TBY talks to Ismat D. Abasov, Minister of Agriculture, on the future of growing and diversifying Azerbaijan’s agricultural industry by encouraging FDI.
TBY Into which areas is the Ministry of Agriculture trying to encourage the flow of FDI?
ISMAT D. ABASOV We want to attract FDI mainly into export-oriented agricultural sectors, as foreign investors are able to combine advanced technology and know-how with their capital investments. There are many profitable sectors in Azerbaijan’s agricultural sector that have export potential, and investing in these would represent a good use of capital. In that regard, the tobacco sector has great potential. Currently, there are six tobacco fermentation plants that are capable of producing 48,000 tons per year. European-Tobacco-Baku has the capacity to produce 10 billion units annually. Therefore, investment in this sector would be a real possibility. Another profitable sector is beer production. More than 20 enterprises are engaged in brewing, and these enterprises produce more than 3.2 million deciliters of beer every year. Azerbaijan’s yearly domestic consumption is 2 million deciliters. It is expected that production could reach 4.5 million deciliters in 2011. Wine production also shows strong potential for foreign investment. The other areas that would be attractive to foreign investors include traditional sectors in Azerbaijan such as silkworm breeding, seed and sapling production, plant nurseries, the production of forage for poultry and animal farming, fruit and vegetable packing, canned foods, fruit nectars and juices, as well as meat and dairy production.
What encouragement is the government giving to foreign investors looking to invest in the agriculture sector?
Producers in the agricultural sector do not have to pay profit tax, extra cost tax, simplified taxes, or property levies until January 1, 2014. Importing industrial and processing equipment is also free from taxes and custom duties. In addition, there are a number of outreach programs for foreign investors. The “Caspian Agro” international agriculture and food industry fair is traditionally held every year in Azerbaijan, and incorporates business forums to discuss existing possibilities in the country as well as identifying potential fields of cooperation and ways to establish business relations.
How has the development of Azerbaijan’s agribusiness been progressing? Are there any key areas in which Azerbaijan could develop in this area?
One of the priority directions of economic policy, successively conducted by the President of the Republic of Azerbaijan, is the development of entrepreneurship and agribusiness by improving the business environment. Agricultural producers are exempt from taxes associated with a range of manufacturing and processing equipment imported into the country in order to develop the processing industry. Producers are also eligible for subsidies on agricultural equipment and seeds, improved cattle breeds, fertilizers, and agricultural vehicles. The government has formed a preferential credit system for grain storage warehouses and refrigeration facilities, the construction of greenhouses, small- and medium-scale wineries, cattle and dairy facilities, poultry farming, and the formation of poultry breeding farms or their reconstruction with the help of new technology. In 2010 the Fund for the Support of Entrepreneurship allocated AZN55.15 million to 1,205 entrepreneurs for agricultural goods production and processing. The amount of credits allocated by the Fund regarding the formation of new production areas in the agricultural sector and for the production and processing of agricultural products increases year-by-year. The implementation of these production-oriented infrastructure projects has played an exceptional role in efficiently using internal resources for the production of ecologically clean products, increased wheat output, fruit and vegetable production, and the implementation of new technology.
How are you working towards maximizing the country’s agricultural output and reducing the need for food imports?
Recently, the government has been providing direct and indirect support to agricultural goods producers. In order to stimulate agricultural goods producers, subsidies are allocated from the central government budget across numerous areas of the agricultural sector. Subsidies of AZN307.5 million were provided over 2007-2010 to agricultural goods producers for the cultivation of every hectare under crops and for perennial plants. Together with this, agricultural vehicles, technological equipment, mineral fertilizers, and highly productive breeding animals imported through the AgroLizing public corporation are being leased to the producers of agricultural goods and sold at concessionary rates. As production indicators for the agriculture sector show, the yearly requirement of the country population in fruit and vegetables is being met by domestic production, and the export opportunities for these products are extending every year. Despite this, production in some sectors, especially of meat and meat products, milk and dairy products, as well as some other products, still don’t meet the requirements of the population.
The agriculture sector grew by 6% in 2008, and again in 2009. What has the level of growth been in 2010, and what is your outlook for 2011?
Although plant production decreased after the flooding of the Kura-Aras rivers and their tributaries, improvements in cattle numbers and the renewing of the main herd made it possible to achieve 6.1% growth in animal farming. The year-by-year implementation of the government program concerning the reliable provision of the population with food products during 2008-2015 will continue in 2011. In that regard, wheat production increased its area under cropping, and we expect 2.5 million tons of wheat production in 2011. An increase in vegetable, fruit, and grape production is also predicted. Calculations show that the national demand for meat and meat products, milk and dairy products, and poultry products is being met at a level of 70-75%. We expect a 3-5% increase in this national product coverage in 2011.
What sort of contribution can agriculture make towards the diversification of Azerbaijan’s national economy?
Compared with other sectors of the economy, the agricultural sector has some advantages. These advantages are conditioned by the many natural, geographic, historic, and economic factors, as 9 of 11 climatic zones are present in Azerbaijan, which allows for the cultivation of a wide variety of products. The numerous programs, decrees, and orders signed by the President are aimed at realizing Azerbaijan’s potential in the agriculture sector. If we look at the dynamics of the growth rate in agriculture (5.6% in 2003, 6.1% in 2008, and 5.3% in the first trimester of 2011 compared to 2010) we see that this field is rather promising. Our aim is not only to achieve an extensive increase in agricultural production, but also an increase in quality. Furthermore, there are challenges in ensuring that agriculture is both profitable and sustainable, while minimizing any negative effects on the environment. For this reason, a law has been passed concerning the motivation of the production of ecologically safe agricultural goods. Cooperation with international organizations is being implemented in the direction of production increases through preserving resources and employing economically viable and sustainable methods.
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