The transition of the agriculture sector in Kazakhstan from a command to a market-based system was at the forefront of the Government's policy agenda following the breakup of the Soviet Union. Reforms were focused on dismantling state ownership and establishing the legal and institutional basis for a privatized and market-based agriculture. The transformation of the economy was undertaken during massive declines in incomes and amid disruptions of trading relations.
Agriculture sector program
ADB approved a loan of $100 million for the Agriculture Sector Program (ASP) on 23 November 1995. Together with the loan, ADB provided two technical assistance (TA) grants totaling $1.5 million to assist the Government in ASP implementation. The ASP covered three broad policy areas: creating markets, promoting market competitiveness, and strengthening social and environmental protection. Eleven specific objectives were focused on land market, property rights of farm workers, efficient use of agricultural land and investment, liberalization of international trade, market-based pricing of agricultural products, domestic market liberalization, government capacity for policy formulation, voluntary farmer associations, rural financial services, social protection measures, and environmental protection. To achieve these objectives, 42 policy measures were designed and implemented. The ASP was completed as scheduled in December 1997.
Agricultural developments
As an outcome of the dismantling of state controls in production and marketing, farms have since faced domestic and international market forces. Indicators show that the agriculture sector has recovered since 1995, despite external shocks, but this performance would not have been possible without the improvement in the macroeconomic management of the country. Crop productivity has increased since 1996, with marked productivity increases in 1999. With the exception of 1998 due to severe drought, grain production increased in 1997-2000 from the 1995 production level. The contribution of private family (peasant) farms to grain production increased from 9% in 1996 to 37% in 2000, while the share of farm enterprises declined from 91% to 63%. Livestock populations have stabilized since 1997. Farmgate prices for grain have reached export parity levels with the dismantling of state interference in marketing and pricing.
The institutional capacity for agricultural policy reform was enhanced. A legal framework for voluntary farmer associations was established, and the program initiatives for environmental protection were completed and largely sustained. Interventions to provide agricultural support at the local administration level continue; targeted unemployment benefits are now administered and provided by local administrations. The program made some progress in enhancing credit for the agriculture sector. However, most commercial banks still regard farms as uncreditworthy, and the Government continues to explore ways of meeting the demand for agricultural credit.
Performance evaluation of the program
OED evaluated the performance of the ASP in 2001. The program measures were relevant and consistent with the priorities of the Government and ADB, establishing a strong foundation for market-led development. The program also served as a catalyst for further, related reforms to strengthen policy implementation. The program has achieved most of its objectives. It has removed state controls on pricing and marketing, and privatized the state holdings in commercial agriculture. Trade liberalization measures and reduction of the Government's intervention in agriculture have moved the sector toward a market-based system. The program promoted major reforms in critical areas in a relatively short period. The program measures have largely been accomplished and the direction of reform maintained. The Government has undertaken other reforms and development initiatives that have augmented and strengthened the enabling environment for creating markets and competition for privatized agriculture. There are no significant threats of reversal to the reform direction, although the sector has not yet completed its structural adjustments to function more efficiently due to (i) incomplete farm restructuring, (ii) difficulties with access to credit, and (iii) limited information and support services.
Overall, the ASP was rated successful. The success stemmed from the strong commitment of the Government to reforms in the sector and the country's consistent political resolve to accelerate the economic transition. The TAs accompanying the program were successful as well.
Lessons learned
Important lessons included:
- Government commitment is the key to success and sustainability of reforms.
- Sustained recovery of the sector requires (i) continuing efforts to strengthen institutional capacity in the new economic environment; (ii) developing systems, including law enforcement, to implement policy changes effectively; and (iii) completing structural adjustments.
- The dynamics of policy reforms in the transitional context means that reforms and their impact must be kept under constant review.
- Adequate resources to undertake program monitoring must be provided.