The Republic of Kazakhstan is among the world’s leaders in production of agricultural commodities. Before the 2008 financial crisis, food processing had been one of Kazakhstan’s rapidly developing industries, growing at 15% a year. In 2010, the industry showed clear recovery signs and is expected to return to pre-crisis development levels. This is expected to increase the demand for equipment imports.
Food Processing Sector Overview
Food processing accounted for 5.7% of the national industrial output in 2010, amounting to approximately $5.2 billion. Processed foods account for 32% of retail turnover in Kazakhstan, which amounts to approximately $7 billion.
In 2008, the industry was hit by the financial crisis which resulted in a 5% contraction of the processed foods output in 2009. In 2010, the industry returned to positive growth, showing an 8% increase in output. The market for food imports decreased from $2.5 million to $2.3 million, while exports have grown from $9.1 to $9.7 million. Local producers are gaining competitive advantage due to numerous import substitution measures taken by the government.
Currently, grain processing and flour and starch production are the most developed and two of the most profitable areas in Kazakhstan’s food processing sector, accounting for 19% of the total production volume. Bread and bakery products account for 18% of total production. It is not surprising that these areas are leading the market as Kazakhstan is a major producer and exporter of grain, exporting wheat to more than 40 countries. Dairy processing is the second largest subsector, accounting for 17% of the market. Livestock production has been a key economic activity in Kazakhstan for centuries and continues to be a leading agricultural activity.
Estimated volume of Kazakhstan’s food processing sector was $95 million in 2010. The supply side of the market was almost totally represented by imported equipment. Germany (25%), Italy (13%) and Latvia (9%) are the key suppliers. Other major suppliers operating on the market are Turkey, Israel, and Russia. The U.S. currently lags far behind these suppliers: U.S. exports of food processing equipment to Kazakhstan decreased dramatically since 2008 down to $0.2 million in 2010.
The strong downward trend in the market size in 2010 reflects the consequences of the financial crisis started in 2008 and of Kazakhstan’s entrance into a Customs Union (CU) with Russia and Belarus on January 1, 2010, when import tariffs on food processing equipment imported from outside of the CU were increased by 15-20% on average.
However, there is evidence that Kazakhstan’s food processing sector is successfully overcoming the crisis. Within the last 10 months, Kazakhstan has experienced rapid GDP growth, fueled by high oil and commodity prices on the world markets. Forecasts suggest Kazakhstan’s GDP will continue to grow at 7-9% rate in 2011.
Overall economic growth has had a ripple effect on incomes of the majority of Kazakhstani citizens, with average incomes growing 15% according to official sources. Income growth stimulated increases in discretionary income levels and consumption. Particularly, consumption of food products has increased 15% within the last 12 months.
Import substitution policies promoted by the government of Kazakhstan, including devaluation of the national currency in 2008, introduction of new import customs duties, and tax and legal incentives for local producers all limited potential for sales of imported processed foods. At the same time, this trend is expected to increase demand for imports of food processing equipment. In 2010, food production grew by 8%, while drinks production experienced a 25% plunge.