JSC Rating Agency of the Regional Financial Center of Almaty 136 Dostyk ave., 9 th floor, office 904, 050051 Almaty, The Republic of Kazakhstan Food Industry of the Republic of Kazakhstan Analytical service Rating Agency of the RFCA: Head of the research: Dmitriy Sheikin Analyst: Aigerim Kulbayeva Any form of copying, reproduction, distribution and forwarding of texts, graphs and other types of materials posted on the website of the "Rating Agency of the RFCA" must be accompanied by a hyperlink to the website www.rfcaratings.kz and indication of the author of the material. Tel: (727) 224 48 41 (727) 224 48 44 aigerim.k@rfcaratings.kz http://www.rfcaratings.kz 1 Almaty 2015 Copyright JSC Rating Agency of the RFCA 2016
Food Industry of Kazakhstan Food industry plays one of the most significant roles in the economy of the Republic of Kazakhstan. According to the Committee on Statistics of the Republic of Kazakhstan, in 2014 the food manufacturing contributed 6.0% to the total volume of the country s industrial production, and 18.1% to the manufacturing sector. 1 200 Food Production: 2004-2014 1000 800 600 400 200 331,1 370,2 418,6 490,8 623,5 629,8 695,2 828,0 865,6 970,1 1 103,5 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Food Production, KZT bln. Source: Committee on Statistics of the Republic of Kazakhstan, RA RFCA Over the decade of 2004-2014 food production in Kazakhstan increased by 233.3%, reaching the volume of KZT 1 103.5 bln. in value terms. In comparison with 2013, production went up by 13.7%. The dairy industry, grain and starch mill industry, bakery industry and the meat industry are the largest (by production volume) in the structure of the country s food industry. Their shares in Kazakhstan s food production in 2014 were: 19.6% for the dairy industry, 19.1% for the grain and starch mill industry, 15.7% for the baking industry, 13.8% for the meat industry. Structure of the Food Industry of Kazakhstan(%) Other foods production 13.5% Bakery production 15.7% Animal feeds production 2.0% Meat processing and preservation, prepared meat products manufacturing 13.8% Fish and shellfish processing and preservation 0.9% Fruits and vegetables processing and preservation 7.3% Vegetable oils and animal fats production 8.1% Grain and starch mill production 19.1% Dairy production 19.6% Source: Committee on Statistics of the Republic of Kazakhstan 2
Therefore, the leading industry in food manufacturing of Kazakhstan is the dairy industry. In 2014, its production amounted to KZT 216.4 bln. The largest output in the dairy industry was in milk and cream production - 427.9 thous. tons in volume terms, an increase of 7.4% versus 2013. The largest output in grain mill industry was observed in production of flour from grain and grain blends 3 330.6 thous. tons, an insignificant increase of 0.1% versus 2013. In bakery industry the largest output was in production of fresh bread 726.1 thous. tons, 2.2% decrease versus 2013. Production of meat and edible offal amounted to 218.9 thous. tons that is 4.1% more than in 2013. The largest contribution in amount of 82.2 thous. tons was made in production of fresh or chilled meat of swine, goats and horses, an increase of 9.4% compared to 2013. It is also worth noting the high volume in production of animal feeds, which amounted to 733.2 thous. tons in 2014, a 10.5% increase versus 2013. By the end of 3Q2015, the specific weight of food industry in total industrial production of Kazakhstan was 7.5%, and 19.2% in total manufacturing industry, that is significantly higher than in the corresponding period of 2014. Thus, by the end of 2015 the industry s share may increase by no less than 1%. Table 1. Production of Kazakhstan s Food Industry: 2014-2015 (Jan-Sep), KZT bln. Production volume Jan-Sep 2015 Jan-Sep 2014 % change 1 Total Industrial production 10 329.3 14 044.4-26.5% 2 Manufacturing 4 003.9 4 258.5-6.0% 3 Food industry 769.7 762.8 0.9% 3.1 Meat Processing and Preservation, Prepared Meat Products Manufacturing 110.5 104.4 5.8% 3.2 Fish and shellfish processing and preservation 7.4 6.8 9.0% 3.3 Fruits and vegetables processing and preservation 62.1 62.4 -.0.5% 3.4 Vegetable oils and animal fats production 50.9 57.7-11.7% 3.5 Dairy production 137.9 138.8-0.6% 3.6 Grain and starch mill production 165.0 153.0 7.9% 3.7 Bakery production 123.3 117.4 5.0% 3.8 Other foods production 93.0 108.0-13.9% 3.9 Animal feeds production 19.5 14.3 36.3% Source: Committee on Statistics of the Republic of Kazakhstan Over 9M2015, the total volume of food production accounted for KZT 769.7 bln. in value terms that is 0.9% more than in the same period of the previous year. The largest volume was produced by the grain and starch mill industry for the amount of KZT 165.0 bln., a 7.9% increase compared with 2014. The dairy industry was the second best performer with the output of KZT 138.0 bln., revealing a 0.6% decrease versus 2014. 3
2014. The production of bakery industry amounted to KZT 123.3 bln., a 5.0% increase versus In 9M2015, there were produced 2 752.9 thous. tons of flour from grain and grain blends in grain and starch mill industry. There were produced 334.0 thous. tons of processed liquid milk and cream in the dairy industry. In bakery industry 540.4 thous. tons of fresh bread. The animal feed output increased by 33.3% versus 9M2014 and accounted for 678.7 thous. tons. Production and shipment balance analysis of the food industry in 2014 evidences that the volume of the shipped products exceeded the volume of food produced on the enterprises producing sausages, sunflower and cottonseed oil, rice, fresh bread and pasta. Analyzing the data of the Committee on Statistics of the Republic of Kazakhstan for 2014, we see that some items of food production do not meet domestic demand for them in full. Thus, an existing internal demand is compensated by imports. That may have a negative impact on country s economy in future. Production and Consumption of several types of Food Products in Kazakstan in 2014, thous. tons 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 657,5 3 496,4 Flour 1 081,2 899,0 Meat and poultry meat, edible offal 903,6 826,1 861,5 715,2 Bakery products Dairy products (without fresh milk) 533,5 375,6 397,7 329,5 235,2 194,1 Sugar Vegetable oils Fruit and vegetable juices Production Consumption Source: Committee on Statistics of the Republic of Kazakhstan Thus, lack of the meat (including poultry meat) and edible offal on Kazakhstan s internal market amounted to 182.2 thous. tons in 2014, and it was compensated by imports from the US and the Russian Federation, which approximated 191.2 thous. tons. that year. Same situation is observed in dairy industry, where the difference between domestic production and domestic consumption equaled to 146.3 thous. tons. Local demand was satisfied by imports in total volume of 176.3 thous. tons. Among all types of food products made in Kazakhstan, the only one, the production of which could meet domestic demand, was the production of flour. It means that although Kazakhstan has its own food industry, some types of food are still importdependent, and that, in our opinion, indicates to the low level of agricultural products processing. 4
Table 2. Production and Consumption of several types of Food Products in 2014, thous. tons Products Production Imports Exports Consumption 1 Meat and poultry meat, edible offal 899.0 191.2 9,0 1 081.2 2 Prepared and preserved meat 69.9 39.1 1.9 107.1 3 Fruit and vegetable juices 194.1 42.7 1.6 235.2 4 Vegetable oils 329.5 115.8 47.6 397.7 5 Sunflower oil 234.9 67.7 16.2 286.5 6 7 Dairy products (without fresh milk) Processed liquid milk and cream 715.2 176.3 30.1 861.5 466.3 42.2 20.9 487.6 8 Flour 3 496.4 5.6 1 844.6 1 657.5 9 10 Bakery and confectionery products Bread; fresh pastry goods and cakes (with sweetening additives) 826.1 84.9 7.4 903.6 739.9 14.9 1.2 753.6 11 Sugar 536.0 160.4 2.5 533.5 12 Chocolate and chocolate confectionery 100.7 92.1 29.5 163.4 13 Processed tea and coffee 21.5 40.3 2.6 59.1 Macaroni, noodles, couscous 14 and similar farinaceous products 150.6 28.4 20.5 158.4 Source: Committee on Statistics of the Republic of Kazakhstan Imports of prepared foods and foods of animal and plant origin accounted for 10.5% in the structure of Kazakhstan s imports; an increase amounted to 1% versus 2013. Exports of that particular food group amounted to 3.3% in the structure of Kazakhstan s exports. It worth noting that over the past 5 years, Specific weights of the food products imports and exports have not changed significantly and vary around 9% -11% and 2% - 4% respectively. From the diagram below it is clear that Kazakhstan s imports of finished food products and foods of plant and animal origin far exceed the exports of the same products in Kazakhstan s exports. Such situation at domestic food market is the result of an insufficient load of the domestic food production facilities. 5
12% 10% Imports and exports of finished food products and foods of plant and animal origin (%) 10.3% 10.8% 9.2% 9.5% 10.5% 8% 6% 4% 2% 3.3% 2.2% 3.5% 3.2% 3.3% 0% 2010 2011 2012 2013 2014 Imports Exports Source: Committee on Statistics of the Republic of Kazakhstan, RA RFCA In 2014 imports of finished food products and foods of plant and animal origin amounted to USD 41 295.5 mln. that is 15.4% less than in 2013. Imports of meat and edible offal amounted to USD 243.8 mln. Products of this type were imported from the US (42.7% to the total imports of the item). The rest of the products were from the Russian Federation (14.8%), Ukraine (13.6%) and others. Kazakhstan is the country with the high level of meat consumption. However, the country has a deficit of its own meat products, therefore it has to import relatively high amount (20%) from abroad. Despite the fact of the largest output of the dairy products in 2014 there was still not enough of it to satisfy domestic demand. In 2014, the imports of processed milk and cream accounted for USD 206.6 mln. The major part of imported milk and cream originated from CIS countries: the Russian Federation (37.8%), Belarus (21.8%) and Kyrgyzstan (8.2%). Production of sugar is less than milk in the country; meanwhile its consumption 1.5 times exceeds its production. For example, imports of cane sugar amounted to USD 248.4 mln. The main part of cane sugar was imported from Brazil (51.3%), the rest from Poland (9.9%), Belarus (9.6%), etc. According to results of 1Q-3Q 2015, imports of meat and edible offal totaled to USD 146.6 mln.: 45.8% of them were from the US, 38.8% - from the CIS countries and etc. Cane sugar was imported in the amount of USD 128.8 mln., mainly from Brazil (30.1%), Moldova (20.9%) and Belarus (12.5%). Chocolate and other prepared foods were imported on a sum of USD 117.1 mln., mainly from the Russian Federation (70.6%) and Ukraine (18.4%). 6
Exports of food products in total exports of Kazakhstan (%) 3.3% 96.7% Finished food products, foods of plant and animal origin Others Source: Committee on Statistics of the Republic of Kazakhstan, RA RFCA The export of food products manufactured in Kazakhstan is far behind the other countries exports. In 2014 the export of finished food products and foods of plant and animal origin amounted to USD 2 637.7 mln. that is 3.5% less than in 2013. The share of export of those products equaled only 3.3% in total exports of Kazakhstan. The most of the Kazakhstan food exports go to the CIS countries. As of 2014, the export of wheat and meslin to Iran (19.0%), Tajikistan (18.7%), Uzbekistan (16.0%) and other countries amounted to USD 960.0 mln. The export of wheat flour and wheat and rye flour blend to Uzbekistan (41.3%) and Afghanistan (39.5%) accounted for USD 561.5 mln. The export of barley to Iran (70.8%), Jordan (10.5%) and the Russian Federation (9.2%) and other countries amounted to USD 142.8 mln. As of 9M2015, the export of meat and edible offal to the Russian Federation from Kazakhstan amounted to USD 14.9 mln. and was 97% of exports. Also in the period Kazakhstan exported wheat and meslin on a sum of USD 455.6 mln., mainly to the CIS countries, such as Uzbekistan (31.2%) and Tajikistan (29.4%). Export of wheat flour and wheat and rye flour blend went mainly to Afghanistan (44.7%) and Uzbekistan (40.7%) and amounted to USD 348.3 mln. in total. In accordance with the Committee on Statistics of the Republic of Kazakhstan, in 3Q2015 almost half of consumer monthly spending in Kazakhstan (47.4%) was for food products. In the structure of total cash spending expenses for food products were the highest (43.8%). They averaged KZT 50 265 per capita. Thus, in 3Q2015 there was observed a growth of consumption in all main groups of food products (except potatoes). 7
Food products in consumer spending, 3Q2015 (%) Food products in expenditures, 3Q2015 (%) 23.8% 47.4% 22,0% 7,7% 43,8% 28.8% 26,5% Food products Non-food products Chargeable services Financial support, taxes, loan repayments and other payments Source: Committee on Statistics of the Republic of Kazakhstan, RA RFCA The highest expenses in the structure of consumer spending, among all types of food products, were on meat and meat products (15.0%), bread and cereals (6.5%). The highest level of meat consumption was observed in Atyrau region, the lowest in South Kazakhstan region. Comparing the consumption of the main types of food products in rural and urban areas, the largest differentiation was in consumption of eggs, bread and grain products. In reporting period, 10% of the low-income population consumed 3.8 times less fish and seafood and 3.2 times less meat and meat products compared with 10% of high-income population. According to the Kazakhstan Committee on Statistics, the prices for beef, chicken, fish, sunflower oil, spread, milk, rice, wheat flour, macaroni, sugar and tea suffered an increase, in 9M2015. The most «wanted» among all food products was meat. Consumer spending on it amounted to KZT 15 966 per capita. Prices for meat in 3Q2015 were following: in December 2014, price for beef was KZT 823 394 per ton, in September 2015 it amounted to KZT 783 735 per ton, having decreased by 6.0%. However, in September 2015 there was an increase of 1.2%. Prices for poultry meat (including chicken, duck meat, etc.) in the period followed the suit. Generally, for the given period of time poultry meat prices decreased by 25.3% to September 2015, having reached KZT 389 619 per ton. Prices for lamb conversely increased by 22.6%, having reached KZT 1.1 mln. per ton. 8
Price change for several types of meat products (December 2014 - September 2015), thous. KZT 1200, 1000, 800, 600, 400, 200, 823,4 521,7 867,9 1 086,2 1 064,4 774,4 783,7 373,8 389,6, Dec 2014 Aug 2015 Sep 2015 Beef and veal, fresh or chilled: carcasses, semi-carcasses and forequarters Lamb, fresh or chilled: carcasses, semi-carcasses Poultry, fresh chilled: carcasses Source: Committee on Statistics of the Republic of Kazakhstan, RA RFCA 160 000 140 000 120 000 100 000 80 000 60 000 40 000 20 000 0 Price change for several types of food products (December 2014 - September 2015), thous. KZT/ ton 140 062 91 124 133 474 134 979 95 119 95 457 59 453 57 737 59 141 Dec 2014 Aug 2015 Sep 2015 Wheat bread Fine ground flour Processed liquid milk Source: Committee on Statistics of the Republic of Kazakhstan, RA RFCA Bread and grain products, as well as dairy products are in great demand in Kazakhstan. Consumer spending on bakery and grain products in Q3 2015 averaged KZT 6 912 per capita. Consumer spending on dairy products averaged KZT 4 661 per capita. At the same time, prices of wheat bread over the period December 2014 September 2015 declined by 4.8%, but grew in August-September. Prices of ground 9
flour from wheat and meslin decreased by 0.5% for the corresponding period. Processed liquid milk in September 2015 became also cheaper by 3.6% compared to December 2014 price, but became more expensive compared to price in August 2015. Food manufacturing is an inseparable part of manufacturing industry of the Republic of Kazakhstan. Therefore, the specificity of the manufacturing industry is the same in food industry too. The main feature of the Kazakhstan s industry is its explicit raw-material orientation. Other weak sides of the manufacturing are: under-developed industrial infrastructure, 38.7% fixed capital depreciation in manufacturing industry of the country, recourse intensiveness, power consuming, and lack of skilled staff. For the purpose of development of Kazakhstan s manufacturing industry in general, and a food manufacturing, in particular, as per President s address to the nation of Kazakhstan «New Decade - New Economic Growth - New Opportunities of Kazakhstan» there were created several large-scale state programs. As long as the food manufacturing industry of Kazakhstan is inter-related with the agricultural sector, the state s support in agriculture would have a positive effect on food sector too. In the framework of the State program for Accelerated Industrial and Innovative Development of Kazakhstan for 2010-2014 (SPAIID), there were given the tasks of ensuring the appropriate conditions for the increase of competitiveness in agricultural sector. The targets in the program «Support to the agro-industrial complex» were: the increase in gross value added of agriculture at least by 16% compared to 2008 in volume terms, improvement of labor productivity in the agro-industrial sector from USD 3,000 per person employed in agriculture not less than 2 times compared to 2008 in volume terms, an increase of the share of local products in total volume of their resources by 80%. Presently, the program objectives were partially achieved, and a share of domestic food in 2014 amounted to slightly more than 80% of their total resources. However, there are still ways to improve. For example, to improve the quality of domestic agricultural and food products to match the level of high-quality imported products, as well as to develop agricultural products processing. For a further support and development of Kazakhstan s manufacturing industry in 2014 the State Program of financing SMEs in manufacturing industry was developed. Priority in this Program was given to food manufacturing. JSC «Baiterek National Management Holding» and its subsidiary company JSC «Damu Entrepreneurship Development Fund» signed loan agreements with commercial banks on funding of new projects of SMEs, as well as on refinancing of the entrepreneurs projects on more favorable terms. 50% of investments were allocated to finance new projects of SMEs, the rest 50% was allowed to be used for refinancing of borrowers. The plan will let SMEs to operate successfully. There is the other program of food manufacturing development called «Performance 2020». Given Program is aimed at labor efficiency increase in priority sectors of the economy, including food manufacturing industry, until 2020. The goals of the program comprise: increase of labor productivity by no less than 1.5 times on manufacturing enterprises, which received long-term leasing loans, increase of average load of enterprise facilities up to 80 % until 2018, no less than two times increase of labor productivity. The republic budget allocates KZT 28.9 bln. for the Program implementation. 10
To increase food industry output and decrease food imports dependence there was drafted the Program of food and manufacturing industry development. In the draft, there were mapped the major objectives, performed close analysis of the correct situation, project roadmaps set, the list of current and planned enterprises was checked, the facilities accounted, modernization and constructions plans were developed and were defined the mechanisms of state support and funds needed. The plan of the project allocates KZT 261.8 bln. for food manufacturing industry development in 2015-2019. Within the Program, there were revealed following constraints on the food industry development, also there were proposed measures to overcome them: Taxation it s worth introducing changes into the Tax code, especially the first payment of VAT issue, IIT taxation of private farms, VAT returns on exports, expansion of the list of areas that are subjects to tax benefits low tax rates; The high cost of packaging it s necessary to take measures on development of national companies engaged in production of packaging materials and labelling machines; A limited number of sales outlets - there is a need to expand modern retail outlets, to increase the number of sales centers, as well as to provide an easy access to them; Low culture of consumption the extensive media coverage of such topics as the benefit of fresh organic products consumption is essential; Inadequate trade regulation it is crucial to ensure monitoring of trade turnover of food and manufacturing industry and to develop amendments on foreign trade regulation. On successful implementation of the program, in 2019 there is expected an increase of investments in fixed cap of food industry and food processing industry to KZT 97 bln. (versus KZT 33 bln. in 2013), increase in food production to KZT 1 271 bln. (versus KZT 973 bln.), decrease in food imports to KZT 1 322 mln. (versus KZT 2 977 mln.), increase of employment in food industry to 68 thous. ppl. (versus 52 thous. ppl. in 2013). 11
Published by JSC Rating Agency of the Regional Financial Center of Almaty (Rating Agency of the RFCA) Any form of copying, reproduction, distribution and forwarding of texts, graphs and other types of materials posted on the website of the "Rating Agency of the RFCA" must be accompanied by a hyperlink to the website www.rfcaratings.kz and indication of the author of the material. Copyright JSC Rating Agency of the RFCA 2016 JSC Rating Agency of the RFCA 136 Dostyk avenue, Floor 9 Business Center Pioneer 050051 Almaty Telephone: (727) 224 48 41, 224 4844 Fax: (727) 224 4841 E-mail: info@rfcaratings.kz Website: http://www.rfcaratings.kz 12