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Trends of Agro-industry
• Economic Development
ARMENIA
Armenia is a landlocked and lower middle income country with GNI per capita as of US$ 3,100 in 2009 Total number
of population is 3.08 million inhabitants, of which 36 percent live in rural area, and the annual population growth is
0.19 percent. Armenia enjoyed a strong economic growth from 2000 to 2007, with average real GDP growth of 24
percent. As a result of the global economic crisis, GDP growth sharply declined to 5.7 percent in 2008 and further to
-36.2 in 2009. The economy was, and remains highly resource-dependent in mining sector and agriculture. The
agricultural sector is still very important contributing with 21 percent of value added to GDP and employing around
46 percent of the total labour force in 2009. The agricultural productivity is low. Manufacturing industry generated
about 16 percent of GDP with a negative annual growth as of -7.4% and employed 7.7 percent of total labor force in
2009 that down by 35 percent to the 2005 level. Armenia is a net importer of food products. With increase in
international prices for metals Armenian economy driven by the mining sector began recovering with a positive
growth in 2010.
• Food and Beverages Demand
Armenia is a net food importer, and domestic agriculture cannot satisfy demand for a range of commodities such as
vegetable oil, sugar, meat and poultry products, flour, rice and high-value grocery products. Total consumer
expenditure for food and beverages above 40 percent of total expenditures. The highest share in food consumption
refers to meat, dairy products and bakery & macaroni. The domestic market is underdeveloped and fragmented.
There was estimated 22 percent of population to be undernourished in 2005-2007.
Food and Agriculture Organization of the United Nations
Regional Office for Europe and Central Asia
Agro-industry Outlook
The food and beverages industry forms a large part of the economy, generating AMD219.2 billion (US$ 0.58 bln), that
represents about 50 percent of total manufacturing output, and employing 18.3 thousand people (or 21.8 percent of
manufacturing labor force) in 2009. There are 831 enterprises (or about 35 percent of total number of industrial
enterprises) operating, most of which are private small or medium-scale enterprises. The output declined by 6.4
percent in 2009 to the level of 2008 after a steady growth over time. Employment has declined in a number of
employees by 25 percent in 2009 to the level of 2005. The F&B sector consumes 24 percent of total electricity use by
the industry. Labour productivity is growing over time making twice higher in 2009 to the 2005 level. Important
subsectors include alcoholic and as non-alcoholic beverages, preserving fruits and dairy processing. Wine, brandy
and cheese production are the largest part of the food processing industry. The potential sectors are dried fruits and
fish products using the local resources. Although the country could benefit from the increasing demand in the
Western Europe for organic products counting but organic land represents only 0.03% of agricultural land.
Chart 1: Food, Beverages and Tobacco Industry Performance
Chart 2: Products Output Share, 2007
Key Economic Indicators
2011
2009
Food and Beverages Industry
2009
GDP, US$ billion
8.71
Output, % of manufacturing
49.7
Manufacturing VA, % of GDP
15.7
Value Added, % of manufacturing
Agriculture VA, % of GDP
21.0
Enterprises, % of industry
34.8
Employment in Agric., % of total
45.6
Employment, % of manufacturing
21.8
Gross Fixed Capital F., % of GDP
30.8
Investments, % of manufacturing
n/a
FDI net inflows, % of GDP
8.92
FDI inflows, % of total FDI inflow
3.78
R&D, % of GDP
0.26
R&D, % of Output
Merchandise Trade, % of GDP
45.9
Net Trade, US$ billion
Merchandise Exports, US$ billion
0.70
Exports, %of merchandise exp
13.5
Merchandise Imports, US$ billion
3.30
Imports, % of merchandise imp
8.17
Global Merchandise Exports rank
155
Exports annual growth, %
n/a
n/a
-0.17
-45.7
Agro-industry National Policy Framework
National Development Programme. The key documents setting out the Government
policies for the country, agriculture, rural and agro-industry development include: (i)
Sustainable Development Program for 2009-2021 (this is the Second Poverty Reduction
Strategy); (ii) Strategy of Agriculture Development (2006); (iii) Food Safety Policy (2005);
(iv) Cattle Breeding Program for 2007-2015; and (v) the Tax Administration Strategy for
2008-2011.
Besides, organic agriculture is part of Armenia’s sustainable development concept and is a
priority area in the government’s agro-food policy. Organic farming is considered an
excellent business opportunity for farmers and investors involved in agriculture and food
production.
Armenia has with the EU a Partnership and Cooperation Agreement since 1999 with an
ENP Action Plan from 2006. Together with the UN organisations the country elaborated
UNDAF for 2010-2015.
In 2006 the Armenian Government established the Food Safety and Veterinary Services
Inspectorate and the Plant Sanitary Inspectorate under the Ministry of Agriculture in
order to control production of food on farms, animal and plant health, processing,
distribution and catering, water used for production of food (in the production area).
Legal Framework. Armenia adopted a number of laws and amendments to existing laws in
order to encourage agricultural, trade and foreign investments growth as well as agro-industry
development, including laws on standardisation, conformity assessment, uniformity of
measures, law On Organic Production (2009) based on the law is the Codex Alimentarius
organic guidelines and the EU organic regulation with the established Armenian Organic
Agriculture Foundation established. The selection of the priority sectors is still on-going
process.
Tr ad e L i be r al i z at i o n , W TO A c c e ssi o n an d Tr ad e Per fo r m anc e
Foreign Direct Investments
Trade Regulation. Armenia has now a liberal trade and investment regime, according to a WTO
Secretariat report on the trade policies and practices of Armenia. The comprehensive “Customs
Administration Strategy for 2008-2012” was further elaborated through the development and
introduction of a Strategic Action Plan in Dec 2009. Strengthening enforcement mechanisms is one of
the key goals for Armenia in meeting its WTO commitments. Armenia currently has incentives for
exporters (no export duty, VAT refund on goods and services exported) and foreign investors
(income tax holidays, and the ability to carry forward losses indefinitely). Armenia has no
quantitative restrictions on exports or imports. Armenia signed free trade bilateral agreements with
eight countries and with the CIS.
WTO accession. Armenia has been a member of WTO since February 2003 and an observer to the
Agreement of Government Procurement (GPA) accession since 2009, contributing with 0.015 percent to
WTO budget in 2011. Simple average of imports duties for agricultural goods applied in 2008 were 6.8
percent. The first Trade Policy review by the Trade Policy Review Body of the WTO was in April 2010. The
WTO Committee on Government Procurement, in Dec 2010, adopted a decision that invites Armenia to
accede to the GPA on the basis of a final coverage offer.
Trade Performance. Exports of merchandise products accounted for just over 8 percent of Armenia’s
GDP, and imports made up around 38 percent of GDP with main export commodities as ores, precious
stones and steel products, which provide around 65 percent of total export revenue in 2009. Beverages,
spirits and vinegar made about 12 percent of total merchandise trade and shared 87 percent in the F&B
revenue. Armenia is an import-dependent country in F&B products, except fruit juices and wine products,
making a negative trade balance. Processed F&B products accounted 3.3 percent of total merchandise
imports and only 0.7 percent of total merchandise exports in 2009 with a sharp decline in both exports of
F&B by 46 percent and imports by 21 percent after a steady growth over time. Products proven thus far to
have export potential include wine and brandy, fish and crayfish, cheeses, and fresh and dried fruits and
vegetables. Brandy is exported mostly to CIS countries. Latest trends are to develop export-oriented food
products starting with dried fruits, cheese and organic products.
Top destinations for F&B products: Russia (73%), Ukraine (7%), United States (6%) and Belarus (4%);
Top origins for F&B products: Russia (28%), Ukraine (19%), Brazil (10%) and Iran (3.5%) in 2009
Chart 3: Food and Beverages Trade Performance over time
Regulation. Law on Investments (1994)
provides the legal basis for foreign
investment in Armenia. No legal distinctions
are made between domestic and foreign
companies and no restrictions exist on the
percentage of ownership of a local business
that foreign investors can acquire. The
government encourages foreign investment
and approved a National Program on
building “a Center of Excellence” for business
and investments climate.
FDI inflows. In 2009 Armenia’s FDI inflows
accounted 8.9 percent of GDP grown in 3.3
times since 2005 but down by 17 percent to
the 2008 level. Agriculture accounted USD6.7
million of FDI that is less than 1 percent of
total amount. F&B sector generated about
USD29.4 million of FDI in 2009 that was in
2.5 times higher than in 2006 and sharing
about 4 percent of total value.
The most significant foreign investments in
Armenia came from France (US$146mln) and
Russia (US$122mln) constituting 38 and 32
percent of the total. The vast majority of FDI is
directed to energy, telecommunication and
agro-industry as beverages production,
vegetable and fruit canned production, tobacco.
In 2004 there were 347 foreign affiliates
located in Armenia.
Chart 4: Share of Exported Product Groups of
F&B in total exports, in 2009
F o od S afe t y , C e r t i fi c at i o n & Qu al i t y C on t ro l
Food Safety regulation. Armenia is a member of the Codex Alimentarius
Commission and of the International Organisation of Standardization
(ISO). Food products are a subject to the Law on Food Safety” (2006), the
Law On Ensuring Sanitary-Epidemiological Safety of Population (1992),
Law on Consumer Protection (2001), Law on Veterinary Medicine, Law On
Plant Protection and Quarantine (2009), Law on Trade and Services and
Law on Measurements. The Law on Food Safety is ensuring the quality of
food at all stages of supply chain, which requires companies to integrate a
self-control system based on HACCP system principles between 2011 and
2015. Armenia drafted a programme and an action plan on the
development of the food safety system for the period 2009-2013. Besides,
laws On Organizing and Conducting Audits (2000), On Compliance
Evaluation and On Conformity Assessment and On Registration of Food
Establishments were adopted among other legal-normative acts.
Certification. Abolished in 2005, Armenia still follows the sanitary and
phytosanitary (SPS) agro-food standards from the GOST system that do not provide
optimal food safety and agricultural health protection for the population and
agriculture. There are eight Technical Regulations refer to F&B industry.
Quality Control. The country began a programme of introducing quality
management standards as HACCP and SPS supported by international donor
organizations, especially by the EC, in terms of capacity development and
harmonization of regulations. Currently there are two institutions are involved in
food safety control at plants: the newly established Food Safety and Veterinary
Inspectorate under the Ministry of Agriculture and the Hygienic and AntiEpidemiological Surveillance State Inspectorate under the Ministry of Health. This
duality creates confusion among food processors. Inspections in food production
plants are implemented on an annual basis by conducting examinations and
interviews, monitoring the production process, analyzing results, evaluating and
disclosing risks. In case the violations, administrative penalties are applied according
to articles the Code on Administrative Legal Violations.
Business Environment and Competitiveness
Business Environment. According to the Doing Business Report 2011 Armenia
has through business reforms improved in starting and closing business, getting
credit, enforcing contracts, dealing with construction permits and trading across
borders, it was ranked (out of 183 economies) as 48 in 2011 (down by 4 points to
2010). Trading across the borders is ranked as of 82 (up 21), paying taxes – 159,
protecting investors – 93, getting credit – 46, and starting business - 22.
Taxation Relieving. The tax burden on companies is still to be eased as the
country is considered as one of the slowest countries in the world in tax paying
procedures. Most of latest amendments to laws have to get in force from January
2011, e.g. introducing electronic filing on tax invoices. Armenia is also a party to
32 double tax treaties. Since 2010 agricultural producers are not exempt from
VAT due to the WTO requirements. Government regulations exempt the duty on
the fish feed. There is a 10% excise tax on beer over 1 liter, 10% for wine,
AMD180 for apple cider and 30% for alcoholic drinks.
Competitiveness. According to the Global Competitiveness Report 2010-2011
Armenia is in transition stage from 1 to 2, it got 98 overall Global Competitiveness
Index among 139 countries, having the most five problematic factors of doing
business as follows: corruption, tax regulation, access to financing, inefficient
government bureaucracy and inadequate supply of infrastructure.
Agr o- indu str y Br ief