DOMESTIC PACKAGING

In recent years, Azerbaijan has noticeably stepped up its efforts to increase the production of agricultural products and their promotion on foreign markets. To this end, a series of measures were launched to encourage investment and support exporters of agricultural products, to create mechanisms for promotion of local agricultural brands, to stimulate the development of agro-parks and other forms of large-scale commodity production. The most important component of the export strategy should be the production of modern packaging materials in Azerbaijan. 

Multi-billion investments made over the past ten years in the field of agricultural production, as well as the development of processing facilities and logistics infrastructure have significantly contributed to the development of self-sufficiency of food in Azerbaijan (80% in average).

Azerbaijan has made some progress in the area of ​​agricultural exports: increased supply of fresh and processed fruit and vegetable products in the CIS markets in recent years, primarily in Russia. Azerbaijan has long been among the world's leading exporters of hazelnuts and walnuts. More recently, local wineries, producers of juices and canned fruits and vegetables have begun to develop new markets - China, the Middle East countries, Europe, etc.

In 2016, Azerbaijan has sold $426.1 million agricultural products, which is 20.7% more than in the previous year. However, despite the dynamic growth of exports, the figures do not correspond to the potential of the Azerbaijani agricultural industry.

In this regard, President Ilham Aliyev has set a target to double the export of agricultural products in the next few years. These objectives are reflected in the "Strategic Road Map for the production and processing of agricultural products." Ministry of Economy of Azerbaijan has conducted analysis aimed at increasing the agricultural exports of 54 kinds of products, including milk and meat, poultry, fruit and vegetables, canned food and wine, including the buildup of supplies juices, honey, nuts, tea, cotton, tobacco, silk yarn, etc.

However, the effectiveness of the policy largely depends on capacity of agricultural enterprises to reduce the cost of food processing and, more importantly, reduction of the cost of packaging and production optimization, while maintaining an appropriate level of quality to international standards.

This is not an easy job considering the specifics of processing and food industry of Azerbaijan. According to the Ministry of Agriculture of Azerbaijan, there are over 200 large and medium-sized enterprises specializing in the production of milk and meat, fruit and vegetables, alcohol, oils, tea and tobacco. The combined power of canning factories for processing of fruits and vegetables allows production of more than 750 million conditional jar products.

Until recently, the share of processed or packaged local products in the domestic market of Azerbaijan accounted for between a third and a half (depending on product type) of the total output of the agricultural sector. Thus, a number of experts in the meat production sector for processing in recent years there was only about one third of production volumes of the packaged or processed fruits and vegetables and do not exceed a quarter. Nearly three-quarters produced in small-scale farms of milk processed by artisanal methods, and the resulting curd, butter and cheeses sold in bulk without the use of modern packaging. About half the volume of cereals and legumes are also sold in bulk.

Studies of the Ministry of Agriculture confirm the presence of certain issues in this sector. Thus, the Deputy Minister of Agriculture Seyfyaddin Talibov noted the need to bring the quality control system of export in accordance with international requirements. "Market research conducted by the Ministry of Agriculture and the Food and Agriculture Organization (FAO) in December 2015 - February 2016 revealed that the country has about 110 exporters of agricultural products. For certain types of goods, more than half of exports accounts for only 6 entrepreneurs and 90% of export - only 25 entrepreneurs ", said S.Talybov.

FAO studies have confirmed that one of the reasons for absence of farmers in a large part of the export process is due to underdeveloped infrastructure sorting, packaging, labeling of agricultural products in the regions.

At the same time, in recent years with the development of Baku and other cities of the country's largest network of supermarkets the situation began to change radically. Thus, according to a survey of Euromonitor International, the share of packaged products in the Azerbaijani market has grown rapidly in the period 2007-2013, largely supported by the needs of the leading retailers seeking to increase consumer demand. The greatest number of new packaged and processed foods was observed in the production of milk and canned food, confectionery, biscuits, packaged commercial cakes, ice cream, etc.

Euromonitor International experts believe that growth in the market of packaged food will continue in the next period, and urbanization will continue to be an important factor in promoting this trend in the periphery and in rural areas, where consumers prefer uncompressed food.

It is also important to pay special attention to the peculiarities of local food industry enterprises. When the national currency was "expensive", it was more profitable to import packaging materials, containers and other components used in the production of packaging materials rather than investing hundreds of millions of dollars on packaging production in Azerbaijan.

Over the past years Azerbaijan has launched full production cycle of only two kinds of packaging materials, almost not dependent on imports of raw materials and ingredients - cardboard and plastic packaging. The country also has about two dozen printing companies, specializing in the production of plastic packaging.

The situation is somewhat modest in the field of glassware manufacture. In the Soviet era, the domestic demand of bottles and cans was only partly satisfied by the four glass factories located in Sumgait, Baku, Ganja and Mingachevir, but three of them (except the plant in Sumgayit) suspended the production of containers in the early 1990s. Since the needs of the wine-making and canning industry, as well as the producers of soft drinks and juices satisfied by the supply of glass containers from Russia, Ukraine, Georgia and some European countries.

The situation has changed after the commissioning in 2008 in Garadagh district of companies for the production of bottles and other glass containers, the largest in the region.

However, in subsequent years the import of glass containers predominantly from Georgia provided the needs of the brewing industry, the production of mineral water and soft drinks. Partially in glass bottles needs of domestic winemakers and producers of alcoholic beverages today also met by imports.

It is obvious that the localization of the production of other types of packaging materials and packaging would eventually cost less than its imports. However, when manat was “strong”, massive food exports from Azerbaijan was not the most profitable business, and the main focus of local processing and food companies were in a more favorable import substitution. Features of internal market, its closed nature and the low level of competition allowed the food to local enterprises to maintain a high rate of return, even in conditions of dependence on imports of packaging.

Largely for this reason, even with the existence of relatively developed aluminum complex in the country the production of food aluminum foil has not been established. Due to the lack of capacities for local thin steel rolling mills, we are still forced to buy foreign materials for the production of canned food in metal containers, as well as steel screw caps (for glass jars) and sport cans (beer, soft drinks).

Despite a couple of dozen manufacturers of dairy products and juices, all components for the production of reliable and convenient TetraPak packaging is fully imported. And in spite of the activities of development of chemical industry raw material for billets, of which molds are blown PET bottles as well as plastic packaging for cheese, ice cream and other products, are also imported.

However, the realities of post-oil economy dictate the need for reorientation of AIC with an established import substitution toward the development of foreign markets. The difficulty is that the devaluation of manat has led to a marked increase in the price of imports of equipment supplied in the country, packing materials and other components needed for the organization of production. Therefore, the government aims to help entrepreneurs to localize the production of packaging in Azerbaijan, encouraging potential investors through the introduction of certain tax and customs benefits.

President of Azerbaijan Ilham Aliyev has re-addressed this issue at the recent conference on the results of the third year of implementation of the State program of socio-economic development of regions for 2014-2018 years. Citing as examples of self-sufficiency ratios for a number of basic food products, he noted that there is still a dependence on imported components, and is primarily due to the import of packaging.

"Unfortunately, we are still dependent on imports in this area but the packaging production is not such a big problem that we are unable to solve. Especially when one considers that the volume of the domestic market and population have increased, that in Azerbaijan today it is cost-effective to establish production of all types of containers and packaging. National Entrepreneurship Support Fund, and the entrepreneurs themselves must take these factors into account," said Ilham Aliyev.

This issue is under control of the Ministry of Economics and Government, ready to provide additional support for the development of production of high quality and modern packaging materials in Azerbaijan.

The lending process has already begun: for example, two companies for the production of packaging materials located in the villages of Hokmali and Ramana received loans totaling ₼6.2 million.

Azerbaijan Export and Investment Promotion Foundation (AZPROMO) is preparing to attract investors for the organization of the production of glass containers in Ganja. This project is estimated at $24 million and is included in the investment catalog of AZPROMO.

"It's not just about the localization of finished products but also its imported components. In particular, the packaging materials are mainly imported, and in this area we have identified a number of components that we mainly rely on imports. Currently, we work on localization of production, either through internal investment by getting quality parameters from existing producers or do so at the expense of foreign investors who are already present on the market, or are interested in this ", said the President of AZPROMO Rufat Mammadov. According to him, many foreign investors have expressed an intention to establish production in Azerbaijan for unavailable materials and components. AZPROMO believes that the role of foreign resources in the production of packaging materials will be sufficiently high.

The estimates of AZPROMO are quite justified, since cheapening of manat and the existing regime of fiscal and customs preferences for investors to set up production of packaging in Azerbaijan will be more than just a cost-effective undertaking.