03 BFC Armenia Agriculture Finance Bulletin

08/2015

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3 A rm e n i a Agriculture Finance Bulletin 10-Year Anti-Phylloxera Strategy Devised Grape Variety Sanctuary Established Basen Community Introduces Solar Energy with UNDP Support Spayka LLC to Open Largest Fruit and Vegetable Processing Plant in Armenia Fruit and Vegetable Exports Total 50,315 Tons – 83% Destined for Russia

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Agriculture Finance Bulletin Edition #3, August 2015

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

50 Acres of Greenhouses Established in Kotayk Province –20 Acres Under Construction ............. 2 Armenia Agricultural Product Exports Increase due to EEU Accession ........................................... 2 Armenia and Georgia to Exchange Expertise and Undertake Joint Ventures in the Agro-Sector ... 2 10-Year Anti-Phylloxera Strategy Devised - Grape Variety Sanctuary Established ......................... 3 Individuals Banned from Importing Georgian Meat ....................................................................... 3 10.5 km of New Irrigation Pipelines to Be Introduced in Aragatsotn.............................................. 3

Foreign Aid ................................................................................................................. 3 7) 8) 9)

Producer Group and Value Chain Development Project Receives 190 Applications ...................... 3 Basen Community Introduces Solar Energy with UNDP Support .................................................... 4 Russia Contributes USD 6 Million to FAO for Strengthening of Food Security in Armenia, Kyrgyzstan and Tajikistan ................................................................................................................ 4 10) World Bank Provides USD 40 Million Loan for Road Network Improvement ................................. 4

Private Sector.............................................................................................................. 5 11) 12) 13) 14) 15) 16) 17) 18)

Gross Agricultural Output up by 15.6% in First Half of 2015........................................................... 5 200 kg of Armenian Sturgeon Destroyed by Russian Authorities ................................................... 5 Malting Plant to Be Opened in Gyumri ........................................................................................... 5 To Date in 2015, Processors Procure 16,713 Tons of Domestic Fruits and Vegetables .................. 6 Spayka LLC to Open Largest Fruit and Vegetable Processing Plant in Armenia .............................. 6 Fruit and Vegetable Exports Total 50,315 Tons – 83% Destined for Russia .................................... 6 Food Prices Fall 4.6% in July ............................................................................................................ 7 Aquaculture Sector in Severe Difficulty ........................................................................................... 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)

50 Acres of Greenhouses Established in Kotayk Province –20 Acres Under Construction

August 26th, 2015, http://armenpress.am/eng/news/816498/minister-of-agriculture-foresees-abundant-apple-harvest-inkotayk-province.html

During a visit to Kotayk, Minister of Agriculture Sergo Karapetyan announced that, this year alone, 50 acres of greenhouses were established in the province, with another 20 acres under construction.

Cultivated area in the province has increased by 1,000 acres in the past 10 years, added Karapetyan.

The Minister toured raspberry fields in Alapars, apple orchards in Nor Geghi and greenhouse construction sites. This year’s apple harvest is expected to be excellent, said Karapetyan.

2)

Armenia Agricultural Product Exports Increase due to EEU Accession

August 21st, 2015, http://en.aravot.am/2015/08/21/171644/

When questioned regarding the perceived lack of economic improvements following Armenia’s accession to the Eurasian Economic Union (EEU), Karin Minasyan, Minister of the Eurasian Economic Commission (EEC), noted that the simplification of import and export procedures between EEU members has, in fact, led to an increase in the export of Armenian agricultural products.

With regards to the wider economy, Minasyan suggested the benefits of EEU membership lack visibility due to negative macro-economic factors, such as currency fluctuations and the crisis in Russia.

Considering the Armenian economy’s heavy reliance on the latter’s market, the knock-on effects of the crisis would have been exacerbated by non-membership, added Minasyan.

In the meantime, other mitigating factors, such as poor transportation infrastructure, are being addressed, said the Minister.

3)

Armenia and Georgia to Exchange Expertise and Undertake Joint Ventures in the Agro-Sector

August 19th, 2015, http://arka.am/en/news/business/yerevan_tbilisi_ready_to_encourage_new_joint_businesses http://minagro.am/2015/08/

Minister of Agriculture Sergo Karapetyan met with his Georgian counterpart Otar Danelia in Tbilisi to discuss cooperation avenues and the exchange of expertise.

Topics included cooperation in aquaculture – under the auspices of the European Neighbourhood Programme for Agriculture and Rural Development (ENPARD) – the development of agricultural insurance schemes and the promotion of cooperatives. The Ikhtios fish farm was singled out as a model joint venture between the parties.

Karapetyan suggested Armenian expertise in table grape production and greenhouse farming may be of use to Georgia.

Karapetyan visited Georgia’s National Food Agency, fish farms, strawberry greenhouses, the Kindzmarauli Marani winery vaults, an experimental vineyard and the Adjara Service Centre – an agroconsulting institution founded with support from United Nations Development Programme (UNDP) and funded by the European Union.

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4)

10-Year Anti-Phylloxera Strategy Devised - Grape Variety Sanctuary Established

August 10th, 2015, http://finport.am/full_news.php?id=22879&lang=3

In response to the recent discovery of 9.24 hectares of phylloxera infested vineyards in Armavir province, Minister of Agriculture Sergo Karapetyan announced a new 10-year prevention and contingency strategy. The farmers affected received AMD 3.2 million in compensation.

In a separate measure, a special 5 hectare sanctuary comprising all of Armenia’s grape varieties will be established in a bid to conserve the gene pool.

In 2014, grape production in Armenia totaled 260,000 tons.

5)

Individuals Banned from Importing Georgian Meat

August 6th, 2015, http://www.news.az/articles/region/100139

A ban on Georgian meat imported for personal use via the Bahratashen, Bavra and Gogovani border crossings has been instated, according to the Ministry of Agriculture.

The ban was put in place to prevent anthrax infected meat from entering Armenia.

6)

10.5 km of New Irrigation Pipelines to Be Introduced in Aragatsotn

August 5th, 2015, http://www.fruitnews.am/ru

During a tour of Aragatsotn, Minister of Agriculture Sergo Karapetyan announced 10.5 km of new irrigation pipelines will be introduced in the province through the World Bank’s Community Agricultural Resource Management and Competitiveness (CARMAC) project.

The Minister visited Varga Food LLC in Bazmaghbyur, apple orchards and Karbi Fruit Company in Karbi, and a 151 member agricultural cooperative in Khnaberd.

The region has seen total cultivated area increase by 2,750 hectares in 2015, while yields have also significantly increased, added the Minister.

Foreign Aid 7)

Producer Group and Value Chain Development Project Receives 190 Applications

August 19th, 2015, http://armenpress.am/eng/news/815792/190-farming-groups-submit-application-to-participate-insustainable-rural-development-competition.html

The Producer Group and Value Chain Development project – part of the European Neighborhood Programme for Agriculture and Rural Development (ENPARD) – has received 190 applications from 6 provinces, including Shirak, Lori, Gegharkunik, Aragacotn, Kotayk and Vayots Dzor. The 3-year program was launched in June, 2015.

ENPARD aims to promote sustainable development of agriculture in Armenia. The program is being implemented in cooperation with the Ministry of Agriculture.

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8)

Basen Community Introduces Solar Energy with UNDP Support

August 12th, 2015, http://hetq.am/eng/news/62012/solar-power-proves-a-successful-energy-alternative-in-armenias-basencommunity.html/

Basen, a village and community in Shirak province, now uses solar energy to power its kindergarten and greenhouses, while 12 residencies have installed solar water heaters, according to Mayor Hamlet Petrosyan.

With the assistance of NGO Biosofia Environmental, one 60 and one 250 square meter greenhouse using solar technology have been installed, the former producing 440 kg of crops.

As part of its bid to increase the use of solar power throughout Armenia, the United Nations Development Programme (UNDP) provided USD 34,000 in funding – the village contributed USD 15,000 of its own funds, as well as providing labor.

Roughly USD 2,089 (AMD 1 million) was saved in energy expenditures as a result, according to the Mayor.

9)

Russia Contributes USD 6 Million to FAO for Strengthening of Food Security in Armenia, Kyrgyzstan and Tajikistan

August 4th, 2015, http://arka.am/en/news/economy/russia_to_provide_6_million_to_fao_for_food_security_of_armenia_kyrgyzstan_and_tajikis tan/

Russia has contributed USD 6 million to the UN Food and Agriculture Organization (FAO) to support its efforts strengthening food security and sustainable agricultural development in Armenia, Kyrgyzstan and Tajikistan, according to Vladimir Rakhmanin, FAO Deputy General Director and Regional Representative for Europe and Central Asia.

The funds can be used to increase food security via state capacity building, investment planning and software development, according to Kostas Stamoulis, the FAO’s Head of Agricultural Development Economics.

Despite considerable economic and household earnings growth in recent years, the countries remain highly sensitive to macroeconomic and climatic shocks, according to the FAO. Agriculture remains an important sector in all three countries, accounting for 20% and 27% of Kyrgyzstan’s and Tajikistan’s GDP, respectively. In Armenia, 40% of the workforce is engaged in agriculture, while the figures are 60% in Tajikistan and 33% in Kyrgyzstan.

The landlocked countries’ food security is largely dependent on imports and remittances from neighboring countries, according to the FAO.

10) World Bank Provides USD 40 Million Loan for Road Network Improvement August 1st, 2015, http://www.armradio.am/en/2015/08/01/world-bank-supports-further-improvement-of-armenias-ruralroads-network-2/

The World Bank has issued an additional USD 40 million loan for the financing of the Lifeline Road Network Improvement Project (LRNIP) in Armenia – the state will provide a further USD 5 million. The project aims to build and rehabilitate the elements of Armenia’s road network essential to market

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accessibility and road safety, increasing employment opportunities and economic growth in the process, according to Laura E. Bailey, World Bank Country Manager for Armenia.

The loan has two main components. The first will finance the rehabilitation and improvement of 155 km of roads and includes a Contingent Emergency Response (CER) sub-component that would facilitate the channeling of loan funds for disaster relief.

The second component will finance an impact evaluation study, strategic planning, data harvesting, disaster-readiness assistance, road composition analysis equipment, road safety sign installation, and development of a road safety action plan.

Half of Armenia’s road network is in a poor condition, hindering trade and employment opportunities, and sometimes leading to outright loss of crops. Since its launch in 2009, the LRNIP project spent USD 101.6 million upgrading 433 km of roads, resulting in a significant increase in employment, with journey times being reduced by 40%.

Private Sector 11) Gross Agricultural Output up by 15.6% in First Half of 2015 August 21st, 2015, http://hetq.am/eng/news/62195/armenias-economic-activity-index-up-4-agriculture-biggest-gainer.html

In the first half of 2015, gross agricultural output totaled AMD 92.8 billion, up 15.6% year-on-year.

Over the same period, Armenia’s Economic Activity Index (EAI) increased 4.2%, with agriculture the biggest gainer. Trade was up by 2.8% (AMD 204.4 billion), manufacturing by 1.2% (AMD 108.7 billion), services by 0.5% (AMD 103.9 billion), while construction by 0.2% (AMD 35.9 billion).

12) 200 kg of Armenian Sturgeon Destroyed by Russian Authorities August 21st, 2015, http://www.panarmenian.net/rus/news/196282/

Russia’s Rosselkhoznadzor (Federal Service for Veterinary and Phytosanitary Surveillance) seized and destroyed 200 kg of sturgeon at Sochi airport. The sturgeon was exported to Russia by Armenian company Ararat Forel.

Victoria Kokosyan, Deputy Head of the Russian State Border Veterinary Control Division of Krasnodar Oblast, said Ararat Forel is not registered with Rosselkhoznadzor and lacks the appropriate import certificates.

The company responsible for delivering the goods reported the irregularities to the Rosselkhoznadzor, added Kokosyan.

13) Malting Plant to Be Opened in Gyumri August 20th, 2015, http://www.yerkramas.org/article/?id=95012/soyuz-pivovarov-rossii-skoro-armyanskij-solod-uznayut-vmire

A malting plant is to be opened in Gyumri and will purchase barely from local farmers for the first time this year.

The Union of Russian Brewers called for close cooperation with Armenia’s Ministry of Economy in strengthening the Eurasian Economic Union (EEU), namely on alcohol production safety regulations. The Union also hoped for the success of the Armenian brewing sector – including Beer of Yerevan and Gyumri Beer and all raw material producers.

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14) To Date in 2015, Processors Procure 16,713 Tons of Domestic Fruits and Vegetables August 14th, 2015, http://news.am/eng/news/281500.html

As of August 14, 2015, Armenian fruit processing companies procured 10,843 tons of domestic fruit, compared to 1,360 tons during the same period last year. After the devastation of last year’s apricot crop, the total included 6,294 tons of the fruit, up from 157 tons during the same period of 2014.

During the same period, 5,870 tons of vegetables were purchased, up from 4,451 tons a year prior. The tomato harvest totaled 4,210 tons, up from 2,952 tons.

15) Spayka LLC to Open Largest Fruit and Vegetable Processing Plant in Armenia August 11th, 2015, http://finport.am/full_news.php?id=22884&lang=3

In September, Spayka LLC will open the largest fruit and vegetable processing plant in Armenia, with state-of-the-art Italian equipment capable of producing 40 million items per year – mainly canned food and juices destined for Russia, said Karen Baghdasaryan, head of the company’s Project Management Division. The company has already signed preliminary agreements with a number of large Russian distributers and retailers, said Baghdasaryan.

Spayka is the largest international freighting company and exporter of agricultural goods in Armenia. As exclusive exporter of radishes, the company has agreed to purchase the entire production of Greenhouse LLC’s new 30 hectare radish greenhouse. The radishes are exported to Europe, with the Iranian market having high potential.

Spayka accounts for over 65% of the total exports of Armenian fruit and vegetables. To date in 2015, the company exported 40,000 tons, up from 20,000 tons in 2014 and 16,000 tons in 2013. The company’s main exports are apricots, peaches, nectarines, cherries, grapes, apples, pears, mushrooms, greens, cabbages, potatoes, onions, carrots, peppers, tomatoes, cucumbers and radishes.

The company’s fleet grew by 20-30% yearly and now compromises 115 vehicles.

16) Fruit and Vegetable Exports Total 50,315 Tons – 83% Destined for Russia August 10th, 2015, http://sputnikarmenia.ru/economy/20150810/360044.html

To date in 2015, fruit and vegetable exports totaled 50,315 tons, compared with 46,450 tons during the same period last year. Of the total, 83% is destined for Russia, compared with 30% a year prior.

Apricot exports totaled 20,970 tons, up from 1,791 tons during the same period in 2014; peach exports totaled 525 tons, up from 51 tons; plum exports totaled 1,016, up from 50 tons; while cherry exports totaled 2,190 tons, up from 369 tons.

Cucumber exports totaled 3,145 tons, up from 58 tons during same period in 2014 and tomato exports totaled 1,024 tons, up from 84 tons.

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17) Food Prices Fall 4.6% in July August 7th, 2015, http://finport.am/full_news.php?id=22877&lang=2

In July 2015, food prices saw a yearly drop of 4.6%, according to the National Statistical Service.

In July 2015, the price of fruits fell 29.1% compared to June, 2015, and are down 11.1% compared to July 2014. Potatoes and vegetables fell 10.7% but are up 9% since July 2014. On average, fruits, vegetables and potatoes were down 17.7% for the month, according to the National Statistical Service. The group’s share of basic subsistence is 8.99%, contributing to a 1.53% decrease in consumer prices.

Egg prices saw a monthly decrease of 5.3% in July, but are up 2.5% since July 2014, while sugar fell 2.2% and 1.1% over the respective periods.

Dairy product prices saw a monthly fall of 1.8%, but are up by 3% over one year, while meat products were down 0.7% and up 2.4% over the same respective periods.

Fish products slipped 0.4%, bread 0.3%, vegetable fat and adipose tissue 0.2%, and coffee, tea and cocoa 0.2% for the month.

Consumer prices saw a monthly fall of 2.2% in July 2015, but rose 4.2% over one year.

In 2015, inflation is predicted at 4%, with GDP growth at 4.1%, according to the government.

18) Aquaculture Sector in Severe Difficulty August 5th, 2015, http://arka.am/en/news/economy/armenia_s_fish_market_seriously_challenged_expert_says/ http://www.panarmenian.net/eng/news/195729/Armenias_fishery_production_grows_by_296__in_first_half_of_2015

Aquaculture in Armenia is facing serious issues, with production costs equaling wholesale value, according to Artur Atoyan, Head of the Armenian Fish Farmers and Exporters Union. Some farmers are forced to sell their produce at 120-150 drams below production costs due to loan commitments, he added.

Profit margins are not the only problem, with Armenia having lost export market share due to a mixture of increasing fish feed prices, and poor marketing and strategic decision, according to Atoyan.

Without support from the government, farmers will be unable to overcome these problems, said Atoyan, adding that, while these issues have been put to the Armenia’s president and the Chairman of the National Assembly, little progress has been made.

According to the National Statistical Service, Armenia’s fish production totaled AMD 14.3 billion in the first half of 2015, a 29.6 % increase year-on-year. Output in 2014 totaled AMD 28.65 billion, a 24.6% increase compared to 2013.

According to Minister of Agriculture Sergo Karapetyan, fish production in Armenia almost doubled from 2011 to 2014, with exports totaling 2,700 tons in 2014 compared to 1,600 tons in 2011.

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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.

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