OVERVIEW OF THE ECONOMY
3. REVIEW OF THE MACHINERY INDUSTRY
3.1 Agroindustrial and Mining Activities
3.1.2 Agricultural and Agroindustrial Performances
Agriculture is an important part of the Kazakhstan economy, but the performance of the sector has been disappointing. Before 1991 the agricultural sector accounted for about 35 percent of GDP and it absorbed 25 percent of total employment. Since the country’s independence, agricultural output has declined dramatically because of the sharp drop in productivity and the fall in the area of land utilized for agriculture. The area planted, including that for cereal production, fell by 20 percent between 1990 and 1995, while the average yield for cereals in 1993-95 was only 0.7 metric tons per hectare, compared with a world average of 2.8 tons (FAO, 1997). Although the grain harvest was better in 1996 than in 1995 when Kazakhstan experienced the worst grain harvest in 30 years, it was still much lower than 1994 figures.
The Machinery Industry in Kazakhstan: Economic Conditions and Policies
Table 3.2
Agricultural Production, 1993-96 (million tenge in 1994 prices)
Year
Total
Agricultural Total Crops
Crop on
Irrigated Lands Livestock
1993 139,222 94,664 na 44,558
1994 111,627 73,320 11,930 38,307
1995 84,064 55,073 18,109 28,990
1996 77,443 52,837 na 24,606
Source: National Statistical Agency.
Kazakhstan has been able to meet its domestic requirements, but grain exports have been severely reduced. Only in the areas where the private sector has played an important role, such as the production, distribution and marketing of fruits and vegetables, has the performance been favorable.
Kazakhstan’s agricultural sector is composed of three types of agricultural enterprises (USDA, 1996):
State agricultural enterprises accounted for more than 65 million hectares, or 30 percent of the total agricultural land in 1995. The number of collective farms (sovkhozes)not privatized had fallen to about 260 in 1996, so the land share of state enterprises has fallen to about 28 million hectares.
Non-state agricultural enterprises are collective enterprises that include joint-stock companies and small agricultural enterprises. Collective enterprises are associations of shareholders, similar to the former Soviet collective farm (kolkhoz) concept. These enterprises have had little, if any, reorganization in the management and operational activities. These enterprises and the joint-stock companies retain about three-quarters of the land and assets of the privatized collective farms. As such, about three-quarters of agricultural production assets have not changed their economic and social status.
Small agricultural enterprises average about 4,000 hectares in size and are significantly larger than peasant farms. Many of these enterprises have been formed around structural units of the former collective farms and are, in fact, another form of collective enterprise.
Private enterprisesconsist of personal household plots, gardens and orchards that are not on agricultural land but are private property. Nevertheless, they play a very significant role in food production. At the beginning of 1996 there were more than 4.4 million personal plots, including gardens which occupy an area of less than 0.5 million hectares. In addition, the private sector has approximately 31,000 peasant farms occupying about 13 million hectares or 5 percent of all agricultural land.
Table 3.3
Yields of Selected Agricultural Crops, 1990-96 (100 kilos per hectare)
Year Grain
Restructuring efforts have produced large reductions in employment in all sectors, but particularly in agriculture. Based on officially registered employment in large and medium-size enterprises, exclusive of collective farm workers, employment in agriculture fell by 55 percent between 1995 and 1996 (Center for Economic Reforms, 1997). In industry, the decline was more modest (11.5 percent) during the same period.
Overall, registered unemployment has increased moderately to about 2 percent of the labor force in 1996. Using a broader definition of unemployment including involuntary leaves and part-time furloughs, that rate would stand at about 12 percent.
Several factors have contributed to the overall sharp decline in agricultural production:
droughts and other natural disturbances,
the absence of any substantive restructuring of farms following their privatization,
the lack of financial liquidity and access to credit by farm units,
inadequate water supplies and the salinization of soil,
inefficiencies in the market distribution systems,
shortage of spare parts and fuel,
the lack of liquidity and credit facilities, and
Figure 3.1
Value Added of Agriculture. 1992-97
0
1992 1993 1994 1995 1996 1997
(%ofGDP)
The Machinery Industry in Kazakhstan: Economic Conditions and Policies
Table 3.4
Composition of Agricultural Processing Industries, 1994-96 (percent)
1994 1995 1996
Total 100 100 100
Food Industry 32.4 38.0 48.1
Meat and Milk Industry 36.9 33.3 25.7
Cereals and Animal Feed Industries 23.4 20.9 16.9
Light Industry 5.1 5.7 7.3
Fish Industry 2.2 2.0 1.5
Source: National Statistical Agency.
a deterioration in the terms of trade resulting from rapid rise in prices of agricultural machinery and equipment, fertilizers and fuels relative to those of agricultural commodities.1
The absence of liquidity has resulted from the financial losses suffered by farm enterprises, while the lack of credit flows has been due to the high interest rates discussed in the previous chapter. According to the State Committee on Statistics and Analysis, over 75 percent of agricultural enterprises were unprofitable in 1995. Moreover, according to the USDA (1996), the total past due loans in 1996 amounted to 71 billion tenge, of which 4.5 billion tenge represented taxes payable, 39 billion tenge were accounts payable for goods and services (mainly in the form of fuel and electric energy), and 10 billion tenge represented debt on bank loans.
The lack of access to inputs has also had a dramatic effect on productivity levels. The contraction of production by the fertilizer industry, combined with a sharp reduction of fertilizer supplies from Russia has limited the application of fertilizers to irrigated crops such as vegetables and cotton. Only 4 percent of cereals, 14 percent of potatoes, and 25 percent of vegetables are now being grown with fertilizers (USDA, 1996). Trade in fertilizer has also declined. Exports of fertilizers are now only about 10 percent of the levels prevailing at the end of the Soviet era. A similar situation exists with agro-chemicals because of Kazakhstan’s reliance on supplies from other FSU members under the previous centralized planning system. That reliance has left the country without its own production of herbicides and pesticides.
1According to data from the National Statistical Agency (1997), the following were the year-to-year percentage changes in the producer and wholesale prices of the agricultural and industrial sectors:
1992 1993 1994 1995 1996 1997 (6mths)
Agriculture 1,032% 776% 1,888% 257% 161% 114%
Industry 2,565% 1,143% 3,020% 240% 124% 117%
Production of Metallurgical Products, 1994-95 (thousands of tons)
1994 1995
% Change 1994-95
Iron ore 10,521 14,902 41.6
Manganese ore 295 284 -3.6
Chromite ore 2,103 2,417 14.9
Sinter cake 4,504 4,080 -9.4
Iron ore pellets 4,822 7,212 49.6
Cast ironof which: 2,435 2,530 3.9
Pig iron 163 68 -58.6
Foundry pig iron 53 16 -70.5
Steelof which: 2,969 3,027 2.0
Open-hearth steel 735 376 -48.9
Oxygen converter steel 2,110 2,581 22.3
Electrical steel 123 71 -42.5
Casting obtained from continuous casting machines 19 4 -81.3
Carbon steel 2,736 2,917 6.6
Low-alloyed steel 27 15 -43.9
Rolled ferrous metal products 2,357 2,153 -8.7
Sheets and plates 2,027 1,927 -4.9
Strips 231 78 -66.3
Steel pipes 15,722 13,316 -15.3
Coated sheets and platesof which: 125 222 77.4
Tin-plate 125 222 77.4
Ferroalloys 649 809 24.6
Ferrosilicium 207 255 23.6
Ferrochrome 326 494 51.5
Ferrochrome silicon 27 21 -20.8
Coke, 6% moisture 1,747 1,811 3.7
Refractory materials 12 14 13.3
Source: National Statistical Agency.
In the livestock industry, animal numbers and productivity levels have fallen sharply. The lack of liquidity of most farms, the fall in livestock numbers, inadequate machinery and equipment, and the general decline in demand for livestock products have all contributed to this situation. As a result, much of the country’s farming structure is reaching the point where it will not be able to maintain operations.
The Government has attempted to alleviate the liquidity crisis in agriculture (Table 3.2).
For 1996 the Government's consolidated budget allocation to the agricultural sector amounted to 3.6 billion tenge. Some funds are being provided as grants, while others are being distributed through low-interest rate loans. At the end of 1994 the Agricultural Support Fund (ASF) was established by the Cabinet of Ministers (Resolution 1447), and a subsequent Cabinet resolution in 1995 established a mechanism for the transfer of debts of agricultural producers to the ASF. The bulk of that debt has originated from the farmer rather than from the agro-processing industry. In addition to its debt-resolution function, the ASF provides direct subsidy support to targeted activities such as sheep farming through wool price supports.
The Machinery Industry in Kazakhstan: Economic Conditions and Policies