FOCUS

Cultivate This

With subsidies and tax holidays available for entrepreneurs, the agribusiness sector is ripe for success.

Azerbaijan’s long and rich agricultural history has thrust the country’s agribusiness sector potential into the limelight. The results of the government’s push for economic diversification are beginning to emerge in the agribusiness market and investors are looking for their share of the pie. While farmers enjoy tax breaks on importing machinery and an upgraded rural road network, businessmen can take advantage of favorable subsidies and loans in setting up in the agribusiness sector. The opportunities are endless as despite the fact that the country’s climate is ideal for growing vegetables, other agricultural products—specifically dairy—are nearly exclusively imported from neighboring countries. The government is keen to reverse this import trend. In light of this, there is significant help for investors in crucial infrastructure—namely the provision of warehouses and cold-storage facilities, and an efficient and comprehensive road network. The Minister for Agriculture, Ismat Abasov, recently highlighted the need for food supply storage companies. He said, “Agricultural production is expected to increase this year, so these bodies will be required in the future.” Agricultural production in Azerbaijan is expected to increase by 6% in 2011.

The budding business lines are currently tobacco, tea, wine, and brandy production, although there is ample scope for developing additional fields. According to the State Statistics Committee, agricultural production in Azerbaijan increased by 5.3%, crop production by 5.7%, and livestock by 5.3% over January-May 2011, compared to the same period in the previous year. In January-May the total volume of agricultural products amounted to AZN9.41 million.

The biggest scheme directed towards agriculture is the Azerbaijan Rural Investment Project (AzRIP), established by Azerbaijan’s State Agency on Agricultural Credits and developed under the Ministry of Agriculture with the support of the World Bank. The project, which began in 2005, has been upgrading community infrastructure in five regions of the country, with particular attention to the agricultural sector.

PRODUCTION

There are three main sectors in Azerbaijan’s food processing industry. These are meat processing, dairy production, and fruit and vegetable canning, although a considerable amount of milk is imported. Domestically produced milk has an especially small market due to the lack of pasteurizing and refrigerated transport and storage facilities. To address these problems, with the support of community members, a milk collection point was installed under a project of the US Agency for International Development (USAID) “Community Based Support to Producers of Dairy Products”. The project is co-financed by BP and its partners and has been implemented by “UMID”, Support to Social Development Public Union, since 2009. Six additional milk collection points will be installed in the western and central regions of Azerbaijan in the coming months under the Support to Producers of Dairy Products program, creating additional income earning possibilities for Azerbaijani small dairy farmers.

STORAGE

Azerbaijan’s major cash crops are grapes, cotton, tobacco, citrus fruits, and vegetables, and all of these but cotton and tobacco are dependent upon an effective cold chain if they are to be economically viable and sustainable. The UN Food and Agriculture Organization estimates that approximately 40% of the value of these crops (or over $2 billion) is currently lost due to the lack of adequate cold chain facilities. Accordingly, improvements in the country’s cold chain segment of major cash crops such as fruit and vegetables will have a very significant monetary impact.

A key part of the government’s strategy therefore, is to develop the capacity for export—transportation and storage. This mainly comes in the way of financial breaks for transportation and stage providers. Not only does this help the agricultural sector as a whole, but it also provides numerous opportunities for local entrepreneurs. Investment in this sector stood at 4.6% of total investments in agriculture in 2000, whereas the share grew to 24.7%
in 2010.

The government operates a lending scheme for the development of a storehouse network. The facilities are being offered under preferential terms of financing by the National Fund of Entrepreneurship Support (NFE) and Azerbaijan Investment Company.

In addition, through the USAID Private Sector Competitiveness Enhancement Program (PSCEP), a $6.6 million, three-year program promotes the competitiveness of select sectors of the non-oil economy in Azerbaijan. Cold storage and warehousing is one such segment.

MACHINERY

The technical provision of equipment in Azerbaijan’s agricultural sector is not extensive, but it is developing at an impressive pace. Tractors and harvesters are being both imported and domestic production has begun. Minster of Agriculture Ismat D. Abasov told TBY, “As a result of leasing and selling, many private organizations deliver agro-technical service to agricultural goods producers in the regions. The increase of the level of the mechanization for every hectare, conducting cultivating and harvesting activities with lesser hand labor, the higher mechanization of labor, and production process is positively influencing the increase of labor productivity.”

One of the most important results of consistent and systematic economic reforms have also been the accomplishments achieved in the area of privatization of state property and creation of enabling conditions for the development of free entrepreneurship. As such, land and rural reforms have actually already been completed, and more than 1.39 million hectares of land area were distributed freely among villagers. Currently, 99% of agricultural output is generated in the private sector.