kazakhstan agriculture food manufacturing guide for 2017

MINISTRY FOR INVESTMENTS AND DEVELOPMENT OF THE REPUBLIC OF KAZAKHSTAN

Investment opportunities in Kazakhstan

Agriculture and food manufacturing

The heart of Eurasia The economic center of gravity and an important logistics center of Eurasia

Kazakhstan is situated in the very heart of Eurasia, the largest continent, and performs the crucial roles in its development.

1) It is the economic, cultural, and geopolitical center of gravity of Central Asia, one of the fastest-growing regions in the world

2) It is the essential link connecting the biggest economies of Eurasia. The New Silk Road – an excellent network of rapid transits connecting three regions: Europe and Russia; China,

Japan, and Southeast Asia; Central Asia, Caucasus, and Turkey

Welcome to Kazakhstan

2

The youngest capital city Astana is the youngest, modern and fast-

growing capital of Eurasia

Before 1998, Astana was a relatively small regional city.

In 2016, Astana is a modern capital city with over 800,000 people, the center of economic and cultural

development of Kazakhstan, a hub for many global companies, and a winner of UNESCO’s "Cities for

Peace Prize".

The largest project in the worldTengizchevroil project – almost USD 40 bn of investment until 2022

The three biggest companies – Chevron, ExxonMobil, and KazMunayGas – have joined their efforts to implement the largest ever capital project:

the development of Tengiz field which is to produce up to 39 Mt of oil p.a.

International financial center A financial hub of Central Asia with a special legal regime

"I have signed the decree on the establishment of the Astana International Financial Center. It will be based on the pillars of

English law, preferential tax treatment, and independent financial court. We believe that the Astana Financial Center will become the

heart of Kazakhstan’s financial infrastructure and a financial hub for the whole of Central Asia."

Nursultan Nazarbayev, President of the Republic of Kazakhstan

EXPO 2017Over 100 countries will come to Kazakhstan to take part

in the largest international exhibition

The largest international exhibition EXPO 2017 Future Energy will gather in Astana over 100 countries and over

3 million participants.

From June to September 2017, EXPO 2017 Future Energy will be a platform for developing international cooperation

in sustainable energy.

3

Invest in Kazakhstan

4

17.0

1.2

China

3.2

Russia 5.7

12.4

EU

US

Kazakhstan

GDP growth rateUSD, in current prices, 2005-2015, percent

Source: World Bank

Over the last few years, Kazakhstan’s economy has been growing at a record pace leaving behind the countries of Central Asia, Russia, and the European Union and slightly lagging behind only China.

All economic, social, and international government policies are implemented according to the Kazakhstan 2050 Strategy, a plan of sustainable long-term development.

The Kazakhstan 2050 Strategy is primarily focused on reaching the top 30 of the most developed countries in the world by 2050.

Fast-growing economy with a long-term plan of sustainable development

+ 12%GDP growth rate2005-2015

5

Adherence to the principles of economic liberalization: by 2020, government participation in the economy will be reduced threefold under the National Privatization Program.

The best Ease of doing business ranking in the region (World Bank, Doing Business 2017):

Kazakhstan 35 Russia 40 Azerbaijan 65

Turkey 69 Kyrgyzstan 75 China 78

The efficiency of state regulation and investor support – significant improvements according to the estimates of World Economic Forum 2015-2016.

Transparency of government decisions: 30th position out of 140 (45 positions higher as compared with the 2010-2011 report)

Investor protection: 25th position out of 140 (20 positions higher as compared with the 2010-2011 report)

Institutional efficiency – the business setup time was reduced from 19 days in 2010 to 5 days in 2015. In Russia, for example, this indicator makes up 11 days and in China – 31 days (World Bank).

One of the lowest income inequality indicators in the world – GINI index = 26.3. Norway – 25.96, Russia – 41.6, China – 42.2 (World Bank).

Center of stability and liberal economic agenda

INVEST IN KAZAKHSTAN

6

Saudi Arabia

0.5Russia

Canada

Kazakhstan

China

Turkey 2.4

0.6

2.8

3.8

2.1

Indonesia

Nigeria

3.6

1.3

2.2

India

UAE

Australia 3.2

2.3

Gross foreign investments in 2015Percent of GDP

Source: EIU

3,8%of GDPGross foreign investments in 2015

"Over the last three years, the government has taken steps to mimic Singapore and to some extent, even the Chinese with their special economic zones. These have become like FDI magnets in emerging and frontier market economies worldwide over the last decade ..."

— Forbes, 2016

One of the leaders in FDI attraction

7

Tax regime – one of the most favorable in the world

30

25

20

20

20

Turkey

Russia

Kazakhstan

China

Germany

Corporate tax ratePercent

19

17

18

18

12Kazakhstan

Turkey

Germany

Russia

China

Standard VAT ratePercent

Source: VAT Live

SOURCE: KPMG

12%Standard VAT rate

20%Corporate tax rate


8

Young and fast-growing nation

Russia

China 37

39

Kazakhstan

43EU

30

Average population age, medianYears

Population growth rate in 2015Percent

Source: CIA Factbook, World Bank

Russia

0.5

EU

1.5

China

0.3

Kazakhstan

0.2

Attractive cost positions

Attractive cost positions

Source: Financial Times Limited 2016 (latest available data), expert analysis

Kazakhstan

South Korea

Malaysia

Russia

133

19

54

39

62

54

401

219

China

Turkey

Germany

Poland

20

188

13

57

12

57

31

42 11

24

5

6

7

9

12

11

8

4

0.4

1

1

1

5

1

Water Cents/m3

Gas Cents/m3

ElectricityCents/kWh

Mobile Cents/min

Salaries in the manu-facturing industry USD/hour

6

48

10

4

3

24

7

4

The 2015 devaluation made the cost of Kazakhstan’s

production even more competitive.

In future, the tenge exchange rate is expected to be stable.

Average annual USD exchange rateKZT

343

222179

152149

1514132012 I H 2016

Source: National Bank of Kazakhstan


10

As an EAEU member, Kazakhstan along with Russia, Belarus, Kyrgyzstan, and Armenia has a direct access to the market of 182 million consumers and ensures free movement of goods, services, capital, and workforce.

Duty-free access to the EAEU market

BelarusGDP (2015): USD 55 bnPopulation (2015): 9 m people

Lithuania

Latvia

Russia

Belarus

Ukraine

Romania

Moldova

Turkey

Bulgaria GeorgiaAzerbaijanArmenia

IranTurkmenistan

Uzbekistan

Tajikistan

Kyrgyzstan China

Novorossiysk

Riga

VilniusMinsk

Kiev

Chișinău

Bucharest

Ankara BakuYerevan

Tbilisi

Ashgabat

Tashkent

Dushanbe

Moscow

Bishkek

Kazakhstan

Astana

RussiaGDP (2015): USD 1,324 bnPopulation (2015): 147 m people

KazakhstanGDP (2015): USD 174 bnPopulation (2015): 18 m people

KyrgyzstanGDP (2015): USD 7 bnPopulation (2015): 6 m people

ArmeniaGDP (2015): USD 11 bnPopulation (2015): 3 m people

SOURCE: EIU, IMF, IHS, UN Comtrade, local statistical agencies

182millionConsumers in direct access to the market

Kazakhstan is a WTO member since November 30, 2015

Why agriculture and food manufacturing in Kazakhstan

13

Why agriculture and food industry in Kazakhstan

The share of GVA of agriculture andthe food manufacturing in Kazakhstan GVAPercent

Kazakhstan is the 9th largest country in the world

Russia

China

Kazakhstan~20% of the

employed population are engaged in

agriculture or food manufacturing

Over 210 m ha of agricultural land

The 9th-largest country in the world

Are agricultural in Kazakhstan

>80%lands

Agriculture and food manufacturing are one of the most important sectors of Kazakhstan’s economy

7.1

2014

7.4

2012 13

7.3

Total contribution to the country's GVA

>7%

Employment structure of Kazakhstan2015, percent

Almost 1 in 5 citizens of Kazakhstan working in agriculture or the food manufacturing

1981

Share of the employed population engaged in agriculture or food industry

14

WHY AGRICULTURE AND FOOD MANUFACTURING IN KAZAKHSTAN

Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, nternational Society for Horticultural Science, Ministry of Agriculture of Kazakhstan, Ministry for Investments and Development of the Republic of Kazakhstan, KazAgro, National Bank of Kazakhstan, UN Comptrade, FAOSTAT

The total area under agricultural crops is over 20 m ha (2015)

21.0

2015

+14%18.4

2005

Total area under agricultural cropsM ha

About 50 varieties of different crops grow in Kazakhstan, and according to the International Society for Horticultural Science, cultivated apples have originated in Kazakhstan

1 Estimated2 Estimate based on the analysis of the balance of resources (production, export, import), as well as retail and wholesale sales3 Over the last available year

In 2015, the consumption of agricultural and food products in Kazakhstan totalled over USD 35 bn1. Consumption grew on average at an annual rate of over 5% (2010-15) with imports remaining high

67

16

2015

36

Main types of food products consumed in Kazakhstan2

2015, percent

Milk and dairyproducts

Meat and fish

Fresh and processed fruit and vegetables

Other

Fats and oils

Flour and cereals

Kazakhstan is situated between Russia and China, some of the largest importers of agricultural and food products

USD >38 bnOilseeds imported by China in 2015

USD 13 bnFresh fruit imported by China in 2015

USD 7 bn3

Dairy products imported by China in 2015

USD ~11 bnFresh vegetables and fruit imported by Russia

USD ~4 bnDairy products imported by Russia

USD 1 bnRussian imports of oilseedsRussia

China

Only about 25% of agricultural products produced in Kazakhstan undergo further processing, the majority of processed foods are imported

The main food products consumed by Kazakhstan’s population are dairy products, flour and cereals, meat products, fresh and processed fruit and vegetables, fats and oils

It is assumed that the seeds of Kazakh apples were transported along the ancient Silk Road and were later distributed all over the world where they adapted to local climate conditions

15Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, nternational Society for Horticultural Science, Ministry of Agriculture of Kazakhstan, Ministry for Investments and Development of the Republic of Kazakhstan, KazAgro, National Bank of Kazakhstan, UN Comptrade, FAOSTAT

Foreign direct investment (FDI) in Kazakhstan’s agriculture and food industry

0.2

2012

0.30.1

2011 2013 2014 20151

1.7

0.4

1 Based on the average share of GVA PP sector in the total GVA (growth, taking into account the effect of adjusting the rate of tenge and increased FDI)

Share of the agriculture and food industry FDI in the agriculture and food industry GVAPercent

Over the last few years the foreign direct investments in the agriculture and food industry have grown significantly and over the last 5 years they made up over USD 1.3 bn

Examples of successful investments of global companies

▪ Danone Group is a leading global producer of dairy products, health products, and mineral water

▪ Danone launched an own plant in Kazakhstan to produce about 50 varieties of dairy products. Today, the plant employs more than 300 people

▪ Lotte Group is the largest South Korean conglomerate engaged in food industry, retail trade, tourism, and other sectors

▪ LOTTE acquired the majority stake of RakhatJSC, one of the largest confectionary producers of Kazakhstan. At present, their products are sold in Kazakhstan, Russia, China, Central Asia, and Europe

▪ Lactalis is the 2nd largest European producer of dairy products and the 15th largest agricultural and food group in the world

▪ Lactalis acquired FoodMaster International’s production in Kazakhstan. The company has 3 plants, 16 retail units, and 2 own dairy farms. It is the leading producer of dairy products in Kazakhstan

Production capacity –12,000 t p.a.

Production capacity –50,000 t p.a.

Production capacity –500 t per day

Production capacity –700 m liters per year

In Kazakhstan since 2010




Investments of over USD 19 m




▪ Coca-Cola İçecek is part of Coca-Cola Group and the 5th-largest plant producing Coca-Cola soft drinks in terms of sales volume

▪ Coca-Cola Içecek launched its first plant of soft drinks in Almaty in 2006 and the 2nd in Astana in 2016

16



1 List of priority activities eligible for investment projects benefits can be found at the Web site of the Ministry for Investment and Development of the Republic of Kazakhstan2 Only PRIORITY investment projects may enjoy these preferences (a project implemented on certain priority activities (metallurgy; chemical industry; petrochemical industry; machine building;

production of building materials; food industry) and involving investment of at least 2-millionfold monthly calculation index – KZT 2,121 (2016) 3 The mentioned benefits do not depend on the volume of investment and are provided for the whole SEZ lifetime 4 For the period before commissioning and 1 year after commissioning of the subject of investment activity

Additional information is available on the Web site of the Investment Committee of the Ministry for Investments and Development of Kazakhstan (http://invest.mid.gov.kz/)

Preferences in special economic zones3 (SEZ)

▪ Free plot of land▪ Available infrastructure▪ SEZ management body in place –

coordination and support of all internal processes (land, utilities, permits, etc.)

▪ Visa-free entry for citizens of 19 countries

Production migration benefits

Tax preferences

Investment contract1 preferences

▪ The right to employ foreign labor without quotas or permits2,4

▪ Visa-free entry for citizens of 19 countries

▪ Corporate income tax(CIT)2 – 0%

▪ Land tax – 0% ▪ Property tax – 0%▪ Value added tax (VAT) – 0%

▪ Corporate income tax(CIT)2 – 0% for 10 years

▪ Land tax2 – 0% for 10 years▪ Property tax2 – 0% for 8 years

▪ In-kind grants of up to 30% of investment in fixed assets

▪ Compensation of up to 30% of investment in construction and assembly works and equipment2

▪ Zero import duties on– Equipment and components– Spare parts– Raw materials

▪ Zero duties on goods imported to SEZCustoms preferences

Additional

The development of the agriculture and food industry is a strategic priority for Kazakhstan. Kazakhstan has a wide range of preferences for international investors within SEZs (special economic zones), investment contracts, government investment programs, and sector-specific preferences

State support and preferences for investors

17Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, nternational Society for Horticultural Science, Ministry of Agriculture of Kazakhstan, Ministry for Investments and Development of the Republic of Kazakhstan, KazAgro, National Bank of Kazakhstan, UN Comptrade, FAOSTAT

Sector preferences for investors as subsidies and other benefits

Subsidies to cover the cost of mineral fertilizers and herbicides

Subsidies to cover the cost of water supply services

Subsidies to cover the expenses related to creating and developing irrigation systems

Subsidies to cover the expenses related to purchasing raw materials

Insurance subsidies related to crop farming

Recovery of certain expenses associated with export of local products

Investment subsidies

Grants of up to 30% for investments in fixed assets incl. incurred costs related to construction, equipment assembly, and purchase

Subsidies on remuneration rates related to loans and leasing

Tax benefits for certain types of production

Sector preferences for investors as loans

Leasing of agricultural equipment

Loans for certain types of capital expenditure

Loans for spring irrigation and harvesting

Loans for farmers' cooperatives

Linking of lending to agricultural producers to the utilization of processing facilities

SME microlending

External loans

For details, see the Web site of the Investments Committee of the Ministry for Investment and Development of the Republic of Kazakhstan http://invest.mid.gov.kz/

and the Web site of the Ministry of Agriculture of the Republic of Kazakhstan www.mgov.kz/

For details, see the Web site of the KazAgro National Management Holding http://www.kazagro.kz/ and the Web site of the Ministry of Agriculture of the Republic

of Kazakhstan www.mgov.kz/

LivestockSubsidies for productivity and quality improvement

Subsidies to cover certain feed-related expenses

Subsidies to cover certain production-related expenses

Subsidies to cover certain expenses related to purchasing pedigree cattle

Dairy productsSubsidies on creating and developing commercial dairy farms

Subsidies to cover expenses related to creating and developing companies engaged in processing, procurement, and transportation of milk and dairy products

Subsidies to cover certain feed-related expenses

Subsidies to cover certain expenses related to purchasing pedigree cattle

CerealsSubsidies on seed farming

Subsidies to cover expenses related to creating and developing companies engaged in cereal processing and storage

Lending against cereal receipts

Subsidies for molasses production

Vegetables and fruitSubsidies for establishing intensive horticultural crops and grapes orchards and vineyards

Subsidies to cover expenses related to creating and developing companies engaged in fruit and vegetable processing and storage

Subsidies for certain production-related expenses, including greenhouse expenses

Oil-bearing cropsSubsidies for creating and developing companies engaged in advanced processing of oil-bearing crops

Subsidies for developing companies engaged in fat-and-oil production

Subsidies to cover expenses related to creating and developing companies engaged in processing and storage of fat-and-oil products

18



Attractive investment opportunities

19

ATTRACTIVE INVESTMENT OPPORTUNITIES

Note: USD 1 = KZT 221.73 (2015); USD 1 = KZT 342.80 (H1, 2016)

~30%Of the milk produced in Kazakhstan is further processed

~15%Weakening ofthe tenge againstthe ruble, 2015-16

993

709

2020

1,075

20162011

Consumption Kt

10

22

27

33

42Milk, cream

Cheeses and cottage cheese

Condensed milk

Dry milk

Butter

Share of imports in consumption, 2014Percent, 100% = 954 Kt

9 Russia

96 Russia, Belarus, France

51 Russia

40 Russia, Ukraine

79 Russia

Imports by key product categories, 2014Kt

Share of imports in consumption, 2014Percent Major importer in Kazakhstan

2012 2015

5 1824 852

Access to the growing domestic market of Kazakhstan with a high share of imports

Availability of raw materials

22%

Raw milk productionKt

Cattle livestock structure by farm types

Competitive cost of raw materialsComparison of raw milk production price excl. transport costsUSD per ton, 2015

337

350

Russia

Kazakhstan

Agricultural enterprises

5House-holds

20

75

Farms

The historical annual growth rate(2011-15)

+10%The projected annual growth rate(2016-20)

+2%

Kazakhstan market volume in 2015

USD 1.8 bn

Kazakhstan market potential by 2020

Dairy productsProduction of a wide range of dairy products, e.g., butter, cottage cheese, yogurt, kefir, cheeses, etc., for Kazakhstan’s domestic market with the potential for import substitution and meeting unsatisfied demand

Key drivers

USD 2.9 bn

20

Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, National Bank of Kazakhstan, Federal Service of National Statistics of Russia, Ministry of Agriculture of Kazakhstan, KazAgro, NCE Atameken, Euromonitor, UN Comptrade

Main costs (2015)

USD 275The average monthly wage in agriculture in Kazakhstan

USD 390The average monthly wage in food industry in Kazakhstan

USD 70The average price of electricity in Kazakhstan for 1,000 kWh

USD 20The average price for hot water in Kazakhstan for 1 Gcal

Market perspectives

USD 1.8 bnKazakhstan's domestic market in 2015

Consumption of milk and dairy products per capita Kg/person, 2014

Turkey

55

Russia 67

41

Kazakhstan

Italy 76

~20%Share of imports in dairy consumption

4 large players With over 5% share of the domestic market incl. Danone and Lactalis

USD 2.9 bnKazakhstan potential domestic market sizeby 2020 due to growing unsatisfied demand

Access to resources

~5MtProduction of raw milk

~5%Average annual growth of cattle livestock (2013-15)

Examples of major manufacturers in the segment

Lactalis Group

LLP AgroproduktAseptic

Danone Group

JSC Eurasian Foods Corp.

Foreign participationFragmented

market in Kazakhstan’s dairy segment

Raw milk cost is competitive with the costs of key producers and importers in Kazakhstan

Potential location11 regions which are the most attractive for producing milk and dairy products due to favorable climatic conditions and established production base

Business considerations

Production of milk-bearing cattle

Roads Transport and logistics hubs

PortRailways Airport

300 km

Astana

Aktyubinsk

Taraz

Karaganda

Shymkent

Pavlodar

Kyzylorda

Aktau

Taldykorgan

Turkestan

Kulsary

Aralsk

Baikobur

Arkalyk

Arys

Chardara

Zhetysai

ShuKapchagai

Aksu

Temirtau

Shakhtinsk

Balkhash

Atyrau

Uralsk Khromtau

Abay

Lisakovsk

Talgar

Shalkar ZhezkazganSatpayev

Aksai

Almaty

Kostanay

Petropavlovsk

Kokshetau

Zhanaozen

Rudny

Kandyagash

Zhitikara

Kentau

Taiynsha

AtbasarStepnogorsk

Щучинск

Kaskelen

Ekibastuz

Ust-Kamenogorsk

Ayaguz

Semey Ridder

Zyryanovsk

Zharkent

Tekeli

JOINTVENTURE

GREENFIELD PRODUCTION FACILITY

OR

Over 1 m people

0.5-1 m people100,000-500,000 peopleLess than 100,000 people

Urban population

21



Large fruits Grapes

66

32

2

3751

12

Fruit imports to Kazakhstan, 2015Volume Kt

Access to the growing Kazakhstan market with a high share of imports, access to the growing Russian market

Favorable weather conditions, availability of cultivated and irrigated land

Competitive production priceProduction price, 2015USD per ton

ChinaBelarus

Poland

8

40

17

Other

35

Apricots

Nuts 11

Persimmons

Other 57

8

Cherries

24

628

Dried fruit and nut mixes

Apples

Bananas

Citrus fruits 82

47

Imports

127

86

Peaches and nectarines 37

142Grapes

6

981937895

1,1261,075

162015 18

+5% p. a.

1,027

20201917

Projected fruit consumption Kt

51

107

129China

Kazakhstan

Turkey

Overview of apple imports in Russia, 2014Percent, 100% = USD 620 m

Market in Kazakhstan in 2015

USD 0.9 bn

Potential market in Kazakhstan in 2020

310

569

772China

Kazakhstan

Poland

511

867

Kazakhstan

Uzbekistan

The structure of the GVA of Kazakhstan, 2015Percent

Apples

Grapes

Households

Farms


Raw fruitProduction of raw fruit for Kazakhstan's domestic market with the potential for import substitution, meeting the growing unsatisfied demand, and exports to Russia

Key drivers

Consumption of fruit per capita, 2015Kg/person

USD 1.2 bn

22

Main costs (2015)





43

92

287

157

30

172016 1918 2020

Market perspectives

~70%Share of imports in raw fruit consumption

USD 0.9 bnIn 2015 Kazakhstan market volume

USD 1.2 bnKazakhstan's domestic market potential by 2020 due to growing unsatisfied demand

Access to resources

~0.5m haCultivated land for fruit and vegetables

1.5 m haIrrigated land available

+0.6m haAdditional by 2020

USD 2.9 bnImports of apples to Russia in 2015

Commissioning plan for irrigated landThousand ha

35tons from 1 haYield apples

20 tons from 1 haYield grapes

Potential location5 regions that are most attractive for fruit production due to favorable climatic conditions


Transport and logistics hubs

Railways

Roads Port

Airport

Fruit and vegetable storage facilities

Production of fruits

300 km

Astana

Aktyubinsk

Taraz

Karaganda

Shymkent

Pavlodar

Kyzylorda

Aktau

Taldykorgan

Turkestan

Kulsary

Aralsk

Baikobur

Arkalyk

Arys

Chardara

Zhetysai

ShuKapchagai

Aksu

Temirtau

Shakhtinsk

Balkhash

Atyrau

Uralsk Khromtau

Abay

Lisakovsk

Talgar


Aksai

Almaty

Kostanay

Petropavlovsk

Kokshetau

Zhanaozen

Rudny

Kandyagash

Zhitikara

Kentau

Taiynsha

AtbasarStepnogorsk

Щучинск

Kaskelen

Ekibastuz

Ust-Kamenogorsk

Ayaguz

Semey Ridder

Zyryanovsk

Zharkent

Tekeli

▪ Modern farms in Kazakhstan demonstrate high yield

▪ Potential of exporting fruit to Russia

Over 1 m people


Urban population

JOINTVENTURE


OR

Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, National Bank of Kazakhstan, Ministry of Agriculture of Kazakhstan, KazAgro, NCE Atameken, National Development and Reform Commission of China, Institute of Agricultural and Food Economics Poland, Euromonitor, UN Comptrade

23



Vegetable imports to Kazakhstan, 2015Volume tons

Access to the growing Russian market with a high share of imports, access to the growing Kazakhstan market

Favorable weather conditions, availability of cropped and irrigated land

Competitive production price

35

Turkey

52

China

Other

13

Imports 520

65

Peppers

Potatoes 77

165

Tomatoes

15

10

69

Cucumbers and pickles

Onions and garlic

Cabbages

35

3

Carrots, turnips, beets 82

Other vegetables

Eggplants

+1% p. a.

202019

2,2782,255 2,301

1817

2,189

16

2,233

2015

2,211

Projected potato consumption in KazakhstanKt

556539523507492477

2015 1716 18 19 2020

+3% p. a.

Projected tomato consumption in KazakhstanKt

Vegetables, incl. tomatoes Potatoes

64

4

32

72

23

5

Production price, 2015USD per ton

443

450Kazakhstan

China

GVA structure, 2015Percent

Tomatoes

Households

Farms


~47%Weakening of the tenge against the yuan, 2015-16

96 tons for 1 haPotential yield of tomatoes

Raw vegetablesProduction of raw vegetables for exports to Russia and for Kazakhstan's domestic market with potential for import substitution

Key drivers

Overview of tomato imports in Russia, 2015Percent, 100% = USD 620 m


USD 650mn


USD 700mn

24

Market perspectives Access to resources

4392

287

157

30

17 182016 202019

Plan for the introduction of new irrigated landsThousand ha

+0.6 m haAdditional by 2020

~1,000 haCurrent area of greenhouses

153

373

441

164

967

2010

Agriculturalenterprises

Farms

2015

Households

Greenhouse areaHa

+43%

USD 650 mMarket in Kazakhstan in 2015

~10%the share of imports in the consumption of raw vegetables

USD 700 mPotential market by 2020 because of the growing unmet demand

USD 670 mImports of tomatoes to Russia in 2015

Potential location14 areas that are most attractive for vegetable production due to favorable climatic conditions



Railways

Roads Port

Airport


Production of vegetables

300 km

Astana

Aktyubinsk

Taraz

Karaganda

Shymkent

Pavlodar

Kyzylorda

Aktau

Taldykorgan

Turkestan

Kulsary

Aralsk

Baikobur

Arkalyk

Arys

Chardara

Zhetysai

ShuKapchagai

Aksu

Temirtau

Shakhtinsk

Balkhash

Atyrau

Uralsk Khromtau

Abay

Lisakovsk

Talgar


Aksai

Almaty

Kostanay

Petropavlovsk

Kokshetau

Zhanaozen

Rudny

Kandyagash

Zhitikara

Kentau

Taiynsha

AtbasarStepnogorsk

Щучинск

Kaskelen

Ekibastuz

Ust-Kamenogorsk

Ayaguz

Semey Ridder

Zyryanovsk

Zharkent

Tekeli

Efficient greenhouse production in Kazakhstan due to the availability of low-cost energy sources and a large number of sunny days (more than 50% of greenhouse expenses are energy expenses, and natural solar energy is one of the lowest cost energy sources)

Over 1 m people


Urban population

JOINTVENTURE


OR

Main costs (2015)






1.5 m haIrrigated land available

Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, National Bank of Kazakhstan, National Development and Reform Commission of China, Ministry of Agriculture of Kazakhstan, KazAgro, NCE Atameken, Euromonitor, UN Comptrade

25



~47%Weakening ofthe tenge against the yuan, 2015-16

Access to the growing Kazakhstan market with a large share of imports (e.g., share of imports in processed vegetables1 ~82%); access to the growing Russian market

Resource balance in 2014Kt

Projected consumptionKt

Consumption 224

Exports 25

229

Production 19

Imports

252247242238233228224

2014 171615 1918 2020

+2% p. a.

The production price of raw tomato 2015USD per tons

443

450

China

Kazakhstan

Italy

Other China

26

11 63

Overview of main tomato paste exporters to Russia Percent, 2015

Availability of raw materials Competitive production price

Over 9 MtFruit and vegetables produced annually

Competitive production price compared to that of major importers in Kazakhstan and Russia

Processed fruit and vegetables

Production of processed fruit and vegetables, e.g., canned or frozen fruit and vegetables, fruit and vegetable pastes, vegetable sauces, purees, juices, concentrates, and other for Kazakhstan's domestic market with the potential for import substitution, as well as for exports to Russia

Key drivers


USD 0.7 bn


USD 1.4 bn

1 Excluding potatoes

26

Main costs (2015)





Market perspectives

Access to resources

Consumption of processed fruit and vegetables per capitaKg/person, 2015

13

23

36

39

+117%

Germany

Canada

Ø 28

Kazakhstan

USA

~82%The share of imports in processed vegetables, except potatoes

USD ~0.2 bnImports of tomato paste to Russia in 2015

Over 9 m tonsFruit and vegetables produced in Kazakhstan

Potential location14 regions that are most attractive for vegetable production and 5 areas which are most attractive for fruit production due to favorable climatic conditions


Кентау

300 km


Astana

Aktyubinsk

Taraz

Karaganda

Shymkent

Pavlodar

Kyzylorda

Aktau

Taldykorgan

Turkestan

Kulsary

Aralsk

Baikobur

Arkalyk

Arys

Chardara

Zhetysai

ShuKapchagai

Aksu

Temirtau

Shakhtinsk

Balkhash

Atyrau

Uralsk Khromtau

Abay

Lisakovsk

Talgar


Aksai

Almaty

Kostanay

Petropavlovsk

Kokshetau

Zhanaozen

Rudny

Kandyagash

Zhitikara

Kentau

Taiynsha

Atbasar

Stepnogorsk

Щучинск

Kaskelen

Ekibastuz

Ust-Kamenogorsk

Ayaguz

Semey Ridder

Zyryanovsk

Zharkent

Tekeli


Railways

Roads Port

Airport


Production of vegetables

Production of fruit and vegetables

Production of fruit

▪ Low proportion of local production▪ Potential for export of vegetables to Russia

Over 1 m people


Urban population

JOINTVENTURE


OR

USD 0.7 bnMarket in Kazakhstan in 2015

USD 1.4 bnPotential market by 2020 because of the growing unmet demand


27



Availability of cultivated land. Competitive cost of oilseeds and vegetable oils in Kazakhstan compared to China

Access to Kazakhstan's domestic market with a high share of imports, and access to China's growing market of oilseeds, vegetable oil products, and fat-and-oil productsOilseeds resource balanceKt, 2014

Vegetable oil resource balanceKt, 2014

573

1,016

41

Exports

Production 1,548

Consumption

Imports 119

48

329

Imports

Consumption 400

Exports

Production

122239 211 256

12

352

248(67%)

371

2011

113(32%)

Production

13

144(36%)153

(42%)

400364

Imports

2014

Vegetable oil importsMt, (percent of the total consumption)

Total oilseed consumption in ChinaMt, (percent of the total consumption)

2014-15 2015-16

57

105(65%)

2013-14

56

162

59

167162

Production

103(64%)

111(67%)Imports

Oilseeds and fat-and-oil products

Key drivers

Production of vegetable oils for the domestic market with potential for import substitution, and production of oilseeds incl. sunflower, rapeseed, soybean, flax and safflower seeds, and of vegetable oils for exports to China


> USD 0.7 bn


~ USD 1 bn

China's imports of oilseeds

~ USD 38 bn

28

Main costs (2015)





Market perspectives

USD 0.7 bnKazakhstan's vegetable oils market size in 2015

~30%Share of imports in vegetable oils consumption

1.0 bn USDPotential market of Kazakhstan in 2020 due to the growing unmet demand

Access to resources

2.3 m haCultivated lands for oil-seeds in Kazakhstan

<20%The share of the largest market player in Kazakhstan’s fragmented market

+3%Annual market growth, 2012-15 in China

~USD 38 bnImport of oilseeds to the Chinese market in 2015

~USD 0.2 bnImports of fat-and-oil products to the Chinese market in 2015

1.5 m haIrrigated lands available


665

2,300

2004 2014

Cultivated lands for oilseedsThousand ha

1.6 m tonsOil seeds produced in Kazakhstan

Potential location11 regions that are most attractive for oilseed production due to favorable climatic conditions


300 km

Production of oilseeds



Astana

Aktyubinsk

Taraz

Karaganda

Shymkent

Pavlodar

Kyzylorda

Aktau

Taldykorgan

Turkestan

Kulsary

Aralsk

Baikobur

Arkalyk

Arys

Chardara

Zhetysai

ShuKapchagai

Aksu

Temirtau

Shakhtinsk

Balkhash

Atyrau

Uralsk Khromtau

Abay

Lisakovsk

Talgar


Aksai

Almaty

Kostanay

Petropavlovsk

Kokshetau

Zhanaozen

Rudny

Kandyagash

Zhitikara

Kentau

Taiynsha

AtbasarStepnogorsk

Щучинск

Kaskelen

Ekibastuz

Ust-Kamenogorsk

Ayaguz

Semey Ridder

Zyryanovsk

Zharkent

Tekeli

Over 1 m people


Urban population

JOINTVENTURE


OR

Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, National Bank of Kazakhstan, report of the U.S. Department of Agriculture on foreign agricultural services, Ministry of Agriculture of Kazakhstan, KazAgro, NCE Atameken, Euromonitor, UN Comptrade

29



Sugar resource balance in KazakhstanKt, 2014

Gluten consumption by industryKt p.a.

Access to the growing GFS sweeteners market in Kazakhstan and the growing gluten market in the Middle East

170 167 169 171 176 181 188

199 203 207 213 220 229 239

13

388 396 409

2017П 2018П20162015

11

381

1412

424

12

Sweetened soda

2020П

442

Juices

15

2019П2014

11

379

3%

2%

7%

Projected CAGRPercent, 2015-20

3%

33%41%

1,030

4%

11%10%

2012

61%

820 45%

27%9%

2005

52%

Baking

4%

Aquaculture

2015

Pet food

1,230

Other

165

515

350

Imports

Exports

Production

3

Consumption

Wheat resource balance in Kazakhstan, 2014Kt

Availability of raw materialsCompetitive cost of raw materials

~47%Weakening of the tenge against the yuan, 2015-16

The production price of flour, 2015USD per tons

432

489China

Kazakhstan

12,996

Imports

Production

11

13,007Consumption

Exports 4,208

Energy drinks

Production of sweetened drinksThousand liters

Review of the main buyers of Chinese gluten

Derivatives of processed wheat and other cultures such as starch and glutenProduction of derivative products of wheat, potato, soy, and other cultures, such as starch and sweeteners as glucose-fructose syrup (GFS) for use as sugar substitutes in Kazakhstan's domestic market, and such as gluten for potential exports to Europe and the Middle East

Key drivers

Saudi Arabia, Yemen, Oman, Australia, Singapore, Malaysia, Vietnam, Korea, Norway, and other European countries

The volume of the GFS market of Kazakhstan in 2015

USD >130m

The volume of wheat gluten imports to the Middle East and European markets in 2015

USD 2.6 bn

30

Main costs (2015)





Market perspectives

USD 130 mnThe GFS sweeteners market in Kazakhstan in 2015

~30%Share of imports in sugar consumption

USD 160 mnPotential of the GFS sweeteners market in Kazakhstan

Access to resources

~13MtAvailability of raw materials of wheat

Competitive production price of wheat and flour compared to that of major manufacturers in Kazakhstan and Russia

USD 2.6 bnThe volume of wheat gluten imports to the Middle East and European markets in 2015

+4%Average market growth in the Middle East and Europe


1,5 haAvailability of irrigated lands

~3.5MtFlour produced in Kazakhstan

Potential location11 regions that are most attractive for wheat production due to favorable climatic conditionsAvailability of grain elevators almost in every region for potential cultivation


300 km

Elevators

Production of wheat



Over 1 m people


Urban population

JOINTVENTURE


OR


31



Key drivers

Meat production by types of farmsKt, 2015

In farms and small household farms in Kazakhstan, cattle and other livestock species are primarily kept and fed on natural pastures. The meat of these animals is non-GMO

Horsemeat

101

73%

2%

73%25%

Lamb

144

25%2%

Beef

417

75%

19%

7%

Meat production by types of farmsThousand heads

Positive trends in the growth in number of all types of livestock

Production of meat products for consumption in the domestic market and for export to China and Russia

Meat products

6,033

2013 14

+2.8%p.a.

2015

6,1845,851

~180m ha

Area of pasture lands in Kazkahstan in 2014

According to the data of the Ministry of Agriculture of Kazakhstan, the cost of pasture-fed and pasture-fed beef in Kazakhstan is:

~110,000 tenge/ton

or

~500 USD/ton

Competitive cost of pasture-fed cattle

2,999

+4.7%p.a.

201514

2,835

2013

2,735

+1.3%p.a.

18,016

14

17,915

2013

17,561

2015 2015

+7.7%p.a.

14

1,9381,7852,070

2013

171166161

2015142013

+2,9%p.a.

Cattle Including cows Sheep and goats Horses Camels

According to the Ministry of Agriculture of Kazakhstan, Kazakhstan developed a broad plan and strategic road map for the development and promotion of Kazakhstan's meat brand "KazMeat"

Farms

Households

Agriculture enterprises

32

Potential location13 regions that are most attractive for meat production

300 km

Production specialization on meat

Presence of processing plants in the region

Presence of feedlots in the region

Market perspective

USD ~2,3 bnVolume of imports of cattle to China in 20151

Access to the resources

~180m haPasture lands in Kazakhstan in 2014

According to estimates of the Ministry of Agriculture of Kazakhstan, consumers in China are willing to pay 40% more for branded, organic, pasture-fed beef


USD ~1,5 bnVolume of imports of cattle to Russia in 20151

USD ~4 bnMeat production in Kazakhstan in 20151

Development of a Kazakhstan meat brand

The wealth of nomads

LCsRailways Airports

Roads Ports

AksaiAktyubinsk

Taraz Almaty

Shymkent

KyzylordaAktau

Turkestan

Kandyagash

Aralsk

Arkalyk

Arys

ChardaraZhetysai

ShuKapchaga

y

Ayagoz

Atbasar

Temirtau

Shakhtinsk

Balkhash

Semey

Atyrau

Khromtau

Lisakovsk

Talgar


Astana

Ust-KamenogorskKaraganda

PavlodarKostanai

Petropavlovsk

Kokshetau

Taldykorgan

Zhanozen

Ekibastuz

Rudni

Kulsary

Baikonur

Zhitikara

Kentau

ZharkentTekeli

Aksu

Taiynsha

Stepnogorsk

Uralsk

Abai

Schuchinsk

Ridder

Zyryanovsk

Kaskelen

1 Based on assessments of the Ministry of Agriculture

Over 1 m people


Urban population

JOINTVENTURE


OR

Main costs (2015)





Source: Ministry of Agriculture of Kazakhstan, National Bank of Kazakhstan 33



Production of organic and non-GMO products

Meat production by types of farmsKt, 2015

In farms and small households farms in Kazakhstan cattle and other livestock species are primarily kept and fed on natural pastures.The meat of these animals is non-GMO

Key drivers

73%

25%2%

Lamb

144

2%

417

75%

Beef

7%

19%

Horse meat

25%

73%

101

Households

Farms

Agriculture enterprises

Production of organic products and products without GMO for consumption in the domestic market and for exports to China and the EU, incl.

▪ Meat products such as beef, lamb, pork, horsemeat and other meats

▪ Halal products, such as beef, mutton, horsemeat, and other meats

▪ Dairy products, such as cow, horse, and camel milk▪ Oilseeds and oils-and-fats products▪ Grain and fodder crops▪ Fruit and vegetables

In 2015, Kazakhstan adopted a law on production of organic products that is fully in line with the globally adopted organic market regulation. Within the existing technical regulations system, there is a separate area of certification for organic production (in 2015)

"The existence of significant land and other natural resources, as well as the existence of a traditional culture of land cultivation without the extensive use of synthetic fertilizers and pesticides creates a huge opportunity for the development of [the organic and non-GMO] segment of the market"

– UN FAO about Kazakhstan

~68 m ha Land potential in Kazakhstan for organic livestock production

~14 m ha Land potential in Kazakhstan for organic crop production

Production of organics cropsKt, 2014

Based on Ministry of Agriculture of Kazakhstan estimate

9

48

85

160

Fodder crops

Oilseeds

Grains

Pulses

34


Potential locationSpecialization by region in Kazakhstan

Market perspective

Access to the resources

~68m haFor organic livestock production

According to UN FAO surveys, Kazakhstan consumers highly value organic products and 69% of respondents are willing to pay a higher price for these products

>1,5m haAvailability of irrigated lands

~14m haFor organic crop production

Organic products export (food and beverages)USD millions per year

Astana

Aktubinsk

Ust-Kamenogorsk

Karaganda

PavlodarKostanay

Aktau

Kokshetau

Taldykogan

Semey

Atyrau

Uralsk

Zheskagan

Saratov

Astrahan

230

202

182

385

85

Tashkent

218

705

355

Bishkek

1 534

138

316312

489

332

845

141

209

225

Chelaybinsk

Kurgan

PetropavlovskОмск

Taraz

Almaty

Shymkent

Kyzylorda

хх Population, thousands

Railways

Vegetable farming

Rice

Vegetable production regions

Cotton

Agriculture Melons

Horse-breeding

Meat and dairy cattle

Pork

Camels

Sheep

602

761

China

1,197

Spain

Netherlands

Italy 1,832

JOINTVENTURE


OR

Main costs (2015)





Source: Ministry of Agriculture of Kazakhstan, National Bank of Kazakhstan, UN FAO, FIBL, IFOAM 2016, Euromonitor International, European Central Bank 35

KAZNEX INVEST is Kazakhstan’s investment promotion agency and Unified Coordination Center for development of special economic zones. It supports foreign companies and private investors that are interested in setting up business in Kazakhstan and serves the existing foreign investors helping them to expand and develop their business.

How KAZNEX INVEST can help

Head office

2, Kunayev St., 010000, Astana, Republic of KazakhstanTel: +7 (7172) 91 90 40,ext. 1001Fax: +7 (7172) 91 90 [email protected]

Call Center of the Investment Committee of the Ministry for Investments and Development of the Republic of Kazakhstan

Tel: +7 (7172) 75 45 [email protected]

Information

www.invest.gov.kz

36