Collapse of Armenian agriculture: Farmers' doom
Review by Caliber.Az

ANALYTICS  20 May 2023 - 16:18

The shortage of water, the fall in purchase prices for agricultural raw materials and, at the same time, the rise in the price of imported fuel, fertilizers and fodder are far from a complete list of problems that have slowed down the pace of development of Armenia's agriculture over the past three years.

At the same time, there has been a trend in the country to reduce the financing of agricultural projects, and in the subsidising segment, theft of state funds has again been discovered. Moreover, in recent months, the agricultural industry of the republic began to rapidly lose foreign export markets. So, since April 5, due to fraud with Iranian raw materials, Armenian enterprises have lost the right to export dairy products to Russia. And on the eve of the Armenian agro-industrial complex, another blow was dealt: the flagship of the wine industry, the Yerevan Brandy Factory, was forced to stop exporting to the Russian Federation – its main sales market.

Armenia has not been able to overcome the consequences of the ban of the Federal Service for Veterinary and Phytosanitary Supervision of Russia (Rosselkhoznadzor) on the import and sale of Armenian dairy products of the Armenian agro-industrial complex into the country since April 5, 2023.

Recall that the decision of Rosselkhoznadzor was connected with the difficulties of quality control at Armenian dairy factories, as well as due to the use of low-quality dried milk, cream and other raw materials purchased in Iran for Armenian milk.

“There could be several reasons for this ban: one of them is overproduction in Russia itself, as well as the price reduction for powdered milk associated with it. The second reason could be the issues with the import of raw materials from Iran,” Armenian Economy Minister Vahan Kerobyan said on May 18 at a joint meeting of a number of parliamentary commissions.

Having speculated about the decline in purchase prices within the country, the minister nevertheless did not clarify the issue of the prospects for resuming the export of dairy products to the Russian Federation, only adding that the department would try to do everything possible so that local farmers could sell the milk produced during the season.

Such promises are inexpensive and the Armenian government generously shares them with dissatisfied villagers, but the reality, alas, shows something completely different.

Having lost the 44-day war, Armenia lost its food base in Karabakh, and without cheap fodder, the livestock sector has experienced a decline in production for the third year in a row. So, in 2022 alone, the decline was 4.1 per cent, which led to a sharp decrease in milk production, and this negative trend continued in 2023, contributing to the ruin of farmers.

In fact, this is why Armenian dairy factories are firmly and for a long time addicted to cheap Iranian dairy raw materials of very dubious quality, thereby depriving the domestic animal industry of the future.

Equally pessimistic prospects are emerging for another strategic sector of Armenia's agriculture - viticulture and winemaking, where a systemic crisis has been observed for several years in a row. Global inflation turned into a rise in the price of fuel, fertilizers, pesticides, and overhead costs, which increased the expenses of winegrowers.

Along with this, in 2021-2022, a non-payment crisis was observed in the "country of stones", when many wineries and cognac factories refused to accept products from farmers, citing the lack of space in warehouses and the non-sale of wine products from the last harvest.

Due to low purchase prices, disgruntled vine growers block highways every autumn, stage marches to the capital and protest outside the government building. But all in vain. The average cost of grape production by Armenian farmers exceeds 120-140 drams ($0,31-0,36) per kilogram, while the level of purchase prices for raw materials from most wineries (accused, by the way, of cartel conspiracy) is significantly lower than the cost of production in farms.

At the same time, wineries, using “grey” schemes, continue to produce various counterfeits under Armenian brands from cheaper imported alcohol, which is explained by the high cost of distilling cognac spirits from grapes within the country.

Against this already negative backdrop, since the beginning of 2023, there has also been a decrease in demand for Armenian alcoholic products in Ukraine and Russia, as well as in Belarus and other countries of the Eurasian Economic Union (EAEU).

Additionally, the icing on the cake was the recent decision of the French company Pernod Ricard, which owns 100 per cent of the shares of the Yerevan Brandy Factory (YBC), to leave the Russian market completely. In fact, this is a real industry knockout, given that about 80 per cent of all products of the flagship of the Armenian cognac industry - YBC - were sold on the Russian market.

To assess the scale of losses, it is appropriate to recall that the plant's share reached two-fifths of the country's total cognac exports. In the overall structure of Armenian exports, the share of cognac in 2021 in terms of revenue reached $242 million, and this alcoholic beverage took second place after copper concentrate, overtaking revenue from cigarette supplies.

“YBC, owned by French investors, stops exporting to Russia, and this may negatively affect the purchase of grapes in Armenia: we must monitor the situation and respond as necessary,” the head of the economic department warned.

True, the minister did not indicate effective methods for overcoming this crisis, and idle talk about diversifying supplies is just as meaningless as in the case of vain attempts to outline the prospects for Armenian-Iranian dairy exports.

Things are not much better in other sectors of Armenia's agriculture, which is facing, among other things, the prospect of funding cuts. In any case, at a joint meeting of a number of permanent parliamentary commissions held on May 18 in the Armenian National Assembly, the issue of serious abuses of state financing of agriculture was discussed.

“Serious abuses were revealed in a number of programs of the Economy Ministry, including subsidies for loans for farmers and agribusiness: the audit covered about 80 per cent of the budget of the department, about 41 billion drams [$106,804,672], and according to the results of the inspections, violations of about 600 million drams [$1,562,995] were revealed,” member of the Audit Chamber of Armenia Karen Arustamyan said, stressing that control measures in this direction are ongoing.

In particular, the checks revealed egregious facts of the theft of state funds provided in the form of subsidies for loans, which were simply sawn up. For example, when planting intensive orchards and vineyards, instead of elite varieties, the cheapest low-yielding seedlings were used, which did not even pass state examinations, while the price limits for agricultural machinery and equipment intended for leasing, as well as for the purchase of crops, were repeatedly overestimated.

Moreover, loans were sometimes issued for activities not related to agriculture at all. Thus, some credit organisations participating in the subsidised state program, instead of supporting ordinary farmers, issued preferential loans to their shareholders and council members.

All of the above is a typical situation for Armenia: back in 2017, in the "country of stones" they were forced to abandon subsidies for farmers for mineral fertilizers and elite wheat and fodder seeds due to the fact that village elders wrote all this to the name of farmers, and received funds from the state.

Then it was decided to change the mechanism for issuing subsidies, replacing them with subsidies for short-term farm loans. However, Armenian officials from the agricultural sector easily bypassed all the tricks and skillfully continued cutting the budget.

It is noteworthy that instead of strengthening the fight against corruption and embezzlement of state funds, the Armenian government intends to solve these problems by reducing funding and subsidizing agriculture.

Answering the deputies' questions about how this could happen and why the state is shifting responsibility, Economy Minister Kerobyan replied that the state is limited in its means of control and in many cases, referring to banking secrecy, credit organisations do not transfer data to the ministry on under what conditions they lend to specific beneficiaries of state programs.

“Due to the impossibility of adequate control, Economy Ministry has decided to stop issuing subsidies for farm loans without targeting and preliminary audit by third-party organisations,” Kerobyan said.

As a matter of fact, the ministry has signed for its complete inability to establish proper control over the spending of state funds, shifting all responsibility to credit structures, farmers, etc.

The absurdity of the situation is so obvious that the arguments and proposals of the economy minister at the parliamentary hearings caused a general objection both among the MPs and representatives of the Audit Chamber.

However, the current escapades in the Armenian parliament should be considered in the context of the government's strategic line, announced by Armenian Prime Minister Nikol Pashinyan at the end of April.

According to the PM, it is necessary to finally abandon the low-produced agriculture, and give out state subsidies pointwise - only if modern systems of economic irrigation are introduced, elite animals, highly productive varieties of crops, fruit trees, etc. are available on farms.

If we take into account the estimates of Armenian experts who claim that the losses in the main irrigation system of Armenia exceed 50 per cent, and the introduction of modern agricultural technologies is extremely insufficient, as well as the number of farms with breeding animals, then the implementation of the plans of the Yerevan leadership will leave the ruined Armenian villagers without any subsidies and concessional lending.

And this means the actual collapse of the entire agricultural sector: for poor Armenian farmers, the listed innovations are unbearable, there are practically no foreign investors ready to invest in the country’s agricultural industry due to water, land and demographic crises, and the state, apparently, is not going to continue to support villagers. This means that migration from Armenia will soon exceed all conceivable scales.

Caliber.Az