Kazakhstan started losing the position of the leading exporter of wheat flour to Afghanistan and became grain exporter — Dikanshy LLP
Kazakhstan is traditionally the leading exporter of wheat flour on the global market. But in the current season it faces serious logistical difficulties, which prevented the stable trading operations for market participants. The actual issues and the prospects for the Kazakh grain market were the main topics of our interview with the CEO at LLP Firm Dikanshy, Dmitriy Pampur.
- Dmitriy Sergeevich, what are the features and main problems of the Kazakh wheat flour market in the current season in Your opinion?
For several recent seasons, the lack of high-quality 3-grade wheat supply was one of the leading problems for Northern Kazakhstan. Thus, many flour wheat producers has passed to the manufacturing of flour of the lower quality with the focus on the Afghani market. Naturally, we could observe the increasing competition on the wheat flour market and also the narrowing of the buying sector as the supply was oriented mostly on Afghanistan. Of course, some product volumes are exported to Russia, Uzbekistan, Tajikistan and China, but they are minimal.
- What difficulties do occur with Afghani consumers? What feature would You highlight in terms of the exports to the reporting region? How have they changed for several recent seasons?
Given the majority of wheat flour is exported to Afghanistan the prices have been affected significantly. Thus, with the amount of Kazakh flour supply was quite high the Afghani consumers began to gradually decline, the bid prices of flour wheat led to the Kazakh flourmills marginality decrease.
In the current season, the Afghani buyers have worked out the logistical issues and began tolling – i.g. to ship the Kazakh grain to Uzbekistan, rent the mill there, produce the flour independently and then transport it to Afghanistan. You would think this scheme to be rather complicated but, in terms of the current economic situation, it pays off and benefits due to the absence of the transit fees between Uzbekistan and Afghanistan. Moreover, the Afghani consumers buy raw materials and not the finished product, thus leaving the VAT for processing to themselves. Thus, they become both the producers and the traders. All these lead to the situation when Kazakhstan is losing its position as the leading wheat flour exporter to Afghanistan and is becoming the exporter of grain.
As for today, the Kazakh wheat flour production survives through the export of the finished product to Afghanistan. However, we remember the times when Kazakhstan was leaving the Afghani market because the country was turning to the importing of wheat and wheat flour from Pakistan. And, despite the fact that the difficult political situation between the two countries works in Kazakh traders’ favor, there is always a possibility for Pakistan to return to the Afghani wheat market.
- Are there any competition rates from Russia in the current season? How does it influence the prices formation in Kazakhstan?
The record crop in the Russian Federation led to the all-time high export of the Russian wheat to the Kazakhstan frontier zones that provided the considerable pressure on the prices. However, by the end of December of 2017, Kazakhstan has tightened the control over the shipments of the Russian grain and for today they declined significantly, in particular, of those transported illegally (without VAT). As the result of the control, at the beginning of 2018 the prices of 4 and 5-grade wheat began to increase slightly.
- The logistic is the main bottleneck of the Kazakh agriculture sector in 2017/18 MY. What main obstacle would You stress?
There was an increase of the demand rate on the Kazakh barley at the beginning of autumn of 2017 and many of the export-oriented companies started contracting the grain for the delivery to Iran via Aktau port. This led to the traffic standstill as many carriages pending unloading were stored up at the seaport. After, as a chain reaction, the private companies took away their grain-cars from the common use and began to transport the grain independently as there was no state grain-cars. After that, the deficit of the grain-cars led to the lack of the covered wagons as many market participants started to use them to transport the grain. Consequently, the Kazakh market operators faced the deficit of the cars of all types. This situation remains up to the present time.
The record grain crop in Russia aggravated the logistical problem as many Russian market participants were missing the grain-cars for grain shipping to both the domestic and export markets, thus they seized them from the previously rented wagons by Kazakhstan.
All of these factors created the highly complicated logistical situation in Kazakhstan. Sometimes the delay in shipping varied the period of 2-3 months that significantly complicated the work of the market.
- Kazakhstan increased the production of oilseeds for several recent seasons. Which oilseed have faced the biggest demand in the current season?
The main features of the current MY were the high demand rate and the gradual price increase on rapeseed, and also the low demand rate on linen seed from EU and the prices were lower year-on-year.
- What reforms and innovations have been recently observed in the agricultural sector of Kazakhstan?
At the end of 2017, there were changes in Kazakhstan tax legislation in terms of agricultural producers and processers, which led to the reducing of the governmental support for the producers. It is possible that this factor will negatively affect the market participants’ financial status, but the processing industry should not operate through donations.
- Did relations between Russia and Ukraine influence the operations of Kazakh market participants?
The political problems between the two countries does interfere the normal operations of the Kazakh companies. For example, it is difficult and sometimes it is even impossible to transfer the agriculture equipment from Ukraine due to the problems in transit through Russia. That is why we have to look for and buy more expensive but sometimes less quality equipment.
- What should the government do to improve the business climate in Kazakhstan?
It is necessary to attract investments to develop the logistical structure – first of all to increase the railway rolling stocks.
Through 2017/18 MY we could see that there is a serious problem in Kazakhstan. In particular, we cannot be confident in keeping our side of the bargain while contracting. It is quite difficult to safeguard the sales if you cannot to unload the goods.
- Thank You for the informative talk, and in conclusion of our conversation would You kindly speak about Your company plans for the foreseeable future?
For the first halve of 2018 we hope to see stable demand rate on wheat flour from Afghanistan. However, if we speak about the forecasted shortage of the wheat flour production profitability in the short-term perspective, firstly, our company plans to increase the sales volume of grains, pulses and oilseeds. The second interesting for our company area of work is the production of the whole-wheat flour such as spelt, oats, barley, – luckily, we have the necessary equipment to do this. For now, more and more people begin to take an interest in healthy food: such consumers are ready to pay extra money for the possibility to eat more balanced and qualitative. At the same time, in Kazakhstan the products with the mark “Bio” and “Organic” (Russian origin mostly) usually are not organic and are much expensive than the non-organic ones. And here, in collaboration with certified Kazakh producers of the genuine organic goods, we plan to reach new horizons in development with focus on both the domestic and the export markets. The difficulties on the market change the market but when some possibilities are slim to none - the others appear instead. You should always follow closely the economy, not be closed-minded, develop together with the market and be greed for new possibilities.
LLP Firm Dikanshy was formed in December 2001, and developed as one of stable and constantly developing companies of the grain market of Kazakhstan.
To date, the brand LLP Firm Dikanshy combines several areas of activities: trading of grains and oilseeds and the products of processing, logistic to the near and far-abroad countries. The production is fitted with the equipment, which provides the unloading of the products in different packaging (BigBag), by means of auto or railroad transportation (grain cars, covered wagons) from both the existing railway stop and the elevators to throughout Kazakhstan.
Interviewed by Polina Kalaida, APK-Inform Agency
You should be authorized to post comment