State support for development of livestock breeding in the Republic of Kazakhstan.

Introduction

One of the most important activities of the government in a modern market economy is to regulate, intervene and support the economy. The classic definition of governmental regulation states – a system of economic activities of the state through which it can influence the socio- economic development of society. And it is not a secret that state regulation of the economy aimed at achieving the following objectives:

· Ensure sustainable growth

· Building the infrastructure of the economy

· Create normal conditions for the functioning of the market mechanisms

By analyzing the situation and statistics of the livestock population in Kazakhstan it is obvious that there are problems in that particular industry that needs to be addressed to state support. The Keynesian approach gives good definition which states that “government should regulate the economy impact on aggregate demand: increase the money supply, lowering interest rates (stimulation of investment activity)”. The shortage of livestock in Kazakhstani market became the reason for creating the program “Development of export potential of cattle meat in the Republic of Kazakhstan for 2011-2020”[2] by KazAgro. This particular program gives opportunity to develop agribusiness by giving to commodity producers’ privilege, such as low interest rate (max 6%), subsidies, lands and other preferences.

This article describes state support for development of livestock breeding in the Republic of Kazakhstan.

Firstly it is needed to emphasize on analysis of the current situation of the livestock industry in Kazakhstan. According to the agency on Statistics the total population of cattle in 1990 there were 9.7 million head while at the beginning of 2010, only 6.1 million head. Out of this, only 311 thousand heads are purebred of all breeds and that is only 5% of the total population. In 2009 the country’s meat cattle, became only 76.7 thousand heads which is only 1.25% of total population. It is interesting to see that in the Western countries this figure is much higher there are 60% 70% and in America 80% of livestock are meat cattle rather than milk cattle. During the period of 1990-2009 years, a meat production in the Kazakhstan decreased to a greater extent than the population of cattle. Beef production was reduced from 709.6 tons to 396 tons (according to Ministry of Agriculture of Kazakhstan). [1] It is not hard to understand that our own breeding stock won’t be enough to provide in the coming years a sharp rise in the number of beef cattle, which would make it possible to provide our own market with beef and bring this segment of the economy to the exports.

For Kazakhstan there are favorable market conditions to significantly increase exports of meat to foreign markets. This is due to the presence of natural competitive advantages of the country, as favorable climatic conditions, availability of pasture (180million ha), proximity to intensive markets. In addition, livestock production is the old-age craft of the indigenous population.

This particular situation became the reason for designing project named “Development of export potential of cattle meat in the Republic of Kazakhstan for 2011-2020” by KazAgro[2]. Message from the President of the Republic of Kazakhstan stated that it should be increase the number of cattle beef to 61% of the total population, as well as to create conditions the meat export capacity to 60 thousand tons by 2016 and to 180 thousand tons by 2020. In order to increase productivity will be imported 72000 head of cattle highly productive from foreign selection. In order to implement this program Kazakhstani government decided to support enterprises in two ways:

1. Finance farmers or agro companies in order to import cattle from countries as US, Canada, Australia, and France [3]

2. Improve and increase local purebred livestock by financing and subsidizing enterprises with the program called “Sybaga” [3]

Before entering any of these program borrowers needs to analyze which of them are more acceptable and realizable in order to achieve successful results. It is obvious that importing cattle from abroad it is more large scale project, which needs more finance from the government. The general terms and conditions of financing of investment projects developed in accordance with internal credit policy company “KazAgroFinance” approved by the Board of Directors.

Table 1 – Conditions for borrowers who want to import livestock from abroad [2]

Name	Construction work	Equipment	Livestock	Working asset
Instrument	loan	leasing	loan/leasing*	loan
Deadline	For 12 years
Co-financing by the borrower	From pr15% of the total project
rate	4%
pledge	needed	-	needed/ -	needed
Payment of principal	At least 1 time per year **
Payment of remuneration	At least 1 time per quarter **
Grace period	3 years

** Repayment schedule of payments of principal and interest on lease / loan can be set individually depending on the characteristics of the current project. In this case the periodicity of payment of principal and interest shall not be less than that specified in the general conditions of financing.

The second schedule will give conditions for financing the local program “Sybaga”

Table 2 – Conditions for borrowers who want to buy local livestock [3]

Operator	JSC Agrarian credit corporation	JSC "Fund for Financial Support of Agriculture”
Aim	1. Purchase of breeding stock of cattle and breeding bulls
Financial instrument	Loan
Target group	1.    Legal entity;
	2.    Farm enterprises;
	3.    Individual entrepreneurs engaged in livestock
Currency	Tenge
The loan amount per borrower	8,5 million tenge and higher		Not more than 18.5 million tenge, the minimum loan amount is one million tenge
Credit period for the purposes	1.    For the purchase of breeding stock of cattle including producers of breeding bulls- up to 84 months;
	2.    For working capital 24 month;
	3.    Purchase and repair of fixed assets up to 84 months
Annual interest rate	6%
The grace period on repayment of interest	1. For working capital – less than 12 months from the date of issuance of each tranche
	2. For the purchase of breeding stock, breeding bulls manufacturers for the purchase and repair of fixed assets - not more than 24 months date of issuance of the first tranche of / from the date of issuance of each tranche
Basic requirement for the borrower	Solvency and financial stability;
	The absence of arrears of taxes and other obligatory payments to the budget for the last 3 month prior to the filing date
	No negative credit story;
	Availability of necessary infrastructure for cattle
	Availability of forage;
	Availability of grazing
	Availability of veterinary welfare on the farm;
	Owning stock in an amount not less than 25% of the purchased cattle, or the presence of co-financing in the form of cash in the amount of 25%.
Basic requirements for the project	veterinary services at the expense of veterinary specialists, licensed, operating on a competitive contract basis;
	purchased repair bulls and bulls producing at least one class of meat breeds, breeding, and must have a veterinary certificate
	ensuring delivery of all "young" cattle (steers) feedlots

In these tables we can see that state is ready to support not only buying the cattle itself, but also gives leasing and loans for the construction work (such as construction of paddocks, fences, feedlots etc), equipments (chute-box, barns, cages, and ear tags), and working assets.

Moreover in the decision of the Government of the Republic of Kazakhstan on March 11, 2011 #252 states rules on use of subsidies in order to increase productivity and quality of livestock products. Governmental subsidies are intended to:

1. Partial reduction (up to 50%) of the purchase price of purebred cattle from domestic breeds and farms of its own reproduction, as well as imported pedigree cattle, including acquired under the lease agreement.

2. Partial reduction in price (up to 50%) of the purchase price of semen (to make artificial insemination) that are evaluated by distribution and breeding centers.

3. Partial reduction in price (up to 50%) of the cost of feed used for the feeding of breeding stock of cattle.

Our government had foreseen criteria that required for producers [4]:

1. Producers engaged in breeding cattle must be registered in a single information-analytical system of the Republic Of Kazakhstan and maintain veterinary and animal records

2. To use cattle for reproduction purposes not less than 2 years

3. Availability of facilities for the animals in accordance with adopted technology

4. Organization and implementation of veterinary measures

5. Availability of forage crops, or purchase agreement of the feed

Below you can see the Standards of subsidies from the budget for the local animals

Table 3 – Subsidies from government for local livestock [4]

№ п/н	Livestock breed type	Standards of budget subsidies for a head
	Livestock
	Milk cattle:
1.	Holstein	Can cover no more than 50% of the cost acquisition, but not more 100 000 tenge for 1 head
2.	Red cattle
3.	Alatau
4.	Simmental
	Meat cattle:
1.	Kazakh white head	Can cover no more than 50% of the cost of acquisition, but not more than 100 000 tenge for 1 head
2.	Auliekol
3.	Santa-Getruda
4.	Sharoile
5.	Hereford

Table 4 – Subsidies from government for imported livestock [4]

№ п/н	Country of importation of cattle	Standards of budget subsidies for a head
1.	Customs union countries (Russia, Belorussia)	Can cover no more than 50% of the cost acquisition, but not more 100 000 tenge for 1 head
2.	Other countries	No more than 50% of the cost acquisition, but not more 200 000 tenge per 1 head

In the table 3,4 we can see, the amount of subsidies for each type of breed. The reason for giving higher subsidies 200 000 tenge for imported cattle is obvious. By using such strategy government wants to ease the cost of transportation of cattle from abroad that sometimes costs more than animal itself. The intention of supporting national producers seems pessimistic because of shortage of local livestock.

In conclusion it is reasonable to state the expected results from such strong support from the state:

· an increase employment in rural areas

· increase in the number of purebred meat cattle

· increase the production of beef

· creating conditions to bring the export potential of the beef cattle industry

· development of related agro industries such as feed production, milk processing, meat, hides, maintenance and repair of agricultural machinery.

The international experience shows that agriculture businesses could be cost efficient only in case of government support. As an example could be most developed countries as EU, and USA. As for European support it is more socially oriented while in USA less emphasis on social issues the main objective – to promote competitiveness and to help in difficult times. And Kazakhstan has its own instruments in order to stimulate the agro industry.

Резюме.

На сегодняшний день государство Казахстана оказывает колоссальную поддержку сельскому хозяйству страны. Племенное животноводство так же не осталось без внимания. В 2011 году АО «Национальный управляющий холдинг «КазАгро» разработал проект под названием «Развитие экспортного потенциала мяса крупного рогатого скота Республики Казахстан целью, которой является обеспечение увеличения численности товарного стада крупного рогатого скота, развитие экспортного потенциала мяса крупного рогатого скота. В данной статье излагаются инструменты, которые используются государством, такие как кредиты, субсидии для поддержки фермеров и товаропроизводителей.

Resume.

Currently, the state of Kazakhstan has huge support for agriculture of the country. In 2011, JSC "National Holding" KazAgro "developed a project “Development of export potential of the beef of the Republic of Kazakhstan”, which is to increase the number of commercial cattle herd, the development of export potential of cattle meat. This article describes the tools used by the state, such as loans, subsidies to support farmers and producers.

References:

1. Agency on Statistics in the Republic of Kazakhstan, in 2010 - preliminary data

2. Project “Development of export potential of cattle meat in the Republic of Kazakhstan for 2011-2020” can be found in http://www.kaf.kz. Accessed on October 10

3. Ministry of Agriculture official website: http://www.minagri.kz

4. Government resolution Of the REPUBLIC OF KAZAKHSTAN on June 21, 2011 № 681