New Law on Rural Cooperation to be Finalised this Year

On President Nursultan Nazarbayev’s instructions, the government of Kazakhstan will finalise a new law On Rural Cooperation this year. The bill will provide the legal framework governing agricultural activities in the country.

agricultureKazakhstan’s agricultural industry is currently very underdeveloped despite the country’s vast amounts of arable land, quality production facilities, strong workforce, ample state support and deep resources.

Since 1999, Kazakhstan’s GDP has increased by 16 times, despite this remarkable growth, agriculture remains only a very small segment of the national economy. The share of the agricultural sector in GDP fell from 29.5 in 1991 to 4.6 percent in 2013. At the same time, during those two decades, Kazakhstan built a developed and urbanised economy, which transformed the country and its demography. Previously, agriculture was the country’s economic engine; today, this role is played by the service sector and industry, which reached 54.2 and 28.4 percent of GDP last year respectively.

Meanwhile, many of the development goals Kazakhstan hopes to achieve by 2050 pertain to growing the agricultural sector and dealing with the challenges such growth poses.

How to Overcome Major Problems

According to the official opinion of the representatives of the Ministry of Agriculture, one issue in agriculture is the low level of commodities caused by the presence of many small farms. According to 2012 data, about 78 percent of all livestock originated on private farms, agricultural corporations produced 12 percent and farms – 10 percent.

The situation is similar when it comes to crops; 27 percent of all crops are grown on household plots, 44 percent on farms and agricultural enterprises grow 29 percent.

Kazakhstan is looking to development as a way to grow its agricultural sector into something more than a patchwork collection of small scale operations, which grew out of the country’s prolonged industrialisation.

Change of this sort in the agricultural sector does not come quickly, but Kazakhstan has been addressing this issue for many years already. According to the heads of the ministry [of agriculture,] small rural farmers do not want to join cooperatives and villagers with plots have become disinterested in the programmes because of pervasive rumours about them. People tend to wait for top management to make decisions here, but with time, the agricultural sector will find its way.

As of Jan. 1, 1,463 rural consumer cooperatives, 498 rural water user cooperatives, 46 agricultural associations and 1,463 production cooperatives were registered in the country, which is less than 1 percent of the total number of the agricultural enterprises in Kazakhstan.

According to Ministry of Agriculture experts, among the main barriers to increasing rural cooperation is a lack of profit sharing in agricultural cooperatives, which are generally set up as non-profit organisations. Excessive and confusing legal regulations were cited as a problem as well

The lack of a specialised tax regime and no concessional lending policies for rural consumer cooperatives and agricultural water users associations, a lack of transparency in cooperatives, prevalent distrust and corruption in cooperatives are currently major issues. According to experts, this field is characterised by over-regulation and excessive internal procedures, as well as the inability of entities to participate in cooperatives.

In order to address the above barriers, the Ministry of Agriculture drafted the bills “On Agricultural Cooperation” and “On Amendments and Additions to Certain Legislative Acts on Agricultural Cooperation.” These legal reforms include the creation of agricultural cooperatives by entities and individuals. The new legislative framework allows profit sharing and a special tax regime for agricultural cooperatives without restrictions.

In order to eliminate intra-cooperative issues, the legislation provides pro bono audits, as well as the introduction of the “one member – one vote” principle on a variety of subjects, including in setting prices.

Since Aug. 23, the Ministry of Agriculture has sent the above-mentioned bills for approval to the relevant state authorities, including the Ministry of Finance and the National Budget Commission.

According to developers, this legislation is designed to increase agricultural cooperation. New guidelines allow maximising the benefits of cooperative farming in rural areas. At the same time, they contain incentives for consolidation and integration of small producers into a single cell structure, including measures for the effective use of land resources, storage organisation, processing and sustainable marketing of products.

Integrating Principle

Speaking about contributing factors to increased agricultural production, experts often point to the need to develop inter-sectoral and inter-regional integration. Several years earlier, a special event in Ust-Kamenogorsk attended by delegations from East Kazakhstan, Almaty and the Pavlodar and Karaganda regions was held on the matter. Constituting 40 percent of the total area of the country, these areas provide nearly a quarter of the gross regional product of Kazakhstan and determine a fifth of the country’s foreign trade.

A draft food security programme was proposed at that forum. Attention was paid to the three types of agricultural products that are imported the most: fruits and vegetables, meat and milk.

Currently, vegetable processing in these four regions of the country does not exceed 4.2 percent of what is consumed, meat – 28 percent and milk – 35 percent. For example, the production capacity of milk plants in the Almaty region allows the processing of up to 218,000 tonnes of milk per year, but only 45 percent of that capacity is realised. Lack of quality raw materials and sometimes, excess materials, which result in a reduction in prices, hurt small scale agricultural producers. It was noted that a long-term partnership in supplying raw materials from the border region of the Karaganda and East Kazakhstan regions would allow enterprises in the Almaty region to improve self-sufficiency and increase dairy exports to 20 percent.

Integration and cooperation in the agricultural sectors of developed countries allow them to remain top international food producers. It is known that in these countries, multinational corporations play an important role in agriculture. They act as integrators in the agricultural industry and help drive its destiny.

At the current time, the state is most capable of leading integration, not private business, although the latter does have a vested interested in creating local sustainable sources of raw materials.

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