Armenia: Twelve Years After Independence
Armenia: Twelve Years After Independence


by Haykaz Baghian and Narine Khachatrian, Special from

The harvest season began as another disappointment for the parents of Heriknaz Arakelyan.

Hopes that their red-cheeked daughter would find a husband disappeared in the dust of Heriknaz's true significant other, her new T-20 tractor.

That she is a single woman in her mid-20s, and a farmer, is enough to make her exceptional. But gender aside, Heriknaz still stands apart.

Heriknaz, a recent graduate of the Armenian Academy of Agriculture, is among the few in Armenia who have turned life on the land into agribusiness, rather than merely subsistence farming.

The businesswoman manages 18 hectares—15 times more than the average farm in Armenia (of which there are about 330,000). Her farmland production includes apricots, tomatoes, wheat and hay.

She owns two small grocery stores, two trucks, a Fiat, 20 cows and 30 pigs, plus a fluctuating number of barnyard chickens.

"Problems exist in order to find their solutions," Heriknaz Arakelyan says. "The land we have is beautiful, and able to produce a proper income."

But not for all. Many in Arakelyan's region of Armavir have given up on the seasonal struggle to simply make ends meet and joined the emigration trail. And when they go, or when they grow weary of fighting with the land and the weather and the whim of nature, Arakelyan uses money she's made from previous harvests to acquire deserted or unwanted farmland.

While the wide majority of farming in Armenia is still done at the level of family-owned small business, Arakelyan's approach to farming as an industry represents a slight but significant shift.

As Armenian businessmen in general are adjusting to life in a free-market economy, so too are some seeing the benefits of exploiting its rich natural resource.

"Now, well-to-do people invest in agriculture," says Sergey Papyan, one of the leading agriculture specialists of the Armenian Academy of Sciences. "There is a clear tendency in the market that makes their motivation purely practical."

The tendency is steady annual growth over the past decade in production and in raw material purchases at the republic's various food processing plants. Last year, 521,000 tons of vegetables were purchased and processed, against 261,000 in 2001.

Between 2000 and 2002 Armenia's second exporting industry (behind diamonds) was food processing. Thirty percent of its gross output was exported last year.

Experts estimate that among other industries, food processing has the best opportunity for export growth. But Armenia's farmers also profit from local sales, as the trade blockade with Turkey and Azerbaijan inflates costs of imported foods. Buying homegrown is not just a nationalistic gesture, but cost effective for the family budget.

Last year wineries and cognac distillers purchased 47,000 tons of grapes from Armenian farmers, from a total output of 100,000 tons. Although the total harvest of grapes did not increase, the amount purchased by processing enterprises grew by 20 percent.

Also last year the Association of Areni Wine Producers set up shop on the banks of the Arpi River in Vayots Dzor. With support from the association, spirits companies (including Ginetas, Areni and Vedi Alco), weary of inconsistent yields from independent vineyards, have started their own grape production on 1000 hectares of privatized land.

The poultry industry is also showing rapid growth. Last year, production reached 477 million eggs, an increase of nearly 300 million over the past five years. The increase is largely due to the investments of companies such as X-Group (a coalition of owners including Valencia, the Armenian-Spanish enterprise which owns Waterworld) and Max-Group (which also has large holdings in petrol import). Last year Max-Group also leased 10,000 hectares about 70 kilometers southwest of Yerevan for cultivating wheat which, in part, will produce feed for their chickens.

With all the apparent indications of a booming future for agribusiness in Armenia, it remains too soon to say whether present tendencies are indicative of sustainable growth. Any analysis must take into account the pendulum effect, inherent in all business evaluations of Armenia's reaction to the implosion of Socialism.

This land is my land: The challenge of privatization

To understand the condition of agriculture in today's Armenia, it is useful to remember how things got this way . . .

In the 1930s the system of collective farms ("kolkoz") was introduced in Armenia, bringing with it mechanized food production that led to an 80 percent export of food goods as the tiny republic helped feed the massive USSR.

At its production peak, 28 canneries were operating in Armenia, turning out 550 million canned goods per year. Twenty wine factories produced 100 million liters of wine and spirits. Four meat packing plants prepared 70,000 tons of meat per year.

The last among 15 republics in arable land, Armenia made up for its diminutive agriculture abilities in other ways that were "for the good of the people".

Armenia was the Soviet Union's biggest producer and exporter of Swiss-type cheese (60 percent). It produced 15 percent of the USSR's wine, 30 percent of its cognac, 20 percent of its canned goods and 20 percent of its raw tobacco.

By the mid-80s, the average annual harvest in Armenia yielded 240,000 tons of fruits, 250,000 tons of grapes and 600,000 tons of vegetables. Since the collapse of the Soviet Union, independent Armenia has struggled to bring those numbers up to half of what they were 20 years ago.

After independence, in 1991, the 215,000 peasants who made up those collective farms, exporting 80 percent of their goods, quite abruptly no longer had a market. Machinery turned silent. And village farmers who turned to the Government for help found the State machine bogged down in transition, in war and blockade, and in efforts to help a region recover from earthquake.

The Government responded to the farm crisis in a measure that shocked generations whose livelihoods had been tied to socialism: It privatized land.

"It is easy to draw conclusions 12 years later," says the agriculture specialist Papyan, "but particularly privatization of land saved hundreds of thousands of people from starvation and unemployment."

All peasants were given land. The majority of them, however, knew little about farming; they had been employed in nearby factories (which stopped working when they lost the support of the USSR).

Where there had been 800 collective farms, in 1991 Armenia created 330,000 farms and the number of "farmers" rose from 215,000 to 550,000.

But while perhaps saving villagers from starvation, privatization (an average of about 1.4 hectares per family) was life-threatening for the agriculture industry. Canneries, wineries, and meat packing plants relied on collective farming for raw products.

Like many facets of business and common life in suddenly-independent republics, Armenia's agribusiness infrastructure collapsed with The Iron Curtain.

Success stories such as Heriknaz Arakelyan are bright examples of agribusiness potential, but statistics show a farm industry currently lacking significant marketability (if not, in fact, a market).

According to the State Statistical Service, Armenian farmers sell 65 percent of grapes, 62 percent of meat, 58 percent of vegetables, 52 percent of fruit, 40 percent of potatoes and 23 percent of milk. The rest goes to home consumption. Wheat and grain is the lowest marketed item, at only 18 percent.

During the transition from collective farming to privatization, farmers have faced considerable difficulties. For example, experts estimate that farm machinery has depreciated by as much as 70 percent. Further, small-acreage farmers in Armenia have mostly not adopted the practice of alternate-year farming, in which soil is given a chance to replenish. The result is that year upon year of planting the same crop in the same place leads to soil fatigue and diminished returns. And that condition itself is complicated by an inability to afford fertilizer, and by a fertilizer shortage.

Among the hardest hit has been milk production. The average milk-cow yield is seven to eight liters per day. For comparison, shepherds participating in a United States Department of Agriculture-sponsored program in Vyots Dzor got the same yield from goats.

The whim of nature is a universal challenge to farmers, but one that expresses itself in extremes in Armenia. According to the Agrarian-Farmers' Union of Armenia, more than 100,000 hectares of land are not irrigated every year, while in the Ararat Valley nearly 94,000 hectares are too wet for cultivation.

According to chief executive of the union Hrachia Berberyan, "The old system of material and technical provision of farming and cattle breeding has been destroyed, and a new one hasn't been created yet."

Under Communism, trucks, tractors, combines and the infrastructure (mechanics, etc.) for farming and livestock production were provided by the State. For example, a 20-hectare vineyard had a dedicated support service serving only its production needs. Now, however, those 20 hectares might represent 20 or more different farmers, growing a variety of crops.

Whereas, before, the State provided large equipment to serve mass production, now any farmer is lucky to even have a small tractor. And service companies no longer exist.

Taking it to the bank: Means exist for lightening the load

Unlike developed countries, Armenia does not have farm insurance companies, so farmers must accept nature's blessing or its curse with equal liability.

Armenia does, however, have at least one bank specializing in farm loans.

The Agricultural Cooperative Bank of Armenia (ACBA) is the first Armenian bank to provide credit for agriculture. This year it started a leasing company (the first in Armenia, similar to a pilot project by USDA), through which farmers can lease equipment, with an option to buy it at the end of the term.

Also, a joint project of ACBA and the German Armenian Fund developed a new means for providing loans for farming.

The German Armenian Fund provides funding, and the loans are administered through ACBA and four other banks. Through the lending program, farmers receive low-interest (1.5- to 2-percent) loans. The program is equipped to give loans up to $60,000. Most farmers, however, don't ask for more than $10,000.

And most don't ask at all.

According to the State Statistical Service, 24 percent of rural households borrow money to run their farms. But only five percent get the money from banks. Eighty percent borrow from relatives and only two percent take advantage of government loan programs.

A breakdown of the dollar figures concerning the current condition of agriculture in Armenia shows an industry out of balance with the support it receives from the Government.

Agriculture in Armenia (not including food processing) represents 25.2 percent of the Gross Domestic Product. However, less than one percent of the State Budget is funded by agriculture. The gap is expected to reduce, certainly by 2009, when Value Added Tax will be applied to agriculture.

(The imposing of the tax fulfills requirements for membership in the World Trade Organization, which Armenia joined last year. Presently farmers are exempt from nearly all taxes except land, as it is considered that their industry is not a profit-making one.)

Further, if factories resume work, the GDP will increase, reducing agriculture's overall portion. At the end of this year, in fact, the share of agriculture is expected to be less than 20 percent.

Each year the State designates between $10 and $20 million to subsidize irrigation. (A farmer can buy his water for half price.) Additionally, the State provides farmers with seed and fertilizer loans.

"Farms are in such a sad state that even little changes like improved quality of the cattle, timely delivery of fertilizers, and purchase of new combines and harvesters sharply changes the situation," says Manuk Gulkanyan, a farmer from Noyemberian in northeast Armenia.

Last year Gulkanyan's harvest doubled over previous years; he took in nearly 500 tons of cereals. He also produces cheese and raises livestock. His milk production increased by 40 percent. And this year, Gulkanyan expects the first harvest from his 20-hectare peach orchard, planted four years ago.

Gulkanyan hopes to enhance his agriculture enterprise by purchasing a combine this harvest season.

Heriknaz Arakelyan hopes to buy one too, which is encouraging news for her parents. They figure she'll have to find a mate, since she can't drive the combine and her tractor at the same time.

Originally published in the November 2003 ​issue of AGBU Magazine. Archived content may appear distorted on your screen. end character

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