Armenia's agro-industrial complex on the verge of complete downfall Review by Caliber.Az

Drought, a landslide of purchase prices for agricultural raw materials, and price surge for imported fuel, fertilizers, and feed as well as the mass migration of the rural population - this is by far not the full list of the problems the Armenian agriculture has faced for the last two years. Moreover, amid the dependence of the Armenian food industry on imported grains, oilseeds, meat, milk powder, and other types of agricultural raw materials, which have become very expensive this year, a significant drop in production at local processing factories is observed today. Armenian agro-industrial complex is not able to compete with foreign food, especially with the strengthened national currency - AMD, which became the "gravedigger" of domestic production, due to high imported inflation.

In contrast to its neighbors in the South Caucasus, Armenian agriculture has never had a strong potential to ensure sustainable import substitution, let alone make it a leading export item. It was affected by the lack of fertile land, neglect of irrigation systems, the inability of the government to accumulate significant budgetary funds, and even less so to attract foreign investment for the technological modernization of the industry.

All the long-standing problems of Armenia's agro-industrial complex (AIC) were only exacerbated after its shattering defeat during the 44-day war in 2020 and the liberation by the Azerbaijani Army of much of the Karabakh region. During the almost thirty-year period of occupation, the Armenian food-processing enterprises used the fertile lands of the Karabakh region as a valuable source of raw materials, but having lost such supplies, Armenia faced a shortage of grain, fodder, raw materials for the production of canned fruits and vegetables, grape must, brandy spirits, etc.

As a result, for two years already the agricultural sector of Armenia has been experiencing a severe systemic crisis (during this period Caliber.Az repeatedly covered the deplorable state of most branches of agriculture in the neighboring country). The lack of irrigation water, the rise in prices for fuel and fertilizers, the drop in purchasing prices for agricultural raw materials, and the surge in prices for agricultural raw materials imported from Russia and other countries of the Eurasian Economic Union (EAEU), undermined many traditional sectors, and the most affected were viticulture, horticulture and animal husbandry.

"The Armenian government is detached from reality and is not able to thwart the decline of the food industry, strategically important for the republic economy, and this crisis will have a great negative impact on the agricultural production as well, where hundreds of thousands of people are engaged," the expert-economist Suren Parsyan said the other day. He also confirmed that the 44-day war defeat and the loss of raw material base negatively affect the activity of Armenian food industry enterprises.

It is not surprising that despite the blown figures about the Armenian economic boom promoted by the government, the statistics show that in the first half of the year the decline in Armenia's agricultural sector was 5.5%, and for ten months of this year, the sectoral indicators are still in the negative zone.

"Moreover, in some sectors of agriculture and food industry the decline is much more significant," believes expert Suren Parsyan, referring to the data of the National Statistical Committee (NSC) of Armenia. Particularly, in January-October 2022, the production of meat decreased by 5.6% and meat semi-finished products fell by 43.8%, the production of refined oils dropped by 51.5%, and confectionary products by 35.9%. The tangible decline was noted in the production of sour cream - 16.4%, ice cream - 35%, dairy products, yogurt - 6.5%, and sausage products - almost 5%.

Due to the decline in demand in major export markets, the production of grape wine in Armenia decreased by 7.5%, and the production of mineral and sparkling water collapsed by 23%. The inefficiency of the Armenian economy is clearly evidenced by a 39% drop in the production of table salt, and this is despite the availability of sufficient deposits of mineral resources for its production in the country. Despite an active media campaign, people in Armenia still prefer to buy cheap, mostly industrial salt from Iran, rather than the more expensive local food salt.

What is the reason for such a sharp decline in Armenia's food production which, against the background of loud statements of propagandists in Yerevan about the 14.1% economic growth for three quarters, is supposed to show an increase in consumption and demand for food?

First of all, it is connected with Armenia's high dependence on raw materials and food supplies from abroad: according to NSC data, in January-October 2022, imports of finished food products exceeded $449.786 million, an increase of 36.4%. Increased worldwide imported inflation has hit all post-Soviet countries in varying degrees, but the complexity of the situation for Armenia was the fact that due to a poor harvest from last year the republic was forced to sharply increase imports of cereals. It is worth mentioning that the annual domestic consumption of wheat in Armenia is about 420 thousand tons, while farmers of the republic produce only 70 thousand tons per year. Today, 83.4% of basic raw materials for bread, pasta, and confectionery production are accounted for by the rise in the price of imported cereals, which by value chain led to the unwinding of expenses of food enterprises and as a result of the growth of consumer prices. A similar negative trend is observed in imports of oilseeds, milk powder, potatoes, various mixtures, and concentrates for the meat and dairy industry. The imported inflation increased the cost of food products by November (year-on-year) by 11.1%, and for a number of individual products, the price growth was even higher. Thus, in January-November this year, bakery products and cereals became 15.7% more expensive in Armenia, macaroni products - 28.1%, cheese - 21.5%, condensed milk - 30.3%, etc. It is quite obvious that the inflationary noose around the necks of the impoverished citizens of the "country of rocks" does not encourage the latter to increase food consumption, and this inevitably leads to the downtime of local agricultural enterprises. It is quite obvious that inflation does not encourage Armenian citizens who slide into poverty to increase food consumption, and this inevitably leads to the downtime of local agro-industrial complex enterprises.

"A number of factors influenced the decline of production in the food industry in Armenia: in particular, the drop in the dairy industry is related to the crisis in cattle breeding in 2022, which led to a decrease in local milk production," Parsyan noted, stressing that the increased import of food from Iran, Russia and other countries caused serious damage to local production. The expert believes that because of the excessive rise of the national currency import of food is incomparably cheaper than its production in Armenia, and as a result, the domestic producers lose even the domestic market. In turn, the consistent increase in the refinancing rate of the Central Bank and the failure of monetary policy has resulted in the rise in the cost of loans for Armenian farmers and agricultural enterprises. Another factor is connected with the growth of electricity, gas, and water tariffs for business at the beginning of this year: by the value of utility rates Armenia now holds first place in the EEU, which makes the republic unattractive to investors, the expert reckons. Finally, Armenia, which is in a transport-logistic deadlock, is unable to reduce the cost of transit of export products, and the food complex of the republic suffers the most from this long-standing problem.

"Once again, there is an accumulation of Armenian trucks at the Upper Lars checkpoint, and the project of ferry communication from Poti, Georgia to Russian ports in the Black Sea, long promised by Nikol Pashinyan's government, is still hanging in the air, all of which limits the agricultural export from Armenia, making it more costly," complains the Armenian expert.

Alas, realizing the problem of inefficiency of the geographically closed Armenian economy, including its agricultural segment, Yerevan continues its destructive foreign policy with enviable obstinacy, rejecting all attempts of Baku and Ankara to make peace and unblock communications, which would help solve the export-import difficulties or problems with the shortage of raw materials in Armenia. But this is Armenia's own fault and misfortune...