Why do meat magnates come to Kazakhstan?
Three global transnational corporations have announced their plans to build meat processing plants in Kazakhstan.
Three global transnational corporations – Italian Inalca, Irish Dunbia and Australian Cedar Meats — have announced their plans to build meat processing plants in Kazakhstan. Together with the local farmers and large feed yards, they will be participating in the national value chain for the export of the Kazakhstani meat abroad. Senior managers of these three TNCs shared their future plans for Kazakhstan with Capital.kz.
In the recent years of the oil volatility, when the price for the key tradable resource of Kazakhstan continued to rattle the nerves of our economy, the Government made the final decision to reframe manufacturing activities and export. Undoubtedly, the oil and its sale will not be negated, but there will appear yet another strategically important industry that should produce high profits for the public treasury. Broadly speaking, it means agriculture, though more oriented to the animal farming: livestock raising on the commercial size basis, meat processing and export operations.
What meat would be profitable for Kazakhstan?
Let’s dot all the i-s and cross all the t-s: above all, we’re talking about the export, and namely about the sale of excessive meat products abroad to let domestic businesses make money. They can do it on their own or in cooperation with foreign investors, but in any case the stake is made on the development of the animal husbandry in the country which, in turn, will lead to a wider involvement of various entrepreneurs in this process, opening more credit facilities, creation new jobs and increased tax contributions to the budget.
We should also dispel some myths which are firmly rooted in the minds of our people, in particular, in respect of the fact that Kazakhstan allegedly cannot feed itself, so it should not even be trying to plunge into the export jungles. This is not the case: the Republic has been sufficiently satisfying its own internal demand in beef, lamb, horse meat and even pork. Import products, if any, are mostly related to the category of meat blocks used by the processing facilities. Largest producers of this category of beef meat products, such as Australia, New Zealand, Canada and Argentina, also have quite the same import content in their operations. Nonetheless, all the talks that in our shops we buy meat from far away Brazil or some other exotic country are purely imaginary.
More than that, if we are talking about the export, i.e. about making returns for our economy, it is not a matter of such a specific product as horse meat since far not all people would eat it, and therefore it is not easy to sell it in commercial batches.
It may sound paradoxically, but it is much more profitable and rewarding for Kazakhstan to produce pork which will be purchased everywhere. Especially, in the light of the neighboring Russia with the annual consumption of 265 thousand tons of the pork as well as China that needs 1 million 942 thousand tons of the pork meat per year. Our Republic annually produces 91 thousand tons of the pork which is enough for our internal market. However, it is required to raise this volume up to 200 thousand tons per year if we want to expand our export capacities, and this can be done only with the development of the breeding animal stock. Admittedly, the country has already being taken the first steps in this direction.
In this regard, the beef, first of all, and, to the less extent, the lamb remains to be the main export product of the animal husbandry. The beef is a meat which can be supplied to any part of the world, except for India, plus Kazakhstan has already gone a long way in the development of the thoroughbred cattle stock: Anguses, Herefords and Kazakh Whiteheaded. The lamb is primarily an export product for the countries of the Near East to which Kazakhstan can send both frozen and chilled meat as well as live cattle.
How much can a farmer earn within the export chain?
It is also worthwhile to dismantle an illusion in regard to who can deal with the export. Small professional farms that ranch in average from 50 to 200 cattle heads or from 600 to 1200 sheep and goats are definitely not capable of effective export operations. Their task is to raise youngsters after they receive servicing bulls and stud rams to copulate with their flock under the free rent from the large farming enterprises. They also get credits from KazAgro Holding to purchase the stud stock, agricultural machinery and equipment. In addition to that, each bull or ram is subsidized if the farmer follows the prescribed selling procedure to the “right” hands: to those who initially gave them bulls and rams on the free-of-charge basis – for the subsequent fattening up at the special feed yards or to the export-oriented companies involved into the lamb meat processing.
Here is a simple example. Last week, the Ministry of Agriculture in conjunction with the subsidiary company of KazAgro National Managament Holding JSC – Agrarian Credit Corporation (ACC) – presented the issuance of the first credit facility under the state program of the intensive development of the animal husbandry. The loan in the amount of 23 million 390 thousand tenge for the period of 15 years with the comfortable interest rate of 4 % per annum has been given to the small farming enterprise “Manat” located in Yereimentauskiy district of Akmola oblast. Its owner, Manat Tlepov, will spend some of this money to purchase 70 heads of the breeding stock of the Kazakh Whiteheaded cows. The price for the domestic thoroughbred cattle will be about 550 thousand tenge per head, while in case of the imported animals, for instance, from the neighboring Russian regions, the cost may go as high as 625 thousand tenge. However, there are additional governmental subsidies for each head of the imported breeding stock. This is done to stimulate increase of the pedigree cattle stock in the country.
Then, the farmer will receive seed bulls on the non-repayable rent basis, assuming that one bull will cover 25 cows, from a large local feed yard to generate the offspring of 70 calves in the beginning of the next year. About half of them, or 35 heads, will be young bull-calves. The farmer will rear them: the calves will be larking around at the jailyau (summer pasture), while the farmer will be taking care of them. That will be the essence of the entire mission of a small farmer – not to lose a single bull. Having 50, and eventually 100 and more bulls, the farmer can provide a much better and effective treatment rather than at the large farms where animals are counted in thousands.
A year later, he can sell the first batch of bulls to the feed yard for 600-800 tenge per a kilo of the live weight. If by that time the youngsters have gained an optimal mass, which is in average 300 kg, then the farmer will receive about 240 thousand tenge for each bull, plus 40 thousand tenge as a state subsidy for selling cattle into the “right” hands. Thus, totally the earning arrives at 280 thousand tenge per head or 9 million 800 thousand tenge of revenues after the first sale in one year of operations.
What are the benefits for a large business?
Further on, an industrial feed yard comes into play. It brings the weight of each bull to 600-700 kilograms and sells it to a meat processing plant. The infrastructure and scale of the feed yard allow participating in the export operations, and if it does not have its own processing facilities or a plant, it can supply live cattle abroad. For instance, this is how the largest Kazakhstani feed yard “Aktep” operates. Located in Aktyubinsk oblast, it supplies fat cattle to the meat processing plant of Inalca in Orenburg oblast of the Russian Federation.
However, a feed yard and a meat processing plant may form a single chain if they both belong to one owner. Should it be the case, the access to export will be easier and allowing larger volumes since the entrepreneur will be able to sell underdone chilled products both for export and internal needs of the country. The owners of the meat processing enterprises and/or feed yards are large-sized businesses that can deliver commercial batches to their partners overseas. They are usually part of the specialized associations and unions which lobby their interests at the most senior levels, they can be included into the governmental delegations to participate in the negotiations on the export of products to other countries, and they showcase at the international sectoral forums where they make friends with foreign companies that constitute their potential customer audience. These agricultural businesses can provide enough foodstuffs to both their own cattle and farms of their smaller partners. They are capable of solving most issues with the veterinary medicine services and marketing promotion of their products.
Are meat processing plants a weak link?
In general, such system is typical for all progressive animal husbandry empires: Argentina, Brazil, USA, Canada, Australia and New Zealand. And this is the system that is being adopted in Kazakhstan where a layer of small and medium professional farmers, arriving currently at the number of 20 thousand (“Manat”) and with the aim to exceed the mark of 100 thousand by 2027, has been forming as a class of the national economy along with the large national cattle-raisers that operate feed yards with the livestock population from 3 to 10 thousand heads of bovine animals (“Aktep”, “Sever-Agro”, “SC Food” and others). There are 30 such businesses in Kazakhstan and the plan is to bring this indicator to 100 yards in 10 years.
As the matter stands, there is one link in this ideally looking chain that still does not work to its full capacity, and this refers to the processing facilities – meat plants which are expected to provide enough outputs to form commercial batches to be sent to export in lorries and wagons. Their manufacturing technologies should also process all parts of animals without any wastes, including skins, bones, blood, vitreous bodies and gut contents. In other words, the bulls should leave only a sigh and souvenir photos from jailyaus. However, at the moment only big transnational abroad corporations (TNC) can afford implementing such techniques. And they are destined to become the decision-makers of our standby processing facilities or build new ready-to-operate meat plants.
What does Irish Dunbia want?
Recently Jack Dobson, a captain of industry from the Northern Ireland, a founder and co-owner of the large world-known meat processing company Dunbia, visited Kazakhstan. This company is a direct competitor to Italian Inalca, a part of Cremonini Corporate Group that builds a meat processing plant with the annual capacities of 30 thousand tons of the underdone beef products in Iliyskiy district of Almaty oblast. These two leaders are battling in one global segment – to supply meat to McDonalds network around the world.
But, of course, Dunbia wants to enter the market of Kazakhstan not only because it is jealous of Inalca, but mostly because of the sharp increase of the meat resources in Kazakhstan which became possible after 2011 when the country launched a new project of the development of the export capacities of the cattle meat. Additional credit programs for the raising of large cattle and small ruminants, such as Sybaga, and for the intensive development of the meat animal husbandry will operate till 2027 aiming at the assistance and promotion of that original project. In fact, an accelerated formation of the national meat cluster based on the cooperation of small farms and large feed yards is a result of the said initiatives.
Realizing this, Dunbia began to look closely at our market. As one of the option of the strong collaboration, Jack Dobson has been made an offer to take over the administration of the idle meat processing plant “Crown Batys” located in the West Kazakhstan oblast. Mr. Dobson gave his preliminary consent, but laid down his own condition that a national investor should build a solid feed yard nearby the plant to ensure an interrupted supply of the cattle stock. Sever-Agro, a large company from Kostanay oblast has expressed its intentions to co-finance the new meat cluster of the West Kazakhstan oblast. At the moment, the parties are in the process of negotiations and discussions.
According to Jack Dobson, the founder of Dunbia Corporation, in addition to business investments, his company can also transfer technologies of the deep processing of the cattle meat.
“I was very impressed when I was visiting feed yards and meat processing plants of your country. However, it would be fair to say that in order to establish production facilities here, Kazakhstan needs to improve its resource base. It is critically important to have enough bulls to ensure that the plants work at their full capacity. More than that, I have noted that there are actually no enterprises in the country where the cattle would be processed completely. This being said, we could produce foodstuffs for fish and birds out of the animal wastes. In parallel, we can organize training of Kazakhstani specialists on the latest technologies in the field of cattle slaughtering and meat processing at our plant in the Northern Ireland” - Jack Dobson reported to Capital.kz.
What are the plans of Italian Inalca?
In his turn, Andrei Vakulin, the Vice-President of Inalca Eurasia, the corporation that has already laid the first stone in the construction of the new meat processing plant nearby Almaty, emphasized that the company had had long-standing plans to come into the market of Kazakhstan but could be materialize them only very recently.
“The thing is that in 2015 at the EXPO Exhibition in Milan, in the presence of the President of Kazakhstan and Vice-Minister of Italy, our TNC signed an extensive investment agreement with KAZNEX INVEST JSC. That Memorandum stated Inalca’s readiness to invest 500 million Euro within 10 years into the processing and distribution of meat in the Republic. The company has huge export capacities: Russia, China and CIS countries”, Andrei Vakulin said to Capital.kz.
He admits that existing technological facilities of Kazakhstan can process only 50 % of the animal carcass, while the blood, stomach and gut contents, bones are simply thrown away.
As Andrei Vakulin said, “Complete utilization of animals includes conversion of the stomach contents into the organic fertilizers. The blood, if collected through a clean method, i.e. if it does not fall on the floor, can serve as a raw material for medical industry purposes. Raw casings are a deficit product used in the sausage production. Meat and bone meal is an essential part of foodstuffs and fertilizers. The fat is also decomposed and used as a component of cosmetic and technical greases and oils. Other subproducts become technical proteins required in the food and processing industries”.
The last but not the least – the Australian TNC
And finally, Australian Cedar Meats, which is one of the largest world producers of lamb and mutton, has started to build its own meat processing plant in the city of Ayagoz of the East Kazakhstan oblast. The operational capacities of the project equal to 5700 tons of lamb and mutton per year. The cost of the project is $ 23 million.
Tony Kairouz, the General Director of Cedar Meats, explained that the main production facilities are located in Melbourne. They can process 7200 heads of the small ruminants per one shift a day.
Tony Kairouz assured: “We are located very closely to the sea ports and we have a very good distribution network. We export our products to the European Union, North and South Americas, South-Eastern Asia and China. Now we are ready to bring our brand to Kazakhstan and demonstrate that our standards are indeed very high, but at the same time they can be reproduced in other countries and Kazakhstan will be one of the first such places. The brand of Jumbo of our lamb will become known in Kazakhstan. Furthermore, I would like to point out that we are making serious investments into the personnel, into people, and this is what has brought us to where we are now”.
As we can see, the entire cycle that starts with the small farms, such as Manat Farm in Yereimentauskiy district of Akmola oblast, is completed with the arrival of the technology-oriented foreign investors that are ready to put money into the Kazakhstani enterprises. And between these two links there is quite a solid layer of the national businesses that operate feed yards across the whole country.
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