Institute for War and Peace Reporting
Jan 19 2005

ARMENIA BUSINESSMAN DIGS FOR PROFIT

All eyes are on a diaspora investor who is trying his luck with
investing in Armenia’s unpredictable agriculture.

By Naira Melkumian in Yerevan

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