 SUMMARYAgriculture is one of the leading sectors of Kazakhstan's economy. Arable land occupies over 220 million hectares, or 74 percent, of the total territory of the country. Although it has only a 10% share of the country's GDP (ten years ago it was 34%) and 44% of the population living in rural areas, agriculture will play a major role in Kazakhstan's development as reorganization and conversion to a market economy continue. Kazakhstan is a major producer of wheat. Wheat exports, a major source of hard currency, total $300-400 mln. per year. Gross agricultural production is about $2.8 bln., with grain's share approximately 25%. Kazakhstan has a large population of livestock. According to 1999 statistics, crops accounted for approximately 53% of total agricultural output and livestock - 35% of which are breeding cattle -- 47%. Nearly 85 percent of the machinery now being used is worn out and needs to be replaced. The shortage of reliable agricultural machinery has led to a reduction in areas sown and, subsequently, to a decrease in agricultural output. Replacement of worn-out agricultural machinery and equipment is a high priority for the government of Kazakhstan (GOK). To deal effectively with the problem, the GOK launched a leasing program that enables agricultural producers to lease machinery and equipment. For each specific purchase, such as harvesting combines, tractors, seeders, and sprayers, there are financing schemes available or being developed through state and commercial bank leasing companies.  A. MARKET HIGHLIGHTSIn 2000, the Kazakhstani agricultural machinery and equipment sector was estimated at $109.6 million. Imports totaled US$93 million in 2000. Russia (30%), U.S. (22%), Germany (12%), Belarus (10%) and Ukraine (6%), were major suppliers of agricultural machinery and equipment to Kazakhstan in 2000. Note: A large share of U.S. imports in 2000 is a $20 mln. sale of Case combines to Kazakhstan under sovereign guarantee, distorting the U.S. market share for 2000. This purchase stimulated rapid growth of the total market in 2000 as compared to 1999. Over the next few years, even if no major sovereign guaranteed purchases are made, the market for agricultural machinery and equipment is estimated to grow at 10-12 percent annually. According to industry sources, the reason for market growth is mainly the need to replace worn-out equipment, followed by growth of domestic production in the country.  TractorsDuring the Soviet era, Kazakhstan had 221,000 tractors, but only 38,000 were left by 2001. 80% of tractors are worn-out. Over the next few years, all tractors will need to be refurbished or replaced. The Kazakhstani market will have a demand for 1,200-1,300 tractors per year. Harvesting CombinesHarvesting machinery mainly consists of grain combines. During the Soviet era, there were 110,000 combines in Kazakhstan; now only 40,000 are left. Over the next few years all combines will need to be replaced. At present, there is no domestic production of combines and all demand is satisfied by imports. Estimated demand for grain combines is 1,000-1,500 units annually. The GOK actively looks for foreign investment and technologies to launch combine production in Kazakhstan in the near future. SeedersSeeders, as with all other agricultural equipment, are seriously worn out. The demand for seeders will be mostly satisfied by imports. Domestically produced seeders use out-dated technology, and are production volume is insufficient to meet demand. Grain storage, cleaning, and drying equipmentKazakhstan is now using elevators built during the Soviet era, with average capacity of 200-300 thousand tons. The majority of elevators use only 30-40% of their total capacity, which increases storage costs. To save costs, small-scale grain producers prefer to store grain on the farm, where there is no drying and cleaning equipment. At this time, farmers need small-scale storage (30-40 thousand tons) equipment with drying and cleaning facilities. SprayersKazakhstan is continually facing the threat of locusts. Indications are that locusts have laid eggs in up to five million hectares. All affected agricultural land should be treated with chemicals. This will generate demand for sprayers. Best Sales ProspectsBest prospects include 100-150 hp tractors and combines for Southern regions; over 250 hp tractors and combines for Northern regions; seeders, and sprayers. Used equipment has good sales prospects in Kazakhstan. B. COMPETITIVE ANALYSIS Domestic productionDomestic production is mostly represented by tractors with engine power up to 100 horsepower produced by JSC Kazakhstantractor (formerly Pavlodar Tractor Plant). This is in fact an assembly plant, with major parts such as engines and transmissions imported from Russia. Cultivators and seeders are produced at the Astana TselinSelmash Plant. Other domestic production is represented by simple agricultural tools such as ploughs, cultivators, harrows, and binders. There is no local production of grain harvesting combines, wheel tractors, sprayers, or grain cleaning equipment. Demand for these products is totally satisfied by imports. During the Soviet Era, Kazakhstan had substantial tractor production. Before 1991, the Pavlodar tractor plant produced 41,000 tractors annually. Tselinselmash produced machinery for cultivation and planting on soil subject to wind erosion, which totally satisfied demand for this equipment in Kazakhstan and Southern Russia. A number of smaller plants produced a wide range of other agricultural equipment including cultivators, seeders, mowers, swathers, and grain drying equipment. After the breakup of the Soviet Union, privatization of large state farms and an economic recession, the purchasing power of agricultural producers dropped dramatically. Production fell with the fall in demand for agricultural equipment and machinery. In 2000, Pavlodar Tractor Plant produced only 1,100 tractors. Tselinselmash almost completely stopped their production, producing just 6 seeders in 2000. Production cost for tractors produced at Pavlodar tractor plant is $15,000-$20,000. Cheap labor and the low quality of the finished product explain the low cost. Starting in 1999, the Government of Kazakhstan took active measures to support domestic manufacturing. In particular, the GOK allocated $40 mln. for the rehabilitation of production facilities of the Pavlodar tractor plant. In 2000, the GOK launched a program to enable agricultural producers to lease equipment and machinery and established a leasing company, Kazagrofinance. The main objective of this initiative is to increase the ability of local agricultural producers to purchase new machinery and equipment on a leasing program. Thus, the GOK helps create demand for machinery and equipment, which will in turn boost local production. According to industry specialists, local production is expected to increase 10-15% annually. However, due to a ten year economic recession, production facilities have become worn out, so it won't be possible to reach the production levels of 1991. At best, local producers will be able to reach only 40% of the original production rates. ImportsIn 1997, Kazakhstan purchased 537 John Deere grain harvesting machines and 100 cotton harvesting combines, totaling $140 mln. In 2000, 150 Case grain harvesting combines worth $20 mln. were purchased. These purchases were made under sovereign guarantee. John Deere and Case represent the bulk of current U.S. exports of agricultural machinery and equipment to Kazakhstan. In 2001, John Deere opened its first-ever service center to repair John Deere tractors and equipment in Kazakhstan. The authorized service center has all of its spare parts shipped in from the United States and its technicians all receive training abroad. The service center can handle 16 tractors at a time. In the future, the enterprise plans to expand its services to farmers using John Deere equipment in other regions of Kazakhstan. Although the market for agricultural machinery and equipment is highly competitive, it presents opportunities for international suppliers. Companies wishing to establish a presence in the Kazakhstani market should consider such key competitive factors as a good quality-price ratio, appropriate flexible pricing policy and financing packages, reliable after-sales service, and increasing the awareness of Kazakhstani managers on the availability of both new and used agricultural machinery and equipment. To be competitive in the Kazakhstani market in the medium and long-term, companies might consider local assembly of agribusiness machinery, with a possible long-term transition to local production of some parts. Saving costs on transportation and using cheap local labor will result in lowering production costs of the finished products. Kazakhstan has a large number of production facilities that might serve as a basis for conversion to assembly plants, such as the Tselinselmash Plant, which is now out of operation. A number of former military plants may also be ripe for conversion to civilian production. With assembly plants in Kazakhstan, the sales market could extend to South Siberia, Russia and other Central Asian countries. About 50% of imports are from CIS suppliers, mostly Russia, Belarus and Ukraine. Russia mainly provides tractors, grain harvesting machinery, trucks and mowers; Belarus, tractors and mowers; and Ukraine, tractors and grain cleaning equipment. Russia is likely to be a significant supplier. The determining factors: competitive prices and rapidly deliverable spare parts. The average price for Russian-made combines is about $50,000-$90,000 in Kazakhstan. Tractors cost from $15,000 to $30,000. Russia has been the traditional supplier of agricultural machinery and equipment to Kazakhstan, and Kazakhstani users are perfectly familiar with these products and used to operating them. Recently, Russian agricultural machinery producers started to reopen service centers in different regions of Kazakhstan. Another CIS supplier well-represented in Kazakhstan is Belarus. The GOK is making attempts to increase assembling of Belarus tractors in Kazakhstan. For instance, in 2000, 100 Belarus tractors were assembled at the Pavlodar tractor plant. According to statistical data, Germany is the most active European supplier, and accounts for a 12% market share. Major product categories imported from Germany include grain harvesting machinery, seeders, sprayers, mowers, and grain cleaning equipment. Germany established itself in the Kazakhstani market for agricultural machinery and equipment through the Technical Assistance for Commonwealth States (TACIS) program, between 1992 and 1999. Under this program, a small number of a wide variety of agricultural machinery and equipment was brought to Kazakhstan for demonstration and promotion purposes. This increased the awareness of Kazakhstani users, and boosted purchases of German-made equipment and machinery. According to recent news reports, a German-based industrial investment fund plans to launch the production of German Deutz Fahr grain combine harvesters, using the facilities of the Agroremmash plant in West Kazakhstan oblast. The first 50 combine harvesters are planned to be produced before the onset of this year's harvesting campaign. According to the fund president, the project received strong backing from the Kazakhstani government. C. END-USER ANALYSISAs a result of the privatization of large state agricultural enterprises, most were divided into a many small peasant farms, cooperatives, and partnership joint stock companies. As of 1 Jan 2000, there were 90,000 peasant farms, about 3,000 partnerships, 1,700 production cooperatives, and 350 joint stock companies in Kazakhstan. An average peasant farm has 50-100 hectares of arable land. Cooperatives and joint stock companies are larger in size and have 500-10,000 hectares. In the grain belt of Northern Kazakhstan, producers have larger farms than in the South. Some enterprises in the North have up to 400,000 hectares of arable land. Peasant farms mostly need small-scale machinery and equipment such as moderately-priced tractors and combines of up to 100-150 h.p. Large agricultural enterprises are interested in heavier machinery, such as tractors and combines over 250 h.p. Large agricultural enterprises have better purchasing power and are more likely to be able to afford good-quality Western machinery and equipment. Often, large cooperatives lend machinery, equipment, and other necessary agricultural inputs to smaller farms for some percentage of future agricultural yield. At present approximately 20-25 large agricultural joint stock companies in Kazakhstan provide 70% of the nation's agricultural output. Thus, these enterprises will be major buyers of agricultural machinery and equipment. D. MARKET ACCESS FinancingKazakhstani farmers face a lot of challenges in receiving loans from commercial or Government-owned banks. Usually land, equipment, and farm facilities are not accepted as collateral. Nonetheless, the Government of Kazakhstan has recently adopted a law on leasing, which provided grounds for agricultural producers to lease machinery and equipment. In 1999, the GOK organized a state leasing company, Kazagrofinance. Kazagrofinance manages all state-purchased agricultural machinery and equipment and distributes it among agricultural producers on a leasing basis for a period of 5-9 years. Kazagrofinance currently manages 537 John Deere combines and 1,000 tractors purchased in Belarus. Leading commercial banks have also established subsidiaries to provide leasing services to private Kazakhstani enterprises. Agribusiness producers are among the most active users of leasing services, since leasing does not require collateral, which makes it preferable to commercial credits as a source of financing. There are also a number of state-administered and private funds to provide micro credits of $500-$10,000 to farmers for purchases of seeds, agricultural equipment and materials. Business PracticesAfter the breakup of the Soviet procurement system, new private distribution companies for agricultural machinery and equipment failed to appear. The purchasing power of Kazakhstani agricultural producers is so small that even a distribution markup makes products more difficult to buy. Machinery and equipment suppliers market their products directly to private agricultural producers or leasing companies: the state-owned Kazagrofinance, and leasing subsidiaries of commercial banks. The state leasing company can provide sovereign guarantees to foreign suppliers. Working with large private enterprises is more risky; nevertheless it is commercially viable to actively promote products directly to private enterprises if the pay back procedure is ensured. Kazakhstani buyers of agricultural equipment and machinery normally seek 180 days deferred payment on a confirmed letter of credit basis. CertificationThere are no import quotas or restrictions on new or used agricultural machinery and equipment in Kazakhstan. All imported machinery must conform to the requirements set by the Decree "The List of Production and Services, the subject of obligatory certification" (Decree of the GOK # 1787 as of 11/29/2000). According to this list, agribusiness machinery imported to Kazakhstan has to be tested against standards (also known as GOST) ST RK 3.0 and 3.4-94; 3.9-97; ST RK 1.1-94 and RD 50 RK 3.7-94 and are handled by regional centers of standardization. In this case, the Regional Center of Standardization for agribusiness machinery is located in Pavlodar city, a subsidiary office of the National Center for Standardization and Certification of Kazakhstan. In addition, Customs authorities require all foreign importers to submit a certificate issued by the manufacturer attesting that the equipment conforms to international and U.S. or European safety and technical standards. Duties and TariffsThe customs clearance process is a very complicated one and it is important to start the process of customs clearance before the product arrives to Kazakhstan. It is recommended to use services of local customs brokers. Customs duty for both new and used agricultural machinery is 5 percent plus 0.02 percent for the customs procedures. Value Added Tax (VAT) is 20 percent. Recently, the President of Kazakhstan sent a message to the GOK requesting that the VAT be reduced to 16 percent. This change in VAT is expected to be adopted by July 1, 2001. The U.S. Agency for International Development worked out a program jointly with the Kazakhstani Customs Office and created a Website: www.almaty.keden.kz, where all Kazakhstani customs regulations are highlighted. The leading international Agro Industrial trade exhibition in Kazakhstan is: AgroFoodMash Kazakhstan May 21-24, 2002 Almaty, Kazakhstan For more information on this exhibition visit: http://www.tntprod.com/rus/kazeng/agrofoodmash.htm |
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