Trade Wars with the EAEU: Competition Between Kazakhstan and Russia in the Wheat Export Market

In recent years, global trade in agricultural products, particularly wheat, has become a battleground for fierce competition among major exporters. Kazakhstan and Russia, being among the leading producers and exporters of wheat, face a number of challenges and opportunities that define their positions in the international market. In the capitalist economic system, competition is a normal factor in development, which stimulates the parties to improve their work quality. This analysis examines the factors influencing the competition between Kazakhstan and Russia in wheat exports, with a focus on geopolitical, economic, and logistical aspects, as well as the impact of regional initiatives such as Kazakhstan’s cooperation with Afghanistan.

Mutual Bans from Kazakhstan and Russia

Kazakhstan imposed a ban on the import of grain in April 2023. Initially, the ban applied to wheat imports by road, but it was later extended to all modes of transport and prolonged until the end of 2024. The primary reason for the ban was Kazakhstan’s desire to protect its agricultural producers from “gray imports,” which put pressure on domestic wheat prices. The ban was aimed at preventing the re-export of Russian grain through Kazakhstan and supporting local farmers, especially amid expectations of a record grain harvest in the country. In 2024, Kazakhstan expected to harvest more than 25 million tons of grain, significantly exceeding last year’s crop. In Kazakhstan on the morning of September 30, threshed more than 20 million tons of grain. Moreover, Kazakhstani producers faced difficulties in competing with Russian goods due to the devaluation of the ruble, which made Russian products cheaper in the Kazakh market. The ban was also supported by local farming unions as a measure to prevent overstocking and reduce grain prices. Kazakhstan ranks 14th in the world in wheat production, making it a significant player in the international market.

Russia, in turn, is one of the world’s largest wheat exporters, actively expanding its deliveries to both traditional and new markets, such as Afghanistan. With a population of 40 million, Afghanistan represents a particularly attractive market for Kazakh agribusiness. Moreover, Kazakhstan itself claimed that the decision to remove the Taliban from the list of terrorist organizations was motivated by economic reasons. However, wheat supplies from Kazakhstan to Afghanistan began to decline as early as 2023, and this year, it is expected that last year’s supply volumes will not be reached either. Meanwhile, Russia is actively expanding its grain supply markets due to the conflict with the West. Back in 2022, Afghanistan and Russia had agreed on the supply of 2 million tons of wheat to Afghanistan. In June this year, it was announced that Russian grain exports since the beginning of 2024 had increased by 16% to 40.2 million tons. The bulk of shipments are wheat—24.9 million tons. During the reporting period, the volume of Russian grain purchases increased significantly in the following countries: Vietnam by 26 times, Indonesia by 9 times, Jordan by 6 times, Afghanistan by 5 times, Iraq, Bangladesh, Uzbekistan, and Mongolia by 3 times. In fact, Russia has entered Kazakhstan’s traditional markets in Central Asia and Afghanistan. Russia exported more than 740,000 tons of wheat and wheat-rye flour in the first seven months of 2024 (January–July), which is 38% more than in the same period in 2023. Afghanistan became the largest market for Russian flour, where 270,000 tons were supplied. This is five times more than in the same period in 2023. The increase in supplies to this country began in the fall of 2023, which was likely related to the decline in the quality of Kazakh flour at the time due to poor-quality wheat harvest. Wheat exports from Kazakhstan for the season September 2023 – June 2024 amounted to 4.432 million tons, which is 2.246 million tons, or 33.6%, less compared to the previous season (September 2022 – June 2023). The main destinations of Kazakhstan wheat supplies included six countries. The largest volumes of wheat were exported to Uzbekistan – 2.365 million tons, which is 29.6% less than last season. Tajikistan received 0.87 million tons of wheat (down 1.5%), and China received 0.479 million tons, showing an increase of 76.1%. Deliveries to Italy amounted to 0.335 million tons, increasing by 9.9%. A significant decrease in exports was observed with respect to Afghanistan – only 0.178 million tons (down 75.5%) and Turkmenistan, where 0.128 million tons were supplied (down 63%).

For this reason, in response to Kazakhstan’s restrictions, Russia is preparing countermeasures. The Russian Federal Service for Veterinary and Phytosanitary Surveillance (Rosselkhoznadzor) has requested Kazakhstan’s Ministry of Agriculture to suspend the issuance of phytosanitary certificates for grain and grain processing products, sunflower seeds, and other agricultural crops exported to Russia.

Yevgeny Karabanov, a representative of the Grain Union of Kazakhstan, believes this implies a ban on the import of Kazakhstani products into Russia and a potential trade war. APK News Agency also reports that it had information about countermeasures in response to the ban on the import of Russian grain into Kazakhstan as early as last week. Participants in Kazakhstan’s grain market reported that Russia had imposed an unofficial order: “all personnel in zones bordering Kazakhstan, as well as the leadership of Russian Railways (RZhD), were instructed to objectively hinder the export of Kazakhstani products to Russia and through Russia.”

Is There a Way Out of the Situation?

Russia’s measures have led to significant difficulties for Kazakh exporters attempting to transit grain through Russian territory to Europe and Turkey. These restrictions were a reaction to trade tensions and sanctions, but they also led to retaliatory measures from Russia, which increased oversight through Rosselkhoznadzor, creating additional obstacles for Kazakhstani companies.

Traditionally, Kazakhstan has used Russian ports to export wheat to Europe, providing efficient logistics and reducing transportation costs. However, after imposing restrictions on the transportation of Russian wheat through Kazakhstan, Russia introduced its own restrictions. This forces Kazakhstan to seek alternative routes, such as the Trans-Caspian Corridor. As noted by Nurlan Ospanov, head of the Grain Union of Kazakhstan, transportation through the Caspian Sea is more expensive and leads to a deterioration in grain quality due to additional transshipments. Reorientation to Baltic ports offers new opportunities but comes with risks, including the potential mixing of Russian-origin grain with Kazakhstani grain, which could trigger additional inspections by the EU. The EU’s decision to impose a tariff on Russian grain (€95 per ton) gives Kazakhstan an opportunity to strengthen its position in the European market, but this requires strict adherence to standards and verification of grain origin.

Gradually, both sides are beginning to realize the need for compromises. The Grain Union of Kazakhstan will begin negotiations with the government to lift the ban on wheat imports. This was announced by the head of the organization, Nurlan Ospanov, at the international conference Agricom. “We propose that the decision on the ban on the import of Russian wheat be in effect not until the end of 2024 but that the period be shortened to November 1 or October 15,” he explained. The head of the Grain Union explained this initiative by stating that Kazakhstan’s plans to export 2 million tons of agricultural products to new markets depend on whether Russia will allow Kazakh agricultural goods to transit through its territory.

Another important factor is the expansion of supply markets, such as China. In 2024, Kazakhstan plans to increase grain exports to China to 2 million tons. This is due to growing demand for Kazakh grain and grain processing products in China, as well as successful bilateral cooperation in the field of transportation and the agro-industrial complex. China remains a key partner with which Kazakhstan seeks to expand trade relations, as evidenced by a 70% increase in grain processing product supplies in this direction. In addition, China has begun to show investment activity in this sector. The Chinese company CITIC Construction plans to create a wheat deep-processing production line in the Kazbek Bek industrial zone in Kazakhstan’s Almaty region, according to the Ministry of Agriculture. The project is valued at $1.07 billion. The enterprise is expected to process up to 300,000 tons of wheat per year and produce maltose syrup, fructose syrup, crystalline fructose, allulose, crystalline dextrose, sodium gluconate, gluten by-products, and feed.

Kazakhstan’s Cooperation with Afghanistan: Opportunities and Challenges

Kazakhstan views Afghanistan as a key market for expanding trade and economic integration. In recent years, Kazakhstan has actively increased wheat and related product exports to Afghanistan, which is reflected in the growth of export volumes. The KazGrain Association emphasizes the importance of increasing export supplies, especially in light of the growing demand for agricultural products within Afghanistan.

Logistics routes play a crucial role in Kazakhstan’s export strategy. The development of transport corridors through Turkmenistan and Uzbekistan allows Kazakhstan to expand its export opportunities to Afghanistan and further into South Asia. The creation of a logistics hub in Herat province and the development of rail routes, such as Mazar-i-Sharif–Kabul–Peshawar, are aimed at improving transport infrastructure and reducing grain transportation costs. However, Kazakhstan faces challenges in the form of underdeveloped infrastructure, high transportation tariffs, and political instability in the region.

Kazakhstan is also actively involved in humanitarian initiatives and diplomatic relations with Afghanistan. Proposals to establish a UN Regional Center for Sustainable Development Goals in Almaty underscore Kazakhstan’s desire to support stability and development in the region. Support from international organizations such as the UN and the EU, as well as internal efforts through the KazAID agency, reflect Kazakhstan’s comprehensive approach to cooperation with Afghanistan.

Russia and Kazakhstan: The Future of Wheat Exports

In the context of increasing competition in the global wheat market, Kazakhstan and Russia face the need to adapt their export strategies. While Russia seeks to strengthen its position and expand grain exports to Central Asian countries, Central Asian states should actively involve Russia in the development of regional infrastructure. Investments in transport corridors, port modernization, and improvement of logistics networks will allow both sides to ensure more efficient and reliable deliveries, reduce transportation costs, and increase the competitiveness of their products.

Furthermore, it is important to seek compromise solutions in the supply of goods, taking into account the interests of Kazakhstan and other Central Asian partners. Establishing mutually beneficial cooperation terms, ensuring transparency in trade operations, and supporting local producers will help reduce tensions and prevent trade conflicts. Joint initiatives to standardize products and improve grain quality can also contribute to building trust between the countries and establishing sustainable trade relations.

Thus, a comprehensive approach, including infrastructure development and the search for compromise solutions, will allow both sides not only to increase wheat export volumes but also to establish strong partnerships with Central Asian states, promoting stable and mutually beneficial agricultural trade development in the region.