Projects financed by the EDB
Agricultural Projects in Member States
The agrarian potential of the CIS countries is of global importance. Experts believe that four countries (Russia, Ukraine, Kazakhstan and Belarus) are capable of supplying enough food products to global markets to feed 500 million people. Obviously, bread is at the top of the list of these products.
Experts expect that global demand for grain will increase by 20% by 2015 as global production is outstripped by the growth in consumption. Between 2000 and 2008, Russia, Ukraine and Kazakhstan have increased their total grain exports from 6% to 24% of global supplies. Because of this, a good or bad yield has an immediate impact on prices on the world’s exchanges.
In this context, agriculture, which has always been strategically important in ensuring food security, has become one of the main exporting sectors for countries in the region, including the EDB’s member states.
However, the region’s agricultural sector still suffers from many long-standing problems. Farming on most of the cultivated land in these countries could be considered “at risk”; the sector suffers from a shortage of modern machinery, storage, processing and transport infrastructure and, most importantly, finance.
Paradoxically, in terms of the investment it attracts, agriculture falls behind other sectors in this region. Moreover, the countries do not have the systems in place to stimulate foreign investment in the sector.
The region’s agricultural sector really needs investment first and foremost if it is to develop its infrastructure, particularly its export channels, and make other vital improvements such as increasing the capacity of grain terminals, creating large grain, meat and dairy assets (through the formation of Eurasian transnational agricultural companies) and developing and supplying high-capacity agricultural equipment.
Recognising the importance of these significant tasks, since 2008 the EDB has been financing twelve projects aimed at developing agriculture and integration between its member states in the agricultural sector. The Bank has disbursed approximately US $ 470 m to these projects.
Ten of the twelve projects were in Kazakhstan. This is proportionate given that Kazakhstan accounts for 4% of global grain exports. It is the world’s largest producer, along with Canada, of hard durum wheat, which is in the highest demand on global markets. With domestic demand fully met, the country is capable of exporting over one third of its grain every year.
Although its agricultural products are in high demand globally, Kazakhstan is located too far from foreign markets. For this reason, it has become an “integration leader” in terms of grain sales in the CIS.
The EDB projects in Kazakhstan’s agricultural sector have been implemented by three large producers: APK-Invest Corporation, Kazexportastyk Holding, and Ivolga Holding as well by Kazagrofinance, which is part of the national Kazagro holding. In particular, the Bank’s funds were used to:
- finance agricultural producers during sowing and harvesting;
- purchase agricultural machinery and equipment to process grain;
- produce flour and install modern equipment at flour mills;
- improve grain storage capacity;
- develop grain export infrastructure, in particular by building a grain terminal in Ukraine;
- provide pre-export financing for grain and oil-seed procurement from Kazakh farms.
These projects meant that the area of land under crops could be increased, which in turn boosted the gross output of grain and other crops. More importantly, they helped to augment procurement from Kazakhstan’s agricultural sector by more than 1.3 million tons, which resulted in an increase in exports worth hundreds of millions of US dollars.
A significant proportion of this produce was supplied to the Bank’s member states, primarily Russia and Tajikistan. Certain projects provided financial backing for trade between Kazakhstan and Russia that was not directly associated with grain. Kazakhstan purchased Russian chemicals and spare parts for its agricultural equipment and paid for transportation of its grain through Russia to the seaports. The EDB’s projects thus helped strengthen trade and economic ties between its member states and to develop a common transport infrastructure and a common CIS market in agricultural products.
The Bank’s interventions also helped advance the market infrastructure, in particular by developing a large, vertically integrated agricultural holding in Kazakhstan (Kazexportastyk Holding) and a Russian-Kazakh cross-border agricultural group (Ivolga Holding).
The projects facilitated the development of export-oriented agricultural production in Kazakhstan, thus contributing to an improvement in its economic sustainability. Production and export diversification were made possible thanks to the introduction of new production and agricultural technologies, widening the range of goods produced, and a move to more advanced, high-value-added processing of agricultural feedstock.
In addition to its projects in Kazakhstan the EDB opened a credit facility in late 2010 of up to US $ 30 m for the Armenian company Eco-Pure to enable it to import wheat to Armenia. In 2010, the CIS markets had difficulties procuring wheat and this project was aimed at maintaining acceptable bread and flour prices in Armenia. In addition, the project helped strengthen integration ties between Russia and Armenia by increasing mutual trade.