HALF-YEAR RECORD

Every year Azerbaijan implements large-scale agricultural reforms to organize mass production, to reduce costs and to boost exports. The success of these reforms can be seen from the results of the first half of the current year with a record 13-percent growth of agricultural production.

Non-competitive animal husbandry

According to the State Statistics Committee of Azerbaijan, in January-June of 2019 the value of agricultural products produced in Azerbaijan in exceeded ₼3.675b. This indicator is a record not only for the post-crisis period, but even for previous years. For comparison, the total volume of agricultural production last year increased by only 4.6%, which is almost 3 times less than in the past half year.

The highest growth rate in January-June of the current year was ensured by the crop production - 25.6%: in this segment of agriculture, Azerbaijan produced more than ₼1.7b. Such high rates of development were possible because about half of the total production is export oriented. High demand in the foreign market, which is not comparable with relatively small local needs, stimulates farmers and large agricultural enterprises to increase their output of green products every year.

A different situation is in livestock production, which during the reporting period grew only by 2.9%. It is not surprising if we take into account that almost the entire volume of livestock products is sold in Azerbaijan, and the production cycle very strongly depends on demand in a relatively small local market. However, in the first half of the year, livestock production reached ₼1.9b, or more than half of total agricultural production in monetary terms. This is due to a higher level of market prices for livestock products. Besides, we need to take into account a larger degree of processed products with a high level of value added.

According to experts, it is very problematic today to turn products of the Azerbaijani livestock industry into an attractive type of export due to higher production costs than in Russia, Ukraine, Belarus, Central Asian countries, etc. Climate change, anthropogenic and other factors lead to a reduction in natural pastures for livestock grazing, and many livestock farms are forced to keep cattle in stalls. Also, there are growing costs for keeping animals, paying for feed and other forage, and, as a result, the cost of meat and milk, basic products of livestock industry, increases. In this situation, local livestock products cannot confidently compete in the markets of post-Soviet countries and abroad, the only exception being the export of eggs and lamb to Arab countries. Talks about exporting to the EU markets are irrelevant, since there is a very complex system of veterinary and sanitary control, the need to obtain a number of certificates and permits. Azerbaijani cattle-breeding farms are still not able to ensure the required level of quality and at the same time significantly reduce the cost of production.

Crop production leads

Local agriculture today is represented on the foreign market mainly by crop production, which is almost 9 times higher than the growth rate of livestock breeding.

"Last year, exports of agricultural products from Azerbaijan increased by 11.3%, reaching $560 million, while about $48 million of this amount is supplies to the EU countries. This positive trend intensified even more in five months of 2019, and agricultural exports exceeded $241 million," Azerbaijani Minister of Agriculture Inam Karimov said recently.

As in previous years, 5/6 of total exports are to Russia and other traditional markets of the post-Soviet countries. This is partly due to the relatively greater openness of the Russian market for Azerbaijani producers, and sanctions restrictions on the supply of agricultural products from Europe, the US and several other regions of the world also play a tangible role, which creates additional opportunities for Azerbaijani exporters.

Tomatoes took the leading position in the structure of crop supplies in the first half of this year: $104.2 million, followed by hazelnuts $62 million. Sales of cotton, seasonal vegetables and fruits also secured good profit this year. Moreover, by the end of 2019, the export of cotton raw materials will further increase: according to the forecasts of the Ministry of Agriculture, a 25-percent increase in production is expected relative to 2018, when 232,200 tons of cotton were collected in Azerbaijan.

Remarkably, in recent years, the government has made considerable efforts to diversify the export geography. Today agricultural products made in Azerbaijan can be found not only in post-Soviet countries, but also in the trading networks of a number of Arab states, the US, Europe and China.

These process shows an increasing trend. Thus, this year a contract for the supply of pomegranates worth $10 million was concluded with the UAE, and a large batch of Napoleon cherries was exported to Nigeria. This year Azerbaijan also signed contracts for the supply of hazelnuts to Poland and Italy for $120 thousand and $130 thousand respectively. A large amount of Azerbaijani hazelnuts will be exported to Switzerland. Thus, export deliveries, which have become a catalyst for the growth of agricultural production, have allowed to overcome the bottleneck effect of local sales market and to stimulate rural producers to further increase indicators.

Double growth

State's policy of subsidizing rural producers, leasing agricultural equipment and breeding livestock, as well as implementing large-scale irrigation projects, state subsidies for watering farmers, provision of preferential loans and a long period of tax holidays, which freed rural farmers from all types of fiscal fees, with the exception of land tax, has played an important role in this process. In 2018, in order to develop the agrarian sector, the state provided subsidies and benefits in the amount of ₼370m, and purchased 5,800 units of agricultural equipment.

This process continued in the first half of the current year. Agency for Agrarian Loans and Development provided ₼11.35m of preferential loans to 328 farmers, while 391 farmers were sold at preferential prices 1.4 thousand units of agricultural equipment for a total of ₼70.7m.

The most important direction of development of the industry is the establishment of about 50 large farms, production and processing facilities, logistics clusters and agroparks, 17 of which have already been created. The total area of ​​17 agroparks is 104 thousand hectares and, with the commissioning of the remaining planned facilities, will exceed 200 thousand hectares. To create 31 agroparks, the government plans to provide ₼2.2b. In the future, these agro-industrial enterprises will set up production of export-oriented products worth about ₼1b.

At the same time, along with the increase in exports, Azerbaijan is implementing a set of programs to expand the sales of agricultural products in the local market. In particular, the Ministry of Agriculture has initiated the project “From village to city”, which simplifies the access of products of small and medium-sized rural producers to the markets of Baku and other large cities of the country. Transportation, logistics, warehousing is also simplified due to the active use of information resources. In particular, channels have been established for ordering farm products via the Internet, as a result of which small farms are also involved in the food segment of e-commerce.

“Various measures to support farmers have contributed to the growth of agrarian production by 2.4 times over the last decade,” Azerbaijani Minister of Economy Shahin Mustafayev said recently.

The most important component of recent reforms was the expansion of the E-agriculture project, which ensures the introduction of innovations in the management of agriculture industry and promotes transparency, efficiency and accountability in agriculture. The use of resources created from 2015, the system should help solve problems related to subsidies to rural business entities, ensuring transparency and accountability in this area, where large violations have occurred recently. “In some cases, the subsidies did not reach the addressee, and sometimes were provided spontaneously. Often they tried to purchase substandard fertilizers by the state on favourable terms. To overcome the existing negative outcomes in the agrarian sector, a new stage of reforms is carried out, including the expansion of the E-agriculture project to ensure transparency and accountability in providing subsidies,” President Ilham Aliyev said in his recent speech.

Azerbaijan has developed a detailed electronic database in agriculture to ensure effective and innovative management of the industry. Ministry of Agriculture created and put into operation 17 information systems; 23 services provided by the agricultural department and its structural divisions were transferred to electronic format. Orthophoto maps of 69.3 thousand square meters of the country's territory were developed.

The development and implementation of automation components for agricultural leasing and issuance of subsidies has been active since 2016. At the beginning of this year, the Ministry of Agriculture presented a new electronic resource for farmers - the “Electronic Agriculture Information System” (EKTIS), which currently includes information on agricultural activities of more than 313 thousand farms. Also on July 17, 2019, the process of incorporating information on legal entities involved in the agricultural sector into the EKTIS system was launched, and it is expected that registration of 149 legal entities will be completed as soon as possible. Starting from 2020, Azerbaijan will use a new mechanism for subsidizing agricultural producers: according to the new “Subsidy Rules for Agricultural Producers”, approved by presidential decree in June 2019, the base amount for calculating subsidies, mainly in crop production, is ₼200.

The objective of all of these reforms is to improve the efficiency of state financing and to optimise technical and service support provided to farmers by government agencies. It is expected that these measures will increase the investment return in the industry and will further increase the growth of production.