Azerbaijan's food safety basis: agroparks, Karabakh, economical irrigation
Anaysis by Caliber.Az

ANALYTICS  04 October 2022 - 15:59

The global food crisis and the impact of imported inflation on the local market require Azerbaijan to accelerate agrarian reforms, with a focus on import phase-out. The primary task is to establish mass commodity production and reduce costs in the production and processing sector. The optimal solution to this problem is to expand the network of agroparks and enlarged farms, the development of which is currently being paid special attention to. The prospects for agricultural clusters were also discussed during the public debate on the topic "Agrobusiness: new opportunities and modern challenges" as well as at the forum "Innovations in Agriculture: Agroparks".

"In recent years, the world has faced new challenges, including economic, environmental and climate change, and therefore, our country, like others, needs to constantly support innovative trends and modern environment for agrobusiness in accordance with new requirements," Agriculture Minister Inam Karimov said at public discussions on the theme "Agrobusiness: new opportunities and modern challenges". The head of the Agrarian Ministry emphasized that the creation of more favourable conditions for the development of agrobusiness is one of the priorities of the socio-economic development policy of the country, and for this purpose, a joint search is being conducted with representatives of agribusiness for new methods and means to overcome emerging difficulties.

The global food crisis has once again highlighted the difficult and thin spots in the structure of the domestic agro-industry, which hinder the development of the sector and create various kinds of risks in times of instability in world markets. The most serious problem of the country's agricultural sector is still low labour productivity, which hampers the competitiveness of domestic agricultural production. According to a World Bank (WB) survey carried out several years ago, Azerbaijan's agricultural sector employs just over a third of the total workforce, while the total share of agriculture in the country's GDP is around 5-6%. And this is a clear indication of the low productivity of the sector.

Moreover, over the past years the situation has changed insignificantly: according to the State Statistics Committee, in January-August 2022 total GDP growth was 5.8%, and the nominal gross product exceeded 84.880 billion manats. However, in the reporting period, the share of agriculture, forestry, and fishery in total GDP amounted to only 5.1%, which is extremely low, given that today about 35% of the total employed population of the country are engaged in these sectors. This imbalance has still not been overcome, and in recent years the average productivity growth in the agricultural sector has fluctuated between 3-5%.

WB studies also indicate this: comparing the same figures for the agricultural sectors of Türkiye and Poland, the average productivity of an Azerbaijani farmer is three times lower than that of a Turkish worker, and six times lower than that of a Polish farmer. According to WB experts, the main reason for the low productivity of Azerbaijani farmers is related to the fact that the average area of a large part of farms does not exceed five to seven hectares, due to which it is technically and financially difficult for farmers to apply modern agricultural and irrigation methods. Without this, crop yields decline and the cost of the final product rises. Small farms, the number of which, according to various estimates, is still in the range of 250-300 thousand, are not always able to meet the required quality standards, and have problems with access to finance and advanced technologies.

It seems that the main problems of farmers are still related to financing, which was noted during the forum "Agrobusiness: new opportunities and modern challenges". In particular, according to Mammad Musayev, president of the National Confederation of Entrepreneurs (Employers) Organizations of Azerbaijan, the level of lending to the agricultural sector cannot be considered satisfactory. So, as of September 1, 2022, it was allocated 598.8 million manats in total to agrobusiness entities, which makes up only 3.1% of the total volume of credit investments. The bulk of funding and subsidies to the agricultural sector still comes from budget structures and funds, and to a small extent from international donors, while the share of commercial banks in these activities is negligible. This is due to the high level of sector risks (climate, irrigation, etc.) and the lack of insurance and liquid collateral that is attractive to banks.

However, in recent years, following the introduction by the Ministry of Agriculture of the automated information system Electronic Farming (EKTIS), there have been some positive changes in the organisational and partly financial support of the sector. This mechanism has played an unprecedented role in bringing order to more than 450,000 farmers through increased control and transparency in the process. The use of EKTIS has helped to bring unused land into agricultural production and improve its fertility, including through the more efficient provision of fertiliser and fuel subsidies to farmers, as well as optimising water use. The EKTIS is also based on the concessional lending mechanism for farmers and the agricultural insurance system, which, among other things, was established to solve the issues of bank financing of farms. At the same time, according to Musayev, the business community involved in the agricultural sector considers it necessary to further improve the agricultural insurance mechanisms affecting the field of lending, which would allow finding a solution to the problem of bank charges.

Participating in the "Agrobusiness: new opportunities and modern challenges" event Orhan Mammadov, chairman of Small and Medium Business Development Agency (KOBİA) also noted that the mechanism of agricultural insurance has not been widely used so far. Among other issues of concern to entrepreneurs engaged in the agricultural sector, the head of KOBİA identified problems associated with the lack of irrigation water, the lack of quality agronomic and other advisory services, the need to improve mechanisms for financing farms, the complexity of documentation procedures in the field of food safety, and the importance of improving access to markets for small farms.

Meanwhile, Azerbaijan's food and processing industry are heavily dependent on imports of raw materials, components, and packaging which is critical in times of global inflation. There is also a great need for stage-by-stage localization of enterprises producing agrochemicals, high-yield seeds, food additives, vitamins, and other preparations used for the production of fodder in livestock and poultry farming in the country.

The government plans to start solutions to many of these problems in the near future: in the draft state budget of Azerbaijan for 2023 it is planned to increase spending on agriculture by 20.5%, and apparently, it will affect both the sphere of subsidies and concessional lending to agricultural producers.

Next year, large-scale activities will be launched to increase self-sufficiency in food wheat: according to the presidential decree in July, additional 5-year subsidies will be granted to grain-growing farms, which use modern irrigation systems and signed the relevant contracts to deliver grain to the State Reserves Agency and to milling companies in accordance with the contract concluded with the Ministry of Agriculture. The purpose of this decree is to stimulate through subsidies large and medium-sized specialized grain farms and agro-parks to increase production of high-yielding durum wheat, as well as to improve mechanisms for granting loans on preferential terms and under state guarantees for agrotechnical re-equipment of farms, purchase of modern irrigation systems, including beer systems, etc. It is expected that about 40% of the cost of purchased irrigation systems will be subsidised by the state, with the remaining funds to be secured through soft loans.

Azerbaijan's annual demand for food wheat is about 1.2 million tons, and today the country imports about three-quarters of that. According to experts, with the modernisation of the irrigation network, other agrotechnical measures and subsidising farmers, it will be possible to increase average yields from the current 31-32 centners per hectare to 45-50 centners, thereby getting more wheat per unit area. At the same time, in the coming years, it is planned to noticeably increase the areas sown with cereals, especially food wheat, by including in the crop rotation suitable for it the territories liberated from the occupation.

"Last year and this year, 50 thousand hectares were allocated for spring and winter sowing in the liberated territories – in Karabakh and Eastern Zangazur, and in subsequent years the area of sown areas will increase. It is the second year pilot projects for sheep breeding are being implemented in Lachin and Kalbajar districts, many apiaries created, and these initiatives have been expanded to several more districts in the liberated areas," Inam Kerimov said. The head of the Agrarian Ministry also emphasized that the most important direction of agricultural development in the liberated territories will be the creation of diversified agroparks. The first livestock farming agropark with its own fodder base and facilities for the production of meat and dairy products is already being formed in the Zangilan district in cooperation with the Turkish business.

In general, in view of the global food crisis, the development of agroparks, their technical equipment and the increase in commodity production are listed as the cornerstone of the Ministry of Agriculture's policy for the coming years. Eight years have passed since the establishment of the first agropark, Shamkir, and now there are already 51 agroparks on 239.3 thousand hectares of land in 32 regions of Azerbaijan - at a total project cost of 2.4 billion manats. Of these, 34 are specialised in crop farming, 14 in crop and livestock farming, one in cattle breeding, and two in sorting-packaging, processing, and logistics. Today, agroparks account for 80% of all breweries and other water-saving systems as well as approximately a quarter of elevators, a considerable part of cold stores and other warehouses; agroparks are responsible for over 25% of food wheat production. A modern food and processing industry cluster with export-certified production and high-yield wheat seed and other seed production facilities is being created on the basis of agroparks. Currently, up to 4,500 permanent jobs are available in the agroparks, and more than 5,000 villagers are employed for seasonal work.

The base for the development of agroparks is a private investment - over 1.3 billion manats, but state parks will also be established in the coming years. At the recent forum "Innovations in Agriculture: Agroparks", Amir Mammadov, head of the department of the Agency for the Development of Economic Zones of Azerbaijan, said that such a state-run venture will be implemented in Yevlakh and will specialize in the horticulture sector: the agropark will use "smart" technologies, and the necessary infrastructure for agrotourism development is also planned.

In general, agroparks have demonstrated the greatest efficiency in the crop production sector, as it is easier and cheaper to cultivate large plots of land using agricultural machinery, apply fertilizers and introduce economical irrigation methods, thereby increasing crop yields and reducing production costs. The experience of recent years has confirmed the high efficiency of commodity production in local agroparks when growing pulses, sugar beet, clover, and other fodder, oilseeds, potatoes, and soybeans - yields in such enlarged clusters were an order of magnitude higher than those of smallholder farmers. In turn, the location of large processing enterprises in conjunction with agroparks makes it possible to provide factories with cheap raw materials and thereby reduce production costs, increasing the volume of packaged products, canned foods, etc. At the same time, large commodity producers are to a large extent export-oriented and are able to adjust their operations more quickly and flexibly to the changing demand, not to mention the fact that agricultural parks provide import substitution, which is extremely important in the current food crisis.

Caliber.Az