08 BFC Armenia Agriculture Finance Bulletin

01/2016

#

8 A rm e n i a Agriculture Finance Bulletin New Programs in 2016 Seek to Raise Food Supply Security EUR 75 Million for Vedi Reservoir Program Armenian Agricultural Sector Proving Successful in 2015 Armenian Olive Production Company Impresses Japanese Expert

All materials are published “as is� and are the property of their respective owners.

Agriculture Finance Bulletin Edition #8, January 2016

Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5) 6)

Armenia and India to Strengthen Agricultural Relations ................................................................ 2 Simplification of Procedures Leads to Huge Fruit and Vegetable Exports ...................................... 2 New Programs in 2016 Seek to Raise Food Supply Security ........................................................... 2 Animal Husbandry Listed as a Priority in 2016 ................................................................................ 3 Armenia Announces Tender for 15-year Water Management Contract......................................... 3 Transparent Loan Terms for Farmers Set ........................................................................................ 3

Foreign Aid ................................................................................................................. 4 7) 8) 9)

EUR 75 Million for Vedi Reservoir Program..................................................................................... 4 One Village One Product Project to Continue in Armenia in 2016.................................................. 4 EBRD Financed a Record Volume of Projects in Armenia in 2015................................................... 4

Private Sector.............................................................................................................. 5 10) 11) 12) 13)

Armenian Agricultural Sector Proving Successful in 2015 ............................................................... 5 Armenian Greenhouses Will Continue to Increase Production in 2016.......................................... 5 Armenian Olive Production Company Impresses Japanese Expert ................................................. 5 New Water-Saving Fertilizer ............................................................................................................ 6

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)

Armenia and India to Strengthen Agricultural Relations

January 25th, 2016, http://www.armradio.am/en/2016/01/25/india-armenia-to-sign-farm-pact-in-february/

India and Armenia are expected to sign an agricultural agreement on February 19, 2016 when the Armenian Agriculture Minister, Sergo Karapetyan, visits India. “We are very interested in familiarizing ourselves with the research and development potential of agriculture in India. We are also interested in the potential of manufacturing and agriculture techniques. Traditionally, we import from Russia and Belarus; now our farmers are showing interest in Indian manufacturing,” said Armen Martirosyan, Ambassador of the Republic of Armenia to India.

In inviting Indian companies to invest in Armenia, Martirosyan stated that bilateral trade between the two countries is only around USD 75 million while trade with China is almost USD 380 million; “however, the newly-built transportation network is more conducive for [trade with] India.” The ambassador also noted that “the recent lifting of sanctions might facilitate trilateral cooperation between India, Iran and Armenia.”

Further cooperation could also see Indian companies investing in Armenian manufacturing, pharmaceuticals and jewelry sectors.

2)

Simplification of Procedures Leads to Huge Fruit and Vegetable Exports

January 22nd, 2016, http://armenpress.am/eng/news/832943/simplification-of-procedures-in-eaeu-contributed-to-growth-offruits-and-vegetables-export-from-armenia.html

While releasing data on the export of fruits and vegetables in 2015, Deputy Agriculture Minister Robert Makaryan explained that simplification to the procedures of the movement of agricultural goods has led to a relative boom in agricultural exports.

Armenia exported 76,678 tons of fruits and vegetables in 2015 against 2014’s 46,459 tons. Exports to Russia amounted to nearly 64,000 tons of fruits and vegetables in 2015 as compared to 21,500 in 2014.

Other top export countries of Armenian fruits and vegetables were Georgia (12,100 tons), Belarus (312 tons), and Kazakhstan (176 tons). Of particular note in the released data was the increase of grape exports from 8,000 tons in 2014 to over 13,000 tons in 2015.

3)

New Programs in 2016 Seek to Raise Food Supply Security

January 19th, 2016, http://armenpress.am/eng/news/832527/a-number-of-projects-to-be-implemented-to-level-up-foodsupply-security.html

The Armenian government has included the raising of food supply security among its priority issues for 2016. The government reports that the level of self-sufficiency of foodstuff is estimated at 60% and the level of self-sufficiency of a number of particular foodstuffs (mainly wheat and livestock) is extremely low. The government holds that the simultaneous implementation of priority programs alongside the creation of agricultural cooperatives and the implementation of development programs will foster an atmosphere that will maximize the utilization of agricultural resources and raise food supply security in the country to an acceptable level.

The implementation of the priority program is expected to increase the supplies of high-yielding seeds for entrepreneurs, widely considered as crucial for boosting crop production. Livestock is also expected to be added as part of the priority program by creating conditions more conducive to increasing their production. Finally, an injection of modern technologies aims at also increasing fish production.

Page 2

BFC. Agriculture Finance Bulletin.

4)

Animal Husbandry Listed as a Priority in 2016

January 19th, 2016, http://armenpress.am/eng/news/832574/government-to-increase-assistance-to-communities-engaged-inbreeding.html

The Armenian government is including assistance to rural communities specializing in breeding among its priorities in 2016. According to the Agriculture Ministry, existing resources are not being fully utilized within the country, and this is resulting in low breeding efficiency and revenues. The situation demands an increase in the effectiveness of the utilization of natural resources and the organization of breeding.

State assistance programs will aim to ensure the implementation of key policies in remote areas to achieve this goal.

5)

Armenia Announces Tender for 15-year Water Management Contract

January 18th, 2016, http://arka.am/en/news/economy/armenia_s_state_water_committee_announces_tender_to_choose_drinking_water_supplie r/

Armenia’s State Water Committee has announced a tender to choose a drinking water supplier. The Armenian government has already embarked on second-generation reforms in drinking water economy and has already taken some steps to make ties between the public and private sectors closer. The aim of the reforms is to improve the quality of water supply services and management of water resources as well as to enhance the financial sustainability of the water economy.

The government’s decision will select one operator to control all water management in the country for 15 years. Prices for water supply and sewage will be the same in the entire territory of the country.

Fichtner (Germany), Ramboll (Denmark) and Accounting \u0026 Audit Reform Consultants (AARC Ltd) (Ireland) consulting companies will provide assistance in the organization of the tender. The deadline for supplying pre-qualification applications is January 21, 2016, and a short list of the companies eligible to compete in the tender will follow. The tender will be conducted in March 2016.

6)

Transparent Loan Terms for Farmers Set

January 14th, 2016, http://news.am/eng/news/306318.html

Amendments to the Law on Consumer Credits for Farmers, adopted by parliament in December, will make transparent the loan terms for Armenian farmers. Banks must now show the actual interest rate in both consumer and farmer loan agreements.

Individual farmers frequently pay attention only to the nominal interest rate, when the actual one can be 2% to 2.5% higher, when factoring in other loan parameters. “We want to protect [farmers] as we do consumers [so that they] can make an informed choice,” said Deputy Finance Minister Pavel Safaryan.

Page 3

BFC. Agriculture Finance Bulletin.

Foreign Aid 7)

EUR 75 Million for Vedi Reservoir Program

January 26th, 2016, http://armenpress.am/eng/news/833448/france-provides-%E2%82%AC75-million-loan-for-vedi-reservoirprogram.html

Finance Minister Gagik Khachatryan, Deputy Director Jean-Claude Pires of the French Development Agency, and French Ambassador Jean-Francois Charpentier signed a loan agreement on January 26, 2016. The 20 year loan to Armenia is for EUR 75 million and includes a six-year grace period. Minister Khachatryan noted that the signing of the agreement is a “huge step in developing agriculture in the country and creating new jobs.”

The loan will finance construction of the 20-million-cubic-meter Vedi reservoir in the Ararat province and will create opportunities for about 4,500 agricultural workers to improve rural production and incomes. It will also enable an expansion of irrigated lands and is expected to increase the capacity of irrigation water for consumers.

8)

One Village One Product Project to Continue in Armenia in 2016

January 18th, 2016, http://finport.am/full_news.php?id=23617&lang=3

The Japanese funded One Village One Product (OVOP) project will continue in Armenia in 2016. The new draft for the project in 2016 is expected to be signed between Japan and Armenia soon, but the terms of project implementation are still unknown. It is, however, expected that the project will provide AMD 74 million for start-ups, AMD 46.5 million for tourism enterprises, and loans of up to AMD 7 million (instead of the current AMD 5 million limit) to small and medium enterprises in 2016.

During the previous three years of the project's implementation, the Japanese government has provided nearly USD 2 million in assistance to more than 250 small and medium-sized enterprises, with an overwhelming majority of them being start-up enterprises engaged in water production, winemaking, cheese making, and/or tourism. The funds have been provided at a 100% guarantee, a 10% annual interest rate and an up to 5 year maturity period.

9)

EBRD Financed a Record Volume of Projects in Armenia in 2015

January 15th, 2016, http://en.a1plus.am/1226856.html

The European Bank for Reconstruction and Development (EBRD) financed a record volume of projects in Armenia in 2015, providing strong support to the country’s economy in a challenging economic environment. EBRD financed 14 projects with total investments reaching USD 140 million for the year, an unprecedented level in the 24 years that the Bank has been working in Armenia and a clear indication of both the investment opportunities in the country and the strong demand for EBRD funding. The investment activities of the EBRD were strongest in the areas of financial institutions, transport, municipal infrastructure, industry, commerce and agribusiness.

In 2015, EBRD also published a new four-year strategy for Armenia that aims to enhance private sector competitiveness, develop capital markets and local currency financing, further develop infrastructure, and commercialise the provision of public services. “While 2016 is likely to be a challenging year, I see a number of new opportunities in Armenia and I am optimistic, especially about capital market development and the emergence of more private equity investment activity,” commented Head of EBRD’s Yerevan office, Mark Davis.

Since the start of its operations in Armenia in 1992, EBRD has invested over USD 1.13 billion in 148 projects.

Page 4

BFC. Agriculture Finance Bulletin.

Private Sector 10) Armenian Agricultural Sector Proving Successful in 2015 January 27th, 2016, http://www.armenianow.com/economy/69485/armenia_agriculture_economy_ararat_reservoir_funding

Armenia’s agricultural sector registered a growth of 11.7% in 2015. While some experts are attributing this to favorable weather conditions, the government is quick not to dismiss the work done in the sector over the past few years. “It is not right to ignore the investments, the launch of new processing plants, and the efforts to expand arable lands,” said Prime Minister Abrahamyan.

Abrahamyan also pointed to funding that allows for the delay of loan repayment due to damaged crops and a government loan subsidy program as having “resulted in positive changes in the sphere of agriculture in recent years.”

The main challenges for Armenian agriculture in 2015 were connected to decreasing price competitiveness in the Russian markets and the devaluation of the Russian Ruble following international sanctions on Moscow. This caused some involved in Armenian agriculture to experience a difficult year, particularly food exporters. There were also some crops that experienced a poorer than normal yield this year, which also created some difficulty in the agricultural sector.

11) Armenian Greenhouses Will Continue to Increase Production in 2016 January 26th, 2016, http://armenpress.am/eng/news/833352/greenhouses-in-armenia-will-increase-annual-production-to-63thousand-tons.html

Fruit and vegetable production from Armenian greenhouses is expected to increase to 30,000 tons in 2016, a 6.3 thousand ton increase over 2015 numbers. According to Robert Makaryan, Deputy Minister of Agriculture, greenhouse production is also expected to continue to produce the main share of tomato and cucumber exports. In 2015, 1,680 tons of tomatoes and 3,850 tons of cucumbers were exported, up from 220 tons and 416 tons in 2014, respectively — the majority of which were grown in greenhouses.

The Deputy Minster also discussed increasing cold storage capacities in the future. In 2015 alone, 3.45 million tons of cold-stored fruits were also exported from Armenia.

12) Armenian Olive Production Company Impresses Japanese Expert January 18th, 2016, http://armenpress.am/eng/news/832343/japanese-expert-is-impressed-with-the-olive-productioncompany.html

Tsukamoto Akihiro, head of the “One Village One Product” project, is impressed by Armenian olive production company Viva Fruit: “the company participated in the 2011 Ijevan Art Festival where [it] conducted a survey of the demand for its products and increased [its] volume of production; the company is now developing.”

Akihiro noted that the company from Tavush province was introduced in the “Made in Armenia” exhibition and currently has a sustainable development model. He further added that Armenian dried fruit and wines can also be competitive in Japanese market.

Page 5

BFC. Agriculture Finance Bulletin.

13) New Water-Saving Fertilizer January 11th, 2016, http://news.am/eng/news/305729.html

Director of Eco Technology, Ashot Baghdasaryan, recently announced the development of a new fertilizer which promises to collect water from soil and give it to plants as needed. In addition to the benefit of saving on water, the fertilizer also eliminates excess water, preventing root decay, and collects useful nutrients for plants.

According to the company, the new fertilizer has the added benefit of biologically decomposing, leaving no residue in soil, and has undergone several tests with volunteer farmers and within a number of international projects.

The fertilizer is expected to increase crop yields by 40% to 60%.

Page 6

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.