December 15, 2011
Kazakhstan's wheat exports may not meet expectations in 2011
Kazakhstan's wheat exports in 2011 will likely fail to meet expectations despite a bumper crop because of a shortage of railway cars and other bottlenecks common to land-locked countries.
This could also lead to some of the production being spoilt because of a lack of storage facilities.
Kazakhstan usually produces around 16 to 17 million tonnes of wheat, making it the sixth largest exporter after the European Union, which the Index Mundi ranking counts as one unit. Output in Kazakhstan is expected to be around five million tonnes higher this year, with the USDA recently forecasting the country's harvest to be 21 million tonnes, its biggest since 1956, when 19 million tonnes were produced.
Despite achieving a harvest this year that is double the size of Kazakhstan's 2010 drought-plagued crop, exports from the country are only expected to reach 8.5 million tonnes this year.
According to Dauren Oshakbayev, a grain analyst with the Kazakhstan Association of Economists, exports are being hindered by a number of factors. These include a saturated market to Kazakhstan's south, a chronic shortage of railway wagons and competition with domestic producers for scarce grain-loading facilities in the Black Sea ports of Russia and Ukraine.
"Kazakhstan's exports won't increase as much as the harvest did," he said. "We expected bottlenecks, but the shortage of railway cars for export was worse than we expected this year."
As a result, there will probably be close to six million tonnes, twice the usual amount of grain, still in storage in Kazakhstan when the harvesting of next year's crop begins in June. This means that most of the 2011 extra production won't be exported until late next year at the earliest, he added.
Eager to diversify from oil and minerals, Kazakhstan has successfully developed its grain sector in the past decade, acreage has risen by a third and the value of its harvest has doubled. But, the delay in exports could mean that some of the crop is spoiled due to a lack of storage facilities, industry participants said.
"As long as we don't have another bumper crop next year, we'll be fine because we have enough storage for one big crop," said Kontantin Kostenko, a trader at DAN JV, a local company in partnership with the world's largest agricultural commodities trader Cargill Inc. "And if we do have another huge crop, the government should have the time and the funds to built metal sheds, so very little should be spoiled."
Others are more skeptical, however. "Good harvests are always problematic in Kazakhstan and this year is no exception," said Martin Petrick, of Germany's Leibnitz Institute of Agricultural Development in Central and Eastern Europe. "I expect 5% to 10% will be lost to spoilage," he added.
The former Soviet republic, four times the size of Texas, has a population of only 16 million who usually consume 2.5 million tonnes of wheat a year. Another 5.5 tonnes of wheat is usually used as cattle feed and seed.
Transport has proven a stumbling block to getting exports to key consuming areas.
Around 24% of Kazakhstan's wheat exports are taken by rail to Russian and Ukrainian ports on the Black Sea. From there, 10% of the total goes to Europe and 14% to Africa and Turkey. Only there is demand strong enough to immediately absorb Kazakhstan's extra production, said Kazakhstan Association of Economists' Oshakbayev.
But this year, equally bountiful crops in Russia and Ukraine took up the lion's share of wagons and of grain-loading capacity in both countries' Black Sea ports, which open into the Mediterranean. The result, Kazakhstan will export a lot less through the Black Sea to international markets than usual.
About 40% of Kazakhstan's wheat exports go to Iran, Azerbaijan, Turkey and Georgia, mostly by rail. But Kazakhstan is considering upgrading its grain-loading facility at the Caspian Sea port of Aktau six-fold to three million tonnes, which would make shipments faster, cheaper and more competitive, analysts say. Azerbaijan and Iran are on the closed Caspian Sea while Georgia and Turkey are on the Black Sea.
Kazakhstan also uses railway cars to carry 37% of its exports to its southern neighbors, the four other former Soviet republics of Uzbekistan, Kyrgyzstan, Tajikistan and Turkmenistan, plus Afghanistan. But, increasing those exports in bumper years, even if more railway cars were available, is difficult because they are already saturated, analysts say.
Kazakhstan also suffers from a shortage of storage capacity, with room for about 10 million tonnes in silos. The rest must be kept under tarps on farms or in warehouses.
"If Kazakhstan wants to increase exports, it needs to buy more wagons, build more silos and invest in grain-loading equipment in the Black Sea ports," said Petrick of the Leibnitz Institute.
The best place would be Georgia, which does not compete with Kazakhstan as a wheat grower, he said.
In addition to wheat, which accounts for 85.4% of Kazakhstan's production, the country produces barley (11.6%), oats (1.2%), along with small amounts of buckwheat, rye, millet and other grains.