Ban on grain imports remains until 10 April 2024. Experts support that decision of the Government, but call it “fire crew against a small fire”. The big fire is ahead.

The 6-month ban dropped on 10 April 2023 was to expire in October. Our government took care of its 6-month extension in advance.

Decision was made to suppress “grey imports” and re-exports of grain by trucks in the regions bordering on Russia. To supply indigenous farmers with seed grains, the government allowed transportation of same by motor vehicles. Such dispatchments must have all supporting documents. Besides, the government limited the imports of grains by rail, as well. Exceptions shall be made for licensed grain stations, grain processors and poultries. Order, by which motor-vehicle transportation of grains is banned, while railroad transportation is limited will be drafted by the Ministry of Agriculture –

as follows from the appropriate governmental press-release.

Muddy Game

What would happen, if Kazakhstan did not drop that ban? Secondary sanctions or something worse?  Yevgeny Karabanov from the Grain Union of Kazakhstan says, the matter is not about sanctions, but stabilization of prices – the “gray grain imports”, by which cheap Russian grains were brought to Kazakhstan, caused the drop down in already low prices for grains harvested by Kazakh farmers. 

— How come Russian grains are cheap, when the global prices are relatively high?

— We need to compare the base rates of the Russian and Kazakh central banks. Russian rate now is 8.5%, whilst ours has been at 16.75% for a long time. A country under sanctions and at war has the base rate, which is 2 times lower, than ours. Which means, their bank loans and other things are significantly cheaper.  Their standard loans are cheaper, not to discuss the 4% cheapened loans they give to farmers.

— So, farmers are not in equal conditions?

— No, they are not. Besides, let us take a look at the territories of Kazakhstan and Russia and think about differences in climate and weather.

All that would be OK, if not for unfair market competition, because trucks allow, as we can see, help implement those “gray imports”.  How do they do that? They report smaller tonnages at the customs or support dispatchments with fake documents, or they receive one certificate, but use it to bring 10 trucks into the country.

That is how we get those masses of unaccounted grains.  Later, those imports become legal through our farming enterprises and then they go onwards, as Kazakh grains. 

In Russia, there is a customs payment imposed on grains taken outside Eurasian Economic Union.  In the past it was RR 5,700 for one ton, today it is RR 3,800.

Why do not Uzbekistan and Afghanistan buy Russian grains, in such a case? There two limits to that.  The customs payments and the high transit tariff, higher by USD 35-40, compared to the standard one.  If Russia export grains to a third country (not Kazakhstan or Kyrgyzstan, because the transit tariff is not imposed on such exports), then the transit tariff is applied.

Trucks are a by-pass, railroad is as well, but trucks allow for more manipulations.  Railroad is a more or less transparent and traceable option.  It is impossible to trace the movement of trucks.  You can indicate Point A as your entry point, and then arrive at Point …C for unloading.

Grain Gangsters

— Should we not address all questions to customs and border officers?

— The thing is, there is, in fact, not customs control at internal borders of the Eurasian Economic Union.  Checkpoints are rather formal, likewise is the checking process.  Yes, you can show some sort of supporting documents, with no customs declarations, and you may proceed.

That is why, there are numerous power abuses, masses of cash circulating in that business, as well as stable criminal societies operating in that sector, in which societies there are citizens of Russia, Kazakhstan and countries in the South.

Why am I so confident? In Telegram, there are several grains trade channels.  I am a member of all of them.  In the past there were many advertisements there offering to buy grains without documents or to sell documents formalizing grains.  In the last year, those ads disappeared.  What does it mean? That means the clients and service providers have found each other. In other words, service provider no longer needs to come to public space and thus manifest themselves.  In fact, that organized crime with the money going past the treasury, no taxes and no import VAT paid. If you bring grains officially, you pay 12% of its value to government, as import VAT. With gray imports, and those are mainly trucks, you do not pay import VAT.

Russian grains are cheaper, after all.  The difference comes from its cost value, evasion of payment of the import VAT and the transit tariff.  That is how, in external markets, Russian grains, passing through Kazakhstan, were sold out far cheaper – USD 15-20 for one ton.

Our traditional buyers would ask questions, like why we sell to them for higher prices, while there are cheaper options.  And they did find ways to buy cheaper!

In those markets, our good-will exporters had to drop prices down.  In doing so in the export markets, they would replicate same in regards to our farmers.  In other words, exporters did make their 5 to 10 dollars from a ton, regardless how high or low the prices were.  But our farmers were the ones to suffer, at the end of the day.  In September 2022, i.e. the beginning of the new season, was more than KZT 130 thousand for one ton.  Today, it is KZT 85 thousand.  In April 2023, when the ban was dropped for the first time, it was sometimes KZT 80 thousand.

Black Sheep

— Is the situation better now?

— The drop down ended, at least.  The prices increase, but a little bit – KZT 5 thousand.

— Why not more? Is it because of “gray schemes”, despite the ban?

— Today, there are no gray schemes with grains.  But they exist for barley and sun-seeds.  Gray buyers switched attention to other cultures.

— So, the ban works?

— It does.  There were attempts to bring grains hidden barley, for example.  But those are individual manifestations, and not the volumes, likewise in the past. 

— Are there data on losses incurred in by local manufacturers, because of gray schemes?

— We analyzed statistics – official imports in Kazakhstan and data from Roselhoznadzor (Russian Agri-Supervision), the agency that issues sanitation certificates for each individual truck.

In 2018-2019, the illegal exports of grains (supposing all checked trucks made it here) was 500 thousand tons.  In 2021-2022, according to our assessment, that import was some 1.5 million tons.  September 2022 to February 2023 – 900 thousand tons.

The problem is that those 1-1.5 million tons of illegal grains would collapse our legal market with its 10 million tons.  That is why, we say, we need to calculate losses for the whole volume of grains traded here.  That is some USD 200 million, only because of gray imports.

— When they were dropping that ban, did they not realize that half a year was not enough to straighten up the situation.  Why did they not drop it for one year or more?

— Eurasian Economic Union’s statutes state that bans cannot exceed 6 months.  They may be extended. 

All Weapons Are Good for War

— So, how will events develop after 10 April, 2024?

— It will depend on export markets and global markets.  Geopolitics are of great impact on that.

In the past politicians took economy in account. Today, they just chop the forest disregarding the economic reality. They disregard external factors, as well, whilst we are very dependent on those factors today.

Here is one example.  Russia rejected the grain deal. Russia attacks Ukrainian cities, as well as its ports. Any sea vessel may be called target. Ukraine acts in the same way. 

What happens immediately after Russia and Ukraine exchange threatening declarations? Insurance companies recall their insurance documents, that were very expensive, because the Black Sea is a war-zone.  Grain deal kept that sea calm.  Sea vessel owners felt nervous, because nobody wants to lose their vessels.  In the past they used to insure them, at least.  Today, they do not.  All shipments, if any, are at owners’risk.  Besides, ship crews are at risk.

Immediately, it became obvious, that the Russian Black Sea export of grain was exposed.  Russia exports up to 70% of its grains through the said sea.  In 2022, Russia sold 47 million tons and 59 million in total, with 70% of exports passing through the Black Sea.  В 2022 году они продали 47 млн тонн только пшеницы, а всего — 59 млн тонн зерна, и 70% шло через Черное море. Besides, 15% of Russian crude oil, fertilizers and other products pass through it.

What are consequences and implications? Russia will look for other markers. The nearest one is Kazakhstan. Through Kazakhstan – Central Asia, Afghanistan and Iran. 

When the Ukrainian ports were under blockade until August 2022, i.e. until the time when the deal was made effective, global prices were at some USD 400 for a ton.  In Ukraine, it was sold for USD 130, because there were no ways to carry out to external markets.  The same may happen to the Russian grains now.  Blocking or complication of Russian exports will reduce prices inside Russia. And, the Russian cheap grain will collapse our market, despite all limits and bans.

A month ago, President of Russia signed an edict, authorizing Russian government to reduce or null export customs levies for friendly countries or for the motivation of the Russian exports.  So, they prepared themselves prior to the exit from the grain deal.

— So, there are two constraints – customs levies and transit tariff. The first one may be cancelled easily – Russian government just nulls it. The second one may hypothetically be resolved through negotiations or pressure on Kazakhstan, for the latter to establish a reducing ratio. Because our local mining and oil producing companies (we export some 12 million tons of coal through Russian ports and some 10 million tons of crude oil, as well through same ports) had reducing ratios applied to transit tariffs. Once they face the threat of cancellation of those ratios, they will address the government and lobby the discounted tariff on the Russian grains. 

Dairy industry situation has already demonstrated the probability of such a scenario. There were 25% subsidies into transportation of dairy products from Russia. From 1 January, 2024, transport costs associated with delivery of dairy products from Russia will be 100^ subsidized. 

— In that case, will Kazakh manufacturers be at al competitive?

— That is our concealed fear.  But government tells us, that will make prices cheaper in Kazakhstan. Yes, it will – for a time.

After that time, our manufacturers will choke, there will be not import substitution. They will grab us by our most vulnerable anatomies and dictate their terms – not only economic, but political, as well – “We will give you bread, if you do this and this”.

Which means, we are looking at loss of economic and food sovereignty. And that issue is serious. And the reaction to it must be prompt and correct. 

Now, take a look at the exchange rate. When it was KZT 4.8-4.9 for RR 1, our dairy and sugar processing companies were in hysterics. Then, problems will come to the raw products market. The problems will be with four, sweets, pasta and beverages – al those things Russia has to offer to us. And the rate proceeds to fall down.  It is 4.6 now. 

What happens now, is something like in 2015, when Kazakhstan lost a grand money-mass. Our companies cannibalized Russian markets – foodstuffs to consumer goods. Local manufacturing companies were in deep know-out.  Same is now. 

Russia will need to export products. Russia has alternatives to us. Those are Astrakhan, Makhachkala, Turkmenbashi, where they have a grain terminal. From Turkmenistan, Russia can go to Uzbekistan and Afghanistan – our traditional markets. 

That is a serious thing, we always ask our Government to pay attention to.

— Well, measures were taken, will they not help?

— Those are emergency measures – like oxygen for a person in coma. We need systemic measures.

It has been three years, since we first raised the question of necessity for state to create a special grain accounting system.  Russia did so in September 2022.  From that time, not a single ton will move, both domestically and internationally without the prior registration in that system.  Russians have a short time lapse between decision and implementation.

Kazakhstan needs political will, but our rulers are looking back at Russia and fear its reaction.

Our questions is, what will happen if our farmers go down?  We are not asking for exceptional terms and conditions for them.  Our farmers need at least 10% of profitability for development, renewal of machinery, technology and new seeds.

Today we have KZT 80 thousand – that is for many farmers the cost value of one ton of grains.  And we got risks, that the price will be lower, in other words, we will see losses and bankruptcy of farmers. In many depressive regions of Kazakhstan, farming is the only systemic business in place – farmers are the employers and the tax payers.  So, consequences are obvious.