of subleasing
In 2003, the new Kazakh land code was announced and came into force on 1 January
2005 (Box 3). By recognising individual ownership of agricultural land, it formalised
the paradigm shift. The widespread practice of subleasing shares (option (3) under the
1995 legislation) or demarcated land plots received under previous privatisation steps
was outlawed. The government expressed the view that land should belong to those who
cultivate it, and that all land owners should be subjected to agricultural taxation and
regulation. Furthermore, the pending WTO accession of Kazakhstan appeared to be a
driving force for the reform (USAID 2005, 9). There were important interim provisions
(article 170) which regulated the abandonment of sublease: (1) Subleased land shares as
well as land plots could be taken to own cultivation under lease from the government;
(2) they could be transferred into private ownership by a purchase; and (3) they could be
contributed as a share to the capital stock of an agricultural enterprise. In case of non-
compliance with these interim regulations, the land could be confiscated. Option (2) of-
fered the remaining opportunity to continue sublease contracts. Individuals could buy
land from the state, lease it out, and if it was not explicitly prohibited in the contract, the
leaseholder could then sublet this land (USAID 2005, 23).
Figure 8: Disposition of formerly subleased land shares and plots after im-
plementation of the land code, as of 15 January 2005
673
5810
619
2563
2993
5573
4665
6881
266
1773
40
188
892
1203
986
968
0%
20%
40%
60%
80%
100%
NKGR Kaz NKGR Kaz
turned into individual farms contributed to ag enterprise stock
returned to government not decided yet / other
Conditional land shares (ths ha) Land plots (ths ha)
Source: Authors’ calculations based on information by the Land Resources Management Agency, as pub-
lished in USAID (2005, 17-18).
On 1 January 2004, of the 23 million ha of agricultural land in the NKGR, shares
equivalent to 4.8 million ha and 6.3 million ha of land plots were under sublease and
18
thus affected by this regulation (based on official statistics of land use and figures by the
Land Resources Management Agency, as published in USAID 2005, 17-18). Kazakh-
stan as a whole had 79 million ha of agricultural land, of which 14.4 million ha were
under share and 10.6 million ha under land sublease. Subleasing was thus salient in the
NKGR, affecting almost half of the land. Figure 8 shows how this land was disposed of
in the course of land code implementation. Compared to Kazakhstan as a whole, more
individuals preferred to contribute their shares or land to agricultural enterprises. Land
purchases played a negligible role in the NKGR (USAID 2005, 23).
As pointed out by USAID (2005, 27), transferring a share or land plot to the capital
stock of an agricultural enterprise meant that shareholders would receive a dividend on
capital in the future, rather than a rent on land as in the past (Box 4). Whereas land rent
usually used to be a fixed proportion of the harvest (e.g., five percent), the dividend de-
pends on the profitability of the enterprise after managers and workers are paid. There
were fears that farm managers, in particular outside investors, would manipulate their
profit figures in order to reduce dividend payments and thus unilaterally favour the em-
ployees of the farm. Not all shareholders may have been fully aware of these implica-
tions (ibid.).
Box 4: Land sources of agricultural enterprises in the NKGR
“Enbek Bereke” is a director-owned corporation and formally a limited liability partnership. All land is in
long-term leasehold by the villagers who obtained this lease in the course of farm privatisation. The
leaseholds were transferred into the capital stock of the farm managed by the current director. The direc-
tor came as an outsider to the local community. All primary leaseholders (and thus shareholders of the
farm) earn an annual dividend based on the performance of the farm. The farm employs 35 workers, in-
cluding administrative personnel. 40 percent of the farm workers are also land owners. Many live in the
nearby village.
“Rodina”, a corporate crop and dairy farm, is also organised as a limited liability partnership. Of the
52,000 ha of land, 51 percent are held by the director, the other 49 percent belong to local residents, who
receive an annual dividend on their share.
Source: Case studies 1 and 2, appendix.
Whereas agricultural enterprises benefitted from the new legislation, individual farms
were discriminated against, as they could not acquire land shares from rural residents
via the interim provisions. Moreover, the swift formal implementation of the land code
was accompanied by a campaign apparently promoted by governmental officials rec-
ommending the merger of small farms into limited partnerships (called “merging small
farms campaign” by USAID 2005, 23, 31). Perhaps as a sort of counter-reaction, some
farmers established new types of organisations in the legal form of a simple partnership.
Such simple partnerships are regarded as natural persons with a status similar to an in-
dividual farm (Box 3, USAID 2005, 20). However, no family ties were required to for
m
the partnership. Former parties in a lease contract could thus rescue this relationship in a
legally acceptable manner by transforming it into a simple partnership.
While the new land code was implemented formally, there are still reports that informal
land sublease arrangements prevail in many rural areas to the present day. In the NKGR,
they likely assure the corporate farms cheap access to land resources.
19
An evaluation of formal land legislation
Looking back, formal land legislation in Kazakhstan evolved gradually, if not hesi-
tantly, from the abandonment of collective land ownership in 1993, over share privatisa-
tion with a 99-year leasehold in 1995, to the reduction of this leasehold to 49 years in
2001, and the recognition of inheritable individual land ownership in the 2003 land
code, implemented in 2005. Today, the legal provisions for a capitalist mode of land
ownership and exchange seem to be mostly in place. However, this stepwise process no-
tably changed its target in the course of transition and came at the cost of considerable
uncertainties for the potential beneficiaries of land privatisation. Furthermore, while le-
gally possible, full private ownership of agricultural land continues to be a rare excep-
tion, at least in the NKGR. Although land purchases have been increasing recently, the
vast majority of land is still in government ownership.
5
Whereas land sales are now possible in principle, such transactions require large capital
investments and a long-term planning horizon. Both conditions are often not met, so
that land sales remain rare. Land users rather prefer to base their operations on land
rentals from the government at a low normative price determined by law. The govern-
ment apparently has no political interest in raising its revenues from increasing this nor-
mative price. However, as secondary land rentals are prohibited, short- and medium-
term adjustments in land use outside the land sales market are difficult. They mostly oc-
cur when existing farms change ownership, due to liquidations or mergers, and the land
shares are transferred to the new owner. There is a tension between the land code legis-
lation making private land ownership the basis of land transactions and the continued
access to cheap rental land from the government.
Picture 3: Traditional fieldworks with caterpillar tractors
Photo by Martin Petrick 2011.
5
Official figures on land sales are hard to obtain, however. This may have to do with media reports on
large land deals the Kazakh government supposedly negotiates with Chinese investors, which were
criticised in public. Land access and ownership in the vicinity of the capital Astana is also a politically
sensitive topic, as there may be influential investors who managed to secure large tracts of this land in
view of future development.
20
It is unknown to what extent lease and sublease of land are still carried out informally,
contrary to the 2003 land code provisions. More transparency and firmer as well as
more practical legislation would likely stimulate land rentals and thus lead to further ef-
ficiency gains in the medium term.
3.2 Agricultural policy environment
During the 1990s, the Kazakh government engaged in the privatisation policies de-
scribed in the previous section but otherwise mostly neglected the agricultural sector
(Pomfret, 2008, 227-238). However, when oil revenues became stable, agriculture was
rediscovered as a strategic sector for making the Kazakh economy more competitive
and diversified. According to Kazakh observers, the governments’ objectives were to
substitute food imports by domestic products, thus ensuring national “food security”,
and increasingly export agricultural staples but also processed food products (Wandel,
2010, 17). To achieve these aims, increasing amounts of government expenditure were
channelled through an emerging system of government agencies set up in support of the
agricultural sector. On average, the annual growth of the Ministry of Agriculture’s
budget in real terms between 2002 and 2008 was 17 percent (World Bank 2010, 10).
The most important forms of support for farmers in this system have become credit pro-
grammes and a ramified system of area as well as output-oriented subsidies (see Figure
9 and the review in World Bank, 2010, 13-17). However, budget priorities were chang-
ing during the recent decade. One such shift occurred from direct market interventions
(mostly in grain markets) to production-oriented subsidy payments based on area use,
production levels and input use. In general, crop production has received more support
than livestock production. The trade regime in wheat was not particularly protectionist
in the 2000s, although attempts to quantify the (absence of) distortions proved difficult
(Pomfret 2008). During the price hike in spring 2008, Kazakhstan had introduced a
temporary export ban for wheat (Lillis 2008), but has since declared to maintain an open
export regime (Box 1).
21
Figure 9: Expenditure categories of the Ministry of Agriculture budget in
2008
Administration
7%
Infrastructure
5%
Crop & livestock
services
17%
Research &
extension
3%
Market intervention
13%
Subsidies
24%
Credit support
27%
Cross functional
expenditures
4%
Source: World Bank (2010, 17), based on official sources.
In recent years, almost half of the Ministry’s expenditure was channelled through the
state-owned holding KazAgro and its subsidiaries, and almost a quarter via local gov-
ernments (World Bank, 2010, 11). Local governments handle the distribution of produc-
tion-oriented subsidies. The main task of KazAgro is to implement government plans
for the sustainable development of the agro-industrial complex. These include the direc-
tion of investments into sectors of special importance, the development of the infra-
structure, regulation and stabilisation of domestic agricultural markets, assistance with
the formation of business clusters, and the implementation of the February 2007 “30
Corporate Leaders” programme in the agricultural and food sector. It unites seven state
institutions – all of which are legally joint stock companies – which hitherto operated
directly under the Minister of Agriculture (Figure 10).
Figure 10: Structure of the state-owned holding KazAgro
Food
Contract
Corporation
KazAgro-
Finance
Agrarian
Credit Cor-
poration
KazAgro-
Garant
KazAgro-
Marke-
ting
KazAgro-
Product
Financial
Support for
Agriculture
F
KazAgro
Source: Gramzow and Suleimenov (2011).
22
KazAgro is thus an instrument of state economic and agricultural policy, i.e. a sort of a
state agency for economic development.
6
Copying models from Singapore (“Temasek”)
and Malaysia (“Khazanah”), the Kazakhstan government established two other, similar
state holdings: the Sovereign Wealth Fund “Samruck-Kazyna” JSC, and “Samgau” (Na-
tional Scientific and Technological Holding JSC). The supposed task of all national
holdings is to consolidate various state and semi-state enterprises and development in-
stitutions, so as to improve management and coordination between them, as well as
stimulate larger investment in infrastructure and in so-called “priority sectors”. The es-
tablishment of these state holdings is part of the diversification policy that has been
pushed forward since 2003, in order to counteract the predominance of raw materials in
the Kazakh economy. This policy promotes the classification of those economic sectors
thought to be particularly important and competitive, as set out by an action programme
of 2004 providing for the development of “clusters”. Such clusters are regional concen-
trations of businesses that belong to the same or closely related sectors. These priority
sectors include the agricultural and food sector as well as high technology. KazAgro is
responsible for implementing the development strategy in the agricultural and food
economy, and Samgau in the high-tech sector. Samruck-Kazyna was founded in 2008
by a merger of the Kazakhstan Holding Company for the Management of State Assets
“Samruck” and the “Kazyna” Sustainable Development Fund. The key purpose of
“Samruk-Kazyna” is to manage the shares of national development institutions, national
companies (e.g. KazMunaiGas, Kaztelekom, Air Astana) and other legal entities it owns
to maximize their long-term value and competitiveness in the world markets.
Usually, KazAgro is funded from general tax receipts of the government. However, in
exceptional circumstances, funding is also directly coming from the National Welfare
Fund, which accumulates the state income from oil sales. This happened during the fi-
nancial crisis, when extra liquidity was provided to KazAgro in order to prevent exces-
sive defaults (see Box 1), and in 2011, when a special programme for promoting in-
vestments in livestock was offered.
Critics see KazAgro and the other state holdings as just another bureaucratic institution
which is taking over tasks that ought to be the work of the ministries, meaning that
overlaps are unavoidable. There is also scepticism as to whether an unbundling of eco-
nomic and political interests can be possible. On the one hand, the national holdings are
supposed to implement economic policy, yet on the other they must operate efficiently
like private enterprises and increase the business value of their daughter companies.
This latter objective may be one of the reasons why independent businessmen and aca-
demics from both Kazakhstan and abroad have been appointed to the boards alongside
government representatives.
The roles of the individual KazAgro branches are as follows. The Food Contract Corpo-
ration acts as a procurement agency of the government that buys grain at the farm gate
and runs state-owned storage facilities in order to ensure national food security. Pro-
curement prices used to be much below market prices, though (Gramzow and
Suleimenov, 2011). Even so, the Food Contract Corporation accounts for almost half
the budget of KazAgro. KazAgroFinance is primarily involved in leasing arrangements
to provide farmers with access to machinery and livestock at favourable terms. It uses
almost a quarter of the KazAgro budget.
6
It is not a private agroholding of the sort described in section 4.3.
23
The Agrarian Credit Corporation (AKK) is the key government agency that provides
farmers with subsidised credit (cf. Gramzow and Suleimenov, 2011, 11). To this end, it
is linked to a network of 150 so-called Rural Credit Partnerships. These partnerships
consist of 30 to 40 farms whose managers have to make a deposit in order to become
members and thus eligible for funding. Based on available farm collateral, farmers sub-
mit their credit proposals via the Credit Partnerships to the AKK. If the proposal is ac-
cepted, the AKK grants a credit at a subsidised rate (recently four percent, compared to
13 to 16 percent for commercial loans) to the Credit Partnership. The latter hands this
credit over to the farmer at double the rate (hence, eight percent). Unlike traditional
credit cooperatives in other countries, the Credit Partnerships have no autonomy in de-
cision making (Gaisina, 2007). They are not allowed to take regular savings and have no
control over the deposits made by farmers. Only registered enterprises (including indi-
vidual farms), but no private individuals can become members. Rural Credit Partner-
ships are simply the local branch of a centralised governmental subsidy programme.
Recently, default rates have been high. In another programme, the AKK provides spe-
cific credit lines for livestock purchases. AKK expenses account for a little more than
20 percent of KazAgro’s budget (Gramzow and Suleimenov, 2011, 12).
In terms of expenditure share, the remaining KazAgro subsidiaries are of secondary im-
portance. KazAgroGarant provides credit guarantees to agricultural enterprises. Kaz-
AgroMarketing is engaged in market information services and international promotion
activities for Kazakh agricultural products. KazAgroProduct (the Stock Raising Prod-
ucts Corporation) has set up and runs slaughterhouses, feedlots and state dairy farms.
The Fund for Financial Support in Agriculture was created as a microfinance agency for
small farms and non-agricultural businesses.
Box 5: Credit access for individual farmers
Yevgeni, the owner of “Niva” vegetable farm, has used commercial credit in the past and is a member of
a governmentally sponsored Rural Credit Partnership. The Credit Partnership is operating at the rayon
level and has 24 members. It was founded due to a government initiative in 2004. Each member had to
deposit one million KZT as a share. The farmer recently took a loan for one year worth 10.5 million KZT,
using his residential house as collateral. The interest rate is eight percent. In addition, the farmer has a
credit line with the Credit Partnership. Commercial bank loans are also available, but are more expensive.
The farmer recently took one seasonal loan for one million KZT, at a rate of 13 percent interest. His wife,
a public servant, acted as a loan guarantor with her salary. Given additional fees and transaction costs, the
total rate amounted to 18 percent. Occasionally, the farmer also had borrowed money from friends and
relatives.
“Beloe Osero” individual farm recently bought two combine harvesters for which a 16 million KZT credit
was taken from the Rural Credit Partnership. The interest was nine percent and the loan was taken for five
years. To become a member of the Partnership, the farmer had to make a deposit of 1.2 million KZT. The
coop took machinery and his land as collateral.
For “Saratomar” individual farm and bakery, access to credit appears to be a minor problem. According
to the manager, banks used machinery as collateral in the past. Furthermore, a good repayment history is
important. He never used land as collateral.
Source: Case studies 4, 5 and 6, appendix.
Casual evidence based on field visits suggests that many farmers, including individual
ones, have taken advantage of the subsidised funding facilities provided by the govern-
ment, although commercial bank loans are also used (Box 5). Obtaining cheap credit
from KazAgro is reported to be cumbersome and bureaucratic, so that private banks
24
may have a competitive advantage in being more consumer-friendly. However, accord-
ing to Gramzow and Suleimenov (2011, 10), high default rates and the increasing en-
gagement of KazAgro have crowded commercial banks out of the agricultural lending
business recently. The share of agriculture in nationwide commercial lending fell from
12 percent in 2003 to under four percent in 2010. In late 2007 and 2008, commercial
lending to the agricultural sector in Kazakhstan had strongly contracted due to the un-
folding global financial crisis (Box 1).
Picture 4: Individual farm fuel storage
Photo by Martin Petrick 2011.
After an initial phase of neglect, the Kazakh government has increased agricultural pol-
icy spending to a significant extent. Much of this spending is channelled through a cen-
tralised and governmentally controlled system of payment agencies. In this system,
market forces and autonomously operating, intermediating institutions play a minor
role. Private lenders have even lost interest in the otherwise growing agricultural sector.
Furthermore, many of the production-oriented policy measures will become difficult to
sustain in the pending negotiations about Kazakhstan’s accession to the World Trade
Organisation (WTO).
4 The emerging farm structure
4.1 Empirical patterns of farm restructuring
The overall picture of farm dynamics in the last five years has been one of declining
farm numbers but increasing farm sizes, both for the corporate and the individual sector.
Compared to the initial situation at the cessation of the Soviet Union, the number of in-
corporated farms had gone up from 1300 state farms to about 1700 agricultural enter-
prises in the early 2000s (Figure 11). At the same time, the average size decreased con-
siderably, from more than 14,000 ha to about 10,000 ha (Figure 12). Total land under
cultivation by agricultural enterprises fell from more than 18 million ha to less than 16
million in the early 2000s (Figure 13). However, land use by agricultural enterprises in
the NKGR picked up again in 2001. In the last decade, numbers of agricultural enter-
prises fluctu
ated, but they have stabilised at almost 1,800 since 2005. In this period,
their average size has been growing to above 10,000 ha.
Figure 11: Number of farms in North Kazakh Grain Region
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Agricultural enterprises active Individual farms active
Agricultural enterprises registered Individual farms registered
Sources: Number of active farms: 1990: Statistical Yearbook of Agriculture 2003, 111-112; 2000-2004:
Statistical Yearbook of Agriculture, Forestry and Fishery in Kazakhstan 2000-2004, 133, 139;
2005-2009: Statistical Yearbook of Agriculture, Forestry and Fishery in Kazakhstan 2005-2009,
31. Number of registered farms: 2000-2005: Statistical Yearbook Regions of Kazakhstan in
2005, 280; 2006-2007: Statistical Yearbook Regions of Kazakhstan in 2007, 256; 2008-2009:
Statistical Yearbook Regions of Kazakhstan in 2009, 249; Individual farms 2000: Statistical
Yearbook Regions of Kazakhstan 1996-99, 257.
25
26
Figure 12: Average size of different farm types in North Kazakh Grain Region
(ha)
0
2000
4000
6000
8000
10000
12000
14000
16000
1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Agricultural enterprises Individual farms
Sources: Authors’ calculations based on Figure 11 (active farms) and 2000-2004: Statistical Yearbook of
Agriculture, Forestry and Fishery in Kazakhstan 2000-2004, 133, 139, 146; 2005-2009: Statisti-
cal Yearbook of Agriculture, Forestry and Fishery in Kazakhstan 2005-2009, 58, 67. Land use
for 1990 is from Statistical Yearbook of Agriculture 2003, 120, and is cropland area only.
Figure 13: Land use by different farm types in North Kazakh Grain Region
(million ha)
0
5
10
15
20
25
30
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Agricultural enterprises Individual farms Household economies
Notes: Data for agricultural enterprises and individual farms is all types of land, household economies is
sown area (barely visible).
Sources: Authors’ calculations based on: 2000-2004: Statistical Yearbook of Agriculture, Forestry and
Fishery in Kazakhstan 2000-2004, 133, 139, 146; 2005-2009: Statistical Yearbook of Agricul-
ture, Forestry and Fishery in Kazakhstan 2005-2009, 58, 67.
27
The number of individual farms increased quickly by the end of the 1990s, probably as
a by-product of bankruptcy proceedings applied to agricultural enterprises. How many
were actually established is not so easy to say, as only formal registration without actual
operations as well as swift failures seemed to be widespread. The Kazakh Statistical
Agency states that about 10,000 farms were active by 2000, while the number of regis-
tered individual farms was about 50 percent higher (Figure 11). The number of regis-
tered and active farms converged in the last few years, probably also as a result of the
nationwide agricultural census conducted in 2006/7. The number of active individual
farms further increased until the mid of the decade, but then came under pressure and
currently stands at about 12,000 farms. With slight fluctuations, average individual farm
sizes are now above 500 ha, and have been growing since 2005 (Figure 12).
Implementation of the land code in 2005 apparently led to a boost in farm creation, al-
beit a transitory one. Implementation went along with an all-time high in the number of
active individual farms. The number of agricultural enterprises also went up. While the
latter is consistent with a successful “merging small farms campaign”, the former is
more difficult to reconcile with it. Many farmers seemed to still regard individual farms
as a viable option. The average size of agricultural enterprises fell substantially in 2005,
which means that the newly created enterprises were smaller than the average corporate
farm before the implementation of the land code.
Figure 14: Number of agricultural enterprises registered in different organisa-
tional forms in North Kazakh Grain Region
0
500
1000
1500
2000
2500
3000
2003 2004 2005 2006 2007 2008 2009
State farms Limited partnerships (tovarishchestva)
Joint stock companies Producer cooperatives
Other forms
Sources: Authors’ calculations based on: 2000-2005: Statistical Yearbook Regions of Kazakhstan in 2005,
280; 2006-2007: Statistical Yearbook Regions of Kazakhstan in 2007, 256; 2008-2009: Statisti-
cal Yearbook Regions of Kazakhstan in 2009, 249.
Figure 14 illustrates the notable rise in the number of registered agricultural enterprises
in 2005, but also shows that this was only a transitory effect. The overall trend is a
slight decline in the number of farms and, after 2005, a growing farm size, thus a con-
tinuing process of concentration. The figure also demonstrates that the limited partner-
ship has become the dominant form among the agricultural enterprises and that producer
28
cooperatives as well as joint stock companies have become almost irrelevant in recent
years.
These reform steps notwithstanding, there has been a consistent pattern of growth in
land area controlled by agricultural enterprises over the last decade. They continue to
cultivate around three quarters of the agricultural land used in the NKGR, and land use
vis-à-vis individual farms tends to grow in both absolute and relative terms (Figure
13).
7
Box 6: The origin of farmers
The individual farm “Niva” was established in 1997 by the current owner Yevgeni, who is a former con-
struction engineer. He started farming because his parents had a relation to it and he grew up in a village.
Now he owns about 538 ha. His wife works as a public servant in the capital. Yevgeni has an Uzbek part-
ner, a former irrigation engineer for vegetables from Tashkent. Yevgeni is a member of the Republican
public union “Union of Farmers of Kazakhstan” which represents the individual farms, the so-called
“fermers” of Kazakhstan (6000 members, founded in 2001).
Murat operates a sheep herd of 250 heads, producing meat and selling live animals for breeding purposes
to other producers. Previous to his farming business, he was a building engineer in a corporate farm.
Since 2003, when he started the operation, he has rented 400 ha of pasture in 49-year lease from the gov-
ernment.
“Rodina” farm emerged from a former dairy sovkhoz, which hosted about 2,000 cows. It had severe eco-
nomic difficulties before the current fifty-year old director took over the operations. He is well known in
the region for his entrepreneurial attitude and his social engagement for the local community. He is re-
spected for having an eye on local employment creation, which is why the two villages located adjacent
to the farm had become attractive for in-migrants from other places of Kazakhstan.
Source: Case studies 2, 5, 7, appendix.
Picture 5: Individual farmer in front of his tractors
Photo by Martin Petrick 2011.
7
Note that these figures give an idea of land that is potentially usable by farms. It includes pasture land
and may include land that lies temporarily fallow.
29
Despite an apparent preference of policymakers in favour of agricultural enterprises, a
significant stratum of individual farms emerged in addition to the corporate sector.
Many of the new managers apparently had leading positions in agriculture before and
often have a technical education (Box 6).
Figure 15: Contribution of different farm types to Gross Agricultural Output,
North Kazakh Grain Region (billion tenge in 2000 prices)
0
50
100
150
200
250
300
350
2004 2005 2006 2007 2008 2009 2010
Agricultural enterprises Individual farms Household economies
Sources: Authors’ calculations based on Statistical Bulletin Value of Agricultural Production, various is-
sues, deflated by agricultural sales price index published at www.stat.kz
.
Growing land use by agricultural enterprises is reflected in a growing share in gross ag-
ricultural output (GAO) (Figure 15). In addition to agricultural enterprises and individ-
ual farms, household economies contribute about 40 percent of GAO in the NKGR.
This share is considerable, but lower than in other Central Asian countries (cf. Lerman
2010, 103). Important outputs of household economies in the NKGR are livestock
products (milk, meat) as well as labour-intensive field crops such as potatoes and vege-
tables. These high-value crops are produced on a minimal share of land, which covers
about 60 thousand ha and is barely visible in Figure 13. Box 7 shows that household
farms supply products that are increasingly in demand, such as milk consumed by urban
residents.
Box 7: Surplus production by rural households
There are many household farms (household plots) in Beloe Osero. They own two or three cows which
are milked by hand. Because in the NKGR fresh milk is currently in short supply, the regional dairy com-
pany from Shortandy (50 km distance) is coming to the village on a daily basis and collects the milk. Dur-
ing summer, the cows are grazing on public pastures, which can be used for free. Additional concentrate
is bought.
Source: Case study 8, appendix.
Figure 15 also demonstrates that unfavourable weather conditions such as in 2010 can
still have profound effects on overall sector output. Particularly the producers of rainfed
30
grain, i.e. the agricultural enterprises and the individual farms, experienced a notably
reduced harvest caused by drought (see also Box 1).
As the previous discussion showed, there was little change in formal ownership of land,
but substantial changes in the management of farmland did take place in the NKGR.
Former state and collective farms were transformed into restructured corporate enter-
prises. With practically no role for land markets in the conventional sense, these
changes were strongly mediated by government legislation in the form of privatization
and bankruptcy procedures. On top of the uncertainty about land tenure security, asym-
metries in access to information, management experience, financial resources and thus
power likely played a major role in the restructuring process. These circumstances also
opened the door for outside investors to become active in the NKGR. There can be no
doubt, however, that there were many individual entrepreneurs who opted to create new
independent, individual farms, and thus accepted the challenge to set up this alternative
to the established type of corporate farming organisation.
4.2 Performance of different farm types
The viability and relative performance of individual farms under conditions of post-
Soviet agriculture has been a controversial issue among academics and international
policy advisors. Many analysts used to be convinced that – compared to corporate farms
and following the model of most Western economies – individual family farms repre-
sented the more efficient and also more equitable mode of production.
8
However, the
emergence of individual farms has been much below expectations in land-rich Russia
and Ukraine (Lerman et al., 2004). To the contrary, in North Kazakhstan, farm restruc-
turing has led to a more balanced land use by both individual and corporate farm types
than in other post-Soviet countries (Figure 13). Throughout the NKGR, individual farms
and agricultural enterprises are directly competing for land.
By international standards, farm sizes in terms of land used by individual farms in the
NKGR are very large. This raises a question about the real differences between the two
farm types. Such differences seem to be most pronounced in legal, but also in ideologi-
cal respects. With regard to management, differences appear only gradual. First, under
Kazakh law, individual farms have a simpler registration procedure and a simpler and
lower tax burden than agricultural enterprises (Box 3; USAID 2005, 19). Owners must
be members of the same (extended) family. Although many of them are actually in-
volved in significant commercial activities, individual farms are regarded as non-
commercial farms and are not subject to enterprise legislation.
9
Second, there is evi-
dence that maintaining agricultural enterprises was the preferred option by many gov-
ernment officials during the bankruptcy procedures of the late 1990s (Gray 2000, 15),
and it was most explicit in the “merging small farms campaign” during the 2003 land
8
For some of the analytical underpinnings of this view see Binswanger et al. (1995) and Tomich et al.
(1995). A key argument has been that family farms are more productive because labour shirking is
mitigated by family ties. Lerman (2010) shows that Kazakh regions with more individual farms also
display a higher land productivity, which he attributes to a general superiority of individual farms. The
relevance of the Western farming model for the post-socialist countries has recently been called into
question by Wandel et al. (2011).
9
As noted above, simple partnerships have emerged as a second type of natural person farm organisa-
tion, which also allows ownership by non-family members, but shares most other properties of indi-
vidual farms.
31
code implementation (section 3.1; USAID 2005, 23). Among (local) policymakers, such
as the municipal and district mayors (akims), individual farms seem to have a persistent
image of smallness and otherness. Municipal and district mayors are the local represen-
tatives of the President of the Republic of Kazakhstan. In the minds of these officials,
this seems to imply unproductiveness and backwardness, and results in a political pref-
erence for larger, incorporate farms. It is of course possible that the lower tax revenues
from individual farms are a reason why government officials prefer more regulated and
higher taxed enterprises. However, informal mindsets still based on socialist production
ideals may play a role as well (Koester and Petrick, 2010).
On the other hand, statistical figures and case study results (see appendix) suggest that
in the NKGR, production portfolios, technologies and natural conditions are mostly
identical for both types of farms. From a managerial standpoint, most individual farms
seem to be simply smaller agricultural enterprises. They also depend on hired labour
and face similar incentive problems with regard to labour supervision. As the case stud-
ies show, land is often rented from the government and at least some of the individual
farmers do have access to governmentally sponsored credit facilities and other subsi-
dies. Even so, capital intensity is likely to be lower than in agricultural enterprises, and
machinery use more often based on dated Soviet technology (see Box 2). If the govern-
ment is not showing enthusiasm for this type of farming, it at least tolerates it, recog-
nises it as a now important part of Kazakh agriculture, and grants significant tax bene-
fits. These in turn provide an economic incentive to practice farming as an individual
farmer and not as an agricultural enterprise subject to full bookkeeping and taxation ob-
ligations.
Box 8: Labour supervision and management in different farm types
The “Enbek Bereke” corporate grain farm uses a full GPS-based monitoring system, including track con-
trol of the tractor. Data from the tractors is transferred via memory sticks. In 2011, workers will for the
first time obtain performance pay based on GPS imaging. The agronomist says it is difficult to find work-
ers for simple tasks such as grain shovelling in winter, while workers are more willing to engage in better
paid and more responsible jobs such as tractor driving.
In the “Rodina” dairy corporation, workers in the milking complex obtain a monthly base salary, which is
topped up if quantity and quality targets are exceeded. This regime applies for dairymen and workers in-
volved in feeding.
“Saratomar”, an individual wheat farm, also operates a system of performance pay for the tractorists. For
sowing, they obtain a base payment depending on the area they drilled. The work is assessed after germi-
nation and the pay is doubled if all seedlings have appeared on the surface. Additional top-ups are granted
after the harvest. In winter, the workers do subsidiary work in the farm-bakery enterprise, but they do not
get unemployed. A main problem of the farm is to find reliable and qualified workers.
The individual vegetable farm “Niva” employs six permanent workers on the farm, plus about 50 sea-
sonal workers. Workers are paid according to the overall performance of the farm. They obtain a monthly
base salary, the overall payment is then assessed at the end of the season. There is a seasonal production
target. If this is achieved, the salary is doubled. The seasonal workers are contracted for a period of seven
months. The farmer employs a group of seasonal workers from Uzbekistan who come regularly every
year, some for five years in a row, others already for eight years. They live in small cabins on the farm.
Source: Case studies 1, 2, 4, 5, appendix.
Many farmers interviewed in the case studies – both from enterprises and individual
farms – were concerned about future access to qualified labour. A vocational training of
agricultural workers does not exist and also college education for management staff ap-
32
pears to be still widely production-oriented and with little focus on business manage-
ment. In addition, labour supervision and the design of incentive-compatible employ-
ment contracts are persistent issues for many managers (Box 8). In this management
field, little systematic knowledge is available about actual practice and possible options,
including new technologies. Which mechanisms drove recent increases in nominal
wages is also largely unknown, but should be seen in relation to this issue.
The NKGR represents a unique case in which competition among the two types of farm-
ing organisations can be studied on a more level playing field than in other post-Soviet
countries. We use three aggregate indicators to measure the relative competitiveness of
individual farms versus agricultural enterprises: the growth in land use over time as well
as the GAO per ha and the wheat yields per ha as measures of productivity. Finally, we
present figures on the profitability of grain production in agricultural enterprises.
Figure 16 shows that, during recent years, agricultural enterprises have been expanding
their land use mostly at a higher rate and more persistently than individual farms (see
also Figure 13 and Box 9). Even so, GAO per ha is very sim
ilar for both organisational
forms (Figure 17). Both groups have experienced productivity growth recently, and the
ranking in terms of GAO per ha has changed several times since 2004. Wheat yields,
however, have consistently been higher for individual farms, although the gap between
both groups has narrowed in past years (Figure 18).
Box 9: Land access for individual farmers
“Saratomar” individual farm is family owned and cultivates 650 ha of wheat. The land was rented from
the government in 1997 as a 49-year leasehold. Until 1990, it had been cultivated by a kolkhoz, after that
by a corporate farm which went bankrupt. The current owner had no relation to this corporate farm. The
agronomist states that several individual farms created in the 1990s did not survive. Land expansion is
difficult, as there is little supply. Occasionally a farm goes bankrupt, then the land is quickly distributed
among neighbouring farms.
The individual farm “Niva” was established in 1997 by the owner who first rented land as a 49-year
leasehold from the government. He later bought land under the new ownership legislation of 2003. The
price for pastures was 28 thousand KZT/ha (190 USD/ha), the price for arable land 44 thousand KZT/ha
(300 USD/ha). The land was formerly cultivated by a sovkhoz, from which his father and other family
members had obtained shares in the privatisation process. Now he owns about 538 ha, of which 238 ha
are pastures.
“Beloe Osero” farm was founded in 1998 upon the remnants of a bankrupt kolkhoz. The farm cultivates
2,000 ha in total, of which 1,300 ha were taken over from former inhabitants of the village. These were
ethnic Germans who left the village and sold their use-rights to the current farmer. An additional 700 ha
were rented for 49 years from the government. The total land divides into 1200 ha of arable land and 800
ha of pastures. On the arable land, 1000 ha of wheat are grown and 200 ha of barley.
Murat has rented 400 ha of pasture in 49-year lease from the government. There is no rent to be paid, only
taxes. He is currently planning to expand his farm by renting another 100 ha from the government. In this
course he intends to apply for government support with the help of the state-operated KazAgroMarketing
office in Astana.
Nationwide, rental rates for state land vary between 0.70 and 2.70 USD per ha and year (Gramzow and
Suleimenov 2011, 16).
Source: Case studies 4, 5, 6, 7, appendix.
33
Figure 16: Annual change of total land used by farm types in North Kazakh
Grain Region (%)
-10
-8
-6
-4
-2
0
2
4
6
2003 2004 2005 2006 2007 2008 2009
Agricultural enterprises Individual farms
Sources: Authors’ calculations based on Figure 13.
Figure 17: GAO per ha in different farm types, North Kazakh Grain Region
(thousand tenge)
0
2
4
6
8
10
12
14
16
18
2004 2005 2006 2007 2008 2009
Agricultural enterprises Individual farms
Sources: Authors’ calculations based on Figure 13 and Figure 15.
34
Figure 18: Wheat yields in different farm types, North Kazakh Grain Region
(dt/ha, three-year moving average)
0
2
4
6
8
10
12
14
2001 2002 2003 2004 2005 2006 2007 2008
Agricultural enterprises Individual farms
Sources: Authors’ calculations based on: 2000-2004: Statistical Yearbook of Agriculture, Forestry and
Fishery in Kazakhstan 2000-2004, 149, 190; 2005-2009: Statistical Yearbook of Agriculture,
Forestry and Fishery in Kazakhstan 2005-2009, 69, 106.
According to the agricultural enterprise survey of the Kazakh Statistical Agency, grain
production in these enterprises has been profitable during the entire decade (Figure 19).
In the wake of the price boom of 2007/2008, profit margins have increased substan-
tially. The evidence put forward by Dudwick et al. (2007) in favour of more thorough
farm restructuring – that corporate farms are largely unprofitable in the NKGR – is thus
not supported by this data. Unfortunately, no comparable figures are available for indi-
vidual farms.
Concerning the relative economic superiority of individual versus corporate farms in the
NKGR, the evidence is mixed. Productivity figures are very close. Whereas agricultural
enterprises continue to use more land and contribute more to GAO, crop-specific land
productivity is slightly higher in individual farms. Both types of farms increased land
use and land productivity over time, and thus contributed to agricultural recovery in the
NKGR.
35
Figure 19: Cost and revenue of grain production in agricultural enterprises,
North Kazakh Grain Region (USD/ha)
0
50
100
150
200
250
2001 2002 2003 2004 2005 2006 2007 2008 2009
Production cost of grain in ag enterprises Grain revenue
Notes: Calculations are based on average farm-level figures published by the Kazakh Statistical
Agency. Cost of production is the sum of the actual costs directly related to the production and
sale of crops, i.e. material costs, labour costs, with deductions, including payments in kind, de-
preciation, tax payments, other costs (Methodological note in Statistical Bulletin The Activity of
Agricultural Enterprises 2009). Over the years, pulses and grain maize are sometimes included
and sometimes not, although their quantitative importance relative to spring wheat is negligible
in the NKGR.
Sources: Authors’ calculations based on: 2000-2004: Statistical Yearbook of Agriculture, Forestry and
Fishery in Kazakhstan 2000-2004, 127, 147, 188; 2005-2009: Statistical Yearbook of Agricul-
ture, Forestry and Fishery in Kazakhstan 2005-2009, 53, 89, 105; Statistical Bulletin The Activ-
ity of Agricultural Enterprises in 2009. Average annual KZT/USD exchange rate as published at
www.stat.kz
.
A factor that is hard to capture by statistical figures is the apparently increasing influ-
ence of external investors in Kazakh grain production. Following the post-1998 model
of Russian agriculture (Rylko et al. 2008; Wandel 2011), such agroholdings are said to
control huge tracts of land and integrate several stages of the production process also in
the NKGR. We turn to their role next.
4.3 The role of agroholdings
There are no official data which might permit reliable conclusions to be made about the
significance of agroholdings in Kazakhstan’s agricultural and food economy, or in indi-
vidual sectors. For this reason only some initial, provisional answers are possible, based
on individual case studies and the testimonies of experts.
The lack of statistical information might be an indication that agroholdings are far less
widespread in Kazakhstan than in neighbouring Russia. Discussions with Kazakh agri-
cultural economists have in fact largely confirmed this suspicion. These conversations
have also flagged up practical difficulties in data acquisition, not least because of the
fact that “agroholding” is not an officially recognised enterprise or legal form (cf. Irbaev
and Frangulidi, 2006). First, “agroholdings” do not appear publicly as consolidated
groups of enterprises. It is therefore almost impossible for the outside observer to find
out whether individual businesses belong to a holding or not. Second, there is no una-
36
nimity over how to distinguish “agroholdings” from other forms of integration. For ex-
ample, so-called “agrofirms” also integrate several (not infrequently all) members of the
entire vertical value chain, but without the company structure taking the form of a hold-
ing. It is more the case that the individual stages become departments of a single, amal-
gamated enterprise, thereby losing their economic and legal independence. Examples of
this are “Agrofirma Bereke” or the public company AO APK “Adal” in the Almaty
oblast, which are involved with fruits and vegetables, and milk production respectively.
Even if the existence of a parent company is seen as a sign of an agroholding, it still re-
mains unclear whether the concept “agroholdings” should be restricted to those groups
of businesses that are working strictly in agricultural production, or also include those
that are only active in the upstream or downstream sectors. Examples of the latter can be
found in the dairy industry. Thus the limited liability company (TOO) “Agroprodukt”,
the Kazakh–Israeli joint venture (SP) “Camoni”, and the largest producer of dairy prod-
ucts in Kazakhstan, the joint stock company AO “Food Master”, only operate in the
processing and retail sectors. In this context, Akimbekova (2006) refers in some places
to “integrated structures” and in others to “agroholdings”.
In spite of these problems of definition and differentiation, initial studies by Kazakh
analysts suggest that integrated groups of enterprises are chiefly to be found in the grain
sector, and to a lesser extent in the oilseed and dairy sectors (Irbaev and Franguldi,
2006). Akimbekova (2006) estimated the number of agroholdings in the grain sector to
be around 40. They are reckoned to control about 30% of farmland devoted to grains,
and provide two thirds of the grains sold both domestically and abroad. Oshakbayev
(2010) states that each of the three largest holdings in the NKGR controls more than
700 thousand ha, and that the 15 largest holdings cultivate 35 percent of total sown area
in the NKGR.
Box 10: “Ivolga-Holding”, an agroholding originating in the NKGR
The “Ivolga-Holding” was established by one individual, the former sovkhoz director Vasiliy Rozinov,
who remained the sole owner of the group up to date. He earned the starting capital for the subsequent
expansion by trading in grain in the early 1990s. Rozinov recognised very early on that more money can
be made in grain trading if you have your own storage facilities, because these enable you to react better
to price changes. He therefore bought a grain elevator in Kostanay, followed by others. When coordina-
tion difficulties with agricultural producers started mounting up soon afterwards and grain deliveries be-
came less and less reliable, Rozinov entered grain farming himself. He bought up debt-ridden agricultural
businesses. The management then discovered further potential for profit in flour and compound feed pro-
duction, and expanded the business into the upstream sector. In 2005, the agroholding started to diversify
by entering into Russian sugar and milk production. According to Rozinov, however, this move was more
a result of accident than a long-term business strategy. In 2005, the Kazakh bank “TuranAlem”, which
also has branches in Russia, offered Ivolga as one of its regular clients three sugar factories in Kursk
oblast, which were unable to settle their debts. “Ivolga” accepted the offer and also immediately bought
up nearby sugar producers so as to guarantee the utilisation of the sugar factories. In 2007, “Ivolga-
Holding” controlled around one million hectares of agricultural land in Kazakhstan, and a further 40,000
ha in Russia.
Sources: Irbaev and Frangulidi (2006); Osipov (2007).
Irbaev and Frangulidi (2006) make the distinction between large and small agroholdings
in the Kazakh grain sector, which exist almost exclusively in the NKGR. According to
their research, there are about 15 “big players”. These include such enterprises as
“Ivolga Holding”, “Alibi”, “Grain Industry” (Zernovaya industriya), “Agrocentr Astan”,
“BATT-Grain”, “Bogvi”, “Cesna Astyk” and “Karasu”. Most of these have their origins
37
in grain trade, and have gradually integrated themselves into the upstream sectors of
grain processing and production. Some of these large agroholdings themselves are part
of business conglomerates which are particularly prevalent in the Kazakh oil, gas, min-
ing and finance industries (see Table 2). “BATT-Grain”, for example, belongs to the
“BATT Group”, which operates in the oil, gas, construction, trade and alcohol sectors.
“Cesna-Astyk” TOO belongs to the investment group “Cesna” which began life back in
1988. It operates in construction and finance, wholesale and retail, as well as in the agri-
cultural and food sector. It began operations in the last of these back in 1992 with the
purchase of a grain elevator in Akmola oblast. Since then the enterprise has expanded
its activity to encompass grain farming and the production of compound feed, flour,
bread, pasta and beer.
The development of the larger known agroholdings in the grain sector has progressed
along similar lines. This is well illustrated by the example of the “Ivolga-Holding” (Box
10).
Table 2: Characteristics of selected grain holdings
Company Year
founded
Started by Areas of business Agricultural land
TOO “BATT-
Grain”
1992–
2006
Conglomerate with
stakes in the oil and
gas sectors, construc-
tion and sales
Farming and processing
of grain to make com-
pound feed, flour and
bread products, and sales
operations. From 2007
operations restricted to
drinks production.
Up to 2006: no
figures
Since 2006: 0 ha
TOO “Cesna-
Astyk”
1992 Investment company
“Cesna” (diversified
group with stakes in
the finance, construc-
tion and media sec-
tors)
Production and process-
ing of grain to make
flour, bread and pasta
products, wholesale and
retail sales, beer produc-
tion.
40,000 ha
“Ivolga-Holding” 1992 Vasiliy Rozinov (en-
trepreneur from grain
trade)
Production, processing
and sale of grain (flour,
compound feed), sugar
and raw milk production
(in Kazakhstan and Rus-
sia).
1 million ha in
NKGR
140,000 ha in
Russia
TOO “Grain In-
dustry Group”
1996 Mill combine Production and process-
ing of grain (flour, bread
and pasta products) as
well as sales; low-level
milk and oilseed produc-
tion.
100,000 ha
AO Agroholding
“Ellnvest”
2004 Compound feed busi-
ness
Production and process-
ing of grain (compound
feed), poultry and pork
production, meat proc-
essing.
36,000 ha
Source: Authors’ compilation based on Kazakh journal, newspaper, and internet sources.
38
Other large agroholdings with a similar development pattern have diversified in oilseeds
(e.g. “Maslodel” and “Vita Soy”) or have integrated forwards into other processing
stages, such as bread and pasta production, and retail. Examples of the latter are “Cesna-
Astyk” and “Grain Industry” which, by comparison with “Ivolga-Holding”, farm only a
modest 40,000 and 100,000 ha respectively.
According to Irbaev and Frangulidi (2006), smaller holdings in the grain sector differ
from large ones by the fact that they have a limited involvement in grain exports, and by
their lower processing capacity. They usually control several agricultural enterprises,
but do not own more than two large elevators and/or grain mills. Examples of this cate-
gory of agroholding are “TNK”, “KazAgroTrade”, “Kunaykhleprodukt” and “Ellnvest”.
The last of these owns one elevator, a compound feed factory and four farms with a to-
tal area of 36,000 ha. Meanwhile, “Ellnvest” has gone further in its vertical integration
by taking over the production and processing of poultry and pork. Table 2 summarises
the main characteristics of selected grain holdings.
In summary, there are clear indications that agroholdings are also active in the NKGR.
However, which practical difference the engagement of an agroholding makes vis-à-vis
more conventional types of farming, with regard to management, access to finance, pro-
ductivity for example, is largely unclear.
5 Social impacts of agricultural recovery
5.1 Regional employment and household welfare
In general, population numbers have been stable over the last five years at 2.3 million
people, implying a population density of 5.2 persons/km². However, the region lost
about 30 percent of its population in the early 1990s.
10
This is against the overall Ka-
zakh trend, which has displayed population increases at a rate of some one to two per-
cent per year recently, so that pre-1990 figures are now almost reached again nation-
wide. Also the number of people living in rural areas of the NKGR has been without
major change during the last decade (Figure 20).
11
Figure 20: Persons living in rural areas (million)
0
1
2
3
4
5
6
7
8
2002 2003 2004 2005 2006 2007 2008 2009 2010
North-Kazakh Grain Region Kazakhstan
Source: Authors’ calculations based on: 2002-2004: Statistical Yearbook Regions of Kazakhstan in 2005,
61; 2005-2009: Statistical Yearbook Regions of Kazakhstan in 2009, 77.
The absolute number of persons employed in agriculture of the NKGR has been stable
as well (Figure 20). However, the number of workers in agricultural enterprises fell be-
tween five and ten percent annually until 2004. More recent figures are not available.
While the share of the economically active population employed in agriculture has con-
sistently declined from above 30 percent in 2001 to about 25 percent in 2009 for Ka-
zakhstan as a whole, this share also has stayed at around 40 percent for the NKGR
(Figure 22). Agriculture thus continues to be a significant economic factor for employ-
ment in this region.
10
Many of these were ethnic Germans and Russians who decided to move to their initial home country
in the mid-1990s.
11
The jump in 2007 for Kazakhstan is probably due to a statistical re-classification.
39
40
Figure 21: Persons employed in agriculture, forestry and fishery (in thou-
sands)
0
500
1000
1500
2000
2500
3000
2001 2002 2003 2004 2005 2006 2007 2008 2009
North-Kazakh Grain Region
Kazakhstan
Workers in agricultural enterprises NKGR
Source: Authors’ calculations based on: 2001-2004: Statistical Yearbook Regions of Kazakhstan in 2005,
85; 2005-2009: Statistical Yearbook Regions of Kazakhstan in 2009, 103. Workers in agricul-
tural enterprises: Statistical Yearbook of Agriculture, Forestry and Fishery in Kazakhstan 2000-
2004, 108.
Figure 22: Share of economically active population employed in agriculture,
forestry and fishery (%)
0
5
10
15
20
25
30
35
40
45
2001 2002 2003 2004 2005 2006 2007 2008 2009
North-Kazakh Grain Region Kazakhstan
Source: Authors’ calculations based on 2001-2004: Statistical Yearbook Regions of Kazakhstan in 2005,
83, 85; 2005-2009: Statistical Yearbook Regions of Kazakhstan in 2009, 101, 103.
The share of agriculture in regional GDP is lower than the share in employment, and has
been falling from almost 35 percent for the NKGR to less than 25 percent in 2008
41
(Figure 23). It has been rising, though, in 2009. A direct implication of these figures is
that average labour productivity is lower in agriculture than in other sectors of the
NKGR economy, and that this productivity gap has been increasing recently.
12
Figure 23: Share of agriculture in regional GDP (%)
0
5
10
15
20
25
30
35
40
2001 2002 2003 2004 2005 2006 2007 2008 2009
North-Kazakh Grain Region Kazakhstan
Source: Authors’ calculations based on: 2001-2003: Statistical Yearbook Regions of Kazakhstan in 2005,
203, 207; 2004: Statistical Yearbook Regions of Kazakhstan in 2007, 196, 200; 2005-2009: Sta-
tistical Yearbook Regions of Kazakhstan in 2009, 191, 195.
However, given the fact that nominal wages increased more than food prices, real wages
and real incomes in rural areas have been rising notably (Figure 5, Figure 24). This is
also reflected in the rise of real consumption spending per capita in rural households,
which almost doubled between 2003 and 2009 (Figure 25). Note that the dip for 2009 in
Figure 25 is a result of strong rise in the KZT/USD exchange rate in that year (see Box
1).
12
A closer look at the composition of regional product shows that construction work has been expanding
in recent years, probably due to the implementation of major transport infrastructure development in
the region.
42
Figure 24: Consumption spending and cost of living for rural households in
North Kazakh Grain Region (2003=100)
0
50
100
150
200
250
300
350
2003 2004 2005 2006 2007 2008 2009
2003=100
Rural consumption spending NKGR Cost of living NKGR
Notes: Consumption spending is the sum of cash income used for consumption (not including savings
and investments), the value of production for own consumption and transfers in kind (dokhody
domashnikh khoziaistv). Production for own consumption is valued at average regional purchase
prices (Statistical Yearbook Regions of Kazakhstan in 2009, 110). Spending is weighted by
population size for Akmola, Kostanay and North-Kazakhstan provinces. Cost of living index is
simple average of provincial indices for these three provinces.
Source: Authors’ calculations based on: 2003: Statistical Yearbook Regions of Kazakhstan in 2005, 116,
421; 2004-2005: Statistical Yearbook Regions of Kazakhstan in 2007, 121, 397; 2006-2009: Sta-
tistical Yearbook Regions of Kazakhstan in 2009, 123, 377. Spending estimations draw on repre-
sentative household surveys conducted quarterly by the Kazakh Statistical Agency.
Figure 25: Real monthly consumption expenditures by rural households (USD
per capita in 2003 prices)
0
20
40
60
80
100
120
2003 2004 2005 2006 2007 2008 2009
North-Kazakh Grain Region Kazakhstan
Source: Authors’ calculations based on sources given for Figure 24 and average annual KZT/USD ex-
change rate as published at www.stat.kz
.
43
Along with rising household incomes, poverty indicators went down impressively over
the recent decade. The Kazakh Statistical Agency calculates a regionally differentiated
household subsistence income every year, which includes food and non-food items (Sta-
tistical Yearbook of the Regions 2009, 110). This normative subsistence income has
been raised consistently over recent years. It is taken here as an absolute poverty line.
Household income estimations are based on representative household surveys con-
ducted quarterly and include household production used for own consumption as well as
in-kind transfers. While in the early 2000s almost every second household in the NKGR
was considered poor, this figure dropped to five percent in 2010 (Figure 26). After some
methodological modifications were introduced in 2006, the proportion of poor house-
holds is no longer published separately for urban and rural households. Figures based on
the previous system available until 2005 indicate that rural poverty rates were in the
range of one and a half to two times the urban rates. Poverty levels thus fell faster in ur-
ban areas of the NKGR. As one of the few statistics presented in this study, Figure 26
makes a statement about the distributional rather than the average effects of agricultural
recovery.
Figure 26: Share of households below the poverty line, North Kazakh Grain
Region (%)
0
5
10
15
20
25
30
35
40
45
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Authors’ calculations based on: 2001-2003: Statistical Yearbook Regions of Kazakhstan in 2005,
124; 2004: Statistical Yearbook Regions of Kazakhstan in 2007, 129; 2005-2009: Statistical
Yearbook Regions of Kazakhstan in 2009, 131.
Given the available statistical information, rural areas in the NKGR have witnessed a
remarkable rise in living standards over the recent decade. Most outstandingly, rural in-
habitants now spend twice as much in real terms on consumption than in 2003. Poverty
rates plummeted from forty percent in 2002 to about five percent by 2010. There can
hence be no doubt that, along with recovery of the farm sector, economic conditions for
the majority of households in the NKGR have improved considerably over the recent
decade.
44
Picture 6: Household plots with livestock
Photo by Martin Petrick 2011.
5.2 Farm restructuring and poverty reduction: identifying the pathways
Which were the main drivers of income increases in the NKGR? To give a tentative in-
sight into the relevant pathways, Figure 27 illustrates the main financial relationships
relevant for rural households and agricultural producers in the NKGR. Agricultural en-
terprises’ main sources of revenue are grain sales to downstream industries and/or world
grain markets. They benefit from capital, technology, and management brought by out-
side investors, and may be part of integrated business structures (agroholdings) which
encompass several stages in the food chain. However, they rely on the local labour force
and are an important player on local job markets. Agricultural enterprises pay dividends
to rural households which contributed their land to the enterprises’ capital stock. Fur-
thermore, they make rental payments to the government, the only source of rental land.
At the same time, they benefit from crop-related subsidy payments as well as invest-
ment aids the government has recently provided to an increasing extent (see section
3.2).
Individu
al farms have sales channels similar to the agricultural enterprises, except that
the channels may be more diversified and may include direct sales to local or urban con-
sumers. Individual farms also seek workers in the rural labour market. In addition, they
receive some of their services from agricultural enterprises or non-farm businesses,
which are paid in cash or in kind. Many individual farms also rent land from the state.
For individual farms, there are flat payments to the government, which satisfy land rent
and land tax at the same time.
45
Figure 27: Financial flows in the rural economy of the NKGR
sales
revenues
State
land
fund
Household
plots
Rural households
Source: Authors.
The main assets of rural households that do not operate an individual farm are their la-
bour force, the household plot, usually some livestock, and shares in arable land culti-
vated by agricultural enterprises. This allows them to receive income from the following
sources:
Wage incomes from agricultural and non-agricultural employment;
Public pension transfers based on rights acquired from earlier employment;
Revenues from product sales, e.g. vegetables grown on the household plot and live-
stock products; while some of these products are directly sold to consumers, others
are processed in downstream industries (e.g., milk);
Income from other entrepreneurial activity;
Dividends from land shares in agricultural enterprises.
Unfortunately, no detailed information about the relative importance and dynamics of
the different income channels of rural households is available. The only piece of evi-
dence we have is based on survey data collected by the World Bank in 2003 (Dudwick
et al., 2007). Statements about income sources by 150 randomly chosen rural house-
holds in one of the NKGR provinces are summarised in Figure 28. It shows that in
2003, about half of the household income came from salaries, while 20 percent came
from pensions. Sales of self-produced food items account for at least 10 percent of
household income, whereas additional five percent were also consumed by the house-
hold. Seven percent were in-kind incomes, probably land rental payments received from
Agro-
holdings
Agricultural
enterprises
Individual farms
Downstream industries
Processing, Elevators
Non-farm
businesses
Infrastruc-
ture deve-
lopment
World grain markets
dividends
sales revenues
wages
land rent /
tax
Urban consumers
service
f
ees
Outsi
de
inves-
tors
sales revenues
profit
capital
service
fees
subsidies
Govern-
ment
46
agricultural enterprises or individual farms.
13
Incomes from non-agricultural businesses
have a small share of three percent in total income.
Figure 28: Income sources of rural households in Akmola province, 2003
Salaries from
agricultural
employment
25%
Salaries from non-
agricultural
employment
27%
Sales of food items
10%
Income from non-
farm businesses
3%
Pensions
20%
Self-produced food
items for own
consumption
5%
Goods received in
kind
7%
Other
3%
Notes: Answers to the question: What portion of the total household monthly income consists of the fol-
lowing items? (in percent). Numbers are mean percentages across households. N=150.
Source: Authors’ calculations based on World Bank survey 2003 (Dudwick et al., 2007).
According to data from the Kazakh Statistical Agency, nominal wages in agriculture
quadrupled since 2001 (Figure 5), while nominal pensions approximately doubled (see
Statistical Yearbook Living Standards in Kazakhstan, 2010, 119). Recent wage in-
creases are thus likely a main driver of poverty reduction. Rural labour has become
scarce, which implies increasing market power for workers compared to a situation of
abundant rural labour. Some wage increases seemed to be due to off-farm employment,
for example in the booming construction sector. This in turn is fuelled by large infra-
structure projects funded by the Kazakh government. Casual evidence from field obser-
vations suggests that demand for some of the household produce (such as milk) has also
risen. Little is known about the responsiveness of dividend payments to improvements
in the profitability of agricultural enterprises (Figure 19).
An interesting question is whether rural households benefitted from the recent food
price boom (Figure 5). A key issue to answer this question is whether households are
net buyers or sellers of food (Aksoy and Hoekman, 2010). For households running an
individual farm, it seems clear that they are net sellers, so that their incomes increase
during price booms. With regard to rural households, we may use Figure 28 plus addi-
tional evidence to explore this question. Several sources of rural household income are
directly or indirectly linked to food prices: the salaries from agricultural employment,
the sales of food items, consumption of self-produced food, and in-kind payments,
13
Sublease of land to individual farms was still legal at the time of data collection.
47
which are also likely often food items (e.g., grain). Added up, these items account for 47
percent or almost half of the total household income. On the other hand, in 2003, the
average household in Akmola spent 48 percent of cash consumption expenditure on
food, almost the same number (Statistical Yearbook Regions of Kazakhstan in 2007,
125). However, as cash income is only a part of the total income reported in Figure
28,
14
the share of food items on the income side is likely to be higher than on the ex-
penditure side. When food prices rise, rural household net welfare thus increases on av-
erage.
15
Figure 27 and Box 11 also demonstrate the manifold interdependencies that exist among
the three main types of agricultural producers, particularly in the area of service and in-
put provision. Traditionally, household economies used to benefit from inputs supplied
by agricultural enterprises, such as feed or machinery services. It is unclear how impor-
tant these often informal input flows still are today. In addition, livestock production by
households is partly based on access to public grazing land. There is clear evidence that
many households produce a surplus to their subsistence needs which is looked after by,
for example, urban consumers. But also individual farms appear to be dependent in
some ways on the agricultural enterprises, even to the extent that the latter represent a
type of service station for surrounding smaller producers.
Box 11: Interdependencies among farm types
The Joint Stock Company “Petrovska” is operating on 25,000 ha and has machinery stations in surround-
ing villages, which also offer services for individual farmers and households. Half of “Petrovska’s” land
still belongs to the villagers living nearby the farm. Several of the land owners also work on the farm. In-
dividual farmers in the villages around it regard it as quite competitive and seem unable to bid land out of
it. The competition for workers is also very strong.
Yevgeni, an individual farmer, regularly orders a railroad freight car with fertiliser together with a couple
of neighbouring individual farms. Sometimes this has led to coordination problems in the past.
The village “Beloe Osero” hosts an individual farm which occasionally borrows machinery from a nearby
agricultural enterprise, for example a manure spreader. The farm also buys seed there. Many of the
households in the village supply labour to the individual farm, while they also grow vegetables and raise
livestock on their household plot.
Source: Case studies 3, 5, 6, 7, appendix.
14
Cash consumption (potrebitel’skie raskhody naseleniia) here neither includes consumption of self-
produced food nor in-kind transfers.
15
Household cash consumption spending in Akmola (not including the capital Astana) was 76,684 KZT
in 2003 (Statistical Yearbook Regions of Kazakhstan in 2007, 125), whereas the rural households sur-
veyed in the World Bank 2003 study had a median annual income of 234,000 KZT. This is about three
times the level reported in the official source. One reason for this difference may be that the World
Bank respondents included incomes that were received in-kind and that non-cash expenditures are not
considered in the official Kazakh source. However, it is unlikely that this can explain the entire gap. If
the World Bank respondents were on average richer than the households surveyed by the Statistical
Agency, it is likely that they spent a smaller share of their income on food items, so that the net bene-
fit from rising food prices was even higher.
48
Picture 7: Village road with household plots
Photo by Martin Petrick 2011.
6 Conclusions
6.1 Summary of findings
The evidence presented in this study documents a widely positive development of agri-
cultural production in the three major grain producing provinces of Kazakhstan. To-
gether with an expansion of cropland area and increasing capital input, real agricultural
value added has almost doubled within a decade.
While hesitant in the early transition period, privatisation legislation has more recently
allowed private ownership of land and has put the basic preconditions for a capitalist
mode of agricultural production into place. There are now three dominant groups of ag-
ricultural producers in the NKGR that emerged from the restructuring processes of the
transition period. The first group consists of large agricultural enterprises in the form of
limited liability partnerships, the second group of smaller individual farms, and the third
of tiny household economies. Agricultural enterprises cultivate about 10,000 ha per
farm on average and control almost three quarters of agricultural land in the NKGR. In-
dividual farms emerged as a new type of producer in the process of land privatisation
and cultivate one quarter of the land, with an average farm size of around 560 ha.
Household economies mostly engage in labour-intensive vegetable and livestock pro-
duction. In relation to the other two types of farming organisations, agricultural land use
by the latter is minimal, but their share in agricultural output is about 40 percent.
Compared to other post-Soviet countries, Kazakhstan is distinct in having established a
significant individual farm sector side-by-side with the reformed agricultural enterprises
in its primary grain producing region. Interestingly, while agricultural enterprises have
been growing more persistently than individual farms in recent years, average land pro-
ductivity is practically identical and wheat yields tend to be even higher in individual
farms. Registration procedures for individual farms are simpler and tax obligations
lower. However, among government officials, an ideological bias against this type of
farming seems to prevail. Both vertically and horizontally integrated agroholdings have
emerged among the agricultural enterprises and have brought outside investment and
management to the region. While we document some of the agroholdings’ activities,
which are chiefly in grain trade, they are generally little transparent and few substantive
statements about their real impact in rural areas can be made.
Government support to agriculture has been rising recently, and is based on a highly
centralised system of area-, output-, and input-related subsidies. The government is also
engaged in grain procurement and storage to achieve national food security goals, but
does no longer interfere in on-farm production decisions. Subsidised funding for agri-
cultural investments is provided through the state-owned holding KazAgro. These sub-
sidies offer the agricultural sector access to the governments’ tax receipts and oil reve-
nues. However, the implementation system chosen gives little room for the type of de-
centralised market institutions which have advantages in information processing, are
less prone to elite capture and have been instrumental for sustainable rural development
49
50
in other contexts.
16
Despite the still tremendous financing needs, private lenders have
even turned away from the agricultural sector recently.
These partly questionable government activities notwithstanding, agricultural recovery
in the NKGR has brought clear and measurable benefits to the rural population. With
stable employment in agriculture, consumption spending by rural households has tripled
over the last decade and has risen much faster than the costs of living. Real monthly
consumption expenditures by rural households doubled between 2003 and 2009, and are
higher than in Kazakhstan on average. Poverty went down considerably, from 40 per-
cent of households below the regional poverty line in 2002 to about five percent in
2010. Much of this positive development is likely due to rising food prices, which
trickle down to rural households, and increasing labour scarcity in rural areas.
6.2 Policy recommendations
Given the new global debate about how to reconcile productivity growth in agriculture
with social inclusion in rural areas, North Kazakhstan looks much like a success story.
Even so, among the issues covered by this study, the following deserve attention by the
Kazakh government:
Access to land and capital for agricultural producers continues to be constrained by
strongly regulated and governmentally controlled allocation systems. While land
sales are now possible in principle, such transactions require large capital invest-
ments and a long-term planning horizon. Both conditions are often not given, so that
land sales remain few. For more immediate adjustments in land use, the develop-
ment of land rental markets is desirable. However, the legal provisions for such
rental transactions are not sufficient. In particular, to what extent privatisation bene-
ficiaries in the NKGR who contributed their share to the stock of an agricultural en-
terprise under the 2003 legislation can still engage in land rental markets is unclear.
Furthermore, land shares cannot be contributed to individual farms. It is also un-
known to what extent lease and sublease of land are still carried out informally, con-
trary to the 2003 land code provisions. More transparency and firmer as well as
more practical legislation that creates a level playing field for all farm types would
likely stimulate land rentals and thus lead to further efficiency gains in the medium
term.
The state agency KazAgro appears to be one of the few viable sources of finance for
many farmers, as commercial banks have partly withdrawn from the agricultural
sector. However, it is unlikely that state-administered credit supply is very effective
in targeting the most promising investments in agriculture. While some agricultural
enterprises apparently have access to outside equity, many individual farmers would
benefit from a more competitive and less centrally administered agricultural credit
system, possibly based on (true) cooperative principles.
Many farmers interviewed in the case studies were concerned about future access to
qualified labour. The Kazakh government should make sure that future labour de-
16
See the case studies presented in Tomich et al. (1995). While neither the European Union nor the US
agricultural policies provide blueprints for market-conform implementation systems, both cases dem-
onstrate that it can be economically costly if production incentives are primarily set by bureaucrats
rather than consumers.
51
mands in terms of educated people in working age can be met. A review of the
demographic outlook for rural areas is recommended.
Recent increases in agricultural policy spending have led to a wide array of meas-
ures, including various types of input subsidies and production-related direct pay-
ments. To what extent these measures follow a consistent sector strategy with spe-
cific policy goals is not visible and the effectiveness of the measures thus difficult to
evaluate. Many are hardly compatible with WTO standards. A more focused and
less distortionary policy approach is recommended. Systematic upgrading of the ru-
ral transport infrastructure is likely to have a more beneficial long run impact than
indiscriminate subsidy distribution.
6.3 Future research needs
There are a couple of areas that deserve further research in order to understand the real
drivers of this apparent success, to identify the remaining weaknesses and obstacles to
further development, and to evaluate the need for future policy attention:
Labour supervision and the design of incentive-compatible employment contracts
are persistent issues for many managers. In this management field, little systematic
knowledge is available about actual practice and possible options, including new
technologies based on satellite imaging.
If labour is becoming scarce in rural Kazakhstan, this sheds new light on some stra-
tegic notions of rural development. Traditionally, in order to raise living standards,
rural areas with abundant labour would have to generate off-farm employment op-
portunities and/or depend heavily on (regional) migration opportunities in more dy-
namic urban areas (Tomich et al., 1995; Collier and Dercon, 2009). In view of stable
population numbers and strongly rising incomes, it is an open question whether this
is an appropriate strategy for Kazakhstan. Deeper insights into the cause and effect
relations among these empirical patterns would be required to resolve this issue.
No disaggregate, farm-level data is available that allows substantial comparisons in
the performance of agricultural enterprises, individual farms and household econo-
mies. As a result, no definitive statements can be made about which type of organi-
sation is more beneficial in terms of productivity, employment and income genera-
tion, more innovative, and better suited to meet the demands of modern food chains.
Given the tremendous range of farm sizes observed in a homogenous natural and
political environment, the NKGR represents a potentially fruitful object to investi-
gate long-standing analytical issues concerning the relative advantages of small ver-
sus large farms (cf. recently Collier and Dercon, 2009).
There is clear evidence that many households produce a surplus to their subsistence
needs which is looked after by, for example, urban consumers. In which way these
household operations could and should be commercialised and what this means for
other types of agricultural producers needs to be investigated further.
More research on the interactions among different types of agricultural producers is
also needed because they may possibly become crucial in future scenarios of agri-
cultural development in the NKGR. If linkages indeed provide mutual benefits for
the involved parties, they may turn into resource-providing contracts (Reardon et al.,
52
2009), i.e. arrangements that allow input flows from larger to smaller businesses in
exchange for some output relevant for the larger business. In addition to traditional
inputs such as fuel or feed, which are more likely to be fully commercialised today,
this could also be knowledge, access to risk management tools, or storage and mar-
keting logistics. The output provided by the smaller business could be some effort-
intensive (intermediate) product, such as raw milk, or simply labour force. If there
are economic advantages in keeping different types and sizes of producers separate,
it is likely that a more refined network of contracts may emerge that exploits the
comparative advantages of each organisational type. However, if there are no such
economic benefits to separation, the mutual relationship is more likely to be one of
competition and ultimate takeover by the stronger party. A third option is the in-
creasing specialisation of different farm types into various product segments. For
example, tiny dairy producers could commercialise into a niche supplier for urban
consumers, side by side the large farms specialised in grain. International experience
shows that scale economies could certainly be relevant in dairy as well, leading to
bigger production units in the medium run.
There is little information about who has entered agricultural production in North
Kazakhstan and why. The range is from external investors bringing their own man-
agement, over various “local” entrepreneurs who have been more or less engaged in
agricultural activities in the past, to household members who continue small-scale
operations in vegetable and livestock to make their own living but also earn some
revenue from surplus sales. Which of these entrepreneurs have entered their busi-
ness voluntarily and strategically, and which have become so by default? As farm
enterprises in the NKGR have persistently been created and dismantled recently, and
given the importance of the management for successful farming operations, this is a
question of actual relevance. Relative political power and access to information and
resources by these different types of managers may well have implications for future
structural change in agriculture.
Acknowledgements
Support by the German-Kazakh Agricultural Policy Dialogue in Astana and the Ana-
lytical Center of Economic Policy in the Agricultural Sector (ACEPAS) as well as by
Nora Dudwick, Karin Fock, Linde Götz, Andreas Gramzow, and Dauren Oshakbayev is
gratefully acknowledged. Discussions with H. Egbert von Arnim, Zhanna Baitemirova,
Andreas Gramzow, Vladimir Grigoruk, Tanja Jaksch, Carl E. Krug, Rene Mally, Altin-
bek Moldashev, Dauren Oshakbayev, Rakhim Oshakbayev, Aman Suleimenov, and As-
sel K. Yerzhanova were particularly helpful, without implying any responsibility for our
findings.
53
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Appendix: Farm case studies
Case 1: Enbek Bereke, a corporate crop farm 150 km north of Astana
Legal form Limited liability partnership
Main area of activity Crop production, seed propagation
Land resources 12,000 ha
Workers 35 full time
The farm was established in 2007 on the basis of a former state farm, which had gone
bankrupt and was idle for a number of years. Basic buildings and the remnants of a non-
functional drying and storing facility for grain still exist on the farm site. The farm cul-
tivates 12,000 ha. It produces beans, barley, wheat, oats, sunflower, linseed, sudan
grass, and maize for silage. This exceptionally diverse cropping pattern is due to the fact
that the farm engages in seed reproduction. Furthermore, some of the crops (beans, silo
maize) are supplied to a nearby Angus cattle breeding farm run by the state breeding
programme Kazbeef. The farm is a director-owned corporation (formally a limited li-
ability partnership). However, all land is in long-term leasehold by the villagers who ob-
tained this lease in the course of the state farm privatisation. These leaseholds were
transferred into the capital stock of the farm managed by the current director. The direc-
tor came as an outsider to the local community. All primary leaseholders (and thus
shareholders of the farm) earn an annual dividend based on the performance of the farm.
The farm also provides social services to the village, in particular the school building
and students’ meals.
The farm employs 35 workers, including administrative personnel. 40 percent of the
farm workers are also land owners. Many live in the nearby village. In 2011, workers
will for the first time obtain performance pay based on GPS imaging. The agronomist
says it is difficult to find workers for simple tasks such as grain shovelling in winter,
while workers are more willing to engage in better paid and more responsible jobs such
as tractor driving. The agronomist graduated from Astana Agricultural University. His
only economic education was in economic theory.
The farm has a contract with a major farm equipment manufacturer, which supplies
state-of-the-art machinery at preferential conditions. In turn, the farm acts as a model
operation and is open to visitors. A full GPS based monitoring system is used, including
track control of the tractor. Data from the tractors is transferred via memory sticks. The
farm uses latest zero-tillage technology and a non-selective herbicide for clearing the
weeds before sowing. The sowing campaign is from May 5 to June 5, there is one addi-
tional spraying operation using a self-propelled sprayer. Fertiliser is applied simultane-
ously with sowing. The fertiliser applied mostly originates from Kazakh sources. This is
subsidised, although it is of lower quality than that from Uzbekistan or Russia. The di-
rector considers putting up new storage facilities. So far the grain was wrapped in silo
bags over winter outside the buildings, which also seemed to work well. The farm owns
a specialised machinery to wrap the grain. The farm obtains input and Diesel subsidies
57