#18 Armenia Agriculture Bulletin, BFC

11/2016

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18 A rm e n i a Agriculture Bulletin Agriculture Minister Discusses Agricultural Plans at Budget Hearing Armenian-German Financial and Technical Cooperation Commission Meets EIB to Continue Support of Armenian Small and Medium Enterprises Russia Is Largest Market for Armenian Fish Products

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Contents State Initiatives ........................................................................................................... 2 1) 2)

Draft Law Proposes to Reduce Natural Gas Tariff for Agricultural Processors ............................... 2 Agriculture Minister Discusses Agricultural Plans at Budget Hearing ............................................. 2

Foreign Aid ................................................................................................................. 2 3) 4) 5)

EBD: Irrigation Modernization Projects among Most Established in Armenia ............................... 2 Armenian‐German Financial and Technical Cooperation Commission Meets ................................ 3 EIB to Continue Support of Armenian Small and Medium Enterprises ........................................... 3

Private Sector .............................................................................................................. 3 6) 7) 8) 9) 10) 11) 12) 13)

Armenian Sugar Production Increases 49.9% ................................................................................. 3 Imported Turkish Tomatoes Harming Armenian Tomato Producers .............................................. 4 Gross Value of 2015 Agricultural Output Exceeds AMD 1 Trillion .................................................. 4 Smaller Pig Farmers Could Disappear .............................................................................................. 4 Meat Production Shows Increase of 4.7% ....................................................................................... 4 New Information Emerges about Ashtarak Kat ............................................................................... 5 Russia Is Largest Market for Armenian Fish Products ..................................................................... 5 Spanish Entrepreneurs Interested in Armenia’s Agricultural Sector............................................... 5

Note: The Agriculture Bulletin presents a monthly roundup of headlines and news stories related to Armenia’s agricultural sector.

This bulletin is prepared by Business & Finance Consulting—a Swiss‐based development finance consulting company with a long history of working in Eastern Europe, Central, South and South East Asia and North Africa. Currently, BFC is implementing the “Financing the Agriculture Sector in Armenia” project for KfW. Read more »

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BFC Agriculture Bulletin

State Initiatives 1)

Draft Law Proposes to Reduce Natural Gas Tariff for Agricultural Processors

November 3rd, 2016, http://armenpress.am/eng/news/866433/government‐suggests‐psrc‐to‐set‐gas‐incentive‐tariff‐for‐ agricultural‐food‐processing‐companies.html

The government has proposed a law to mitigate the natural gas tariff for greenhouse farms and agricultural processing companies. Greenhouse farmers mainly export to the Russian Federation, and the recent downtick of the Russian market has significantly impacted companies in the sector, leading to a decline in production from the sector. Adopting the draft law will enable a gas tariff incentive to be applied to companies operating in the sector, helping contribute to an increase in competitiveness, production and export volumes.

2)

Agriculture Minister Discusses Agricultural Plans at Budget Hearing

November 2nd, 2016, http://finport.am/full_news.php?id=26894&lang=3

Speaking at the Parliamentary budget hearings early this month, Agriculture Minister Ignati Arakelyan spoke of the need to develop regulations aimed at sparking the interest of farmers to join farm cooperatives. He noted that villagers are not currently interested in joining cooperatives since they are unaware of future benefits and that it is important to change this as larger‐scale farming opens up greater opportunities to develop the agricultural sector. To this end, the Minister announced that discussions will be held regarding the possibility of modifying the Law of Farm Cooperatives.

The Minister also stated that the subsidization of fertilizers and diesel fuel for farmers will continue in 2017 despite some farmers having an outstanding balance owed to the budget for lower‐cost fertilizers previously supplied by the program. He noted that these farmers will, most likely, not be able to take advantage of the subsidies this year. Under the current subsidy program, the government provides AMD 330 million for diesel fuel subsidies (covering approximately 20% of the cost of diesel for farmers). The government also provides AMD 760 million for fertilizer subsidies under the current budget.

14 projects in the agricultural sector are scheduled to be funded with AMD 8.5 billion in 2017, a decrease of AMD 2.4 billion from 2016.

Foreign Aid 3)

EBD: Irrigation Modernization Projects among Most Established in Armenia

November 25th, 2016, https://news.am/eng/news/359252.html

The State Committee of Water Economy (SCWE) of Armenia heard presentations on the status and results of ongoing joint projects this month. Among the presenters was Eurasian Development Bank (EDB) official Aleksei Cherkaev who noted that irrigation system modernization is considered to be the most established and non‐problematic domain for EBD in regards to cooperation with Armenia.

The EDB Eurasian Fund for Stabilization and Development (EFSD) has allocated USD 40 million for an investment loan for the implementation of the Irrigation Systems Modernization Project (ISMP).

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4)

Armenian‐German Financial and Technical Cooperation Commission Meets

November 21st, 2016, http://www.mfe.am/minfin.am/index.php?art=2065&lang=3

The Ministry of Finance hosted a regular meeting of the Armenian‐German Financial and Technical Cooperation Commission. At the meeting, upcoming programs which will be funded with loans and grants from the Federal Republic of Germany were discussed, particularly those programs being financed by German Development Bank KfW. During the meeting, the sides also discussed the possibility of introducing, for the first time in Armenia, an agricultural insurance system. The German side expressed interest in providing funding for such a project. Questions regarding the financing of other programs funded by regional grants were also on the agenda and included, among others, the programs: Support for Caucasus Nature Fund, Complex Management of Biodiversity in the South Caucasus, and Local Government in South Caucasus.

5)

EIB to Continue Support of Armenian Small and Medium Enterprises

November 18th, 2016, http://www.armradio.am/en/2016/11/18/the‐eu‐bank‐supports‐armenian‐small‐and‐medium‐sized‐ businesses/

The European Investment Bank (EIB) is lending EUR 50 million to the Central Bank of the Republic of Armenia for on‐lending to eligible small‐ and medium‐sized enterprises (SMEs) throughout the country via numerous financial intermediaries, including banks and universal credit organizations. The loan is a European Union (EU) measure designed to further support Armenian businesses and is being provided in the context of the EU4 Business Initiative. The EIB loan will help improve the access of Armenian SMEs to long‐term, local currency finance on favorable terms, contributing to the diversification of the Armenian economy as well as private‐sector development and job creation.

With this loan, the EIB and the Central Bank of the Republic of Armenia are continuing their successful cooperation in support of Armenian small‐ and medium‐sized businesses. A previous EUR 50 million loan for SMEs, signed in 2014, has already been fully disbursed to eligible SME projects. The EIB funds provided to the Central Bank of Armenia are currently available to SMEs in Armenia through 16 financial intermediaries. To date, more than 100 projects throughout the country have benefitted from them, in particular in the tourism and agri‐food sectors. Under the previous loan, participating financial intermediaries as well as small‐ and medium‐sized businesses had an opportunity to benefit from technical assistance activities funded by the Eastern Partnership Technical Assistance Trust Fund (EPTATF).

Private Sector 6)

Armenian Sugar Production Increases 49.9%

November 29th, 2016, http://armenpress.am/eng/news/869792/sugar‐production‐increases‐by‐499‐in‐armenia.html

More than 54,000 tons of sugar has been produced in Armenia over the first nine months of 2016.

According to data published by the National Statistical Service, sugar production has increased by 49.9% year‐on‐year. At the same time, the production of flour decreased 11.8%, comprising 121,700 tons over that same period.

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7)

Imported Turkish Tomatoes Harming Armenian Tomato Producers

November 26th, 2016, http://www.slaq.am/arm/news/1142072/

The executive director of the NFO Greenhouse Association, Paul Gevorgyan, commented that Turkish tomato imports are outperforming and undercutting Armenian tomatoes in the market. According to him, the Turkish tomatoes are being illegally imported, as evidenced by Turkish tomatoes being sold at market for AMD 500 per kilogram when the import duty on them is AMD 507 per kilogram. This is harming Armenian farmers who need to sell their products at AMD 600 in order to not suffer losses.

8)

Gross Value of 2015 Agricultural Output Exceeds AMD 1 Trillion

November 26th, 2016, http://www.slaq.am/arm/news/1142230/

According to the National Statistical Service, the gross agricultural output value in 2015 amounted to slightly more than AMD 1 trillion, up from AMD 993.35 billion in 2014. Plant growing accounted for AMD 605.8 billion of this, and cattle breeding added another AMD 395.4 billion. The structure of the gross agricultural output in 2015 included: meat at 20.4%; potatoes at 11.5%; vegetables at 11.2%; milk at 11%; grain at 9%; fruits at 7.9%; and eggs at 4.1%.

In 2015, the gross grain harvest of agricultural crops was 637.9 tons, including 383.7 tons of wheat.

There were also 764.5 tons of potatoes and 1,031.5 tons of vegetables produced. Production of goods from animals included 100.4 tons of meat, 728.6 tons of milk, 659.8 million eggs, and 1,571 tons of chicken legs.

9)

Smaller Pig Farmers Could Disappear

November 25th, 2016, https://news.am/eng/news/359227.html

Haykakan Zhamanak newspaper has reported that small and medium‐sized businesses engaged in pig farming in Armenia are in danger of going out of business and that pig farming could soon be concentrated in the hands of several larger companies as early as next spring.

A drop in the price of pork has caused Armenian pig farmers to not see expected revenues. Currently, pig farmers are hoping to be able to quickly sell their products by the new year but aren’t certain of their futures after that point as the low purchase price is making pig farming unprofitable in Armenia on smaller scales.

10) Meat Production Shows Increase of 4.7% November 19th, 2016, http://times.am/?p=191119&l=am

According to data from the National Statistics Service, the index of meat produced in Armenia from January through September of this year has increased by 4.7% year‐on‐year. This figure includes an increase of 9.7% in sausage production, representing 4,390 thousand tons produced, and an increase of 15.5% in semi‐finished meat production, representing 347 tons.

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11) New Information Emerges about Ashtarak Kat November 18th, 2016, http://finport.am/full_news.php?id=27120&lang=3

Deputy Agriculture Minister Robert Makaryan has met with representatives of milk processing companies following the production stoppage at Ashtarak Kat. Participants at the meeting informed the Deputy Minister that their companies are ready to increase the purchase of milk at their production facilities, even beyond their needs, if it would help ensure that Armenia milk products would not be replaced domestically by imports. Deputy Minister Makaryan was careful to mention that price cuts for the purchase of additional milk should be avoided.

The Deputy Minister went on to ensure that the government will undertake all necessary measures to support any kind of agricultural processing, especially those actively working to replace imported products with domestically produced ones. The Deputy Minister also announced that it is important to take “arrangements to avoid any interruptions in the procurement process [of milk] and prevent a situation where farmers would face losses.” Deputy Minister Makaryan went on to state the problem needs to be solved as soon as possible to avoid further complications in the spring and summer regarding the ability of farmers to sell their milk.

Member of Parliament Mikael Manoukyan has been critical of the government’s handling of the situation, noting that, if Ashtarak Kat leaves the market, two domestic producers will have control of 80% of the market, 600 employees of the company will be unemployed, and thousands of dairy farmers could be left without an outlet to sell their milk.

Ashtarak Kat reportedly owes millions of drams to milk suppliers and has stopped production recently.

In addition, many employees have recently quit, alleging that the company has not paid them due wages. Some sources believe bankruptcy procedures may soon be initiated by the company.

12) Russia Is Largest Market for Armenian Fish Products November 2nd, 2016, https://news.am/eng/news/355036.html

Artur Atoyan, chairman of the NGO Union of Armenian Fish Famers and Exporters, announced that Russia is the largest export market for Armenian fish products, although they are now considered as transported instead of exported following Armenia’s accession to the Eurasian Economic Union (EEU).

The Board of the Eurasian Economic Commission also recently adopted a technical regulation on the Security of Fish and Fish Products as one of the key regulations of the EEU in the area of food production security.

13) Spanish Entrepreneurs Interested in Armenia’s Agricultural Sector November 1st, 2016, http://finport.am/full_news.php?id=26857&lang=3

Agriculture Minister Ignati Arakelyan has met with a delegation from the Spanish company Global Desarollos and Ingenieria S.A. to discuss cooperation between the two within Armenia’s agricultural sector. During the meeting, both sides noted that the memorandum of cooperation between the Armenian government and Global Desarollos and Ingenieria S.A. signed in 2015 could well serve as the basis for continued cooperation.

President Javier Valero Artola of the Spanish company noted that Spanish entrepreneurs are very interested in making investments in Armenian agriculture and that there is a possibility to attract Page 5

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financing from Bilbao bank. The Spanish side also considers cooperation in such fields as cattle breeding, milk and meat processing, and drip irrigation systems as important.

During the meeting, Minister Arakelyan noted that the Agriculture Ministry intends to develop investment programs for each region of Armenia and present them to investors and further suggested studying the establishment of agriculture equipment service centers.

Global Desarollos and Ingenieria S.A. has cooperated with Armenian company Spayka and the two have plans to build greenhouses on an area of 5 hectares and plant extensive gardens on the adjacent territories.

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Prepared by Business & Finance Consulting (BFC) www.bfconsulting.com In this bulletin, BFC provides extracts from articles that have been published by others and as a result cannot be held responsible for such content.

The articles do not necessarily reflect the opinions of BFC, its staff, its associates or its partners.

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