Armenia Businessman Digs for Profit

Wednesday, 19 January, 2005

The link has been copied

Naira Melkumyan

For the first time, a major investor is putting his money into Armenia’s undeveloped agriculture sector – an experiment in an unpredictable area, which both farmers and economists are watching with keen interest.

Up until now, agriculture - which employs around 40 per cent of the working population of Armenia but makes a much more modest contribution to the national budget - has had to rely solely on government and international grants and loans for financing.

Eduardo Ernekian, an Argentinean-based entrepreneur of Armenian extraction who manages Armenia’s Zvartnots airport, has signed an agreement with the local Max Group, pledging to invest 25 million US dollars in fruit orchard and grapevine plantings on an area of 3,000 hectares. The project also envisages a processing plant, an advanced irrigation system, supply of modern agricultural machinery and equipment and a quality control laboratory.

Ernekian, who is a major landowner in southern Argentina, plans to plant apricot, peach and plum orchards and vineyards in the Bagramian district of the Armavir Region of western Armenia over the next five years.

Parliamentary deputy Hachik Manukian, who is chairman of the board of Max Group, told IWPR the project would build the capacity to process up to 50,000 tons of high quality fruit. “The fruit will be sorted by look, size and colour according to a set of standards, and then exported,” he said.

While some see Ernekian’s investment as a harbinger of growth in Armenia’s agriculture, others say that is a risky venture to put money into something as unpredictable and undeveloped as fruit farming.

Samvel Avetisian, Armenia’s deputy agriculture minister, said the project was practical and promising, because it relied on new technology and promoted higher competition among fruit processors.

In 2004, the agriculture ministry reported a 12 per cent growth in agriculture production from the previous two years, when the sector grew at no more than four per cent annually. Avetisian said he expected other foreign investors to follow Ernekian’s lead.

He also believes Ernekian is doing the right thing by starting an agricultural business to set up export flows and keep his airport busy. “He went into agriculture out of practical necessity, and that’s a good thing,” the deputy minister said.

But Grachia Berberian, chairman of the Agrarian Union of Farmers, is not so optimistic and says that Armenia’s agriculture is developing very slowly despite its huge potential. “If the state treated and managed agriculture right, the sector could start generating a profit in two to three years,” he said.

Berberian believes investing directly in farming cooperatives would be a better idea. “As matters stand, entrepreneurs exploit farmers to maximize their own profits, while the processing plants stifle farmers by imposing their own prices,” he said.

According to official figures, agriculture accounts for one fifth of Armenia’s GDP, but employs half a million people or 40 per cent of the workforce. Lise Grande, representative for the United Nations Development Programme in Armenia, points to these figures as proof of the low productivity of Armenian agriculture.

“Armenia’s agriculture needs intellectual, legislative and financial investment to make it less dependent on external factors and more stable in the long term,” Grande said.

External factors can all too often be disastrous. Berberian listed the problems that farmers face, saying, “These include water shortages, bad roads and lack of other infrastructure, but the main challenge is to give farmers a firm guarantee of good harvest and income.”

Avetisian added that the country’s agriculture loses some 30 million dollars annually due to the weather. Last year, he said, 90 per cent of Armenia’s apricot harvest, 30 per cent of the peaches and a tenth of its vineyards were damaged by the weather.

But Manukian, the head of Max Group, argues that agriculture’s low investor appeal is due to long payback periods because the majority of Armenian businessmen want quick profits, and engage in businesses that pay off immediately.

“As a farming country, we are still in our infancy, and nowhere near to being an exporter,” Manukian said.

“Armenia exports only two types of agricultural product - apricots and tomatoes - and all the other potentially exportable products are yet to find their markets,” Manukian added, blaming this state of affairs on the lack of a consistent government policy for agriculture.

“Every farmer is his own manager,” he said. “No one really knows what the market needs, and how much of it. Grapes sell well at the moment, so everyone is planting vineyards. Pretty soon we may end up with more grapes than we know what to do with.”

The agriculture ministry reports that 1,500 ha of new vineyards and a thousand ha of new fruit orchards had been planted in 2004.

Garik Sardarian, marketing manager for the Marketing Assistance Programme of the US Department of Agriculture, believes Armenia’s agricultural products are marketed well enough. In his opinion, what Armenian farmers lack is a practice of producing quality and assuring the high sanitary level and safety of their products, which make them attractive to overseas buyers.

Economic analyst Armen Grigorian said that the vast majority of Armenian agriculture’s gross output comes from family farms - around 335,000 of which are in the country – and pointed out that improving access to affordable credit resources might solve many problems for such outfits.

Ashot Voskanian, head of the Republican Centre for Assistance to Agriculture, said banks charge a prohibitive 15 - 18 per cent interest rates on their loans, which are only issued on a short-term basis. “Armenia’s agriculture financing system needs to be entirely reformed - we need better laws and regulations in the field,” he told IWPR.

In addition, farmers complain that the last piece of legislation passed to defend their rights was back in 1990, leaving them all the more unprotected against the daily challenges that everyday life in Armenia throws them.

Naira Melkumian is an independent journalist in Yerevan.