A new frontier for the new Silk Road
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Transcript of A new frontier for the new Silk Road
14 rue du Rhone, 1204 Genève w Switzerland - tel. +41 22 900 1705 - [email protected]
Beef & Dairy ventures in the Caucasus and Central Asia
Joining forces to re-establish
the new Silk Road markets
Even though they are part of the same region and have shared a common Silk Road and Soviet past, the countries of the Caucasus and Central Asia have quite different levels of development
24'449 24'108
18'246 17'761
14'217
9'209 8'681 8'164
5'630 4'998
3'622 2'698
-
5'000
10'000
15'000
20'000
25'000
30'000
GDP per capita PPP USD 2014 (IMF)
However they have all experienced in the last decade a very strong level of growth, among the highest in the World
10,19,7
8,3
6,8
5,55,1
4,4 4,3
0
2
4
6
8
10
12
Turkmenistan Azerbaijan Uzbekistan Tajikistan Kazakhstan Georgia Kyrgyz Republic Armenia
Average GDP growth 2006-2015(%, source IMF/ADB)
Part of this growth has reflected high oil prices which have played a major role both for oil exporters (Turkmenistan, Kazakhstan, Azerbaijan, Uzbekistan) and for oil importers that rely largely on remittances from oil exporting Russia (Tajikistan, Kirghizstan, Armenia and Georgia)
382
335321 318
187 186174
138116 113 113
7158
42 40 4228
19 20 15 15 13 15 13 10 11
0
50
100
150
200
250
300
350
400
450
Proven reserves oil and gas: billion barrels oil equivalent, 2014 (source: BP, Statistical review of World Energy, 2015)
As in many emerging countries which are responsible for 80% of the increase of beef and dairy worldwide according to OECD/FAO, strong growth in household income has led to a switch from the consumption of grain to value-added products: more fruit, vegetable, meat and dairy products as shown by the example of “rich” Azerbaijan
40
60
80
100
120
140
160
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Beef, milk and wheat consumption per capita in Azerbaijan(index 1992=100, FAOSTAT)
Wheat and products (kg/capita/year)
Bovine meat (kg/capita/year)
In the poorest country of the region, Tajikistan, 96% of the population had fallen below poverty levels at the end of the 1990s. 88% of consumption of households was then dedicated to food including 46% for bread and flour only
Bread and flour46%
Potatoes4%
Vegetables & melons7%
Fruits & berries4%
Meat9%
Fish0%
Milk4%
Sugar4%
Eggs1%
Vegetable oil7%
Tea, coffee, soft drinks2%
Catering0%
Alcoholic drinks purchase0%
Other non food purchase including services
12%
Structure of consumption of households (1999, Tajstat)
Thanks to improved income, only 32% of the Tajik population is now below poverty levels. The share of bread and flour has fallen to 19%. That of meat and value-added food products has remained constant, but as part of a much bigger pie than before
Bread and flour19%
Potatoes3%
Vegetables & melons5%
Fruits & berries3%
Meat & meat products
9%
Fish & fish products0%
Milk & milk products2%
Sugar & confectionery6%
Eggs1%
Vegetable oil5%
Tea, coffee,
soft drinks2%
Alcoholic drinks purchase0%
Other food2%
Non food goods28%
Services15%
Structure of consumption of households (2013, Tajstat)
The levels of consumption of milk per capita still vary considerably inthe region. They reflect differences in income per capita and in modesof consumption between countries of former breeding nomads suchas Kyrgyzstan and countries of sedentary farmers such as Tajikistan
282
208
190 179 174
166 157
146 144 143 141 140 137 136
80
60 58 53
-
50
100
150
200
250
300
Consumption of milk excluding butter total, 2011, kg/capita/year (FAOSTAT)
The same applies to consumption for beef meat, for which Kazakhstan is already one of the biggest consumers in the World
22,1
18,7 18,4 18,3
16,215,1
13
10,3
8,6 8,5
6,75,8
4,9 4,83,9
1,3
0
5
10
15
20
25
Consumption of beef meat per capita in 2011 (kg, FAOSTAT)
Even though Kazakhstan is probably close to its maximum in terms ofconsumption per capita, most countries of the region are expected tostill register large increase in demand in the future. This will also bethe case of close-by countries such as China and Iran
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20
40
60
80
100
120
140
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200
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Beef consumption in Azerbaijan (index 1992=100, FAOSTAT)
Bovine meat (kg/capita/year) Bovine meat (t)
Until now, the countries of the region have been unable to produce enough to cope with increased demand of beef and dairy. This has led to massive deficit of the Eurasian Customs Union where Kazakhstan, Kyrgyzstan and Armenia are members, together with Russia and Belarus
-8'000'000 -6'000'000 -4'000'000 -2'000'000 0 2'000'000 4'000'000 6'000'000 8'000'000
Wood
Cereals
Animal/vegetable fats
Milling products
Raw hides and skins
Vegetable planting materials, vegetable products nes
Products of animal origin, nes
Meat, fish preparations nes
Lac, vegetable extracts nes
Fish
Cotton
Live animals
Sugars, confectionery
Residues, animal fodder
Oil seed
Live trees, cut flowers
Cereal, flour, starch, milk preparations
Cocoa
Coffee, tea, spices
Vegetable, fruit, nut preparations
Miscellaneous edible preparations
Dairy products, eggs, honey
Vegetables
Beverages, spirits
Meat
Edible fruit, nuts, melons
Euroasia Customs Union (ECU) 2013 (agri-food trade balance, source ITC)
Azerbaijan, that is not part of the ECU, has also seen a massive increase in its trade deficit for beef and dairy
-23'278 -24'580 -27'559
-41'048
-56'463
-65'862 -71'322
-89'812
-97'606
-170'392 -180'000
-160'000
-140'000
-120'000
-100'000
-80'000
-60'000
-40'000
-20'000
-
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (mirrorstatistics)
Total beef and dairy (trade deficit of Azerbaijan, thousand USD, ITC)
One of the reasons for massive trade deficits in beef and dairyof the region has been its low level of tariff protection… untilthe Russian embargo!
10,28
15,00 15,00 15,00 15,00 15,00 15,00
3,43
20,00 20,00
9,7011,36 11,25 11,72
26,00
58,00
72,51
38,70
42,9044,69
32,20
0
10
20
30
40
50
60
70
80
Live bovineanimals 0102
Fresh bovine meat0201
Frozen bovinemeat 0202
Milk notconcentrated 0401
Milk concentrated0402
Butter 0405 Cheese 0406
Compared customs tariffs for beef and dairy products (%, 2013, source ITC)
Azerbaijan (apart from duty free CIS)
Euroasian Customs Union
EU Ad valorem equivalent tariff
0
20
40
60
80
100
120
140
01/03/2006
01/06/2006
01/09/2006
Dec 2
006
01/03/2007
01/06/2007
01/09/2007
Dec 2
007
01/03/2008
01/06/2008
01/09/2008
Dec 2
008
01/03/2009
01/06/2009
01/09/2009
Dec 2
009
01/03/2010
01/06/2010
01/09/2010
Dec 2
010
01/03/2011
01/06/2011
01/09/2011
Dec 2
011
01/03/2012
01/06/2012
01/09/2012
Dec 2
012
01/03/2013
01/06/2013
01/09/2013
Dec 2
013
01/03/2014
01/06/2014
01/09/2014
Dec 2
014
01/03/2015
01/06/2015
01/09/2015
Dec 2
015
01/03/2016
Crude Oil simple average of three spot prices (Brent, WTI, Dubai Fateh, USD/barrel, source: WB)
Many States of the region were not caring much about their agriculture when oil prices and remittances were high. Now, agriculture and agribusiness are top on the agenda of economic diversification with large State investment subsidies in particular in Azerbaijan and Kazakhstan
The mountainous Caucasus and Central Asian countries have very good agro-pastoral natural conditions for beef.Not surprising that many European breeds came from there with migrations of Indo-Europeans thousands years ago
In countries like Tajikistan, Kirghizstan and the Caucasus, there is large availability of mountain pastures for ranching
And in Kazakhstan, prices for high quality fodder grain are among thelowest in the world and will remain so for decades. All these countrieshave therefore the potential to become large net exporters of beef anddairy as they usually were in Soviet times
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354341
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275
201 201186
176
0
50
100
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200
250
300
350
400
450
Iran (IslamicRepublic of)
Armenia Azerbaijan Turkey Georgia Kyrgyzstan Belarus RussianFederation
Kazakhstan Ukraine
Producer prices for wheat USD/t (average 2012-2014, FAOSTAT)
Unfortunately, since that period, yields of cows in the region havestagnated or even decreased contrary to what happened inRussia and Ukraine
0
50
100
150
200
250
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Yields of milk/cow (kg/year, index 1992=100, FaoStat)
Azerbaijan Russia Ukraine
Yields for milk are now much below the levels of advanced countries of the region.
A Tajik cow produces the equivalent of a French goat!
6'414
4'447 4'361
3'900
2'970
2'317 2'2451'993 1'947 1'912
1'368
1'010723
0
1000
2000
3000
4000
5000
6000
7000
Yields of cow milk in 2013 (kg/cow/year, FAOSTAT)
Poor yields in the region reflect a structural mismatch:large increase in the number of animals, large decreasein the volume and quality of fodder resources
148
0
20
40
60
80
100
120
140
160
180
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Fodder crop production and number of animals in Azerbaijan
(index 1991=100, AzStat)Green maize
Fodder root crops
Hay
Total number of cattle and buffaloes
In most countries including Azerbaijan where the State provides 40% subsidy for investment in machinery, there has been drastic contraction for fodder equipment. What remains is usually outdated.
40883
13318
72788998
31874316
8915
4544
1624
23090
5507
7112051 1393 1727
8482218
616
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
Tractors Ploughs Cultivators Seeders Mowers Presses Sprayers(pollinizators)
Combineharvesters
Silageharvesters
Stock of main agricultural equipment in Azerbaijan, end of the year (AzStat)
1990 2007 2014
The problem of access to equipment and fodder is not only a problem of financial resource: it is a problem of adequacy. In all countries of the region, households are now the owners of most of cows and cannot for instance invest by themselves in a modern tractor, not speaking of a modern silage harvester
43,0
31,1
6,31,5 1,4 0,8 0,3
11,5
2,7 1,06,1
48,946
66
93 9299
50
100
88
0
20
40
60
80
100
120
Russia 2015(ownership)
Ukraine 2015(ownership)
Moldova (2015) Tajikistan 2013(ownership)
Azerbaijan 2015(ownership of
family holdingsincluding
peasant farms)
Kirghizstan 2015(ownership)
Georgia 2014(ownership of
family holdingsincluding
peasant farms)
Kazakhstan2011 (milk
output, OECD)
Share of different types of farms in ownership or output of cattle(national statistics, %)
Large agricultural enterprises
"Peasant" farms
Households
Apart from households, so-called family “farmers” have often insufficient land resources to justify investing in equipment by themselves
6,6
17,5
15,5
14,2
8,7
10,3
4,7
5,8
2,9 2,7
1,6
9,6
0
2
4
6
8
10
12
14
16
18
20
0,00 – 0,50 0,51 – 1,00 1,01 – 1,501,51 – 2,00 2,01 – 2,50 2,51 – 3,00 3,01 – 3,503,51 – 4,00 4,01 – 4,504,51 – 5,00 5,01 – 5,50 5,51 – >
Farms holding land eligible for state support, percentage by size range ha (MoA)
On the other side of the value-chain, there is growing emergence of modern retailers such as Casino-Bravo or Baku Retail Group in Azerbaijan, Schiever-Auchan in Tajikistan, Ramstore in Kazakhstan
As elsewhere they need traceability between the fork of thefarmer and that of their clients. This means respect ofstringent food safety rules for large volumes and constantquality of beef and dairy products
How can we act?
By setting-up in the countries of the region, beginning with Azerbaijan, Kazakhstan, and Tajikistan Development Hubs structured around large private “Nucleus” Farms implementing three tasks:
- Test in these farms new technologies with support from a platform of global providers of inputs and equipment willing to become leaders in the Caucasus and Central Asia
- Train in these farms a new generation of agronomists and zoo-technicians with support of training centers in advanced countries
- Transfer the knowledge acquired in these farms to small and medium farmers working with them in the following business model
Final buyer (large retailer)Signs a procurement contract with the Nucleus Farm to get
good quality meat on the basis of quality requirements
Nucleus FarmBuys calves and reform cows from small farmersfor bull fattening. Can be used to develop agenetic base upon demand for exporters ofgenetic. Helps small farmers to organizethemselves in cooperatives for tasks such asmarketing of milk or access to inputs andmachinery
Technical partnersTest their inputs/equipment in the Nucleus Farm and use it as a demonstration base to
conquer local markets
Local farmers including householdsReceive training on modern breeding techniques inthe Nucleus FarmSell their calves and cows for fattening to the farmSell their milk to their cooperative
CooperativeGathers farmers organized and
trained in the Nucleus FarmOrganize their access to inputs and equipment and to sell their
milk
This scheme is not a dream idea.It is already on track with a team of professional and experienced investors in agribusiness working together in various countries to build a common platform of knowledge
• Azerbaijan: use of a former warehouses in the region of Goranboy to be transformed into a large scale feedlot (nucleus farm). Large element of accumulated trust between the investors (O2 Agri led by Mr Fortunato Costantino) and local farmers. Strong support from Government that wants to provide the nucleus farm with 5,000 ha of land and development organizations
• Kazakhstan: use of a 10,000 ha farm in the region of Astana owned by the grain trader group Comstrade led by Mrs Lyazzat Nurumova to be transformed into a large scale feedlot (nucleus farm). Daughter projects in the regions of Akmola and Almaty
• Tajikistan: launching of Tajik farm LLC in 2011 by foreign investors led by MrWahid Jamai, the first foreign investor in the country. Acquisition of what was considered the best former Soviet complex for beef cattle (16,000 heads). Good accumulated experience in cross-breeding with Charolais, Abondance and Tarentaise
With technical support from experienced specialists, work has already begun to transform this local cow…
Do you want to join the club of pioneers who will conquer the new beef and dairy markets of the Silk Road by working together?
If yes…
14 rue du Rhone w 1204 Genève w Switzerland w tel. +41 22 900 1705 w [email protected]
Connect with us:
O2 Holding SA
rue de Rhone, 14 – 1204 Geneva (CH)
Tel +41 22 900 1705
Fax +41 22 900 1706
Mob +41 79 777 62 99
E-mail: [email protected]