29 March 2024

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BREAD REFORMS

Upgrade and enlargement of grain seeding farms to put Azerbaijan out of external dependence in grain products

Author:

01.07.2019

Despite rainy and cold days in April, the weather conditions during the spring did not have a noticeable negative impact on the yield of grain crops. Harvesting of winter crops started in the last days of May, and at the end of the second decade of June, more than 1.21 million tons of grain was harvested in Azerbaijan. Crop projections are favourable, which is largely due to the program for supporting grain-growing farms implemented in recent years. Thus, the government reduced local tariffs for the rental of machinery, established new specialized agricultural parks and seed processing enterprises, as well as the Association of Grain Producers and Processors.

 

More than three million

According to forecasts published at the end of last year, the grain harvest in 2019 should reach 3.5 million tons, exceeding last year's record figures by 4.8%. Out of the total harvest of the current year, it is expected that 2.1 million tons will fall to wheat, which is 2.2% more than last year. However, the final results of the current bread harvest can be judged only after the spring harvest in the second half of August. By the way, agrarians believe that if favourable weather persists, the aggregate harvest, taking into account spring crops (wheat, oats, corn and legumes), can exceed the landmark level of 3.3 million tons.

In the meantime, the collection of winter crops is being completed in Azerbaijan, for which 1,340 combine harvesters, half of which belong to the Agroleasing company, have been brought to the fields. According to the Ministry of Agriculture on June 19, grain was harvested on an area of ​​392.5 thousand hectares, 262.5 thousand of which were set aside for barley, and the rest for wheat. In general, in the country this year, a little more than 1 million hectares of land are allocated for cereals, of which about 2/3 are wheat, and the rest is barley, oats, corn and other crops. At the end of the second decade of June, more than 1.21 million tons of grain was harvested, the average yield was 30.8 centners per hectare. In most low-lying regions of Azerbaijan, the harvest of barley is almost over; the harvest of winter wheat in the foothill areas is currently being completed.

It is remarkable that the trend of increasing grain production in Azerbaijan began to be clearly felt in 2015, when the country collected 2.9 million tons of grain with an increase of 33.8%, and this trend continued in 2016 (3.1 thousand tons ). The trend was associated with objective factors - a need to reduce the share of grain imports after two devaluations of the national currency, Azerbaijani manat. Before the global energy crisis, higher costs of grain production in Azerbaijan (including due to the higher exchange rate of manat) made imported grain, primarily food wheat from Kazakhstan and Russia, a more profitable alternative for local flour mills, producers of bread, pasta and confectionery products.

However, over the past four years, a qualitatively different situation has been observed: the share of imported grain has declined remarkably, especially in the forage segment, and the share of local wheat, including hard-growing varieties with a high level of gluten, in demand in the baking industry, is gradually increasing.

But it would be wrong to say that the increase in grain production in Azerbaijan was due only to the devaluation of the national currency, which led to an increase in costs for the import of wheat and, accordingly, stimulated local farmers to increase production. This is largely the result of transformations that started in the pre-crisis 2013 year, aimed at the development of large specialized agro-complexes in the country, focused on the production of cereals, especially wheat. Since then, over 200 thousand hectares of arable land has been gradually allocated to such farms. The first specialized farms were formed about six years ago in the territory of Beylagan and Agjabedi regions; then another agricultural complex was launched in the Imishli district.

Since that time, work has been carried out in the regions, aimed at creating fifty large specialized grain-sowing farms, 24 modern agro-parks have also been formed, where they are engaged in growing grain. ₼162 million of soft loans were allocated from state funds for these projects, Sahib Mammadov, Deputy Minister of Economy of Azerbaijan, said recently.

In order to increase grain production, large-scale irrigation projects and putting into circulation about 200 thousand hectares of new arable land were implemented. The country's irrigation capacity has noticeably improved after the commissioning of the two largest reservoirs, Shamkirchay and Takhtakorpu, which also contributed to meeting the needs of grain farms in irrigation water.

The measures taken by 2015 allowed for the first time in the last hundred years to bring the average return of grain hectares to 30.5 centners. Well, wheat yields were able to raise to an unprecedented level - 31.3 centners per hectare.

 

Focusing on large farms

Increasing the yield of local grain growers in the future will increase, including by providing farmers with elite, high-yielding and drought-resistant seeds. To this end, in 2015, the State Seed Fund (SSF) under the Ministry of Agriculture was established by a presidential decree. According to the head of the fund, Emin Aliyev, this summer SSF will open two seed processing plants located in Khachmaz and Sheki, and by the end of this year, the Seed Exchange is expected to open. In the medium term, five seed processing factories should start working in the country, which, of course, will help increase yields in local grain-growing farms.

This year, Azerbaijan also continued the implementation of programs to support grain-growing farms. In particular, with the support of the ministries of economy and agriculture, a public association, Association of Grain Producers and Processors, was established, which united large farmers and specialized grain-growing farms, as well as grain exporters, processors and producers of flour products.

The board includes representatives of several companies, such Azersun, Gilan Holding, Karat Holding, Neon, Agro Dairy, Baku Grain Terminal, Yalama Agropark, Qarabag Taxil, Modern Group. The head of Karat Holding Taleh Gasimov was elected the chairman of the association.

“The main objectives of our association are to ensure closer cooperation with government agencies, identification of existing shortcomings in the industry, provision of state assistance,” said Deputy Minister of Economy S. Mamedov. According to him, the activities of the new association, first, will be aimed at coordinating major producers and processors in the grain market of the country, as well as at optimizing the assistance provided by government agencies to grain-producing farms.

Deputy minister also noted that the government will continue to provide full support to grain producers. Thus, it is expected that programs on intensive technical support for grain-growers, as well as on enlargement of grain farms, carried out in recent years, will be continued, in particular through the development of agriculture parks. This year Azerbaijan plans to build 10 such parks and large agricultural farms covering a total of ​​31,000 hectares, investing ₼270 million in these projects. But in general, in the medium term, 51 agro-parks and a large grain-growing farm with a total area of ​​257,000 hectares will be created in 33 districts, for which ₼2.2 billion will be allocated.

 

Maximum tariff

In parallel with the development of large farms, small farms, which account for 80% of the production volume, will not be forgotten. In particular, the Ministry of Agriculture set the maximum tariff of ₼38 per hectare for services rendered to farmers to harvest grain. “Previously, the tariff was set at ₼30 for harvesting per hectare, but in reality the amount reached ₼50-60, and in the midst of the suffering reached ₼70,” said the head of the press service of the agricultural department Vugar Huseynov, underlining that the mechanization will not cost the farmers an amount exceeding ₼38. In order to support small farms, first of all, it is necessary to process areas not exceeding 50 hectares, and to collect the harvest exclusively in the territory of the region where agricultural equipment is leased. To do this, all combined harvesters are equipped with GPS devices that allow you to monitor their location in the area of ​​deployment. Controllers of state centres for agricultural development will monitor compliance with these rules.

Nevertheless, according to international experience, only the consolidation of agricultural farms is the most optimal way to increase the volume and reduce the cost of production. Large areas significantly reduce the costs of maintenance and operation of agricultural equipment, fertilizer application and pest control, irrigation and other technical measures. According to the forecasts of the Ministry of Agriculture, the introduction of several dozens of specialized grain agro-complexes will provide an opportunity to bring the annual production of grain to 3.6 million tons, in general, reaching the level of local annual consumption.

In particular, according to government estimates, in 2020, the harvest of grain and leguminous plants in Azerbaijan will reach 3.5 million tons, exceeding 3.7 million tons in 2022. Moreover, along with the growth of grain production, it is planned to change the structure of crops: by increasing the sowing of durum wheat, Azerbaijan will significantly reduce the need to import food wheat for several years. This would save more than $117 million - this is how much our country, according to the State Customs Committee, spent on importing about 519 thousand tons of wheat in January-April of this year.

So far, unfortunately, Azerbaijan cannot refuse to import grain. Moreover, the high price volatility observed at grain markets of the world since the end of last year — the rise in prices for wheat in Russia and Kazakhstan — makes the local milling and baking industry very sensitive to the situation on foreign markets. In this regard, at the end of March this year, the Milli Majlis of Azerbaijan decided to extend the exemption of import and sale of grain, as well as the production and sale of flour and bread from value added tax (VAT) for another two years.

Remarkably, in order to overcome the impact of devaluation, which negatively affected Azerbaijan's food market, and reduce the cost of importing food wheat, the Cabinet of Ministers in January 2016 also decided to exempt from VAT the import and sale of grain products, as well as flour production and sales of bread. Despite the fact that today Azerbaijan is not experiencing a shortage of grain, imports still account for just under half of all food wheat. Accordingly, the exemption of imports from VAT contributes to the correlation of prices in the local grain market, helping to restrain the growth of retail prices for bread and flour products.



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