ALMATY, 18 September 2007 (IRIN) - As prices for staples soar across Central Asia, officials in Kazakhstan - the region's key grain supplier - have moved to control exports and stem rising domestic costs, fuelling fears that neighbouring states will struggle to meet their needs for basic foodstuffs this winter.

Industry experts say that, with an international grain shortage sending prices spiralling, Kazakhstan cannot be immune from the effects.

"[Rising prices are] only down to the market mechanism functioning in Kazakhstan," Yevgeniy Gan, head of Kazakhstan's Millers and Bakers Union, told IRIN from the capital, Astana, on 17 September. "Kazakhstan, as a grain power, is integrated in the international market."

As President Nursultan Nazarbayev toured wheat fields in northern Kazakhstan with the grain harvest in full swing, he said price rises were part of the economic process, and went on to praise this year's harvest.

"Harvest work is coming to a close, and 16.5m tonnes have already been threshed; the average yield nationally is 2.5 hundredweight higher per hectare than last year," Nazarbayev said in Kostanay on 14 September.

The government has ruled out grain shortages in Kazakhstan: the harvest is estimated at 19-20 million metric tonnes. "This is enough to satisfy domestic demand and export potential," Deputy Agriculture Minister Akylbek Kurishbayev told the Kazakh parliament on 12 September. Some nine million is being set aside for export.

To combat rising domestic prices, Kazakhstan has set up stabilisation funds in the regions to purchase grain and manage supplies, and local officials have been ordered to monitor prices.

Some market traders blame middlemen for artificially inflating costs. "Businessmen raised the prices to fill their pockets," said one flour seller in a main market of Almaty, Kazakhstan's commercial capital.

Flour is on sale at the market at 65-80 US cents per kilogram, with bread selling at 40-60 cents per loaf. The State Statistics Committee says prices for bread and cereal products were up nearly 10 percent in August year on year; bread and flour prices rose some 14 percent.

Kazakhstan leapfrogs competitors

Amid the international grain shortfall - caused by factors ranging from a poor harvest in some grain-producing states, increased demand for foodstuffs and a booming biofuel industry - Kazakhstan has leapfrogged its main competitors, the EU and Turkey, to become the world's top flour exporter in 2007, the Agriculture Ministry said.

World wheat prices have doubled over the past year caused by the shortfall and lower harvests, according to various media reports.

A total of 975,000 metric tonnes of flour was exported from Kazakhstan in the first eight months of 2007, a rise of over 50 percent year on year. Flour exports have almost quadrupled since 2002; over one million tonnes was exported in 2006.

As export prices for grain rise, Nazarbayev said Kazakhstan's agricultural industry would benefit. "Our neighbours currently have difficulties with grain, therefore it is essential to do everything to ensure that our farmers are the winners this year and sell the grain at the most profitable [rate]… It is essential to use that money to renew equipment and modernise production," he said in Kostanay.

Feeling the pinch

But regional states dependent on Kazakh grain exports have been feeling the pinch from rising prices.

Sporadic protests have been reported in Uzbekistan, and the governments of other neighbouring states have moved to stem spiralling inflation.

With bread prices reportedly up by 50 percent in Kyrgyzstan in recent months, officials have created a Food Security Council to stabilise prices, and moved to introduce tax perks for small businesses dealing in baked products.

In an indication of how spiralling food costs are hitting the economy, the government has revised Kyrgyzstan's annual inflation estimate upwards from 5-6 percent to 9 percent.

Kyrgyzstan is increasingly dependent on grain imports, with domestic output down 20 percent since 2000.

Tajikistan is also vulnerable to price fluctuations: bread prices have more than doubled recently, local media say. Government measures to stabilise prices include tax breaks for grain imports and penalties for setting prices artificially high.

Tajikistan – which imports 60 percent of its grain - is seeking to purchase 150,000 tonnes of flour from Kazakhstan.

Amid domestic concerns about price rises, Kazakhstan's government has moved to control grain exports, introducing a licensing system. Exports have slowed, hitting neighbouring states.

"The grain problem may be exacerbated by the fact that Kazakhstan has introduced licensing for grain exporters which will complicate things for [neighbouring states] and may drive prices further up," Maria Disenova, analyst at the Institute for Economic Strategies-Central Asia in Almaty, told IRIN.

Poor hardest hit

With Central Asia dependent on Kazakhstan's supplies, price fluctuations hit the poor hardest.

Oil-rich Kazakhstan - with a per capita gross domestic product (GDP) of $5,100 at the end of 2006, according to the country's Economics Ministry - is best placed to cope. Other states are more vulnerable: an estimated 64 percent of people live below the poverty line in Tajikistan, while a third of people in Uzbekistan and 40 percent in Kyrgyzstan live in poverty.

Analysts say public protests of the type seen in Uzbekistan in recent weeks could spill over into other states.

"The possibility of protest is more likely in Tajikistan and Kyrgyzstan because it is there where the cost of bread has risen the most following the hike in grain prices imported from Kazakhstan and Russia," Disenova said. "They are also much poorer countries than Kazakhstan and are more limited in what they can do about the problem, unless Kazakhstan extends its help."

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