Requiem for vineyards: Armenia's once leading agrarian sector on the verge of extinction Review by Caliber.Az

For the second year in a row, Armenia's agricultural sector is experiencing a grave systemic crisis: lack of irrigation water, rising fuel and fertilizers prices, and now falling prices for raw agricultural materials and collapse of exports to Russia undermined many traditional sectors. Viticulture has been among the hardest hit. Because of low procurement prices, disgruntled winegrowers blocked highways, and in late September, staged a protest in front of the government in Yerevan. All in vain. The government's new decision on subsidies proved a failure, and the grape crop may remain unharvested because wineries do not want to pay for it. Today, many Armenian farmers are thinking of cutting down unprofitable vineyards.

The "homeland" of grapes, the biblical "cradle" of winemaking, the republic of "the world's best" cognac - what flowery epithets Armenian propagandists bestowed the historically doubtful merits of calling Armenia a pioneer in the art of Dionysus and Bacchus, not to mention its very modest achievements during the period of independence. However, all excursions into the "glorious" past of Armenian viniculture lose any meaning, taking into account the current poor state of the industry, experiencing a severe crisis and threatening the republic with the loss of vineyards - i.e. the key raw material base.

Unlike its neighbours in the South Caucasus, Armenian agriculture has never had a strong potential for sustainable import substitution, let alone for the transformation of the agricultural sector into a leading export item. The lack of fertile land, the neglect of irrigation systems, and the inability of the government to accumulate significant budgetary resources, let alone attract foreign investment for the technological modernisation of the sector all played their part. Back in the Soviet era, Armenia's unprofitable vineyards were subsidized by the Soviet budget, while more than half of the raw materials - grape must and cognac alcohol - were supplied to the "motherland of winemaking" from neighbouring Azerbaijan and Georgia, often at cost price. In Armenia, raw materials were processed into brandy and sold at prices that greatly exceeded production costs. To a large extent, this freeloading ended after the collapse of the Soviet Union, but for about a quarter of a century, the futility of the Armenian agricultural industry was compensated for by the ruthless plundering of the natural potential of the invaded territories of Azerbaijan, which the invaders turned into their most important raw material base. The occupants actively used the vineyards available in Karabakh and seven occupied districts of Azerbaijan, new plantations were established and several processing plants producing grape must and brandy alcohols were also illegally built in the occupied lands. All these semi-finished products and raw grapes were exported in considerable quantities to Yerevan and other Armenian cities for processing and production of wine and brandy.

Azerbaijan's brilliant victory in the Patriotic War and the liberation of the occupied territories put an end to the plundering of our country's natural resources with impunity, including by depriving Armenian wineries of access to cheap raw materials from Karabakh. At the same time, it turned out that by the end of the Second Karabakh War, the pandemic crisis and the resulting global recession had, in fact, collapsed the traditional markets for Armenia's wine industry. And by the end of the summer of 2021, this republic was already facing a non-payment crisis, with many wineries and cognac factories refusing to accept farmers' produce, citing a lack of storage space and unsold wine from the previous harvest. At best, grapes were bought below production cost, and last September, this provoked a series of mass rallies, blockades of highways, and marches to the capital city by winegrowers from the Ararat region and farmers from many other communities.

As it turned out, no one wanted the products of viticulture, the most important branch of the Armenian agricultural industry, even this year. The situation in the wine industry has only worsened over the past year as economic sanctions (war in Ukraine) have led to a sharp drop in demand for Armenian alcoholic beverages both in Russia and in other countries of the Eurasian Economic Union (EAEU). And since late July, the outflow of tourists has sharply reduced the dynamics in the tourism, hotel, and catering sectors, and as a result, the very small domestic alcohol market of Armenia has suffered.

Previously, until 2018, distilleries were buying cheaper imported alcohol in large volumes and marketing it as local, which was due to the high cost of distilling brandy spirits from grapes. Despite legislative changes and a ban on the production of cognac, vodka, and other alcoholic beverages using imported spirits, many local alcohol companies continue to produce such falsified products under Armenian brands through shady schemes. This also reduces the demand for local grapes. By the end of September, the average production cost of grapes for Armenian farmers was about 120 drams (about $0.30) per kilo. Well, the level of buying prices of raw materials from most wineries has fallen below production costs.

"Armenian winegrowers cannot sell their harvest today. Even if they manage to sell their grapes to a purchase point, at least below production cost, the villagers have to wait up to a year for payments," Artak Sargsyan, chairman of the Union of Winegrowers of Armenia, said the other day, commenting on another populist move - the recent unsuccessful attempts by the government to support the sector. After mass marches and rallies of farmers in front of the government building in Yerevan at the end of September, the previous day the Cabinet of Ministers adopted, without a report and discussion, the decision announced by Economy Minister Vahan Kerobyan somewhat earlier. So far, the Armenian government has subsidized loans for farms that concluded sale agreements before July 1, and the new decision extends the terms of agreements from September 1 to December 30, 2022. Thus, the term of these loans will be extended from 3 to 4 years, and the subsidy will increase from 8% to 11% (with an interest rate up to 14%).

However, the government has not been able to convince processors to increase purchase prices, nor has it been able to sign legally binding deadlines with farmers for specific repayments. Another demand of the grape growers who protested during the last week - to provide direct industry subsidies from the budget - has not been met either. In fact, all the facilities and preferences were given to wineries that are accused by the farmers of cartel-like collusion and refusal to raise purchase prices for grapes above the unspoken "agreed" level.

"Farmers took loans back in February and have already spent these funds on growing grapes: what villager can afford to take another loan in September to get a subsidy? Winegrowers today cannot sell their crops. Even if they manage to sell their grapes, at least below production cost, villagers have to wait for payments for up to a year. What will the government do to subsidize credits, if the crops grown by grape growers remain on the land?" Sargsyan said. According to the estimations of Vinegrowers Union, the volumes of non-purchased grapes are estimated between 90-120 thousand tons, and not 30 thousand tons, as the government asserts.

One way or another, Armenian winegrowers remained dissatisfied with the policies of the Ministry of Economy and the government and the other day labeled Minister Vahan Kerobyan as a "liar", because he had not fulfilled anything he had promised to farmers. The developments of the last two years definitively deprive Armenian villagers of any incentive to continue cultivating their vineyards, some of which may soon be cut down for lack of use or replaced by plantings of more profitable fruit trees.