Functioning of the grain products cluster – a basis for economic growth

Branches and industries in the agricultural and food sector are functionally linked in view of the unity in technological process on meeting the requirements of the final product and creating the conditions for its operation. Reproductive process of agriculture depends on the smooth and efficient operation of its production and economic relations, through which it receives as supplying the means of production and services, so compensating of the costs.

The main directions of improving the relations and fundamental principles, which will be a base for the development of an optimal system, can be presented as a hypothesis. As the concept of the development of relations of agriculture with other sectors in the agricultural food sector and in the effective functioning of the grain products cluster the following provisions can be offered.

1.Steady raising of quantitative and qualitative level of relations in order to ensure the complete satisfaction of the needs of agriculture in industrial means of production.

Modern economic potential of the country and the level of industrial development allow solving this problem.

The experience of economically developed countries shows that it can be solved at a lower development by those links, using which it is possible to get the price of the lowest cost and most rapid effect, which are integration in the formation of the material and technical base of agriculture and improvement of the quality of products of inter branch exchange. In this case, the mechanization of agriculture is the basis and material prerequisite for the successful implementation of all other areas of scientific and technological progress in the industry.

2. Improvement of reproduction proportions in agricultural and food sector, providing progressive changes in its structure and growth of outcomes in order to create conditions for the full reimbursement of necessary expenses in agriculture.

3. Distribution of progressive forms of intersectoral linkages functioning – intra industrial inter branch relations, direct relations. These types of relationships allow organizations to take into deep consideration the mutual economic interests in terms of inter branch exchange products delivery, so administrative enforcement is combined with economic interest, which increases the reliability and efficiency of the relations.

One of the functions of the relations is to integrate communications sectors, industries and organizations into the organizational and economic system. In the agricultural food sector there are inter industrial, territorially inter branch and inter-branch integrations.

Should be noted the trends and patterns of development of integration processes; objective prerequisites for the transition to different types of integration; modify the production and economic ties with the different types of agroindustrial integration; determine the necessary and sufficient conditions for the transition of inter branch relations into the integration ones.

The experience of countries that operate on the basis of commodity production indicates that the mechanism of an open market cannot fully coordinate the activities of branches, interconnected in the production process of ready-to-use final product.

As the stabilizing measures aimed at reducing the spontaneity of the market, there are the direct long-term relations between separate and economically independent producers, which are realized on the base of the demands of society and the mutual obligations for the supply of specialized products, balanced by time, range and quality.

Target orientation of agricultural food sector in the process of coordination of industrial, technological and market programs provides deepening of specialization on the production of a certain group of products from grain basing on demand (structure and volume requirements) and market conditions.

Integration of the industries in grain product cluster for final production of grain resources, their functioning as an integrated production and economic system will help to improve production technology, its organization, regulation of economic relations between the partners, the allocation of resources and investment between them in terms of prioritized development of technological links that constrain an increase in production of the final product.

The problem of deployment of large firms, corporations in the form of agricultural holdings and financial-industrial groups in our country

has already acquired relevance in view of the need to consider the world management realities, where a process of cooperation and integration of agricultural production and the establishment of corporate relations in the production, storage, processing and marketing of the grain and its products has already been formed.

Governmental structures of many western countries with established market economies tend to adjust market relations in order to stimulate the growth of the necessary products. Monitoring of the market, maintaining of economic balance, scientific forecasting of development of

industries and the economy as a whole are the most important functions of their activities. State intervention also concerns other issues which the market is not able to solve.

Under current conditions in our country without government intervention a “free market” is transformed into an arena of redistribution of property in favor of relatively small segments of society, there is a separation of regional markets and their structural units, the destruction of many potentially effective economic ties, leading to ignoring both federal and radical interests of rural producers.

Industry (grain) market, in its turn, practicing adjusting mechanisms of production to changing demand, stimulating competition between enterprises, will intentionally regulate the activities of all units included into the grain products cluster, which will establish the optimal inter branch proportions and form on this basis its effective structure for maximum efficiency with minimum total cost.

In modern conditions, Kazakhstan is among the top 5-7 countries - world grain exporters. If in 2001-2003 Kazakh grain was exported to 31 countries of the world, now the export is carried out in 80 countries. The main competitive advantage of Kazakhstan’s wheat is high quality indicators (high amount of protein (over 12.5%) and gluten (23-28%), improving the quality of the flour [1].

In terms of market reforms in the agricultural sector there is an opportunity to reinforce the integration of agro formations with grain receiving enterprises, thereby increasing the efficiency of the grain products cluster.

However, the efficiency of grain product cluster is still insufficient. Agricultural production is small-scale and technologically backward. More than 80% of production is sold in the form of raw materials, while finished one is uncompetitive because of moral and physical deterioration

of the equipment in the processing enterprises. Due to poor infrastructure and lack of finance an entrepreneurial activity of rural producers is low, as a result, gross output per capita of the rural population is five times lower than in the city.

All above mentioned becomes an obstacle for increasing the productivity, profitability and quality of agricultural products.

The proportion of measures (grants, subsidies) ensuring the competitiveness of domestic products is also low - 35%, while in the EU it reaches 80%. If in Kazakhstan state support per hectare of arable land is 21.1 dollar, in the EU it is 1 111.9 USD, in the USA - 411.7 USD, in Israel - 779 USD [1].

Since 2006, rural producers unite in rural consumer cooperatives (RCC). This form of integration allows them to lead a joint organization of procurement, storage and marketing of agricultural products. The State, in turn, supports the RCC by providing loans at low interest rate - 5% per annum.

Participants of the RCC, they may be peasant and individual farms, uniting their efforts in the same direction can gain additional profit. Another form of association is to provide rural credit associations (RCA). Small and medium rural producers can get loans in banks at the interest rate of not more than 8-9% per annum.

The implementation of innovation and investment target state programs by transferring part of their state investment functions to reliable large production and financial institutions in order to increase the efficiency of investment

and involvement in the sphere of production of additional resources becomes important as well. This practice has been spread in a number of western countries, where the government finances its investment projects through the system of holding companies and corporations, placing budget investments on market principles based on the criteria of high profitability of the invested capital.

As an analysis of recent years shows, rural producers operate under preferential taxation, wide-ranging measures to combat plant diseases are held, the share of mineral fertilizers increases, leasing program and the state purchase of grain are implemented, the cost of elite seeds reduces, state agro-food program is implemented.

At the same time, insufficient use of market mechanisms of regulating the economic relations throughout the supply chain from agricultural production to its final consumption has led to the emergence of many intermediaries in the individual stages of a single process cycle. This has led to a significant increase in prices for domes

tic food products, making them uncompetitive compared with imported products.

In modern conditions, the key elements of the cluster are grain-producing sectors; enterprises processing grain and using its products after processing; engineering companies that produce specialized equipment: the packaging industry and the organizations for standardization, metrology and certification of grain.

The enterprises producing grain are the basis for grain products cluster. To solve the problems of production and processing of the grain it is necessary to have well-established equipment for grain products sub complex of agro industrial complex. Due to the lack of domestic facilities and special equipment grain producers are forced to buy imported ones, which require substantial capital investment and not always suitable for the processing of the grain grown in Kazakhstan. Moreover, the lack of spare parts for imported equipment creates an additional problem. Innovative development of engineering production should be the basis for developing competitive strategy of Kazakhstan’s economy [2].

An important role in the supply of high quality raw materials to the sites of its processing is to be played by grain-enterprises and elevators. They are the link between agricultural producers and grain processing enterprises and have the necessary conditions for grain processing, bringing it to quality state according to the requirements of the technological processes of refining.

JSC “Food Contract Corporation” is the largest holder of grain in Kazakhstan. On authorized elevators and own grain bases the corporation keeps milling wheat of soft and hard varieties, seed and feed grain. In addition to storing and restocking the state grain reserve the corporation finances the production of grain, sells it on the domestic market and is developing foreign markets.

The Corporation has 6 subsidiaries, which are designed to perform the following tasks: LLP “Astyk Koymalary” - grain storage. LLP “KazAstykTrans” - freight forwarding activities, “Ak Bidai Terminal” - acceptance, storage, shipping of grain by sea transport, LLP “Bidai Onimdery” - grain processing and sale of the processed products, “Cotton Contract Corporation” - harvesting, storage, processing of raw cotton; LLP “Expert Agricultural Company” - examination of the agricultural business and issuing guarantees to rural producers.

Commercial procurement in 2002 was the first large-scale commercial operation of Food Corporation held due to bank loans. Its participants – the Corporation, commercial banks and grain producers - the first time in the history of independent Kazakhstan functioned as equal partners. As a result, rural producers gained their profit by selling their products at a fair price, and the government, which supported agricultural producers.

Since then, the corporation holds annual purchasing interventions to stabilize domestic grain prices. At the current level of production the purchase of grain to the state resources within 1.5-2 million tons allows to balance supply and demand, to smooth seasonal fluctuations in the domestic grain market and regulate the prices of its products of processing.

In order to diversify the markets the Corporation plans a construction and a long-term lease of the grain terminals in one of the ports of the Baltic and Black Seas. The Corporation represents the interests of Kazakhstan to the International Grains Council, in which our country is a full member of the Committee on the grain trade and has two votes in the Executive Committee. Since August 1998, the Corporation is a member of the International Association for the Grain and Feed Trade (GAFTA), which gives the right to enter into contracts for the supply of grain according to international standards and to regulate disputes to Arbitration (London).

An integral part of the infrastructure of grainprocessing cluster in conditions of a market economy is exchange. Commodity exchange is a commercial enterprise, which itself is not involved in the process of buying and selling, but it creates the necessary and equal conditions for all participants: in conclusion of contracts, in settlement of disputes, in provision of objective information about the level of prices of supply and demand, contract prices. The main functions of exchanges are pricing and tracking of market conditions.

Local wholesale markets are organizationally presented by wholesale trade fairs, exhibitions, sales, direct business agreements. Conditions of concluded here contracts are not standardized, so the look and quality of the product, the amount and timing of delivery (if necessary - the volume of single supply), the price level (or the mechanism of their establishment) are negotiated directly with manufacturers and consumers.

On the basis of concentration and accumulation of premiums and payments of participating enterprises and individuals the following are provided: the insurance cover of the sphere of grain production, taking into account technological and climatic features; along with the banks, they act as guarantors of the execution of forward and futures contracts on exchanges. Due to the fact that payments are of a long-term character, the insurance company itself may act as a major investor of long-term projects inside the formation.

The following elements of the cluster infrastructure are finance and credit institutions (specialized banks, credit unions, micro-credit organizations and others). Grain processing industry has a strong demand for credit resources, so the development of these elements will help to solve the problem.

One of the elements of the cluster is transport companies. Grain processing enterprises face the problem of excessive tariffs for transportation. Therefore, one of the measures for the development of this industry is the introduction of preferential railway tariffs for the transportation of flour, allocation of subsidies to domestic suppliers to compensate the transport costs for the transportation of flour.

The next element of the cluster infrastructure is the information and marketing centers. They allow actors of grain and grain products marketto obtain the necessary information about the market. Knowledge of the market is important for decision-making on management in tactics competition. Since 2000, the country began the formation of information-marketing system that has been tested in several areas of Akmola, Kostanai, Pavlodar and South Kazakhstan regions.

Functioning JSC “KazAgroMarketing” conducts training and involvement of professional specialists in information and marketing system, expands coverage of IC, explores the agricultural market and provides information to all interested structures, conducts creation of electronic agro exchange and cooperation with similar companies near and far abroad.

The analysis showed that the main elements of the cluster are: grain-producing farms, grain processing plants, fertilizers and chemicals producing companies, enterprises for the production of special equipment and technics for grainproducing and grain processing enterprises, packaging enterprises, elevators and GRP, the State Food Contract Corporation, specialized banks and credit unions, agricultural leasing, agro exchanges and brokers, information and marketing centers, transport companies, insurance companies, scientific research institutes and institutions of higher education, management on standardization, certification and metrology.

In Akmola region 728 enterprises of major forms of production are involved in agricultural production, 4647 (peasant) farms and more than 150 thousand of farm rural and urban populations as well.

101 flour-mill and 211 baking enterprises are

currently engaged in the processing of grain, as well as other enterprises producing grain products.

In 2012, the enterprises for the production of fertilizers, pesticides and other agrochemical products produced: chemical and mineral fertilizers - 11.8 thousand tons, pesticides and other agrochemical products - 672 thousand tons. [3]

For further development in the field there are provided: systematic application of mineral and organic fertilizers will increase the fertility of the soil, the content of humus in the soil up to 10-15%; increase in the gross harvest from 20 to 50 percent; improving the quality of grain and seeds; increase of farming culture; reduction of the growing season; destruction of pests and diseases; ensuring a favorable phytosanitary situation; increasing the economy of the business entities.

Mechanical engineering for the production of equipment for grain products sub complex of the region is represented by individual enterprises which produce towed agricultural equipment and spare parts for agricultural machinery. For further development it is planned to implement the following measures: the introduction of high-tech industries, increasing the number of industrial enterprises, producing short supply spare parts for planting and harvesting equipment, as well as for fodder production and primary processing of agricultural products; creating new jobs; increasing the number of service centers and MTS; assisting in providing agricultural equipment leasing.

Packaging industry is represented by enterprises producing wooden crates, bottles, jars and other containers made of glass, caps and closures. In the region it is necessary to expand the range of types of packages produced for grain products market.

The region has 49 elevators and grain companies, with a total capacity of 3935,1 thousand tons. Currently, some elevators and grain companies are being improved with the technical equipment of laboratories in elevators; new methods for assessing the quality and consumer properties are being used.

There are transport companies that are engaged in transportation of grain and grain products. Preferential tariffs for the transportation of grain are gradually introduced; subsidies to domestic suppliers are provided.

Practically there are no insurance companies that are engaged in the insurance of the enterprises for the production of grain and grain products. For the development of this element of the cluster it is necessary to create and develop an effective system of insurance; expand the market of insurance services and strengthen public confidence in the insurance market.

In the region there are one market KUCE “Okzhetpes” and a network of retail and wholesale and retail markets. It is necessary to develop an effective trade-procurement system in the agricultural sector on the domestic and foreign markets [4].

Financial support to rural producers is being made by a second-tier banks. At the moment in the Akmola region 8 rural credit associations are created with participation of “Agrarian Credit Corporation”, 5 of which conduct active lending activities for its members, in the past year they have issued loans to rural producers in the amount of 870 million tenge. The main borrowers are small and medium-sized farms, work is continuing on the creation of spiral CT in three areas of the region. The closest reference should be a creation of the rural credit partnerships in every district.

Farms of the region are experiencing an acute shortage of agricultural machinery, especially tractors and combine harvesters. Existing park is badly out used. Consequently, the acute problem now is to purchase equipment. Agricultural leasing helps with solution of this problem. So, for the past two years, rural producers of the region have significantly strengthened their material and technical base, purchased 619 units of new harvesters and 449 units of tractors. Only thanks to government support through leasing by CJSC “Kazagrofinance” the region received 261 unit of combines and 130 units of tractors [5].

JSC “KazAgroMarketing” functions in the region and its main activity is comprehensive information and advisory support to rural producers, processing companies and other participants in the agricultural market. 18 districts are connected to information and marketing system. This allows market actors of grain and grain products to be provided with online analytical and marketing information; increase the confidence level of the state accountability; assist in the establishment of consulting firms; conducttraining and provide teaching materials to market participants; conduct market researches of the market of agricultural products, etc.

Department of the State Supervision over the State Standards develops measures for the transition of the industries of economy to international standards, organizes the participation of companies of the region in competitions, exhibitions, issues certificates of quality. Thus, the

analysis showed that as a result of the formation and development of the cluster of grain products, increase of its capacity, the region will gain a real opportunity to consistently and purposefully improve the competitiveness of grain and grain products, and this will lead to the achievement of sustainable development of the region’s economy in the long term basis.

In Buharzhyrau district of Karaganda region of Kazakhstan they began the work on the creation of a regional cluster to provide processing plants with forage crops (barley, oats). The cluster has combined farms with arable land, and businesses that provide scientific support of the production, and consumers of feed - poultry farms, pig farms.

Cluster formation occurred through the integration of economies around the processing enterprises of the region - poultry farms “Maykudukskaya” after Karl Marx, “Zdoro- vye Produkty”, “Karaganda-Kus”, “A-Altyn”, pig breeding complexes “APK Volyn”, PKF “Medeo”, “Somer A” and a goose farm “Voz- rozhdenie 21 Vek”. Farms have contracts with supply processors at a fixed price - 25 thousand tenge per ton of barley and determine the conditions for mutual settlement, prepayments for field work. A mechanism for lending is provided for smallholders participating of the cluster. In addition, end-users of the cluster, which to date for the production of feed purchased the commodity wheat from the northern regions, receive local cornmeal at a reasonable price, which will be reflected in the cost of their products. The need of these enterprises in barley is 4 thousand 900 tons per year. In 2012-2013, 304 thousand tons of wheat at a price of 28 thousand tenge per ton have been allocated for the needs of poultry farms and pig farms in the country from the reserves of the National Company “Food Corporation”. If we consider that the market value of wheat is 45-47 thousand tenge per ton, we will note that the state assisted them in excess of $34 million to support the competitiveness of their products [6].

To ensure the needs of grain resources it is necessary to have complete and balanced development of grain production, improvement of the economic mechanism of grain products cluster, formation of relationships between producers and consumers of grain on the basis of the economic interest of the parties. Agro-industrial integration, which is the result of development of the productive forces and the deepening of social division of labor, allows enhancing production communication and organically combine agriculture with other sectors, engaged with its service and bringing products to the consumer.

Specifics of the conditions in Kazakhstan’s agricultural sector, which is in the formation of large-scale agricultural and processing enterprises, complex financial condition of their major part as a result of reforms, related to market renovations, resulted in a considerable spread of integration groups in practice. They form close industrial and economic linkages between agricultural and industrial enterprises, providing agriculture with resources and processing the agricultural products.

SORCES:

  1. Mamytbekov A. Kazakhstanskaya Pravda, 25.12.2012 (kazpravda.kz)
  2. Kusherbayev K. “Kazakhstan dolzhen uvelichivat’ pererabotku zerna”, VI «Ka- zgrain - 2012», 27 November 2012
  3. Moldashev A.B. Tsenovaya situatsiya na zernovom rynke Kazakhstana s uchetom mirovykh tendentsii. Almaty: Research Institute of AIC’s Economy and Development of Rural Territories, JSC “KazAgroInnovation”, 2012, 481 p.
  4. Klasternyi potentsial razvitiya zernovoi otrasli Kazakhstana / Economika regiona. Scientific Informational Analytical Economical Magazine. Institute of Economy, Ural Division of RAS, №4 (28), 2011
  5. “Problemy formirovaniya i razvitiya rynka zernoproduktov Respubliki Kazakhstan v usloviyakh globalozatsii” – monography. Karaganda: KEU Kazportrebsoyuz, 2006 6. WEB-site of the Ministry of Agriculture of the Republic of Kazakhstan.
Year: 2014
City: Almaty