Emerging Markets: Palm Oil Growth Prospects in Kazakhstan

Background

The Republic of Kazakhstan is located in Central Asia with the most western parts of it being located in Eastern Europe. It is the world’s largest landlocked country, and the ninth-largest country in the world, with an area of 2,724,900 square kilometres (1,052,100 sq mi). Kazakhstan is the most dominant nation of Central Asia economically, generating 60% of the region’s GDP, primarily through its oil and gas industry. It also has vast mineral resources.

The country shares borders with Russia, China, Kyrgyzstan, Uzbekistan and Turkmenistan; and also adjoins a large part of the Caspian Sea. The current populations of Kazakhstan is estimated at 18.76 million as of end of May 2020. Its population density is among the lowest, at less than 7 people per square kilometre (18 people per sq mi).

Kazakhstan is also the most urbanized country in Central Asia. Urban population makes more than 60% of the total populations. The most populous city of Kazakhstan is Almaty with close to 1.90 million populations. Since 1997 and independence, the capital is Nur-Sultan, formerly known as Astana. It was moved from Almaty, the country’s largest city.

Economic Updates and Forecast for 2020

In early April 2020, the Ministry of National Economy reported on the country’s updated macroeconomic forecast for 2020, which among others stated that Kazakhstan has been experiencing economic difficulties caused by the unstable foreign economic situation, the emerging global recession and a slowdown in business activity against the background of protective measures for containing the coronavirus outbreak. The Times of Central Asia has reported that Minister Ruslan Dalenov has reportedly said that since the beginning of the year, oil prices have decreased by 65.7%, for metals by an average of 15.6%, global stock indices have declined by an average of 20.9%.

The government has also lowered the forecast for Kazakhstan’s oil production by 4 million tons to 86 million tons for 2020. Other forecasts include Kazakhstan’s export which will decrease by $16.3 billion to $35.1 billion and import will decrease by $7.5 billion to $26.6 billion. The country’s GDP in 2020 is expected to decline by 0.9%. In order to support the agro-industrial sector, agricultural producers will not have to pay land tax until the end of the year. The VAT rate has been reduced from 12% to 8% for socially significant food products for the period from March 30 to October 1. Small and medium-sized businesses are exempted from taxes and social payments from the wage fund for six months until 1 October 1 2020. This includes tourism, catering, hotels as well as large retail outlets.

Oils and Fats Scenario in Kazakhstan

Kazakhstan’s major oil produced is sunflower oil, followed by linseed and rapeseed oil. These three oils account for 78% of its total oils and fats production. 40% of oils and fats produced are exported, mostly sunflower and rapeseed oil. In 2019, Kazakhstan imported a total of 174,000 MT oils and fats, an increase of 28% from a year before. The main oil imported was sunflower oil, followed by palm oil.

Edible oils consumption has been steadily increasing for the past 5 years. Kazakhstan’s per capita consumption of oils and fats currently stands at 26.3 kg. Sunflower oil is the most preferred edible oil consumed in the country as it benefits from being a traditional favourite among the household consumers. It is being used for cooking and preferred for its taste especially amongst the older generation. Both locally produced and imported sunflower oil are being sold in Kazakhstan. The imported sunflower oil is sourced solely from Russia.

As seen on the table below, palm oil usage has become rather popular over the past 5 years.

Total Consumption of Oils and Fats (MT)

  2015 2016 2017 2018 2019
Soybean oil  35,000 34,000 25,000 23,000 31,000
Cotton oil  2,000 3,000 4,000 2,000 3,000
Sunflower oil  262,000 280,000 267,000 247,000 228,000
Rapeseed oil  32,000 22,000 22,000 33,000 48,000
Corn oil  1,000
Palm oil  9,000 12,000 20,000 31,000 30,000
Palm kernel oil  1,000 1,000 1,000 2,000 1,000
Coconut oil  1,000 1,000 1,000 1,000 1,000
Butter, as fat  16,000 17,000 20,000 18,000 17,000
Lard  21,000 21,000 20,000 19,000 18,000
Linseed oil  13,000 14,000 53,000 69,000 84,000
Tallow & Grease  24,000 24,000 25,000 26,000 27,000
Total  416,000 429,000 458,000 471,000 489,000

  Source: Oil World

Palm Oil Trade and Its Challenges In Kazakhstan

Palm oil market is rather small in Kazakhstan. The biggest users of palm oil are the confectionary and bakery industry. Palm oil is supplied in heated flexi bag, boxes with polyethylene liner, steel barrels in containers, either by rail or truck. Malaysia has been the leading supplier of palm oil into Kazakhstan.

Malaysian Palm Oil Exports to Kazahstan (MT)

  2015 2016 2017 2018 2019
Palm Oil 2,673 4,067 14,359 23,756 20,465
Palm Kernel Oil  351 687 1,019 1,731 188
Oleochemicals  100 332
Finished Products 3,484 6,051 4,109 10,102 9,060
Others 447
Total  7,054 10,805 19,487 35,920 30,052

  Source: MPOB

Besides palm oil, other palm oil products such as finished products and PKO are also imported to Kazakhstan. There is also potential growth in imports of oleochemical products. RBD palm oil is the largest palm oil component imported by the country, followed by RBD palm stearin and RBD palm olein. While RBD palm oil has been in the market for quite some time, impressive growth in imports of finished products mainly shortening and cocoa butter replacer has been observed in recent years. 

The largest oils and fats company in Kazakhstan is Eurasian Foods Corporation Holding which produced margarine, fats and spreads under the brand of Golden Standard. There is also Maslo-Del Company located in Almaty, Kazakhstan which produced margarines and spreads.

In terms of shipments, palm oil from Malaysia to Almaty could come via Tianjin port in China, the port of Bandar Abas in Iran or by way of Karachi and Port Qasim in Pakistan.  At the moment, the most feasible route for shipments of palm oil and palm products to the region is through ports in China, due to the frequency of cargo ship movements between Malaysian ports and Chinese ports.

The main shipment issues to Central Asian region are the long shipping time to reach the final destinations, as well as the extreme weather condition of winter. Therefore, palm oil shipments will require proper handling and a heating system, or else the quality of the oil will deteriorate upon reaching the destinations. The shipments from China to CAR, particularly to Almaty, will involve China-Russia border trade and Russia-Kazakhstan border trade. Trade regulations across borders can also create some difficulties for the transportation of palm oil within the region. The different railroads system between China and Russia is also another obstacle to conveniently transport palm oil to CAR, which uses the Russian railroad system.

Besides logistics challenges, of late, the issue on 3-MCPD and GE has also gained wide interest from the concerned manufacturers in the country.

Edible Oils Outlook and Prospects for Palm Oil

With emerging economy under its belt, consumers in Kazakhstan has joined the bandwagon of healthy lifestyles and this trend has seen edible oils players responding to the increasing demand. Olive oil and other edible oils that are considered as healthier and more nutritious compared to the popular sunflower oil are being offered in the market. Last year, companies such as Altaria, GAEA, Konoplyanka and Produkt Pitaniya OOO launched their organic products, positioning themselves as supporters of healthy living lifestyles.

Another prospect for edible oil is by offering premium oils to the niche market. There is a growing range of brands that provide rapeseed oil, sesame oil, grapeseed oil, mustard oil, pumpkin oil, black cumin oil, rice oil and walnut oil in Kazakhstan. The widening product range of  these premium oils can be purchased in modern, upscale grocery retailers.

The shipment of palm oil into the region will always depend on the effectiveness of the railway and road systems for the transport of goods from the port of discharge. Since it involves trade across various borders, it is bound by regulations that may not be uniform among the countries involved. One of the options that can facilitate the faster delivery of palm oil to the final destinations will be to establish storage facilities in the region. The setting up of storage facilities locally will speed up the delivery of palm oil and palm products to the neighbouring countries. Besides that, this can also facilitate buyers who want to buy palm oil or palm products in small quantities.

Malaysian palm oil products, particularly shortening, are also facing stiff competition from Russian and Ukrainian products. By establishing storage facilities in the local market, Malaysian companies will be able to facilitate demand in a more effective and efficient manner, thus maintaining Malaysia’s market share in the country.

Prepared by Azriyah Azian 

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