The Government session chaired by Prime Minister Alikhan Smailov considered the implementation of new approaches to stabilize prices for socially important food products. Deputy Prime Minister — Minister of Trade and Integration Serik Zhumangarin, Minister of Agriculture Yerbol Karashukeyev, Head of National Statistics Bureau Zhandos Shaimardanov, Akims of Mangystau region Nurlan Nogayev, Ulytau region Berik Abdygaliuly and Astana Zhenis Kassymbek made reports on the given topic.

Deputy Prime Minister — Minister of Trade and Integration Zhumangarin informed that in January this year, inflation amounted to 1.1%, including food 1.4%, non-food 0.9% and paid services 0.7%.

Food inflation was highest in Astana and Shymkent cities at 2.2%, in Kyzylorda and North Kazakhstan regions at 1.8%, in Aktobe region at 1.7% and in Ulytau region at 1.5%.

The price index for socially important foodstuffs has been 1.7% since the beginning of the year. The weekly trend varies between +0.3% and +0.4%.

The highest growth rate since the beginning of the year is observed in Mangistau region - 3.4%, Ulytau region - 2.8% and Astana city - 2.5% (above the Republic of Kazakhstan by 0.8%).

In terms of commodities, the biggest increases since the beginning of the year were recorded for onions - 22.5%, rice - 5.2%, cabbage - 4.1%, milk and carrots - 3.1%, potatoes - 3% and rye - 2.6%.

The Head of State has set a task to revise the price stabilisation instruments. At government level, all the necessary methodological and legal work has been done.

Firstly, the approach to lending directly to producers has been reformatted and raw materials for sugar mills are being financed.

Secondly, the mechanism for the formation of stabilisation funds has been changed, with procurement taking place during the harvest period, when there are competitive prices on the market, and sales of stabilisation fund products taking place during the off-season.

Thirdly, a forward purchasing mechanism has been introduced, allowing for the contracting of products from producers with storage until sale.

"This year it will allow using the harvest of 2023 until April 2024. The forward purchasing method is implemented in 8 regions (Akmola, Pavlodar, North Kazakhstan, Zhetysu, Kyzylorda, Abay, Ulytau and Aktobe regions). In addition, B2B meetings have been organised with the business communities of Pakistan, Tajikistan, Uzbekistan and Iran and the regions of Kazakhstan to saturate the domestic market with early imported vegetable products. Retail chains have already worked out supply of 9,200 tonnes of vegetables. Green corridor for supply of products from Uzbekistan has been organized. I would like to note that all major trade networks of the republic participate in the work on price stabilization. IOI needs to ensure timely contracting of imported vegetables by regional trade networks to avoid seasonal price fluctuations," Zhumangarin  said. 

As a result of the work done, the actual stocks through contracting of the 2022 harvest are now 110% for onions, 105% for potatoes, 87% for carrots and 70% for cabbage, according to the IOI.

In addition, in order to protect the domestic market, a temporary export ban on onions has been imposed for 90 days from 28 January this year in order to eliminate the preconditions for a threat to food security.

In order to stabilise the prices of sunflower seed oil, a permanent export duty of 20% of the value of the product, but no less than 100 euros per tonne, has been imposed on sunflower seed exports since 4 February 2023.

"We will assess the effectiveness of commodity interventions through analysis of the dynamics of price reduction, as well as the volume and price of products sold according to ESF (electronic invoice) and fiscal data operators," Zhumangarin said. 

As instructed by the government, the work of regional commissions to investigate intermediary pricing schemes has been reformatted.

The continuation of the pilot project for mandatory issuance of ESFs in the NWPT extended until the end of 2023 specifically to identify unproductive intermediaries and eliminate them from the supply chain.

The ESF IS data also allows the price chain to be monitored and excessive mark-ups to be detected.

"The issue of 'manual' management of regional commissions is under my personal control. In general, our task is to create a culture of compliance with trade laws among business entities," he stressed.

In addition, the digital office continues to rank the regions in terms of key price stabilisation performance.

Price stabilisation depends:

First, on the effectiveness of the regional commissions by identifying and eliminating unproductive intermediaries;

Second, on the timeliness of the formation of the stock of goods by instruments for saturating the domestic market (turnover scheme, the Stabfond, forward);

Third, on the rigorous administration of the sale of FTT goods through analysis of ESF and OFD data.

In turn, the Minister of Agriculture Yerbol Karashukeyev said that according to the operational data of the regions on February 2 this year there are stocks of socially important goods more than 1 million tons, including at enterprises, vegetable storehouses - 519 thousand tons, in warehouses (ORC, TLC) - 194.7 thousand tons, in trading networks - 183.3 thousand tons and in stabfond - 24.4 thousand tons.

"Akimats have been working since last autumn to build vegetable stocks to have a regulatory impact on the market during the current year's off-season. For our part, we have communicated to the akimats the recommended volume of vegetables to cover the needs of the domestic market in the "inflationary period," Karashukeyev said.

For potatoes, the recommended volume by the MAH is 73,000 tonnes, with the Akimats of Almaty region and Abay and Ulytau regions having reduced the requirements to reflect regional demand.

According to the Akimat of Abay region the need for potatoes is 2,100 tons and a contract has been signed for this volume. There is a similar situation in Ulytau region.

According to the Almaty Region Akimat, the need for potatoes is 727 tonnes and the Akimat has a contract for 1,234 tonnes with the possibility of extending the remainder of the contract.

In total, the regions have contracted 85.8 thousand tonnes of potatoes. In the green zone there are 13 regions where the volume of contracts is 100 percent or more of the recommended volume by the Ministry of Agriculture (Karaganda, Kostanai, Kyzylorda, Turkestan, Zhambyl, Akmola, Atyrau, West Kazakhstan region, East Kazakhstan region, Zhetysu and Abay regions, Astana and Almaty).

Seven regions in the yellow zone where contract volumes are between 50% and 100% (SKO, Aktobe, Almaty, Mangystau, Pavlodar, Ulytau, Shymkent).

"The main potato producing regions, North Kazakhstan region and Pavlodar region, note that there are sufficient potato stocks in the market. In Pavlodar region there have been signed memoranda with local agricultural enterprises for 20,000 tons of potatoes to be sold during the off-season. According to the data of akimats the needs of domestic market from May of this year is planned to provide through imports from southern countries in the amount of 5.1 thousand tons, in July due to supply of early potatoes from Turkestan region in the amount of 4.9 thousand tons," the head of the Ministry of Agriculture informed. 

With regard to contracts for carrots, the situation is similar to that for potatoes, i.e. the akimats of the above three regions have reduced the volume of demand. In total, the volume of contracts of the regions is 28.8 thousand tons.

Eleven regions in the Green Zone with contract volumes above 100% (Atyrau, Kostanay, Turkestan, Akmola, Kyzylorda, Karaganda, Mangistau, West Kazakhstan region, East Kazakhstan region, West Kazakhstan region, North Kazakhstan region and Almaty).

Eight regions in the yellow zone where contract volumes are between 50% and 100% (Aktobe, Zhambyl, Almaty, Abay, Ulytau, Zhetysu regions, Astana and Shymkent cities).

For cabbage, the akimats of four regions - Abay, Ulytau, Almaty, Zhambyl - have amended the recommended volume of 27.9 thousand tons. The volume of contracts of the regions is 19.1 thousand tons.

Six regions in the green zone, where the volume of contracts is over 100% (Kostanay, Turkestan, Kyzylorda, Karaganda, East Kazakhstan region, North Kazakhstan region). 9 regions in the yellow zone, where the volume of contracts is from 50% to 100% (Atyrau, Aktobe, Akmola, East Kazakhstan region, Pavlodar region, Region of Abay, Astana, Almaty, Almaty, Shymkent).

For cabbage, the regions present an import requirement of 4.1 thousand tonnes, and for early vegetables, 1.3 thousand tonnes.

For onions, the recommended volume of 19.5 thousand tons was amended by the akimats of two regions, Abay and Almaty. In total, the volume of contracts is 25.4 thousand tons of onions.

Fourteen regions in the green zone with contract volumes above 100% (East Kazakhstan region, Turkestan, Karaganda, Zhambyl, Mangistau, Akmola regions, Ulytau region and Astana and Almaty cities). Astana and Almaty, Kyzylorda, Atyrau, East Kazakhstan Regions, North Kazakhstan Region). Six regions in the yellow zone, where the volume of contracts ranging from 50% to 100% (Aktobe, Pavlodar and Kostanay regions, Abay and Zhetisu regions, Shymkent city).

The need for imports is 2.8 thousand tonnes, with 2.2 thousand tonnes of early vegetables.

According to Kyzylorda region this year 444.6 thousand tons of shala rice were harvested (according to akimats in the country 486 thousand tons were harvested).

With the demand before the new harvest of 56.6 thousand tons, the reserves of rice on the domestic market makes up 81.1 thousand tons, including stocks of finished products on the market - 27.7 thousand tons and there are 111.3 thousand tons of rice-shala, which after processing is equivalent to 53.4 thousand tons of rice.

According to OIG, from January to December 25, 2022, Phytosanitary Certificates for rice export were issued in the amount of 86.4 thousand tons and according to statistics and operative data of OIG, 109 thousand tons of rice were exported. The total volume of stocks can meet the population's demand for rice before the new harvest.

Work will also continue on stabilising the price of "social bread". This year, according to the akimats, the annual need for cheapened wheat is 308 thousand tons. Taking into account the selling price of 135 thousand tenge, the amount of subsidy will be 45 thousand tenge per ton. This will require an allocation of 13.8 billion tenge. A budget request to this effect has been submitted to the Ministry of Finance.

"These measures will enable the supply of wheat to flour mills in the regions at a fixed price of 90,000 tg and consequently produce bread at current affordable prices," the Minister of Agriculture said. 

The second important issue is the optimal timing of the spring campaign. This is facilitated by measures taken by the government, including forward purchasing by the ProdCorporation. In 2020, 24.5 billion tenge has been allocated from the budget for this purpose. In subsequent years, the financing of the programme has increased (in 2022 it amounted to 120 billion tenge), while being fully financed by the ProdCorporation.

At present, given rising bank rates, the Corporation has limited funds to finance forward purchasing. At the same time, the Corporation is working on two mechanisms to finance the GPR for a total of approximately 31.5 billion tenge out of the available funds:

The first, a spring-summer advance from borrowed funds in the amount of Tenge 20 bn without application of a fee for the use of the funds, taking into account appeals from the regions. However, in the event of an increase in the amount of loans to the ProdCorporation for forward purchasing, compensation in the form of delivery of additional volume to the SPTP will be required.

The second, is the extension of a commodity loan (100,000 tonnes) mainly to large agro-industrial companies to enable them to sell grain and finance an estimated 11.5 billion tenge.

In order to increase the amount of funding for the spring campaign through forward purchasing, it is proposed to allocate 70 billion tenge from the budget to the share capital of the ProdCorporation. For this purpose, in accordance with your instructions, amendments are being made to the Concept of Agribusiness Development, which will provide for a corresponding measure.

In this regard, in view of the importance of the issues, I request that the MNE, together with KCGPP JSC, be instructed to submit opinions on the SIP and FEO for the increase in the share capital of the Corporation in 2023 on an expedited basis, subject to a suspensive condition.

Inflation is calculated on the basis of the consumer goods basket, which includes 160 food items, 243 non-food items and 105 services, Zhandos Shaimardanov, head of the Bureau of National Statistics, said. This is how the basket of 508 goods and services regularly purchased by the population is formed.

"To calculate inflation, we record prices across the country every month at the same time, at the same facilities. Then an index for each item is calculated based on the price dynamics and, taking into account individual weights, the national inflation rate is calculated, as well as separately by regions," he said. 

In January this year, annual inflation stood at 20.7%, with food inflation at 25.7%. A similar method is used to calculate the price index for 19 food items on a weekly basis. Here the prices of socially important food products rose by 23.4% during the year.

The list of basic facilities for price registration is also updated annually. It includes supermarkets, social shops, convenience stores and markets.

"This year, as part of improving the methodology, we have also determined the weights of goods and services individually for each region. For example, spending on rent is significantly higher in large cities. Accordingly, in Astana and Almaty, rental housing has a higher weight compared to other regions. All these approaches are in line with generally accepted international methodology, which has been externally evaluated several times. Kazakhstan's national statistical system will also be evaluated by the UN and OECD in 2023," he explained. 

In addition to improvements in methodology, statistical data collection processes are being actively developed.

Prices are currently recorded by specialists in the regions (287 recorders). Each of them keeps a paper diary where they record the dynamics of prices manually.

"In order to simplify the process of collecting statistical data, we are launching a mobile app in the first quarter of 2023. It will not only allow us to record price quotes, but also to read barcodes and images of goods, to confirm the location of an object and to transmit data online. As a result, we will shorten data processing times, improve the quality control of data collection, and expand price analysis capabilities. Nevertheless, the mobile app will not fully eliminate the human factor," Shaimardanov said.

The use of alternative sources, in this case fiscal checks, in other words the data that is recorded in the cash register receipts, is one of the Bureau's priorities in this regard.

A number of European countries actively use this source to calculate inflation (Belgium, Denmark, Italy, Netherlands, Norway, Sweden, Switzerland, Russia).

"We have also launched a similar project in Kazakhstan, involving methodological assistance from IMF experts. In turn, the Ministry of Finance has provided fiscal data. We are carefully studying them, and work is under way to clean and mark up the data. A model is being built based on them, and it allows us to classify goods from receipts according to the structure of the consumer basket," he said. 

The model now allows for the identification of the food products, and the list of recognisable goods and services will be expanded in phases thereafter. In order to fully transition to fiscal data in the calculation of inflation, the implementation of a Single Catalogue of Goods and Services is necessary.

"The bureau plans to replace traditional price recording with the use of fiscal data once the implementation of the Single Catalogue of Goods and Services is complete, as well as the validation of the new approach by the IMF. While we continue to collect data using the traditional method, a pilot calculation based on fiscal cheques is also underway. The Office is improving the statistical dissemination tools for user convenience," he summarised. 

According to Mangistau Region Akim Nurlan Nogayev, official statistics show the price index for socially important foodstuffs reached 100.5% last week and 103.4% since the beginning of the year.

"In order to ensure food security, 4.9 billion tg was allocated from 2019 to 2022. This year, for the purpose of stabilising food products prices, 500 million tg was allocated from the local budget. As part of the stabilisation fund and the "revolving mechanism", these funds were used to build stocks of 8.3 thousand tonnes for 17 different commodities," Nogayev informed.

Among other things, in order to curb vegetable prices during the off-season period, loans for the supply of 3,638 tonnes of goods worth a total of 583 million tenge were issued to business entities under the "turnover scheme". In order to stabilise prices for socially important food products, the regional stabilisation fund's stored goods have been intervened in retail chains since the beginning of the year.

In this regard, the regional commission to investigate intermediary pricing schemes meets twice a week. Nine meetings have been held since the beginning of the year.

"As a result, 3 entrepreneurs engaged in the supply and sale of HTPs were held administratively liable for exceeding a mark-up of more than 15%. In addition, it was found that according to the results of the meeting of this commission for the last week markup of 4 business entities exceeded 15%. To date, the relevant work is being carried out,"  the akim of the region said. 

Since the beginning of the year, in order to stabilise prices, with the involvement of entrepreneurs, memoranda have been signed to reduce the trade mark-up from 15% to 10%, with 5 large retail chains, including: 48 retail outlets and 235 retail outlets.

Since the beginning of the year, 35 farmers' and wholesalers' fairs have been organised for the region's residents. Fifty-three "People's Control" monitoring groups have been set up in all localities. Over the last week 1748 out of 1758 shops "at home" in the region carried out explanatory work to prevent mark-ups over 15%. As a result of the monitoring, 5 violations were identified and food prices went down.

It is known that Mangistau region imports 85% of food products depending on natural and climatic conditions. This, in turn, is one of the main factors influencing food prices.

According to Nogayev, long-term and short-term measures are being taken to address the problem. One of them is the implementation of new investment projects to develop infrastructure in the trade sector. Namely, construction of a large wholesale distribution centre, important for the region (together with storage warehouses), has started in Aktau.

"Once this project is launched, competition in the trade will increase and vegetable storage capacity will increase by an additional 20,000 tonnes. This will result in the possibility of storing 3 months' worth of stock at a time. This, in turn, will contribute greatly to stabilising vegetable prices," Nogayev summed up. 

Berik Abdygaliuly, Akim of Ulytau region, noted that in order to contain the prices of NWTP, JSC SPK "Ulytau" concluded a contract on 9 items of food products out of 19 for 1 billion tg issued from the reserve of the Government in December 2022 with conditions for storage and delivery.

In addition, 1.2 billion tenge was allocated from the regional budget to SPK "Ulytau" in 2023 in order to form a regional stabfund and stabilise prices.

"To date, 223 memoranda have been concluded to reduce the trade mark-up from 15% to 10%. Agricultural fairs are organised on a permanent basis, at weekends and on pre-holiday days," Nogayev stressed.  

A list of the most important and socially important seven investment projects worth a total of 5.6 billion tenge has also been drawn up. As part of these 7 projects, a vegetable storage facility, meat and egg poultry farms will be established, a milk processing plant will be modernised with the further opening of a dairy farm and irrigation projects.

"The implementation of the above projects will reduce import dependence and saturate the domestic market for some socially important food products. As of Feb. 1, this year, there are more than 8.2 thousand tons of food products stocks in wholesalers' warehouses and trading facilities," Abdygaliuly concluded.