Ministry of Agriculture Subsidized Non-existent Farmers — SAC

Supreme Audit Chamber Chair Alikhan Smailov presented the agricultural sector inspection results in the Majilis, Orda reports. 

Despite its high economic importance, agriculture contributes little to GDP — on average, about five percent.

The main reasons are low productivity, slow growth rates of irrigated land, inefficient water use, poor development of transport and logistics infrastructure, and insufficient material and technical equipment.

Over the past five years, about two trillion tenge have been allocated from the budget for subsidies. However, a number of systemic problems have led to their limited effect. First: shortcomings in strategic planning and lack of continuity in the development of the industry. Over the past 10 years, the Ministry of Agriculture has adopted several program documents. And most of them were not brought to a logical conclusion. All of them were put on hold ahead of schedule, halfway through their implementation, said Smailov. 

He also drew attention to the constant change of priorities, which prevented the construction of an effective system of state support for the industry. Distorted statistical data had a negative impact on the establishment of clear guidelines.

As a result, individual target indicators were recognized as overly ambitious and were eventually adjusted downwards, Smailov believes.

However, this stopped the successful implementation of more than 40% of the target indicators of the Agricultural Industry Development Concept.

Subsidizing farmers also turned out to be an issue:

The subsidy system, unfortunately, is also far from perfect. The types and directions of subsidies are constantly changing. The mechanism for their provision also changed during the implementation process. More than 70 changes in just five years. In some cases, regulations were adopted with a delay. More than five years have passed, and there are still no rules for subsidizing an increase in the share of processing of domestic agricultural products, research and development work. This is a consequence of the lack of development of approaches to subsidies at the time these initiatives were put forward, added Smailov. 

Under such conditions, agricultural producers must make a considerable effort to adapt to innovations.

This, Smailov noted, leads to mistrust of government support measures. 

According to him, there are no clear priorities for subsidizing. This contributes to the dispersion of funds across many areas. 67 types of subsidies are provided in 17 areas, but their effectiveness remains insignificant. 

According to experts, the subsidy needs are underfunded by a factor of two. Farmers also have to wait a long time (up to two years) for the execution of most applications for subsidy payments. All this led to the payment of five billion tenge in subsidies to more than 2.5 thousand entities that ceased their activities before or after receiving the subsidies. Almost three thousand recipients of subsidies for 5.4 billion tenge were not entities of the agro-industrial complex at all. Under such conditions, it is impossible to talk about the effectiveness of subsidies, Smailov said.

He also criticized the information system for subsidy accounting – Gosagro.kz.

The system has been operating in trial mode for two years and has not passed the information security check.

Smailov believes it does not provide complete oversight over the subsidy allocation. 

A significant portion of the violations identified by the audit could have been prevented. To do this, it is necessary to enable the appropriate format-logical control and expand integration with other state databases. However, we are forced to acknowledge the payment of subsidies to entities that do not meet the subsidy conditions, as well as instances of double and inflated subsidies,the SAC Head said. 

However, the Majilis Committee on Agriculture disagreed with certain conclusions of the Supreme Audit Chamber.

Deputy Serik Yegizbaev believes the conclusion about high crop yields and livestock efficiency in small agricultural enterprises and private farms compared to large agrarian enterprises is incorrect. 

Subsidies are paid as compensation for the costs incurred. The rules are the same for all farms, regardless of their size. Those who bear the costs receive subsidies. The conclusion about the inefficiency of subsidizing poultry production also raises questions. We analyzed the company's activities in this industry, which accounts for 50% of production on the domestic market. Thanks to government support measures, this company has increased the volume of poultry production from 29 to 160 thousand tons over the past five years. At the same time, the total amount of taxes to the budget and investments in production exceeded the amount of subsidies received by almost four times. Is this inefficiency?
  the deputy asked. 

He recommended that the SAC involve experts with practical experience in the relevant economic sectors in the inspections.

Original Author: Ilya Astakhov