EurasiaNet Business & Economics - Kazakhstan: Grain Export Ban Stokes Inflation Fears Elsewhere in Central Asia

BUSINESS & ECONOMICS

KAZAKHSTAN: GRAIN EXPORT BAN STOKES INFLATION FEARS ELSEWHERE IN CENTRAL ASIA
Joanna Lillis 4/16/08

Kazakhstan has slapped a ban on wheat exports in a bid to stem domestic inflation and stave off a repeat of last year’s bread shortages, which caused widespread dissatisfaction. While possibly fostering greater tranquility in Kazakhstan, Astana’s decision could have a destabilizing impact on the rest of Central Asia by generating a new burst of inflationary pressure.

The Kazakhstani government announced the ban � which does not include flour � on April 15. In a statement, officials attributed the decision to a desire to ensure that the requirements of the country’s 15.5 million inhabitants were met. "The basis for this decision was the need to assure the country’s food security, and not permit negative consequences for the domestic market, in conditions of a significant rise in prices on the world grain market and a shortage of food grain in the world," the government statement said.

Skyrocketing prices for grain have been attributed to several factors, including drought in some grain-producing countries, the use of land for bio-fuels rather than for comestibles, and increased global demand for foodstuffs. "The world tendency is quite worrying. Bread prices are rising relentlessly," Prime Minister Karim Masimov told a cabinet session on April 7. At that same session, he ordered agricultural officials to take protective action, either by banning wheat exports, or by imposing duties. The ban will remain in effect at least until September 1, at which time authorities will be able to evaluate the harvest of the summer crop.

Other CIS grain exporters have chosen to erect protective barriers, instead of embracing an outright ban: Russia has a 40-percent export duty on grain, Belarus is considering one at the same level and Ukraine enforces export restrictions.

Kazakhstan, Central Asia’s only grain exporter, had a net harvest of 20.1 million tons of grain in 2007, 22 percent more than 2006; the wheat harvest was 16.6 million tons, up some 3 million tons. "Over 8 million tons, including grain equivalent of flour, have been exported out of the 2007 grain reserves; export volumes have approached the nation’s anticipated export capacities, which is 9 million tons," the government statement said.

Kazakhstan’s neighbors � especially Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan � stand to suffer the most from the export ban. Tajikistan appears to be in an especially dire predicament after severe winter weather wrought havoc with the country’s economy, destroying, for example, much of the winter wheat crop. [For background see the Eurasia Insight]. Even before the announcement Tajikistan seemed to be flirting with socio-economic disaster. [For background see the Eurasia Insight archive]. According to some estimates, Dushanbe will need to import in excess of 500,000 tons of wheat to make up for domestic shortfalls.

Tajikistan, along with other Central Asian nations, now will have to scramble to line up another wheat supplier. Without doubt they will pay higher prices both for the commodity itself and for transportation. While energy-rich Turkmenistan and Uzbekistan will likely to be able to absorb such a shock without too much disruption. The cash-strapped governments of Tajikistan and Kyrgyzstan could find themselves in a real bind.

"The ban will hurt the neighboring states, especially considering that they are much poorer," said Maria Disenova, an analyst at the Institute for Economic Strategies-Central Asia, told EurasiaNet. "Bread shortages might lead people to protest again."

Officials in Astana emphasize that the export ban is likely a temporary measure, and not a reflection of long-term thinking. The country actually is aiming to become a major grain exporter. During an inspection tour of the northern Akmola Region, a grain producing area, Agriculture Minister Akylbek Kurishbayev said April 12 that Kazakhstan seeks to boost production in the near future to 26 million tons, of which 12 million tons could be for export.

"The head of state has set the task of Kazakhstan joining the five leading wheat exporters," Kurishbayev said, in remarks reported by Russia’s Zerno Online grain industry website. "We will in the near future be able to produce on average 26 million tons of grain every year, of which 18 million will be wheat. We can send 12 million tons of wheat for export."

Kurishbayev � appointed agriculture minister this month after his predecessor, Akhmetzhan Yesimov, became mayor of Almaty � said increased exports would be achieved through a combination of infrastructure improvements and the establishment of new markets. He said the government was building wheat terminals on the Caspian Sea to facilitate exports westward, and he singled out China’s western Xinjiang Province, with which Kazakhstan already has road and rail crossings, as an especially promising export market.

Kazakhstan’s ban had a negligible effect on already high world grain prices. After the announcement, wheat futures for July delivery rose briefly on the Chicago Board of Trade, but closed the day’s trading unchanged at just over $9 per bushel. Prices had reached record levels of $13.50 in late February amid predictions of global shortages.

Analysts inside Kazakhstan seemed cautious about the move. Some suggested it could backfire: instead of shielding domestic consumers, it might merely delay a price shock. "The ban might help restrain prices for bread, but not for a long time, Disenova said. "After the ban is lifted in September, the prices might rise again, but even higher."

"It would be better for the government to succumb to high grain prices and compensate the socially-vulnerable groups instead," Disenova continued. She added that the ban has also upset grain exporters, as they would have made far higher profits selling on the world market, as opposed to accepting the state procurement price.

Other experts expressed concern that the ban could create new opportunities for corruption. Several newspaper commentaries called for tighter control over grain storage to prevent theft and speculation, and to assure a transparent calculation of the harvest. Figures are subject to manipulation at the local level, the Liter newspaper quoted Magbat Spanov, the president of the Institute of Development of Kazakhstan, as saying: "The governors of grain-producing regions are simply trying to be better and more effective than their neighbors in the eyes of Akorda [the presidential palace]."

Editor�s Note: Joanna Lillis is a freelance writer who specializes in Central Asia.

The Central Eurasia Project aims, through its website, meetings, papers, and grants, to foster a more informed debate about the social, political and economic developments of the Caucasus and Central Asia. It is a program of the Open Society Institute-New York. The Open Society Institute-New York is a private operating and grantmaking foundation that promotes the development of open societies around the world by supporting educational, social, and legal reform, and by encouraging alternative approaches to complex and controversial issues.

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