05 BFC Armenia Agriculture Finance Bulletin

10/2015

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5 A rm e n i a Agriculture Finance Bulletin Minister of Agriculture Discusses Veterinary Lab Modernization with US Agency Agro-Loans Subsidized by a further AMD 7 Billion Agriculture Leading Growth Sector Iranian Investors Target IT and Agriculture Sectors 64,800 tons of Fruit and Vegetables Exported - 84% Destined for Russia

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Agriculture Finance Bulletin Edition #5, October 2015

Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5)

Minister of Agriculture Discusses Veterinary Lab Modernization with US Agency ......................... 2 Forest Management Project Discussed with World Bank ............................................................... 2 Chile to Assist Armenia with Viniculture Development .................................................................. 2 Agro-Loans Subsidized by a further AMD 7 Billion - Agriculture Leading Growth Sector ............... 3 Minister of Parliament Calls for Interest Free Agro-Loans .............................................................. 3

Foreign Aid ................................................................................................................. 3 6) 7) 8)

Agricultural and Veterinary Service Center Opened in Hayravank ................................................. 3 EDB to Issue USD 40 Million Loan for Irrigation System Modernization ......................................... 4 Iranian Investors Target IT and Agriculture Sectors ........................................................................ 4

Private Sector.............................................................................................................. 4 9) 10) 11) 12) 13) 14) 15) 16)

210,000 tons of Grapes Purchased – Late Payments May Hamper Spring Farming Activities ....... 4 Potato Harvest totals 770,000 tons ................................................................................................. 5 64,800 tons of Fruit and Vegetables Exported - 84% Destined for Russia ...................................... 5 High Transport Costs Leave New Slaughterhouses Heavily Underutilized...................................... 6 Armenian Wine Production Should be Increased, says Union Chief ............................................... 6 State-Owned Winery Cooperatives Proposed ................................................................................. 6 EUR 33 Million Waste-Processing Plant and Greenhouse Planned................................................. 7 Armenia to Host International Potato Seminar Next August .......................................................... 7

Note: The Agriculture Finance Bulletin presents a monthly roundup of headlines and news stories related to investments and financing flows 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. BFC Max-Högger-Strasse 6 CH-8048 Zurich, Switzerland

Phone: +41 44 784 22 22 Fax: +41 44 784 23 23

info@bfconsulting.com www.bfconsulting.com

BFC. Agriculture Finance Bulletin.

State Initiatives 1)

Minister of Agriculture Discusses Veterinary Lab Modernization with US Agency

October 27th, 2015, http://news.am/eng/news/292787.html

Livestock should be numbered and tracked and veterinary laboratories modernized, said Minister of Agriculture Sergo Karpetyan, following a meeting with Major Matthew Pope, head of the Armenian Office of the Defence Threat Reduction Agency (DTRA) of the US Department of Defence.

The DTRA is currently engaged in several veterinarian programs across Armenia. Talks on further cooperation between the Ministery of Agriculture and the DTRA were held.

2)

Forest Management Project Discussed with World Bank

October 21st, 2015, http://minagro.am/en/2015/10/the-ra-minister-of-agriculture-discussed-the-process-of-the-effectiveforest-management-program-with-the-world-bank/

Minister of Agriculture Sergo Karapetyan met with a World Bank delegation to discuss the European Neighbourhood and Partnership Instrument (ENPI) East Countries Forest Law Enforcement and Governance (FLEG) 2 program.

Despite significant improvements in forest management – leading to a decrease in illegal logging – Armenia is still in need of technical support and specialised equipment to effectively monitor its forests.

The ENPI FLEG 2 program aims to support effective forest policy, legislation, management and institutional structures.

The World Bank pledged its continued assistance in developing Armenian forest management.

3)

Chile to Assist Armenia with Viniculture Development

October 17th, 2015, http://armenpress.am/eng/news/822513/ministries-of-agriculture-of-chile-and-armenia-to-signcooperation-document.html

As part of the Agriculture Worker’s Day held in Yerevan, cooperation on viniculture development in Armenia was discussed with Chile’s ambassador. A formal agreement is foreseen shortly, according to the Ministry of Agriculture.

Leonid Gelibterman, President of the International Center of Wine and Gastronomy, and Nichaolas Kovalsky – a viniculture expert – held a seminar on Chile’s transformation into a globally recognized wine producer.

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4)

Agro-Loans Subsidized by a further AMD 7 Billion - Agriculture Leading Growth Sector

October 16th, 2015, http://arka.am/en/news/economy/armfood_expo_2015_kicks_off_in_yerevan/ http://armenpress.am/eng/news/822400/government-to-subsidize-6-of-agricultural-loans.html

Agricultural loans will be subsidized by a further AMD 7 billion, announced Prime Minister Hovik Abrahamyan, leaving farmers paying 8% of the total 14% interest, while the state will cover the remaining 6%. Family farms contribute 97% of gross agricultural output, added Abrahamyan.

At the inauguration of the ArmFood EXPO-2015, Abrahamyan highlighted agriculture’s importance in the preservation and development of rural communities, poverty alleviation and food security in Armenia, adding it was the leading growth sector in the first 8 months of 2015.

The exhibition – also attended by Minister of Agriculture Sergo Karapetyan – hosts 81 companies showcasing juices, canned foods, packaging materials and other products.

5)

Minister of Parliament Calls for Interest Free Agro-Loans

October 13th, 2015, http://arka.am/en/news/economy/parliament_member_calls_for_interest_free_loans_to_farmers/

As agriculture is Armenia’s main contributor to GDP growth, interest free loans should be made available to famers, according to Minister of Parliament Levon Khachatryan. Considering that agriculture is soon to be the principal contributor to the state budget, all state agencies should convene to discuss the issue, he added.

Khachatryan noted that, while 194,000 tons of grapes have been procured so far, for lack of alternative buyers, many grape farmers are forced to sell their produce at unfavorable rates. However, many processors lack the funds to purchase the grapes, added Member of Parliament Lernik Alexanyan.

Foreign Aid 6)

Agricultural and Veterinary Service Center Opened in Hayravank

October 20th, 2015, http://en.a1plus.am/1220857.html

The Center for Agribusiness and Rural Development (CARD) has opened an Agricultural and Veterinary Service Center in Hayravank, Gegharkunik Marz. CARD is funded by the United States Agency for International Development (USAID).

The center will provide business training and technical assistance in animal health and husbandry to farmers, veterinarians and agribusiness representatives in the region. It will also provide assistance in securing finance and accessing new markets.

The opening ceremony – held on October 20 – was attended by Minister of Agriculture Sergo Karapetyan, head of USAID Armenia Karen Hilliard, Governor of Gegharkunik Marz Rafik Grigoryan, as well as representatives of CARD.

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7)

EDB to Issue USD 40 Million Loan for Irrigation System Modernization

October 17th, 2015, http://finport.am/full_news.php?id=23122&lang=3

Minister of Finance Gagik Khachatryan and Chairman of the Eurasian Development Bank (EDB) announced the allocation of USD 40 million to modernize Armenia’s irrigation and water management systems. The funds will be allocated through the EDB’s Eurasian Fund for Stabilisation and Development.

The project aims to increase efficiency through the introduction of gravity-based irrigation systems, the modernization of canals as well as improvements in water management.

Armenia joined the EDB in April, 2009. Some of the bank’s focuses are to improve food security, import protocols, and export competitiveness through the introduction of state-of-the-art technologies and the creation of vertically integrated agro-industrial enterprises.

8)

Iranian Investors Target IT and Agriculture Sectors

October 9th, 2015, http://www.yerkramas.org/article/96527/iran-vidit-bolshoj-potencial-v-selskoxozyajstvennoj-i-it-sferaxarmenii

Iranian investors are interested in Armenia’s agriculture and IT sectors, Hmayak Avetisyan, Head of Trade and Economic Relations at the Iranian Embassy, said during an Armenia-Iran business forum held in Yerevan.

While trade between the countries can be bolstered, there are limitations to the range of Armenian products under consideration – for instance, the sale of alcohol is forbidden in Iran, said Avetisyan.

Trade between the nations spans 20 years, with Armenia exporting wood, potatoes, lamb and industrial equipment to Iran and the latter sending raw materials to Armenia which are then further processed for export, according to the Head of the Union of Iranian Entrepreneurs Mohammad Hossein Yousef Zadeh.

Exports to Iran in the first 8 months of 2015 totaled USD 50 million – up 1.8% year-on-year – while Iranian imports were up 0.1% to USD 128.1 million, according to the National Statistical Service.

Private Sector 9)

210,000 tons of Grapes Purchased – Late Payments May Hamper Spring Farming Activities

October 28th, 2015, http://arka.am/en/news/business/armenian_processing_enterprises_buy_210_000_metric_tons_of_grape_/ http://finport.am/full_news.php?id=23171&lang=3

Armenian wineries and processors have purchased 210,000 tons of grapes from a total harvest of 320,000 tons, according to Hrachya Berberyan, Chairman of the Farmers' Union.

From 200-300 tons of grapes are still in the vineyards due to bad weather. Some enterprises decided to delay payments to farmers for up to 3 months, paying only AMD 70 per kilogram, while farmers that have already been paid received AMD 100-150. Berberyan believes the delayed, low payments may seriously hamper spring-time farming activities.

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Armenian wines are more expensive in Russia than Chilean or Bulgarian wines, said the Chairman: an Armenian bottle costs USD 6-8 while a similar quality Bulgarian wine costs USD 4-4.5. This comes as no surprise, considering the kilogram of grapes needed to make a bottle of wine costs AMD 100-150 and the glass bottle costs between AMD 130-150, said Berberyan. The Chairman proposed a revision of pricing methods and that a competent marketing strategy be devised by the Armenian Ministries of Finance and Economy.

This year 30,000 tons of table grapes have been stored, resulting in the winter price of grapes totalling AMD 500 per kilogram compared to the AMD 1,000 - 1,500 per kg seen last year, said Berberyan.

10) Potato Harvest totals 770,000 tons October 27th, 2015, http://armenpress.am/eng/news/823485/armenia-to-have-over-770-thousand-tons-of-gross-potatoharvest-this-year.html

Potato production continued to increase, totalling 770,000 tons this year, with an average yield of 235240 c/ha, according to the Ministry of Agriculture. The crop meets domestic demand in full with the surplus ready for export.

Much higher yields can be achieved, with Belgium at 563 c/ha, the Netherlands at 535 c/ha and Germany at 530 c/ha, while Turkey hits 315 c/ha and Iran 250 c/ha.

11) 64,800 tons of Fruit and Vegetables Exported - 84% Destined for Russia October 26th, 2015, http://news.am/eng/news/292640.html http://novostink.ru/economics/125562-obemy-eksporta-ovoschey-i-fruktov-iz-armenii-uvelichilis-po-sravneniyu-s-proshlymgodom-bolee-chem-v-15-raza.html

In the first 8 months of 2015, agricultural output totalled AMD 522.4 billion, a 13.9% increase year-onyear, according to the National Statistical Service.

As of October 26, 64,800 tons of fruit and vegetables were exported, compared to 38,550 tons during the same period last year, according to the Ministry of Agriculture.

Of the total, 8,500 tons of grapes were exported, compared to 5,390 tons during the same period last year; 1,420 tons of pears compared to 660 tons last year; 1,016 tons of blood orange compared to 3 tons; and 690 tons of apples compared to 14 tons.

Meanwhile, 9,400 tons of cabbage and cauliflower were exported compared to 1,820 during the same period last year; 2,972 tons of radish and beetroot compared to 664 tons last year; 1,170 tons of potatoes compared to 191 tons; 3,460 tons of cucumber compared to 179 tons; and 1,350 tons of greens compared to 800 tons.

The main export markets were Russia, Georgia, Kazakhstan, Belarus, Poland, the UAE, Kuwait and the Czech Republic – with Russia making up 84% of the total, compared with 34% last year.

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12) High Transport Costs Leave New Slaughterhouses Heavily Underutilized October 21st, 2015, http://hetq.am/eng/news/63230/armenias-new-abattoirs-remain-underutilized-animals-still-slaughteredin-unsanitary-conditions.html/

Five slaughterhouses – built under the auspices of a UN Food and Agriculture Organization (FAO) project – remain heavily underutilized. The project aims to prevent the spread of contagious diseases and guarantee food safety while providing attractive prices for farmers.

While the facility is equipped with state-of-the-art technology, and the cost of slaughtering remains low ($3.20 per sheep), transportation costs are too high for farmers, resulting in the continuation of home and road-side slaughtering, according to the project director Armen Havhannisyan.

Two solutions are currently under discussion, said Deputy Minister of Agriculture Grisha Baghinyan.

Either the farmers or the slaughterhouses will be legally obliged to collect and deliver livestock for processing. Even though legislation should be adopted by November, it will only be feasible to impose penalties once the slaughterhouses satisfactorily meet domestic demand, warned Baghinyan.

The most recent facility – opened in Myakovsky – has so far processed 4,000 sheep, mainly destined for Iran.

13) Armenian Wine Production Should be Increased, says Union Chief October 21st, 2015, http://www.armenianow.com/economy/67156/armenia_farmers_grapes_purchases_villagers

Difficulties in selling the grape harvest are not principally due to lack of demand, explains Armen Poghosyan, Chairman of the Consumer’s Union. With demand having fallen only 4%, much of problems arise from the cost of transporting the grapes to Russia.

This could be remedied by increasing the production of wine, with assistance from the government in the form of loans or transportation subsidies, he added. There is demand for Armenian wine, but it is underrepresented on international markets.

Poghosyan cited Armenia’s failure to capitalize on the recent Russian embargo on Georgian wine. While Georgia produced 24 million bottles of wine in the first 9 months of the year, Armenia produced only 600,000 to 1,000,000 – despite an abundant harvest. To increase sales, processors should be provided with precise information on the quality of the grapes, particularly the sugar content, added Poghosyan.

However, the crisis in the Eurasian Economic Union (EEU) – particularly the devaluation of the Russian ruble – has also affected the Armenian economy, according to experts.

14) State-Owned Winery Cooperatives Proposed October 9th, 2015, http://www.arka.am/en/news/business/creation_of_agricultural_cooperatives_will_help_improve_situation_in_armenian_win emaking/

The establishment of state-owned winery cooperatives could improve Armenian viniculture, said Head of the Armenian Winemakers Association Avag Harutyunyan, noting these would reassure grape growers that their produce would be sold. Shares in the cooperatives could later be sold to grape growers, he added.

The costs of creating a single cooperative winery would amount to USD 1.5-2 million, according to Harutyunyan, requiring an investment of only USD 14 million to create such cooperatives nationwide.

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15) EUR 33 Million Waste-Processing Plant and Greenhouse Planned October 8th, 2015, http://news.am/eng/news/289864.html

Czech-Armenian venture Geeneco Kas are to build a EUR 33 million processing plant in Armavir, according to Deputy Minister of Territorial Administration Vache Terteryan.

The greenhouse produce is intended for export.

16) Armenia to Host International Potato Seminar Next August October 6th, 2015, http://www.arka.am/en/news/business/armenia_to_host_international_potato_seminar_next_august/

Chairman of the Armenian Farmers Union Hrachya Berberyan announced an international potato seminar will be held in Yerevan in August 2016. Invitations were sent to interested parties in Iran, Iraq and Eurasian Economic Union members. The decision was reached during a meeting with Georgian and Dutch partners, as well as representatives of international organizations.

Experimental fields will be established in Armenia, and participants will be invited to see the results, said the Chairman.

Armenia plans to export high quality potato seeds to Russia, Tajikistan, Georgia, Iraq, Iran, as well as other countries, according to Berberyan.

Due to this year’s 35 day drought and recent rainy weather, 10% of the potato crop was lost, resulting in a 10-15% price increase, added Berberyan.

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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.

Copyright of articles is retained by their authors.

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.

Copyright of articles is retained by their authors.