Agriproducts import volumes to China to increase — GC Severnoe Zerno

Source

APK-Inform

1777

 

 

The geography of agriproducts exports from Kazakhstan is rather stable, and the expantion of the distribution channels is still limited, due to the geographic position of the country and the logistical problems. Nevertheless, for several recent seasons there is a strong growth of the exports of the key agricultural products, as well as by-products, from Kazakhstan to China. The features of the trade between two countries, the difficulties and prospects of the collaboration development, were the main topics of our interview with the Founder of the Group of companies Severnoe Zerno, Evgeniy Karabanov.

 

 

 

 

— For several recent seasons, Kazakhstan develops cooperation with China. Do You consider China as one of the most perspective export direction for the Kazakh market?

Obviously, today China is the most promising trade partner not only for Kazakhstan, but also for Russia and other countries exporting agriproducts. The Chinese government is gradually shifting away from the strategy based on domestic production only to the opening of its market for the import of products.

China is the largest market of the agriproducts and food products in the world not only in terms of volume and variety of imports, but also in terms of prospects, considering the increasing depletion of soil and nature resources used at their frontier. China has a little over 100 mln ha of arable lands but they have the tendency to decrease due to the high degree of land exploitation, ecological problems and climate changes.

 

— How do You think whether China will increase the import volumes of key agriproducts in the near future, and what factors will promote it?

The population of China is expanding at a fast rate as well as the needs of the population in food. Now there are almost 1.4 bln people living in China, and only for the last year this number increased by 5.7 mln. Besides, due to the development of the Chinese economy for the last yeas the salaries of Chinese people increased and as a consequence the food patterns change for more variable, quality and energy valuable food. There is high consumption of bread and bakery products, meat and meat products. Thus, there is a larger need to import the raw materials to produce these products. As a result, we can conclude that China will be increasing the import of food products.

China rapidly develops the volumes of investments to agricultural production abroad and puts money into foreign natural resources in a form of long-term rent of arable lands or creation of the corresponding infrastructure abroad. On the other hand, such a policy threatens by high political and economic risks.

For this reason, China has enhanced its activity of direct purchases of food products and raw materials from other countries. The experts can observe the increasing trend of import of the food and feed grain because of the low arable lands in China, water resources and work force in terms of the growing demand on the grains.

The Chinese market can become an important incentive for the development of the agricultural production in Kazakhstan, the Siberian and the Far East region. China has approved the list of the Russian grain exporters of wheat, corn, rice, soybean and rapeseed – these are 11 companies from the Siberian and Far Eastern regions. Moreover, it should be noted, that China approved the export of wheat from the three main grain production regions of Kazakhstan:  North Kazakhstan region, Akmola region and Kostanay that all together produce nearly 80% of the total Kazakhstan grain. Also, there are protocols of sanitary and phitosanitary control signed for the export of cakes, soybean, horses, fish, honey, fells of cattle and small cattle, hay from Kazakhstan to China. Today, the countries hold the negotiation concerning the signing of the protocol for the export of flaxseed, rapeseed, barley, corn, beef and lamb meat, poultry and its by-products. For the moment the Chinese companies purchase the Kazakh food and feed raw materials and also finished products (food and feed wheat; wheat flour; soybeans; sunflower seeds; sunflower, rapeseed, safflower oils; pastry; honey; frozen and cooled lamb and fish; soybean, rapeseed, sunflower meal and cake, brans, etc.). For Kazakhstan the common frontier with China and the absence of severe logistical problems in terms of delivery of the goods is a winning factor that contributes the increase of export of these products from Kazakhstan.

The export of Kazakh wheat to China is constantly increasing: in 2015 it reached 126.7 thsd tonnes, in 2016 – 281.2 thsd tonnes, in 2017 – 306.9 thsd tonnes and for the first 6 months of the current year (according to recent reports) – 177.5 thsd tonnes.

The number of the oilseeds export from Kazakhstan to China is more impressive. Thus, the export of sunflower seeds in 2016 is estimated at 65.8 thsd tonnes, in 2016 – 73.8 thsd tonnes, 2017 – 123.7 thsd tonnes. The export of other oilseeds (soybeans, safflower, flaxseed, cotton seeds, mustard, camelina and others) in 2015 reached 26.7 thsd tonnes, in 2016 – 31.6 thsd tonnes, in 2017 – 44.5 thsd tonnes. The same trend can be seen in terms of vegoils export (sunflower, soybean, rapeseed, faxseed, safflower, cotton and other oils): in 2015 – 9.2 thsd tonnes, in 2016 – 26.6 thsd tonnes, in 2017 – 57.6 thsd tonnes. Moreover, the improvement of the logistical infrastructure for the last several years, including the program “Belt and Road Initiative”, made it possible to unload the current and to create the new channel of goods transportation from Kazakhstan to China. The construction of the railway border crossings Dostyk- Alashankou and Altynkol-Horgos between Kazakhstan and China created the new transit corridor via the Great Silk Way: from the Pacific seaports of China – Lianyungang, Quingdao, Tianjin – to Kazakhstan, Kyrgyzstan, Uzbekistan, Turkmenistan, Iran, Turkey, to the Mediterranean and Arabian Gulf seaports. Today, the goods are transported via this channel. The available roads give the opportunity to transport the goods to Russia and the CIS countries, and Turkey and Iran that in turn provide the way to Black sea Mediterranean seaports.

 

— What difficulties and features will Kazakh traders have to face in terms of operations via this channel (peculiarities of the grains quality, logistics, etc.)? What are the prospects of the further development of grain and other agriproducts trade between Kazakhstan and China?

The export to China is growing but not as rapidly as Kazakh traders would like. Besides, Russia is becoming the significant competitor in terms of grain delivery to China. The export of Kazakh grains is not as large, the delivery is provided via railways and roads and it is profitable in terms of western, relatively scarcely populated regions of China. It should be noted that in order to protect the domestic producers China regulates the import of food wheat and flour by means of providing annual quotas. In particular, the annual wheat quota amounts to 4.0-4.5 mln tonnes. The import of grain via quota is liable to 6% VAT only, at the same time the import of grain without the quota is liable to import tax reaching more than 65% of the total custom value of wheat. 90% of the total annual quotas are granted to the national company COFCO. The majority of the other market participants have to import wheat and flour paying the higher taxes or deliver wheat for feed use for its further compulsory processing into feed compounds.

Herewith, the transportation of grain to the heavily populated coastlines of China via the railway transport is too expensive. Here the difference of rail line and the Chinese preference to receive the grains packed in containers plays a negative role. According to the Chinese government requirements all of the grains import must be packed in container (sacks, big-bags). This resulted in the delivery becoming more expensive (by $8-$10 per tonne), the decrease of the productiveness of the delivery companies and the increase of the workload of the delivery owing to the attracting of additional labor-force.

In the long-term perspective Russia has more advantages in terms of transportation. The further development of the Pacific sea ports of Russia will allow the country to pile up the export of grains not only to China but also to other Southeast Asia countries.

One of the factors that makes the agriproducts export from Kazakhstan to China complicated are the Chinese border and quarantine bodies requirements of the accreditation of the companies producing, storing and delivering the goods. This accreditation takes a prolonged period (60-90 days) and is associated with many documents needed.

In order to perform the import of agriproducts, before the delivery the Chinese importer must receive the import quarantine permit. The period of securing local approvals takes 15-30 days.

The later prospects of the grain and other agriproducts trade development will depend on the will of the Chinese government to allow these goods to enter the market of the country. The latest talks between the Vice-Prime Minister of Kazakhstan – the minister of agriculture of Kazakhstan U. Shukeev and the representatives of the Chinese competent bodies raised the question. The Chinese part expressed the intention to increase the quota to import wheat from Kazakhstan for the private companies up to 500 thsd tonnes. Moreover, the Chinese bodies gave a permission to accelerate the process of the phitosanitary protocol signing for the import of barley, rapeseed, corn, beef, poultry and by-products, and other agriproducts from Kazakhstan to China. In the nearest time Kazakhstan wait for the delegation from China to inspect the enterprises producing, processing, storing and delivering these goods.

Owing to the trade war of China and the USA and also due to the crop production decrease in Australia it is hoped that China will actively replace the import of wheat, barley, oilseeds, vegoils and other products originating from the named countries by the goods of Kazakhstan origin.

 

— What are Your expectations concerning the exports of wheat to China in 2018/19 MY?

Owing to the tense global S&D balance of wheat and barley because of the yield decline in the main producing and exporting countries, including China, the Kazakh exporters expect the increase of the Kazakh wheat export to China during the second half of 2018. The current demand of Chinese companies confirms these expectations. Thus, the realistic forecast is the export increase up to 450-500 thsd tonnes in 2018/19 MY.

In case of the signing of the phitosanitary control protocol for the import of barley, rapeseed and other oilseeds from Kazakhstan to China in the nearest time, the export of rapeseed this season can reach 60 thsd tonnes (earlier exported via Mongolia), barley – 100 thsd tonnes. Moreover, this season the market participants expect the increase of the Kazakh flour, soybean, sunflower seeds, safflower seeds, flaxseed and other agriproducts and food products.

 

Interviewed by Polina Kalayda, APK-Inform Agency

 

Note

The Group of Companies Severnoe Zerno operates on the market of Kazakhstan since 2011. Within the group there are trading, transporting companies and grain-collecting station. Trading of grains, oilseeds and its exports is the main area of activity. LLP Severnoe Zerno is a member of the Grain Union of Kazakhstan.

 

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