THREE GIANTS OF AGRICULTURAL INDUSTRY

The implementation of various import substitution programs contributed to the growth of the share of local food products in Azerbaijan, which covers about 80% of domestic consumption. Still, today it is necessary to solve another equally difficult task - reforms in the agricultural industry to reduce production costs, introduce innovations and create efficient export-oriented agricultural clusters.

New principles

According to the UN Food and Agriculture Organization (FAO), Azerbaijan has managed to achieve one of the best positions among the post-Soviet states in terms of ensuring its food security.

The realities of the post-oil development period however urge for qualitative changes in the organisation of agriculture in the country. Therefore, the Minister of Agriculture, Inam Kerimov, announced the main priorities of his ministry at the opening ceremony of the 24^th international exhibition World Food Azerbaijan.

According to Mr. Kerimov, the ministry is planning to ensure high yields, increase the competitiveness of local products, and ensure food safety. To accomplish these tasks, the ministry will observe the following main principles: competent and efficient management of the agricultural industry, in particular by expanding the coverage of the Electronic Agriculture project thanks to a series of innovations (transparency, efficiency, accountability), as well as working with farmers by analysing their problems and finding ways to solve them.

Perhaps, the most important and complex task of the ministry is ensuring the access of agro-industrial complex to external markets due to a comparatively small size of the domestic market, hence undermining the growth of agricultural production. On the other hand, if successful, the export of agricultural products can become an important factor in foreign trade, providing Azerbaijan with large foreign currency earnings.

Incidentally, the key trends in the development of agricultural production in Azerbaijan during the three post-crisis years (2015-2017) were remarkable for the increase of export volumes. The measures taken in this direction allowed Azerbaijan to increase its supplies of agricultural products to foreign markets by more than a third. According to Eldar Ibrahimov, the Chairman of the Parliamentary Committee on Agrarian Policy, in 2017 the total agrarian export of Azerbaijan reached almost $700m. Thus, Azerbaijan earned $159m only from the export of tomatoes, while the export of hazelnuts, cotton, vegetables and fruits also provides substantial profits.

The supply of fresh fruits and vegetables still top the list of agricultural exports of Azerbaijan. According to the State Customs Committee, 75.6 thousand tons of fruits and vegetables were exported from Azerbaijan in January-March 2018 (c. $80.7m). Compared to the same period in 2017, the amount of exports increased by 45% because this segment demonstrates not only high profitability, but also a relatively fast return on investment. "The conditions created by the state and the relevant measures further encourage the producers and exporters to grow fruits and vegetables. The number of greenhouse complexes, as well as the warehouses for storage and packaging of finished products is growing. I would particularly mention the mechanism of export promotion, facilitating the procedures for starting a business," said Bashir Guliyev, Chairman of the Association of Producers and Exporters of Fruits and Vegetables.

Expanding the geography of exports

High rates of growth in exports of fruits and vegetables is a very good indicator, as is the geographical diversification of Azerbaijani agrarian exports. Products under the Made in Azerbaijan brand can now be found not only in traditional sales markets in Russia and other countries of the post-Soviet space, but also in the trade networks of several Arab states, China, the United States and Europe.

Nevertheless, the Russian market remains the main market for Azerbaijani agrarian products consuming about 75% of the total agricultural exports. This is partly due to relatively greater access of Azerbaijani producers to this market. Another important factor is the sanctions on the supply of agricultural products from Europe, the US and several other regions of the world, which create additional opportunities for Azerbaijani exporters.

"Azerbaijan intends to expand the geography of food exports to the countries of the Arab world and also to Central Asia. For example, Turkmenistan imported large volumes of onion from Azerbaijan in 2017. Currently we are negotiating with the UAE, Qatar and other countries of the Persian Gulf that need Azerbaijani products," said Khalig Mammadov, Deputy Chairman of Harvesting and Supply of Food Products JSC. According to Mr. Mammadov, his company is conducting a feasibility study regarding the possibility of exporting Azerbaijani products to South Korea, but it is necessary to solve the problems of product certification.

In general, Azerbaijan has good prospects for increasing its export of food to the markets of developed countries largely thanks to the ability of enterprises to improve the quality of domestic products, in particular their compliance with the packaging norms and standards.

On the other hand, it is necessary to solve a number of complex tasks, so as not to limit the range of Azerbaijani exports only with fruits and vegetables. Unfortunately, currently the share of other branches of the agro-industrial complex such as the production of meat and dairy products, vegetable oils, sugar, tea, tobacco, rice, flour and confectionery products and partly wine products in the country's total exports is relatively small.

This is due to a number of reasons rooted in the previous agrarian strategy, which has mainly encourage the manufacturers to focus on import substitution taking into account the peculiarities of the domestic market. Comparative proximity of a number of market segments and the protectionism (which initially played a positive role) formed "greenhouse" conditions for local producers. When the oil was expensive and Azerbaijan had a higher consumption rate, these industry deficiencies were not so noticeable, as the comparatively high food prices in the domestic market and stable demand were enough to cover all the costs of inefficient management. Oriented to a high profit rate (largely due to low purchase prices for raw materials and a high selling price for finished products), the food industry enterprises did not face fierce competition and, as a result, were not motivated to reduce production costs and introduce technical innovations.

The situation changed three years ago, after three devaluations of the local currency, Manat, which increased the cost of imported agricultural raw materials and semi-finished products, packaging materials, fertilizers, feed and additives to them. First, this turned out to be high production costs due to a significant share of import components in its structure. On the other hand, the insufficiently level of production of packaged products and the incompliance of large volumes of the processed products with international standards make export expansion inefficient.

New spheres in agriculture

Fortunately, some Azerbaijani producers were able to ensure compliance with all the above requirements and successfully access the markets of European countries, the US, the Persian Gulf states and China. These are local companies participating in the World Food Azerbaijan 2018 exhibition, including producers of dried fruits, pomegranate juice and fruit concentrates, seafood, tea, jams and other canned products. However, these supplies are not yet systemic and relatively insignificant in volume.

For instance, Azerbaijan has managed to ensure relatively stable exports of wine products only in Russia, Belarus and Ukraine, and in recent years also in China.

The strategic directions of agriculture also assume setting out olive orchards and the export of olives and olive oil, as well as the development of tea growing, rice growing, hazelnuts, cocoon, citrus fruits, tobacco, etc.

However, it is possible to increase the volumes of competitive export products only if large farms are established and the cost of raw materials and finished products are reduced. As confirmed by the international experience, only the producers introducing modern and effective agricultural technologies and able to create full production cycles (from raw materials to final products, minimizing the cost of imported components and semi-finished products needed in the production process, such as packaging, chemical and biological additives, etc.) are leading the global agrarian market. Therefore, along with the growth of tobacco crops, which will cover an area of 3,300 hectares by the end of 2018, the government purchases drying chambers and builds a new cigarette factory. Also, mulberry seedlings are planted in many areas of the country to develop the silk manufacturing. New gardens are laid down to develop hazelnut farming, the area of ​​which will increase from 40 to 80 thousand hectares and Azerbaijan will be able to enter the top three countries of the world in the production of hazelnuts.

The government also has to take a number of steps to increase the export of dairy products, sunflower oil and eggs and to reduce the cost of feed and raw materials and optimize production processes. Today, there are also drawbacks in these areas that prevent farmers from reducing the cost of production of raw materials. On the other hand, Azerbaijan is working on the consolidation of industrial clusters in order to optimize the processing of raw materials. For example, fifteen agricultural parks will be commissioned this year. In general, it is planned to construct additional 45 agricultural parks in 30 regions of the country.

Finally, effective planning, logistics and marketing based on modern electronic management models are also important for the development of agricultural exports.

We hope that in the coming years the new team of the Ministry of Agriculture will be able to implement the export reforms in the agrarian sector turning it into a driver of the economic growth Azerbaijan.