#Kussainov Kh.Kh., Kussainova
L.I., Zhumanova M.Kh. MECHANISMS OF
FOOD SAFETY GOVERNMENT REGULATION IN THE REPUBLIC OF KAZAKHSTAN
Kussainov Kh.Kh., Doctor of
Economics, Professor
Kussainova
L.I., Ph.D. in Economics, Associate Professor
Zhumanova
M.Kh., Ph.D. in Law, Senior Lecturer
MECHANISMS
OF FOOD SAFETY GOVERNMENT REGULATION IN THE REPUBLIC OF KAZAKHSTAN
Grain market is
strategically one of the most topical market of Kazakhstan from the point of
view of government regulation. This is largely due to peculiarities of
agricultural production requiring specific regulation from the point of view of
numerous factors. The problem of disparity of prices for agricultural products
and prices for industrial products remains the main challenge for agricultural
market.
In addition to
market mechanisms, solution of this problem is strongly influenced by formation
of state agricultural policy, upgrading of economic relations regulation price
mechanism in branches and separate fields of agro-industrial complex.
Need for
government regulation of agricultural market and, first of all, foodstuffs
market, is induced by new challenges related to influence of the global
markets, globalization processes and Kazakhstan accession to the WTO.
Implementation of
proposals on updating of agricultural market government regulation in terms of
global and internal prices increase for agricultural products should meet the
main goal – to support the incomes of agricultural commodities producers and to
ensure affordability of food products for population. Three essential options
of market regulation which do not reduce the profits of agricultural
commodities producers are possible to achieve food safety:
- administrative
regulation of prices for social kinds of bread by restricting the profits of
flour-grinding and baking firms;
- state support
of flour-grinding and baking firms by provision of concessional lending and/or
commodity interventions of the state;
-direct
(monetaryorfoodstuffs) support of the consumers.
Fromthepointofviewofeconomictheory
[1] and taking into consideration the experience of other countries, the most
efficient is the third option of regulation as such that implements the
principle of the least intervention into market mechanism and provides for fair
distribution of incomes between market participants.
Importantargumentinfavorofthethirdoptionofgrainandgrainderivedproductsmarketregulation
is a significant differentiation in consumption of food products between
households with the least income, households with per capita monthly aggregate
incomes less than living wage and most prosperous households amounting to tenth
of the consumers. Therefore, the following factors ensure high efficiency of
the third option of regulation of grain and grain derived products market:
- minimum
intervention into the market mechanism, liquidation of processing companies
incomes restriction as well as contradictions elimination and increasing
confidence at the market;
- development of
competitive environment at regional markets;
- possibility of
agreed regulation of the trade relations between the countries according to WTO
standards;
- possibility for
agricultural producers to use changes of 26 conjuncture of the world
agricultural markets to improve their financial standing;
- more efficient
use of funds for targeted support, exclusively for low-income sections of
population but not for all consumers of bakery products;
- more efficient
protection of low-income sections of population against growth of prices for
food commodities in case of “chain reaction” of prices.
In terms of high
grain prices and prices increase for food commodities produced using grain,
direct financial support is the most efficient mechanism to ensure economic
affordability of these products for low-income sections of population. Grain
export in terms of the global prices increase does not lose profitability,
therefore, to meet the internal needs, it is necessary to define at the level
of legislation the criteria of balance stability whose violation at grain
market gives rise to establish export restrictions. Provision of Kazakhstan
food safety necessitates settlement of Kazakhstan social and economic
development issues on innovation base, grounding of efficient mechanism of
government regulation of import substitution processes in agricultural sector
of economy too. International organizations’ and institutes’[2, 3] experts do
not forecast any prospects for decrease of grain world prices in the coming
decade to the level existing before 2006, and, accordingly, decrease of animal
products prices. The situation at the market induced by objective long-term
trends will require system settlement at the level of government
regulation.
In
defining the priorities of national grain market development, influence of the
following demand and offer factors should be accounted:
–
opportunities for extensive development were exhausted, increase of crop yield
and technologies upgrading are necessary;
−
instability of agricultural commodities producers operation related to
influence of natural climatic conditions;
-
grain market needs diversification and transfer from wheat single-crop to
diversity of seeding;
-
poor technical equipment, increasing load on equipment lead to violations of
technological processes of grain production, violated optimum time limits for
performance of field works, increase losses and shortfall of grain;
-
agricultural commodities producers carry out their economic activities in terms
of constant lack of working assets, especially POL, fertilizers, means of
plants protection against diseases and pests that negatively influence the
final result;
-
altogether absence of efficient system of government regulation, prices disparity
and legal uncertainty make grain market and,in particular, field of
implementation and processing thereof, poorly organized and managed system
operating not in the interests of grain producers;
-
accession to WTO and activities within the limits of the Eurasian Economic
Union at active development of international trade, vehicles and communication
facilities, increase of standards for products, change of consumers’
preferences and decrease of the government support level, requirements to
competitiveness and labor efficiency, economic efficiency of agricultural
producers activities, quality of products and marketing thereof;
– system measures of government support of agricultural complex for the
purposes of financial recovery of the industry as well as development of public
provision of agrarian business subjects in the field of phytosanitary safety
and water supply, increase of efficiency of government regulation in the field
of land and tax relations, taxation, technical regulation, government control
and supervision.
Considering
the experience of developed countries in Kazakhstan, it is necessary to form
organization and economic mechanism of state regulation of grain market which
is to be based on the following principles:
−
Priority of grain market regulation
as to derivative markets;
−
Protection of grain crops producers;
−
Regulation of organization and
economic links between the participants of commodity distribution system at
grain market.
Summarizing
the experience of agriculture support by different countries of the world
showed that the majority of countries use subsidization as the key tool of
agricultural production support. However, leading countries – exporters of
agricultural products (Australia, New Zealand, Argentina, Brasilia and etc.) do not support direct subsidization of
producers.
The following main forms of agricultural sector government regulation
may be singled out in subsidization systems used by developed countries: prices
support (USA), profits supports through payment per hectare (EU countries),
incomes support through payments based on historical level of incomes (Canada)
and preferential lending (Brasilia).
From the point of view of administration, the simplest type of
subsidization is payments per hectare.
The following types of government intervention into grain market
activity are used in Kazakhstan: grain purchase for government reserves; grain
purchase by state company for commercial use; grain producers subsidization;
export subsidization; export prohibition.
State
support of grain market should be aimed at: grain storages construction and
upgrading, improvement of their territorial location within the frameworks of
different target programs as well as provision of investment loans for
construction and extension of grain storage capacities; purchase of grain-cars;
improvement of grain market transport service, that is connected with
strengthening of material and technical base of this infrastructure block and
upgrading of commodities flows management by development and implementation of
commodity-flow logistic schemes; reduction of services prices disparity,
purchase of machinery, POL and mineral fertilizers that reduce production
increase.
Thus, the results of agricultural producer’s activities are defined by
both quality and quantity of labor invested and objective terms of production
related to increased risk level. Theimportantconditionof further development of
grain product sub-complex of the country is efficient operation of grain market
since condition of this market influence the time limits, scales of flows and
efficiency of grain products sale, speed of return of funds invested in
production and provision of consumers with grain and grain derived products.
Upgrading of organizational and economic mechanism, further development of
infrastructure and government regulation are required for more efficient
operation of grain market.
Activity
of KazAgroMarketing JSC and Prodcorporation JSC should be intensified in the
system of grain market government regulation since these companies ensure
grains prices monitoring and accurate prices dynamics. Subsequently, more
efficient economic mechanisms of influence upon grain market will be required.
Therefore, we recommend the following organizational and economic measures to
make price relations parity:
− Priority purchases of grain to government funds directly from commodity
producers without any intermediaries;
− Establishment of guaranteed purchasing prices for grain which ensure
receipt by commodity producers of income sufficient to keep extended
reproduction when operating costs are growing;
− Formation by the state of reserve (stabilization) funds and regulation
of market grain prices using the mechanisms of purchasing and commodity
interventions;
− Support of the commodity interventions based on combination of targeted
budget financing with preferential loan and tax policy;
− Increase of the credit resources of agricultural goods producers based
on leasing to restore machine and tractor fleet and other elements of fixed
assets’ active part;
− Reduction of prices disparity and overcoming consequences thereof, first
of all, inside agricultural business via different forms of intragroup
subsidies and compensations.
Based
on the practice of summarizing price situation at grain market in Kazakhstan,
the followingoverall conclusions were drawn:
Firstly,
the trend of decrease of measuring and incentive function of price for grain
was clearly revealed with regard to agricultural goods producers. Decrease of
measuring function of the price is expressed by decrease of the degree of
reimbursement of production costs incurred by agricultural enterprises and by
fall of grain sale profitability. Practical experience shows that currently,
additional costs incurred for application of fertilizers and plant-protecting
agents according to intensive technology at effective prices are not justified
by increase of crop yield from usage thereof.
Secondly,
grain producers are not able to use cost methods of price making for their products
and to decrease the production costs due to high energy- and material-output
ratio of technologies, being at beginning of commodity flow chain, in terms of
continuing disparity of prices for agricultural products being sold and
industrial means of production and services as well as demand restrictions for
grain, in particular, for feeding grain.
Thirdly,
there is a big gap between offer price (price of commodity producer) and price
of grain purchase by processing enterprises owing to excessive number of
trading intermediaries, high costs on transportation, storage and handling of
grain at grain storages and grain-collecting enterprises.
Fourthly,
there is no close correlation between seasonal fluctuations of grain prices and
level of wholesale prices for grain derived products in pricing system. If
grain price sharply decreases in some years, it does not result in the same
decrease of flour and bread products, and, vice-versa, flour and bread
producers exactly react to seasonal increase of grain prices in setting prices
for their products.
References
1. HodgsonG. Economic theory and institutes:
Manifesto of the modern institutional economic theory/Translation from English.
M: Delo, 2003.
2. OECD-FAO
Agricultural Outlook 2007-2016 [OECP official web-site]. Accessible web-site:
<http:www.oecd/org/datooecd/6/10/38893266/.pdf>
3. SimlaTokgoz,
Amani Elobeid, Jacinto F. Fabiosa, Dermot J. Hayes, Bruce A. Babcock and
others:Outlook of effects on U. S. Grain, Olseed, and Livestock Markets
[Electronic resource].-Accessible web-site: http://www.card iastateedu/
publicanions/synopsis. aspx?id=1050