Central Asia Trade Forum: Improving Export Potential of Wheat Flour

in the Central Asian Republics, Afghanistan and Pakistan

Panel summary

29 October 2015

The Rixos Hotel, Almaty, Kazakhstan

Introduction

GAIN has been invited to co-host a panel at the Mission's 5th Central Asia Trade Forum

(CATF) - the region's largest annual gathering of exporters - that was held in Almaty on

October 28-29, 2015. This two-day event brought together more than 1000 technical

experts, opinion shapers, top-managers of private businesses, government officials, trade

promotion agencies, business associations, international organizations and diplomatic

missions from around the world to develop trade, expand export capacity, increase

competitive advantage, exchange experience, present business development tools analyze

the rapidly changing trade environment in Central Asia, and conclude trade deals.

Over the course of the two-day Trade Forum, participants discussed the current state of

trade development in the countries of Central Asia and the broader region, factors

influencing trade relations and regional cooperation, transport and logistics, competitiveness

of export products, women's entrepreneurship, trade finance and other issues.

At the CATF exhibition, GAIN and other registered participants displayed their products and

networked with other participants to promote their companies and establish new business

contacts.

As a result of the Trade Forum, participants identified barriers and solutions to advance

trade and economic cooperation, developed partnerships and signed trade contracts and

Memoranda of Cooperation valued at $45million for supply of goods and business services.

A panel on improving export potential of wheat flour

At the CATF, the Global Alliance for Improved Nutrition (GAIN) held a panel on Improving

Export Potential of Wheat Flour in the Central Asian Republics, Afghanistan and Pakistan to

discuss wheat flour market flows in the region; impact of policy shifts on transit and market

access; implications of regional fortification efforts on the wheat processing industry and its

response to changing market environment; sources of quality premix for food fortification at

affordable prices, and business development services to improve the flour milling industry

competitiveness and export potential.

The panel co-organized by USAID and a local flour milling association brought together a

number of CATF delegates including 50 invited participants from 6 countries representing

regulatory bodies, millers associations, academia, the private sector and two

parliamentarians from Pakistan and Tajikistan.

The panel agenda is provided in Annex 1, and the full list of invited participants is in Annex

2. A summary of the presentations is below.

A networking session that followed deepened participants' understanding of the issues,

helped strengthen existing and establish new partner relationships, and set a stage for

several regional wheat and wheat flour trade deals, and new premix supply options for the

region.

The feedback of the participants (via an online survey) was very positive: 100% of the

respondents indicated that the session had met their expectations, 38% reported making

business deals at the event, 93% will act on the information learned during the session.

Opening speeches

Evgeny Gan, President, Union of Grain Processors of Kazakhstan opened the panel

discussion and presented the organizers, donors, goals and objectives of the session. Mr.

Gan also presented the speakers and moderated the whole session.

Khadijat Mojidi, Regional Health and Education Office Director, USAID/CAR welcomed

the participants and presented the USAID regional program on fortification of wheat flour and

edible oil that creates public-private partnerships to promote trade and export in the region

and to address the public health problem of micronutrient deficiencies that are so prevalent

in the region. Ms. Mojidi encouraged participants to have a very active dialogue and become

champions to promote fortification.

Presentations and discussion

A detailed overview of the presentations and discussions is given below:

Current Flows of Wheat Flour in Central Asia, Afghanistan, and Pakistan Geraldine Baudienville, Director, Altai Consulting

Altai Consulting has been commissioned by GAIN to conduct a regional trade flow analysis

of wheat grain, wheat flour and edible oil in the Central Asia Region (CAR), Pakistan and

Afghanistan to inform and help plan the regional program. The research included a review of

existing published and grey literature, analysis and reconciliation of data from different

sources/databases, and fieldwork (interviews) in Kazakhstan, Pakistan and Afghanistan. Key

findings are as follows: Afghanistan is a major importer of wheat flour (25% of its current

needs) and is likely to remain one in the coming years as the country’s milling capacities are

not likely to significantly evolve, at least

not enough to match the growing

demand. Kazakhstan is a major wheat

grain producer and holds grain reserves

which are of major strategic importance

for the region as it is a major source of

grain supply for the region but also for

Kazakhstan itself as these reserves are a

major source of revenues for the country.

Kazakhstan is also a major exporter of

wheat flour although the government does not consider flour’s strategic importance to be as

crucial as grain’s; the country supplies the CAR and Afghanistan with high quality flour

although not fortified, but suffers from a lack of price competitiveness, a major drawback on

a price-sensitive market such as Afghanistan. Pakistan is the other major wheat flour

producer in the region: as opposed to Kazakhstan, production volumes are rather stable but

because of the country’s large domestic needs, its export capacities are limited: it only

exports surpluses and the government of Pakistan regularly intervenes on the market to

protect its own population’s food security situation. Some CAR such as Uzbekistan are

building up their milling capacities and although exports to Afghanistan are currently

anecdotal, they are likely to increase in the coming years. Other wheat flour producers may

also seize opportunities, as is the case of Russia which started exporting to Afghanistan

following the recent devaluation of the Ruble which makes its products competitive.

In Afghanistan and Pakistan, the vast majority of the edible oil consumed is vegetable ghee

made out of transformed palm oil, conversely to CAR where edible oil is mostly consumed

under the form of liquid oil. Most of edible oil trade flows in the region occur between

Pakistan and Afghanistan: the latter imports almost 90% of its edible oil needs as its

domestic production is largely insufficient to cover the country’s needs. Pakistan is the

largest producer of vegetable ghee in the region and one of Afghanistan’s major suppliers:

one third of Afghanistan’s edible oil imports come from Pakistan. The country imports raw

palm oil, mainly from Malaysia and Indonesia, and transforms it domestically into ghee for

local consumption as well as exports. Exports are encouraged by the Government of

Pakistan which subsidizes exports to Afghanistan through a tax refund mechanism. Malaysia

and Indonesia are also significant suppliers of vegetable ghee (and to a lesser extent raw

palm oil) to Afghanistan: access to raw material domestically produced (as opposed to

Pakistan) enable them to export quality products at competitive price, thus competing with

Pakistani products on the Afghan market.

The main recommendations of this study are as follows:

Support production of fortified products in Afghanistan as well as in the country’s

main suppliers: Pakistan and Kazakhstan.

Consider integrating Indonesia in the regional program as the country is a major

supplier of ghee to Afghanistan.

Establish partnerships with other countries such as Uzbekistan which are building up

their wheat flour production (and export) capacities and likely to become suppliers of

Afghanistan.

Build demand in Afghanistan to pull production of fortified products in Pakistan,

Kazakhstan, and other countries

Build an enabling environment to favor trade of fortified products, notably import of

fortified products to Afghanistan

Regional Policy Shifts: Impacts on Transit and Market Access

Shoukatullah Khurram, Deputy Team Leader Trade Facilitation, Chemonics International,

USAID Afghanistan Trade and Revenue (ATAR) Project,

on behalf of Mozammil Shinwari, Deputy Minister of Trade, Ministry of Commerce and

Industries, Afghanistan.

There have been a number of major

policy events that affected

Afghanistan's trade in the region: 1)

Afghanistan is joining the WTO and

will soon be a full member of the

organization; 2) Pakistan ratified the

UN International Road Transport

(TIR) convention; 3) as a result of

the Iranian Nuclear Deal Iranian

ports will become politically viable

alternatives to Karachi, Gwadar and

Port Qasim.

Afghanistan's accession to WHO is expected in 2016. Among other benefits, the

membership gives countries unequivocal transit rights and access to the most cost efficient

routes without restrictions. This is an important milestone for Afghanistan's regional

integration since landlocked countries are at disadvantage due to higher transportation costs

for imported raw materials, inputs and equipment and for exporting finished goods. In

addition, coalitions of WTO members can resolve issues through the WTO dispute

settlement process.

UN's TIR is a multilateral treaty to simplify and harmonize the administrative formalities of

international road transport. The TIR Convention establishes an international customs transit

system with maximum facility to move goods in sealed vehicles or containers; from a

customs office of departure in one country to a customs office of destination in another

country; without requiring extensive and time-consuming border checks at intermediate

borders; while, at the same time, providing customs authorities with the required security and

guarantees. Pakistan's TIR accession becomes effective in January 2016. Other regional

members include Afghanistan, Azerbaijan, Iran, Kazakhstan, Kyrgyzstan, Tajikistan, Turkey,

Turkmenistan, and Uzbekistan.

The Iran nuclear deal is a preliminary agreement reached between Iran, the permanent

members of the UN Security Council and the EU. According to the deal, Iran would redesign

and reduce its nuclear facilities. The implementation of the agreement (expected in mid-

2016) will be followed by lifting of all the UN Security Council sanctions as well as all

economic and financial embargoes by the US and the European Union imposed on Iran's

banks, insurance, investment, and all other related services in different fields. The deal

opens up new politically viable transit routes for Afghanistan.

The Central Asia Regional Economic Cooperation (CAREC) Program is an Asian

Development Bank (ADB) supported initiative which was established in 1997 to encourage

economic cooperation among countries in the Central Asian region including Afghanistan,

China, Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan, Turkmenistan, Tajikistan, and

Uzbekistan. As a member, Afghanistan is entitled to new sources of funding and other

benefits of this development partnership. For example between 2001 to 2011 CAREC

provided $5.1 billion in loans and grants mostly for infrastructure development. New

transport corridors (nearly 10,000 km railways and more than 10,000 km of roads) are being

built that will connect Afghanistan to its regional partners reducing trade bottlenecks and

boosting commerce.

During 2014 Afghanistan imported 1.53 million tons of wheat flour, and Iraq, for example,

imported 1.57 million tons of wheat and 1.05 million tons of flour. If the above WTO and TIR

measures are implemented and enforced, wheat and wheat flour could move from

Kazakhstan to Iran and Iraq via Afghanistan must faster and cheaper, and once Kazakh

wheat is at Iranian or Pakistani seaports it can be shipped anywhere in the world changing

trade dynamics beyond the region, and Afghanistan will be able to benefit from this

development as well.

Demand for Fortified Wheat Flour: Implications for Businesses

Sajjad Imran, Pakistan Country Manager, GAIN on behalf of

Asim Raza, Chairman, Pakistan Flour Millers Association (via skype)

Pakistan is a major producer of wheat flour. In 2013, 18.5 MT of flour was produced. More

than half of this amount was produced at 1200 commercial mills of the country. Pakistan’s

domestic consumption of flour was 17.5 MT, and 0.7MT of wheat flour was exported to

Afghanistan. Pakistan has established a number of formal and informal trade channels with

Afghanistan. Pakistan’s exports to Afghanistan are directly linked to the amount of fortified

wheat flour demanded. The country's flour milling industry is ready to respond to meet the

demand and address the alarming situation of malnutrition in the region. There will be

implications for Pakistani businesses, of course. The top one is additional cost to purchase

premix, dosifiers, and to improve the industry human resource capacity. There will also need

a need for increased regulatory monitoring and licensing, investment in quality assurance

and quality control (equipment, personnel capacity, running costs), labelling, packaging.

There may also be issues due to the difference of technical standards. Nevertheless, it is

very important that the industry fortifies wheat flour to meet the consumer demand. Key

advantages include keeping the current business and opening new business opportunities,

adopting today's market culture, and the overall business and industrial process

development. Of course, incentives for the industry may boost these efforts. Going forward

we recommend to simplify procedures and make regional trade policies friendly, address the

issue of high premix and equipment import taxes and duties, harmonize standards as per the

WHO guidelines, harmonize labelling and packaging, and hold regional trade forums for

improved coordination. The industry needs to be supported in building capacity, acquiring

equipment, with incentives to offset the cost of fortification and with respective policy

changes.

Access to Quality Vitamin and Mineral Premix at Competitive Prices

Christophe Guyondet, Senior Associate, GAIN Premix Facility

Fortification helps restore the

micronutrients that are lost

during processing of wheat flour.

This is done by adding a mix of

different micronutrients -

vitamins and minerals (premix)

to flour during the manufacturing

process. Food fortification is an

important public health

intervention globally because

micronutrients are important for

growth and development of

children and health of all people.

Fortification impacts everyone in the wheat flour supply chain: millers, traders, policy

makers. GAIN's Premix Facility (GPV) facilitates procurement of premix - the key ingredient

used in the fortification process by ensuring appropriate quality, low cost and providing

extended credit to purchasers.

There are currently 3 countries In the region that mandate fortification of wheat flour:

Kazakhstan, Kyrgyzstan and Uzbekistan. Eventually other countries of the region (Tajikistan,

Afghanistan and Pakistan) will mandate it too. Premix composition differs between various

countries, which means that exporters need to use different premixes to meet consumer

needs. It is difficult to deal with 6 different products, so regional harmonization of standards

is important. Currently the cost of premix ranges from $6 to $8 per kilogram. The impact of

import taxes and duties in all countries of the region is very high, as high as 71% in Pakistan

for example, so we need to advocate for the governments to lower these taxes to improve

global health.

On average, fortification increases the cost of one ton of flour by $1.5 (0.22-0.61% in

different countries) - a small cost for the huge positive impact of fortification. The GPF was

established to support national fortification programs and make premix procurement more

effective. The GPF has certified more than 20 producers of premix to guarantee the highest

quality, the facility's competitive procurement processes helped drive down the cost of

premix, and it offers extended credit since micronutrient costs represent a high proportion of

ongoing fortification costs and some projects struggle to finance their purchases upfront.

Price competitiveness is one of the pillars of the GPF strategy and the GPF is constantly

looking at ways of reducing the cost-burden of premix procurement for its customers: GPF

pools together the volumes from several different producers globally, to leverage low pricing

obtained through large, competitive tenders; by combining volumes, suppliers are able to

produce large batches and thus reduce the unit cost of production through economies of

scale; suppliers are then able to deliver the goods to multiple factory locations if required

The potential benefit to GPF customers is that premix price may be significantly better than if

premix was sourced for their own requirements individually.

As part of the GAIN Premix Facility model, a global Revolving Fund (valued at $5.5M) has

been established to allow tailored credit arrangements. GPF pays suppliers for premix on

standard payment terms (using the money from Revolving Fund). Food Producers pay for

premix on extended credit terms to GPF (reimbursing the Revolving Fund). GPF can offer

extended credit terms of up to 180 days.

As an example of a successful cooperation in Central Asia, in Kyrgyzstan the GPF helped

set up a local distribution partner to facilitate access to affordable, quality micronutrients for

small scale food producers.

Business Development Services for Improving Export Potential and Competitiveness

in the Wheat Processing Industry and Flour Trade

Svetlana Dubovskaya, Director, Business-Adapt, LLC, EBRD Business Consultant and

Expert, Kazakhstan

Among other clients, Business Adapt LLC

that specializes in management consulting

helps flour producers with the capacity of

100-800MT / day increase their export. Very

often a failure to grow business is

determined by internal issues within a

company rather than external circumstances,

the issues that have not been timely

identified and dealt with. Ms. Dubovskaya

presented business management techniques

such as the Theory of Constraints and the

Critical Chain Project Management developed by an Israeli business management guru

Eliyahu Goldratt. The theory of constraint is a management paradigm that views any

manageable system as being limited in achieving more of its goals by a very small number

of constraints. There is always at least one constraint, and the theory uses a focusing

process to identify the constraint and restructure the rest of the organization around it by

adopting adopts the common idiom "a chain is no stronger than its weakest link." This

means that processes, organizations, etc., are vulnerable because the weakest person or

part can always damage or break them or at least adversely affect the outcome. Critical

chain project management is a method of planning and managing projects that emphasizes

the resources (people, equipment, physical space) required to execute project tasks. It

differs from more traditional methods that derive from critical path and project evaluation and

review algorithms, which emphasize task order and rigid scheduling. A critical chain project

network strives to keep resources leveled, and requires that they be flexible in start times.

The Kazakhs milling industry is a mature one that is facing a risk of stagnation. Mobilization

strategies of milling companies in the mature industry include optimization of optimization of

organizational structure, adoption of online data processing information systems,

development of multiple production lines, decentralization and diversification. Successful

companies carry put changes in the organizational structure based on the systemic need,

use contemporary staff motivation systems, use a system approach to improving business

practices, automate business processes, use dominant financial management tools, carry

out constant staff training and knowledge management, actively manage and monitor sales,

adopt long-term marketing goals. Champion strategies for sales growth include product

innovation, reduction of product price while retaining the same efficiency of competitive

parameters, formation of a strong emotional attachment of clients. For the milling

companies, effective export strategies may include flour premix innovation, development of a

Kazakh brand, and price reduction via creation of production sites at the border with

imploring countries, establishment of representation offices in importing countries, building

capacity to scale up, merger and acquisitions, and vertical diversification, from bottom to top.

Feedback from participants

Approximately 30% of the participants provided feedback via an online survey conducted

after the panel and the networking session. Key results are below:

Topics Proportion of positive

responses

The program was well organized, including all logistics 93%

The session met your expectations 100%

The presentation on current flows of wheat flour in Central Asia, Afghanistan

and Pakistan was useful or very useful

93%

The presentation on regional policy shifts and their impact on transit and

markets was useful or very useful

93%

The presentation on demand for fortified wheat flour and implications for

businesses was useful or very useful

86%

The presentation on premix, and access to quality vitamin and mineral premix

was useful or very useful

93%

The presentation on export potential development and internal challenges of

milling industry was useful or very useful

86%

The topics were relevant 86-93%

The information was new or relatively new 93-100%

Enough time for Q&A after the presentation 71%

Attended the networking session 93%

Were able to network during the networking session or outside 100%

Made business deals with the session participants 38%

Will take action(s) based on what was learned 93%

Below are specific comments on the session: "it was organized really well", " we were able

to find solutions to challenges", "the session responded to our needs", "well organized,

competent experts", "professionally organized", "it would be good to have more space and

more time (an extra day) for networking", "such events should be held regularly".

Here are some examples of the actions the participants will take:

I will try to help the process of food fortification in Tajikistan

I will work on the mandatory legislation

We will follow up with Afghanistan partners to develop business deals

Conclusion

The panel participants reviewed wheat flour

market flows in the region; impact of policy

shifts on transit and market access;

implications of regional fortification efforts on

the wheat processing industry and its

response to changing market environment;

sources of quality premix for food fortification

at affordable prices, and business

development services to improve the flour

milling industry competitiveness and export

potential. A number of ongoing efforts and new

recommendations for improving export potential

have been presented and discussed at the panel

and during the networking session that followed

the event. The networking session also deepened

participants' understanding of the issues, helped

strengthen existing and establish new partner

relationships, and set a stage for several regional

wheat and wheat flour trade deals, and new premix

supply options for the region.

Thirty-eight percent of the evaluation survey respondents reported making new business

deals at the CATF session. Karagandinsky Mill, Al-Bidai Mill and Corona Export LLC have

already reported deals at various stages of negotiation. The amounts and terms were not

disclosed. The GAIN Premix Facility issued a tender for the provision of 5,000 kg of premix

to Kazakhstan. The tender was still open at the time of writing.

Ninety three percent of the evaluation survey respondents expressed their commitment to

act based on the information learned during the session.

In conclusion, this event has turned out to be a good opportunity to strengthen partner

relationships at the industry, academic and government levels and to advance the

fortification agenda and trade in Kazakhstan and the Central Asia region.

Annex 1 - Agenda

Roundtable: Improving Export Potential of Wheat Flour in the Central Asian Republics, Afghanistan and

Pakistan

14:00 – 14:05 Opening Remarks Khadijat Mojidi, Acting Deputy Mission Director, USAID/Central Asia

14:05 - 14:10 Introduction and Overview of the Agenda Moderator: Evgeniy Gan, President, Union of Grain Processors of Kazakhstan

14:10 – 14:25 Current Flows of Wheat Flour in Central Asia,

Afghanistan, and Pakistan

Geraldine Baudienville, Director, Altai Consulting

(France)

14:25 – 14:40

Regional Policy Shifts: Impacts on Transit and Market Access

Shoukatullah Khurram, Deputy Team Leader Trade

Facilitation, Chemonics International,

USAID Afghanistan Trade and Revenue (ATAR)

Project, on behalf of Mozammil Shinwari, Deputy

Minister of Trade, Ministry of Commerce and

Industries (Afghanistan)

14:40 – 14:55 Demand for Fortified Wheat Flour: Implications for Businesses

Sajjad Imran, Pakistan Country Manager, GAIN on

behalf of Asim Raza, Chairman, Pakistan Flour

Millers Association

14:55 – 15:10 Access to Quality Vitamin and Mineral Premix at

Competitive Prices

Christophe Guyondet, Senior Associate, GAIN Premix

Facility (Switzerland)

15:10 – 15:25

Business Development Services for Improving

Export Potential and Competitiveness in the

Wheat Processing Industry and Flour Trade

Svetlana Dubovskaya, Director, Business-Adapt,

LLC, EBRD Business Consultant and Expert

(Kazakhstan)

15:25 – 15:30 Summary and Overview of Networking Session

Moderator: Evgeniy Gan

Evan Meyer, Regional Agriculture Officer, USAID/Central Asia

15:30 – 15:50

COFFEE BREAK

15:50 – 18:00

Networking Session

Station-based networking session with the five

panelists available at the five different stations.

Annex 2 - List of invited participants