JSC SAMRUK- KAZYNA. Precision agriculture market potential in Kazakhstan

Transcription

1 JSC SAMRUK- KAZYNA Precision agriculture market potential in Kazakhstan June 2017

2 Private farm households account 48% of agricultural output and have limited access to capital Agriculture production comprises approximately 5% of GDP. Gross agricultural output is expected to increase by 19% to KZT4.3tln by 2021 from KZT3.6tln in The availability of arable land per inhabitant is the second highest in the world. Processed agricultural products comprised 48% of export and 69% of import in While, agricultural raw materials comprised 52% of export and 31% of import. In 2017, export is projected to increase by 10% YoY. 89% of the agriculture sector is represented by private farm households (48% of agriculture gross output), which has limited access to capital to purchase machinery and equipment, finance operating costs, pay the salaries of employees, and invest in innovation. The state program of development of agriculture introduced in November 2016 focuses on enrollment of 500 ths private households into 1,200 agricultural cooperatives by In 2017, the number of agricultural cooperatives are expected to reach 410 (326 in the State program). Gross agricultural output, KZT tln ( ) Export vs. import of agricultural products, USD bln ( ) Number of agricultural producers, % (2015) Total agricultural production in terms of producers, % (2016) Crop Livestock Export Import 89% 1% 10% Agricultural entities Peasant farm enterprise Private farm household 48% 23% 29% Agricultural entities Peasant farm enterprise Private farm households Source: Agency of Statistics, Samruk-Kazyna 1

3 Agriculture sector in Kazakhstan vs. peers The share of cultivated in total country s area, % (2014) The share of agricultural sector in GDP, % (2014) Nutrient use on arable and permanent crop area, tonnes per 1000 ha (2010) The yield of cattle, kg per animal (2014) The yield of wheat, dt/ha (2014) The yield of sugar beet, dt/ha (2014) % Yield variance in agricultural production is 27% 27 % in Kazakhstan, compared to only 5% in the EU. Source: FAO, Samruk-Kazyna The yield capacity of cereal crops will decrease 23 33% by 2030 given the current level of farming standards on the back of expected climate change, according to WB s estimates. In Kazakhstan, the yields of crops (wheat, sugar beet, barley, oats, rice, sunflower seed) significantly lower, compared its peers. World Bank recommended Kazakhstan to improve risk management, based on wheat productivity improvement, agricultural diversification, improvement of livestock productivity. The development of wheat varieties more tolerant to drought, heat stress and disease was recommended also. 2

4 Agriculture is highly vulnerable to climate change Agriculture in Kazakhstan is highly vulnerable to climate change due to its heavy reliance on dryland crop and livestock production systems. Grain production suffers from serious drought in two out of every five years. In 2016, an adverse weather conditions (wet spring and a large number of precipitations in July) in all grain-producing oblasts of Kazakhstan caused fungal diseases of grain crops (brown rust). Thus, the loss of yield comprised more than 25% in Akmola, Kostanay and North Kazakhstan oblasts. The risks associated with climate change and biotic stresses constrain the achievement of gains in yield. The risks have also widened the yield gap between private farm households which has limited resources and agricultural entities that are better equipped and prepared to deal with the risks and constraints. Mutual insurance associations lack of regulation and insufficient payouts in the event of a loss. KazExportGarant is anticipated to start compensating catastrophic losses caused by natural disasters. Disasters in agriculture ( ) Source: World Bank 3

5 Diversification of crop production away from wheat into feed grains, oilseeds and vegetables Shortage of high quality raw materials (oil crop, sugar beet, raw milk) to load capacity in processing plants. Low usage of mineral fertilizations due to its high cost for private farm households. Kazakhstan s endowment of mineral fertilizations by domestic production comprised 35% of scientifically-based need. Shortage of seeds and significant volumes of seed imported to Kazakhstan. The vast majority of producers of seed (64% or 217) focuses on grain crop, while only two companies produce seeds of sugar beet. High share of wheat elevates the agriculture sector s exposure to droughts and market risks. In 2016, export of wheat to China stood at 281ths tones (7% of total export of wheat). Meanwhile, China intends to maintain a 95% self-sufficiency target for wheat and rice. 11% 12% 6% 6% 1% 18% Gross output, % (2016) Wheat 46% Grain crops excluding wheat Vegetables Potato Gourds Oil crop Sugar beet Source: Agency of Statistics, Samruk-Kazyna Wheat plantings decreased by 10% to 12.4mln ha in 2016 compared to 2011, driven by the policy aimed at diversifying crop acreage. By 2021, the fields of wheat is anticipated to decline to 10.1mln ha. Acreage under crop, ths ha ( ) 25,000 20,000 15,000 10,000 5, Sugar beet Gourds Vegetables Potato Oil crop Feed crop Grain crops excluding wheat Wheat 19% of seeds is represented by low quality seeds, which negatively affects export potential. 6% 3% 10% 30% Seeds, % (2015) 3% 20% 27% Superior elite seeds Elite seeds Primary seeds 2-reproduction 3-reproduction 4-reproduction 5-reproduction Mass reproduction 4

6 Varieties of crop have high domestic demand and export potential 98% 65% The share of import in domestic consumption, % (2016) 75% Processed/ Processed/ canned canned fruits&nuts vegetables The share of export in domestic production, % (2016) 37% 51% 30% 34% 33% Grape Apple Vegetable oil 24% 15% Flour Oil crop Wheat Barley Rice 21% Sugar Pear (Belgium and the Netherlands) 62% Flax seed 39% Apples 75% Export of product to country / total export of product Import of product from country / total import of product Foreign trade in agricultural products, % (2016) Sugar from Brazil (72%, cane sugar) Grape Wheat 89% 38% Rice Barley 81% Flour Vegetable oil 84% 61% 47% Rape seed 39% Flax oil 98% Rice 35% Rape oil 98% Rape seed 24% Safflower seed 98% Sunflower seed 41% Kazakhstan has all conditions to take its niche in the world food market, thanks to organic food. In 2015, organic agricultural products of 300 ths tones were produced with exported products of 62 ths tones (USD10mln) to the UK, Italy, Germany, France and etc. Challenges: imperfect legislation and the lack of domestic certification system. Source: Agency of Statistics, Samruk-Kazyna 23% Potato Load capacity at processing plants,% (2015) 27% 37% Fruits and vegetables Sugar 5

7 Livestock production constrained by low genetic potential, high number of diseases, shortage of fodder production Average share of import in domestic consumption, % (2016) Foreign trade in agricultural products, % (2016) 52% Chicken meat 46% Cheese and cottage cheese 42% 35% 30% Sausage Butter Margarine Butter 23% Cattle Butter 51% 21% Sausages 87% Fermented milk products 86% Poultry from the US (71%) Margarine Cheese and cottage 83% 57% Butter 21% Most livestock production is now in the south and southeastern regions, with smaller herds, greater reliance on pastoral farming systems, and lower risk. New generation of intensive beef production farms are expanding in the northern Kazakhstan. 14 quintals of feed units are attributed to one notional livestock head, which is lower by two times than zoo technical norms. In 2015, the share of breeding stock in cattle stood at 11%, compared to the level in developed countries of 40-50%. Feed crop production, ths. tones ( F) 5, , Import of product from country / total import of product Load capacity at processing plants, % (2015) 50% 43% Fat and oil products Fish processing plants Source: Agency of Statistics, Samruk-Kazyna 6

8 Outdated equipment and weak demand for domesticallyproduced machinery The average age of more than 80% of combine harvesters and tractors is years with the normative working period of 8-10 years. During , tractors of 5%, grain harvester of 15%, and seeding-machine of 5% were withdrawn annually. Annual average volume of purchased agricultural machinery accounted for KZT80bln with domestically-produced machinery of KZT20.5bln. Among 30 machinery and its components producers, main market participants stand at 15. Prices of domesticallyproduced machinery reflect the prices of imported components. According to market sources, agricultural machinery of foreign manufacture is of better quality compared to domestically-produced machinery due to fuel and time efficiency, and longer-term working life. Machinery broken down by age, units ths (2015) Number of existing machinery, ths ( ) Investments in capital, KZT bln ( ) Tractors Harvester thresher Harvester Seeding - machine Older than 15 years Less than 15 years Source: Agency of Statistics, Samruk-Kazyna 7

9 State support on the agriculture sector in Kazakhstan The support to be provided according to the State Program , KZT bln ( ) In 2017, the transition from the per a hectare subsidies for grain and oil crop growing in favor of subsidies for the delivered products for processing within the State program of development of agriculture will lead to diversification of acreage. 1,200 1, KZT2,374bln The Action Plan developed by the Ministry of Agriculture includes 134 actions on 8 tasks of the State Program. The Action Plan in requires KZT2.4tln, including the state budget of KZT1.2tln and local budgets of KZT852bln, MFI and businesses of KZT306bln. The number of recipients of the state support will increase by 7.5 times. The Fund of financial support for agriculture is expected to provide lending to cooperatives, with repayment of the initial payment through investment subsidies, as well as allocation of subsidies to cooperatives for recovering VAT costs. In 2015, a Treaty on the Eurasian Economic Union came into effect, with the Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan. In November 2015, Kazakhstan officially became the 162nd member of the WTO. As part of its accession to the WTO, Kazakhstan assumed a number of commitments to liberalize access to its domestic market. Any taxation preferences will be abolished by 1 January However, Kazakhstan succeeded to retain agricultural subsidy of 8.5% in agricultural gross output without reference to products (e.g. expenses for fuels and lubricants). Source: the State program , Samruk-Kazyna 8

10 State support on the agriculture sector in Kazakhstan vs OECD and non-oecd countries The share of producer support estimate of gross farm receipts, % ( ) Structure of agricultural support For OECD countries as a whole, support has roughly halved over the past 30 years and now accounts for 17% of gross farm receipts. At the same time, average support levels in the emerging economies have increased from very low levels to approach the OECD average. In Kazakhstan, the share of producer support estimate in gross farm receipt fluctuated substantially prior to 2009 and has stabilized at around 12% in more recent years. Kazakhstan along with Australia, Brazil, Canada, Chile, Colombia, Israel, Mexico, New Zealand, South Africa, Ukraine, the United States, and Viet Nam have support levels below the OECD average. Meanwhile, support levels in the EU, Russia and Turkey are roughly at that average. Support to farmers continues to be high in Japan, Korea, Iceland, Norway and Switzerland, where around half of gross farm receipts come from agricultural policies. Source: OECD, the State program , Samruk-Kazyna 9

11 Country rankings on Enabling the Business of Agriculture 2017 by economies conducted by World Bank The World Bank s Enabling the Business of Agriculture ranking focuses on regulations that affect the functioning of agriculture and agribusinesses. WB views that governments can help by establishing appropriate regulatory systems that ensure the safety and quality of agricultural goods and services without being costly or burdensome overall. *The DTF score benchmarks countries with respect to regulatory best practice, showing the absolute distance to the best performance on each indicator. Transport Finance Seed ICT Water Markets Fertilizer Machinery The distance-to-frontier* (DTF) indicators on Kazakhstan In Kazakhstan, further development of regulations in agriculture sector might be needed, especially in transport, finance, seed sectors. Source: World Bank, Samruk-Kazyna 10

12 Farm management practices in OECD countries 20 % Food demand is projected to rise globally by at least 20% over the next 15 years, with the largest increases in Sub- Saharan Africa, South Asia and East Asia. 25 % 70 % 24 % Agriculture accounts for approximately 70% of the water used in the world today (45% in the OECD area). Agriculture is a contributor to climate change, accounting for 25% of greenhouse gas emissions, and is adversely affected by it. UNEP stated that 24% of the global land area has suffered declines in health and productivity over the past quarter-century as a result of unsustainable land-use. Conversion agriculture (without any soil tillage or as little as possible) helps to preserve the soil s fertility and organic content; to retain moisture, especially in dry years. Yields on farms that have adopted soil conservation practices improve under rain-fed agro-systems in dry climates. In Kazakhstan, a gradual increase in crop diversification, combined with more effective use of conservation agriculture, might enhance capacity to resist drought, according to WB (conservation agriculture area as a percentage of arable land area at 6.8%, Ukraine 2.2%, Canada 39.8%, Australia 37.7% in 2013). Soil conservation practices are also considered water conservation practices, with the highest levels of water conservation is drip irrigation. On the organic agriculture front, organic cultivation avoids or limits the use of synthetic chemical inputs, including fertilizers and pesticides, and the over-use of antibiotics and food additives. The empirical evidence shows positive environmental effects on soil and water. Higher prices and the state support are expected to offset lower yields and higher economic costs. Organic agricultural land increased by 48% to 43.1mln ha in 2013 compared to Organic agriculture sees rapid growth but accounts for a modest proportion of global agricultural land (1%, Russia 0%, Ukraine 1%, Austria 17%, Sweden 16%). Integrated Pest Management is an ecosystem approach to crop production and protection that combines different management strategies and practices to grow healthy crops and minimize the use of pesticides (FAO). It is also a decision-based process involving coordinated use of multiple tactics for optimizing the control of all classes of pests (insects, pathogens, weeds, vertebrates) in an ecologically and economically sound manner (Prokopy, 2003). Integrated pest management is not applied widely in northern Kazakhstan, however, pests are present on wheat and, though noticed, are not given attention, even though the damage they cause may be substantial (WB). Modern biotechnology can: speed up conventional breeding programs and provide farmers with disease-free planting materials; create crops that are resistant to pests and diseases (replacing toxic chemicals); provide vaccines to help in controlling animal diseases; provide value-enhanced products which can address more complex challenges (drought tolerance and nitrogen-use efficiency). Source: OECD, Samruk-Kazyna 11

13 Precision agriculture: overview Precision farming is a modern farming management concept using digital techniques to monitor and optimize agricultural production processes. Technologies promise to save costs, reduce environmental impact and produce better food. Large farms in Europe, the US and Australia succeed in adoption of precision agriculture. Precision agriculture focuses mostly on arable crop production, however precision farming technologies are also applicable to the entire agro-food production system (animal industries, fisheries). Technologies can be applied to production of: maize, soybean, potato, wheat, sugar beet, sugarcane, barley, sorghum, cotton, oat, rice, wine grape, citrus, bananas, tea, date palm, tobacco, olive, tomato and kiwifruit Controlled Traffic Farming Evidence on the use of precision agriculture relies mainly on information from sporadic and geographically dispersed surveys. Data on precision agriculture is often dated. Variable Rate Technology 68 % 234 studies published from 1988 to 2005 evidence that implementation of precision agriculture was profitable in average of 68%. The initial investment required (software and machinery) and insufficient knowledge limit the adoption of precision farming. 12

14 Precision agriculture description is still evolving Precision agriculture is a fairly broad term, including wide range of technologies. Soil and yield mapping (GPS), GPS tractor guidance systems, and variable-rate input application are main technologies of precision agriculture. Within these categories, there are numerous components, enabling the collection of data through sensors, mapping technologies, mobile devices, climate and nutrient sensors, and yield monitoring devices. API connectivity and cloud storage can be used to collect, store, and manage the data. Computer Mapping GPS-based computer mapping of yield and soil data enables to customize crop management across fields. In order to create soil imaging of fields, satellites, aircraft or UAVs (drones) could be used. Controlled Traffic Farming CTF enables machinery to drive along repeatable tracks with accuracy. This is a whole-farm approach that aims at avoiding unnecessary crop damage and soil compaction by heavy machinery. Fully integrated farm Variable-rate input application Variable Rate Application allows precise seeding and application of herbicides, pesticides and nutrients, resulting in cost reduction. Source: United States Department of Agriculture, Samruk-Kazyna 13

15 Precision agriculture: the adoption of precision agriculture is on the rise The survey of crop input dealers in the US about their use of agricultural precision technologies, % ( ) Base: 261 respondents GPS guidance with auto control/ autosteer GPS-enabled sprayer boom/nozzle control GPS guidance with manual control Soil sampling with GPS Field mapping with GIS Yield monitor data analysis VRT Fertilizer VRT Seeding prescription In the US, the only technology in a declining trend is GPS guidance with manual control, because it is being replaces with autoguidance technology. Meanwhile, the most widely offered VRT service was single nutrient fertilizer application. 20 % 10 % 22 % 20% of Australian grain growers have implemented precision agriculture technologies to manage variable inputs. CTF was implemented by 25% of farms according to the data available from an Australian Bureau of Statistics. In Germany, the percentage of precision farmers increased to 10% in 2007 from 7% in In the UK, GPS technologies (auto-steering and auto-guidance systems) were adopted by 22% of surveyed farms in Technologies Most important Least important GPS and Guidance 91% 9% Application Technology 86% 14% Planter Controls 77% 23% Software Service 75% 25% Customer Training & Seminars 74% 26% Data Management Services 68% 32% Variable Rate Technology 61% 39% Agronomic Services 57% 43% Water Management 39% 61% Reasons for hesitating with the introduction of precision farming, % Machinery is still too expensive The use of the technology is complicated The benefit of the precision farming technologies is not yet proved Waiting until precision farming proved to be no longer problematic I will use precision farming but I had no time yet My fields are too small Source: CropLife magazine and the Departments of Agricultural Economics and Agronomy at Purdue University, OECD, Farming Dealer 2013 Baseline Survey Samruk-Kazyna 14

16 Precision agriculture: modest growth of adoption rates Estimated precision agriculture industry revenue market share 8% 10% 11% 7% 3% 3% 23% Original equipment manufacturers* Broader solution providers Niche suppliers Sensor manufacturers Satellite service providers 35% OEMs (Base Model and Add-Ons) Trimble Retailers/resellers Input companies Raven AgJunction Topcon Other The Malaysian Agrifood Corporation (the Khazanah-owned corporation) is committed to secure fresh fruits and vegetables from local growers that adhere to SALM (the Malaysian Good Agriculture Practices Certification) to supply high quality products to the market. MAFC invests in Controlled Environment Farms greenhouses while adhering to sustainable agriculture practices, such as precision farming, usage of organic fertilizers, soil conservation and etc. Source: William Blair, Trimble, Samruk-Kazyna Deere Trimble, Raven, AgJunction Ag Leader Sensata Technologies Topcon *OEMs integrate precision agriculture technologies into their equipment. Technologies are becoming software-based, relying on a cloud based infrastructure and machine-to-machine interconnectivity. More and more, food companies are requiring that information is tracked and kept across the whole value chain. Thus, the entire supply chain is expected to be connected digitally. 85% 5% Approximately 85% of corn growers reported higher profitability when using precision agriculture technologies, according to a Precision Ag Institute survey. Over time, input savings from precision agriculture technologies could be roughly USD20 or more per acre (or 0.4 hectars), the yield benefit could be 5%, and revenues could increase by more than USD30 per acre (for corn growers). Precision Ag Implement Guidance Corn/ Soybean 10% reduction in fertilizer Enterprise Solutions Asset & Fleet Management 10% reduction in input Corn/ Soybean use Agriculture Services Imagery Small Grains 25% reduction input use Agriculture Services Soil Information Services Viticulture 40% inputs In Kazakhstan, Navistar Asia, authorized dealer of Trimble, showed several successful cases of adoption of GPS guidance. One of them, Balkashinskyi LLP (40ths ha), implemented GPS guidance and anticipates payback period of 1-2 years. 15

17 Studies on economic benefits of precision agriculture technologies Source: OECD 16

18 Agricultural producers should be provided with training, knowledge and experience in precision farming The solutions in precision agriculture provided in Kazakhstan is fragmentary. While an adoption rate could not be estimated, as Kazakhstan does not collect statistics on the use of precision agriculture, and precision agriculture dealers do not reveal its sales data. High risk of insufficient return on investment, the difficulty in quantifying the benefits of precision farming, and incompatibility of machines from different manufacturers might constrain the adoption of precision agriculture. In addition, Kazakhstan still faces a wide range of fundamental issues that need to be addressed in parallel or prior to introducing new technologies. The overwhelming amount of data, which is collected from seeding through harvest, should be translated into useable information and requires more time than some farmers are willing to invest. The high initial costs involved and the time-consuming learning process required are viewed as the main obstacles. Thus, agricultural producers should be provided with training, knowledge and experience in precision farming, and an acquisition and transfer of precision farming knowledge should be as simple as possible. The newly established Kazakh-German center of precision farming at the Kazakh Agro Technical University has harvester laboratories, mechanization of forage preparation and agro-engineering, and also pilot meat and milk processing plant. The center is aimed at training on precision agriculture. An adoption of precision agriculture along with solving fundamental issues is anticipated to improve efficiency, optimize crop yields, and increase profitability of production. 17

19 Conclusion Kazakhstan has substantial agricultural potential, which is evidenced by growth of agricultural output and investments in the past years. However, fundamental issues and challenges remain i.e. improper usage of fertilizers, low usage of animal feed, outdated equipment, weak agricultural insurance, poor infrastructure (especially in rural areas), shortage of raw materials for processing plants (oil and fat production, cheese, canned fruits and vegetables and etc). We anticipate a gradual increase in crop diversification through the planting of higher cash-earning field crops (oilseeds and pulses), fodder and feed crops, and feed grains, which could provide the basis for a stronger capability to resist drought. Kazakhstan s agricultural producers lack necessary base tools enabling an introduction of digital technologies (only less than 33% of agricultural companies reported on having computers). We view only certain number of agricultural producers can afford to adopt precision farming solutions, as it requires significant capital investments and technological readiness of producer. However, we view positively the introduction of precision agriculture in Kazakhstan s agricultural sector, as it will significantly enhance the effectiveness of agricultural production in Kazakhstan. It is crucial to support farmers and promote the adoption of precision agriculture methods. Agricultural producers should be provided with training, knowledge and experience in precision farming. The added value of the implemented technologies should be tested and demonstrated in practice. In case of the small field size and limited revenues, cooperative approaches could be useful in implementation of precision agriculture. 18

20 Thank You 19

21 Appendix 1. Several good regulatory practices provided by World Bank Seed Fertilizer Machinery Finance Variety release committee with representation of the private sector, which meets shortly after each cropping season. The availability online of an official variety catalog updated after each cropping season and specifying agro-ecological zones. Availability of initial seed classes to the private sector, which is granted access to breeder and foundation seed, and to material stored in the national gene bank. In countries where the certification is compulsory, official fee schedules for certification activities are publicly available, and nongovernmental inspectors and/or laboratories can be accredited to carry out part or all of seed certification activities. Efficient and affordable fertilizer registration for companies, without the need for re-registration. Timely availability of fertilizer by the private sector through streamlined import procedures. Good quality fertilizer by requiring appropriate labeling and prohibiting open fertilizer bags. Streamlined import procedures to facilitate timely availability and delivery of agricultural tractors. Appropriate testing of agricultural machinery to ensure imported tractors suit country conditions. Tractor registration and appropriate after-sales service to improve tractor durability. Compliance with national and international performance standards to ensure high-quality tractors. Enforcement of safety standards such as roll-over protective structures and seatbelts. Effective microfinance institutions by balancing supervision and the ability to take deposits. Reliable credit unions complying with disclosure and liquidity standards. Payments and other financial services accessible digitally and through retail agents. Electronic receipts issued by warehouse operators that farmers can pledge to secure a loan. Markets Transport Source: World Bank, Samruk-Kazyna Price controls are not imposed on agricultural products and agricultural products do not have to be sold at an auction or in a specific marketplace. Efficient and affordable requirements to export major agricultural products, including membership, licensing and per-shipment documentation. Laws that do not obstruct the production or sale of agricultural goods domestically and a legal environment that facilitates the establishment and commercial operations of farmers organizations. Promotion of fair competition and professionalism by establishing quality criteria for access to the transport sector through efficient licensing and mandatory technical inspections. Increased competition in the domestic market by reducing additional discriminatory requirements and granting transport rights to foreign trucking companies. Reduced market distortions by discouraging queueing systems and price interventions and promoting freight exchange platforms for road Facilitation of cross-border transport by harmonizing or mutually recognizing road transport standards among regional trading partners. 20

22 Appendix 2. Effects of traditional tillage, conservation tillage and conservation agriculture Source: OECD 21

23 Appendix 3. Precision farming market Source: MarketsandMarkets Analysis 22

24 Appendix 4. Representative current products and solutions across the farming season Source: William Blair & Company 23