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Kazakhstan increasing trade ties with China

Grain Brokers Australia, September 17, 2019

KAZAKHSTAN, one of the most important grain producers and exporters in the world, announced last week it was aiming to triple its wheat exports to China to as much as 2 million tonnes (Mt) annually, but no timeframe was charted to reach the goal.

Kazakhstan wheat farmers. Photo: Climatelinks

This announcement has come in the same week that the USDA released its latest World Agricultural Supply and Demand Estimates (WASDE) report, which cut Kazakhstan’s 2019/20 season wheat production by 1.5Mt to 11.5Mt.

This is down from 14Mt last season and 14.8Mt in 2017/18, and is well below the record 22.7Mt produced in 2011/12.

The decrease was blamed on deteriorating crop conditions after a sustained spell of dry weather ahead of harvest.

USDA has also decreased its Kazakh exports forecast by 1.3Mt to 5.2Mt on the back of the lower production number.

To balance the books, the USDA increased 2019/20 opening stocks by 200,000t, meaning the ending stocks estimate is unchanged at 1.26Mt.

Kazakhstan’s Ministry of Agriculture said harvest was currently in full swing across all grain-producing regions, and it expected to export around 7Mt of grain and flour in the 2019/20 marketing year.

The Central Asian nation is the world’s second-largest exporter of flour behind Turkey.

Enter barley

China is already a major importer of oil, gas and metals from Kazakhstan and, in addition to wheat, its government said it was looking to increase exports of barley, salt, meat, poultry and dairy products to China.

Interestingly, Beijing only approved imports of Kazakh barley in late November last year, the same week the anti-dumping probe was announced into barley imports from Australia.

Kazakh barley production is expected to be 3.9Mt this year, 1.7 per cent lower than last season’s record crop.

The USDA increased its estimates for Kazakh barley production and exports by 200,000t in last week’s update.

Iran continues to be the biggest importer of Kazakh barley, consistently buying upwards of 80pc of production each year.

Land of opportunity

As the last republic to depart the Soviet Union in 1991, Kazakhstan is rich in natural resources, and has enormous economic potential.

It is the ninth-largest country in the world with an area of 2.725 million square kilometres but with a population of only 18.5 million, it has one of the lowest populated densities in the world at just seven
people per square kilometre.

The agricultural sector’s share of Kazakhstan’s GDP is around 6pc but, like many former Soviet Union countries, it has enormous potential.

The country is well endowed with fertile land but, like Australia, suffers environmental handicaps such as limited water availability and a harsh climate.

The total area suitable for primary production, including crops, pastures and grazing, notably the steppes, is approximately 222 million hectares (Mha).

However, only around 24Mha, predominantly in the north of the country, is arable and suited to broadacre cropping.

Difficult logistics

Despite its access to the Caspian Sea, Kazakhstan is landlocked.

Remoteness from global markets and lack of direct access to ports are significant obstacles for grain exports.

The country’s geographic isolation adds additional freight and logistics costs to both exports and imports.

Most Kazakh exports have traditionally been transported by road to neighbouring importers such as Uzbekistan, Tajikistan, Afghanistan and China, or barged across the Caspian Sea to the Caucasian countries of Azerbaijan, Armenia and Georgia.

Alternatively, grain exports make their way to Russian and Georgian ports on the Black Sea for shipment to international buyers such as Italy, Turkey, Tunisia and Sweden.

Small vessels carrying up to 5000t can also travel from the Caspian Sea to the Sea of Azov, and then into the Black Sea via the Volga-Don Canal.

New pathways

Increased trade relations between China and its Asian neighbours have been a focus for Beijing in recent years as it attempts to shore up alternative supply origins and pathways in the face of the trade war with the US, and increased trade tensions with several other key suppliers.

This is where China’s Belt and Road Initiative (BRI) has the potential to be a game-changer for trade among many Central Asian countries, especially Kazakhstan.

The Belt and Road Initiative includes includes one third of world trade and GDP and more than 60pc of the world’s population. Source: The World Bank

This ambitious project was the brainchild of Chinese President Xi Jinping.

It focuses on improving connectivity and co-operation among numerous countries spread across the continents of Asia, Europe and Africa.

The initiative was announced in 2013 with the purpose of restoring the ancient Silk Road.

The scheme involves building a big network of roads, railways, maritime ports, power grids, oil and gas pipelines, and associated
infrastructure projects.

Five railway routes and six international highways currently pass through Kazakhstan, connecting China and
other Asian countries with Europe and the Middle East.

But China wants to improve the speed and efficiency of freight movements, and Kazakhstan features highly in the routing of a number of proposed BRI land-transport
corridors.

In addition to improving trade pathways and reducing the cost of imports, the multi trillion-dollar initiative is expected to open and create new markets for Chinese exports and those of many Central Asian states.

While China pitches the initiative as an all-inclusive project for regional development, many nations perceive it as a strategic move by the Asian powerhouse to achieve significance and control at a regional level, and to play a more significant role at the global level, by building and controlling a China-focused trading network.

Like Kazakhstan, Russia is looking to take advantage of the changing international trade flows emanating from the US-China trade war by increasing grain exports to China.

Russia is the world’s biggest exporter of wheat, and expects Beijing to approve imports of wheat from all production regions of Russia within one year.

In fact, Russia probably represents the biggest challenge to Kazakhstan’s goal of substantially increasing wheat trade with China in the coming years.

This article was written by Grain Brokers Australia

 

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