Glutting Kazakhstan’s Wheat Industry

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by Joshua Foust on 1/26/2010 · 9 comments

In mid-2008, Kazakhstan was on the verge of outright panic: with several major world producers coming up drastically short on their wheat exports, the world price of the grain was soaring. The price got so high that normal Kazakhs could barely afford bread.

In response, the Kazakh government restricted wheat imports, further spiking the price of wheat and creating severe food insecurity across Central Asia. Kazakhstan’s agricultural ministries were weak and feckless in dealing with the food crisis, and while the biggest effects of that crisis have eased, they remain incapable of dealing with the problem flexibly (see some coverage here).

Of course, last year was a bit different: within Kazakhstan wheat prices dropped nearly 30%, making bread once again affordable for the majority of Kazakhs. Naturally, this is sparking some soul-searching in Astana:

With the help of abundant summer rains, farmers in Kazakhstan harvested a record crop of wheat. “National grain yield amounts to 22.7 million tons in bunker weight, which is 5.7 million tons or 34% more than last year’s level,” reported the Minister of Agriculture of Kazakhstan, Akylbek Kurishbayev, at a press conference in October. The numbers speak for themselves. One after the other, the main grain-producing regions, Akmola, Kostanai and North Kazakhstan, reported completion of the harvest campaign with record quantities of grain.

The good news foreshadowed a very serious problem. A global glut has led to a collapse in the grain market, and a lot of unsold grain in the hands of the farmers.

The current situation in agriculture is dismal. Silos are stalled and overloaded, with practically no shipments. Farmers, who didn’t manage to load grain on the silos, are watching their harvest deteriorate in the open air. Many farmers are threatened with bankruptcy.

For the life of me, this reminds me of the situation in 19th century America, where farmers and farm and livestock-based towns experienced short, severe boom and bust cycles as the markets expanded and contracted. Kazakhstan is contemplating the eventual American solution: massive subsidization, and government-imposed price and supply controls.

While the fallout of such intervention has been very good to American farmers, it has also artificially lowered the world price of almost every food staple, as well as other agricultural commodities. In many countries, especially poor, debt-ridden ones who must adhere to IMF and World Bank restrictions on their economic behavior, the option of counter-subsidies or import restrictions to combat artificially cheap American produce is simply not possible. So, while many places are able to sustainably and cheaply produce food, because the U.S. artificially lowers its prices through subsidization, they cannot actually sell that food at anything like a sustainable profit (the EU has food subsidies that similarly distort world food markets).

The temptation to subsidize and tightly regulate the food industry must be strong in Astana—especially with its OSCE chairmanship putting it under the spotlight. But the solution to easing Kazakh farmers’ problems with selling is to reduce foreign subsidies and regulations, and thus regularize the world price—not for Astana to make the problem worse. Astana should avoid heavily subsidizing Kazakh farming, and instead push for the West to reduce its own subsidies. That would benefit Kazakh farmers, and their customers, most of all.

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This post was written by...

– author of 1848 posts on 17_PersonNotFound.

Joshua Foust is a Fellow at the American Security Project and the author of Afghanistan Journal: Selections from His research focuses primarily on Central and South Asia. Joshua is a correspondent for The Atlantic and a columnist for PBS Need to Know. Joshua appears regularly on the BBC World News, Aljazeera, and international public radio. Joshua's writing has appeared in the Columbia Journalism Review, Foreign Policy’s AfPak Channel, the New York Times, Reuters, and the Christian Science Monitor. Follow him on twitter: @joshuafoust

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Dafydd January 26, 2010 at 11:20 am

Sure, in an ideal world. But the cahnces of th US Congress or EU Council of Ministers reducing farm subsidies is zero.

So the question that needs to be addressed is: – what is the best policy for Kazakhstan to pursue in the light of massive first world food subsidies?

Their choices are

1) Nothing
2) Import controls and subsidies of their own.

Take a look at this map. As you can see hunger is not far away from the Kazakhs.

If they are not suicidal, they go for option 2).

By the way, varying harvests and the wild price swings that accompany them are a fact of the earth’s climate. Political intervention in the market to ameliorate the effects goes back as far as Joseph and Pharoah, at least. If you have a better idea to help people avoid starvation, please, let the world know!

Joshua Foust January 26, 2010 at 11:25 am

Those are all fair points. I don’t have a simple solution; I think if someone did it would have come out by now. But I’m also speaking as an ardent opponent to American farm subsidies – even within the U.S. (if it could be isolated from the rest of the planet) these subsidies artificially drive down prices and create severe excesses of random crops (like corn) while forcing the producers of other crops to literally burn their surpluses. It’s bizarre.

Not that there will ever be an end to agricultural regulation, but I think when we discuss the topic there needs to be much more deliberation about the long term social, economic, and even health consequences of what we regulate and how.

Dafydd January 26, 2010 at 11:55 am

I understand your objection to US farm studies, I have similar feelings about the EU CAP (Common Agrigcultural Policy), with its “wine lake” and “butter mountain”. (Yes, you read that right, we pay taxes to subsidise famers to grow grapes & make wine. I feel like I need to go for a swim….)

Perhaps we should pursue a policy of staple stockpiling. That is build a massive stockpile (a year’s supply) of Grain/cheese/potatoes/meat whatever, cycling through it (i.e. selling the older stuff off to make sure we don’t get caught with a load of mouldy food).

I think that would push prices up rather than down (most of the time). When prices spike, release some of the stockpile to bring prices down to a long term average. When prices fall back, rebuild the stockpile.

Best I can do. It avoids any direct subsidy to farmers, which is probably a good thing.

Joshua Foust January 26, 2010 at 11:59 am

That sounds like the same logic behind strategic oil reserves. The challenge is, most western countries aren’t used to viewing food as a strategic issue, even if farmers routinely make the national security argument for import and price protections. You also run into the problems that come from hoarding – the U.S. and EU would both be accused (possibly even legitimately) by the Third World as deliberately hoarding food to drive up prices.

Like I said, I don’t know of any relatively simple solutions. This issue has vexed people for a long time.

Dafydd January 26, 2010 at 12:05 pm

It is pretty like the strategic reserve (you could actually call it a strategic food reserve).

Have to say, I am willing to to take those accusations. It isn’t like they think our current polciy is that wonderful.

Driving up prices actually might help some third world farmers.

Also, as we would have to cycle through, selling off the older stuff there is potential to help with short term crises like in Haiti.

Worth noting that once you have your reserve in place (should it be called a granary??) the price effects should be neutral.

AJK January 26, 2010 at 9:20 pm

“the U.S. and EU would both be accused (possibly even legitimately) by the Third World as deliberately hoarding food to drive up prices.”
…and do what about it, besides foment anti-Western anger? If anything, it gives the US/EU another bargaining chip to get hungry countries to do what they want –> “We’ll give you food if you do _____”

It’s incredibly cynical, yeah, but I only mention it because I’m surprised there was never a movement to create an OPEC sort of thing for grain, corn, or rice. It would be an incredible soft power coup for Kazakhstan if they could centralize it enough (which I’m skeptical about). Think about Kazakhs shipping tons of wheat into Uzbekistan in exchange for some political concession…

Oh, and it’d be interesting to see how this goes forward with California falling into permanent drought, too.

oldschool boy January 26, 2010 at 1:13 pm

I remember reading that the Kazakh government have already decided to increase subsidies in 2010 to match Russian and Belorussian levels, since the three countries are in Custom Union (or whatever). Another strategic vision is to further consolidate agricultural lands in large ownerships to give Kazakhstan products more competitive advantage. I also have read that the government moves to encourage rotating crops, alternating where possible wheat with canola and soy (I hate soy).

Dafydd January 27, 2010 at 4:29 am

If they pull in the Ukraine, that would be quite a powerful grouping…..

oldschool boy January 27, 2010 at 11:10 am

I guess it will depend on the outcome of the current election in Ukraine. Although, even if pro-russian Yanukovitch is elected it still will not automatically mean that Ukraine will sacrifice their European direction for closer ties with Russia.

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