Weekly economic review (Feb.17-21)

Analysis Materials 25 February 2014 14:50 (UTC +04:00)

Azerbaijan to introduce new mechanism for joint producer and agricultural product processors

Azerbaijan is to introduce a new mechanism aimed at establishing and strengthening corporate relations between production farms and processing enterprises, Executive Director of the National Fund for Entrepreneurship Support (NFES) under the Ministry of Economy and Industry Shirzad Abdullayev said.

The essence of this mechanism is that a processing enterprise will create its own financial institution to issue loans to farmers, as well as veterinary and training centres and sign contracts with these producers to purchase their products at fixed prices throughout the year, according to the executive director.

"Currently, one of the main problems of the agrarian sector is weak corporate relations between the production and processing enterprises. The question of 'when, to whom and at what price the farmers will sell their products?' remains open for them. Therefore, we have developed this mechanism. The first project is being implemented in the processing of meat and milk," Abdullayev said.

"Farms engaged in livestock are selected and their owners take courses at the enterprise's training centre. Afterwards, a project describing the future farm and equipment required is worked out.

"With the help of Aqrolizinq, the farm is provided with 20 cows in the first year, five in the second year and then these animals breed and their number may grow to 50. One family can care for a maximum of 50 cows which are rendered veterinary services, provided with feed and the family is provided with equipment. Then a contract is signed between producers and processors. Milk is bought at the price of 0.4 manat per litre and meat at 6.5 manat per kilogramme," the NFES head said.

Thanks to this mechanism, the milk processing enterprise will be confident that it will have raw materials throughout the year and the producer will be confident that the products will be sold, according to Abdullayev.

"We believe that the project will justify itself within three years," he said. "The farms will operate as independent enterprises, but may continue to enter into agreements with the processor. This will also help to fully meet demand for meat and milk through domestic production."

"The processing enterprise creates its own credit institution," he added. "It must also be interested in farmers paying off their loans."

"A processor will be interested in a manufacturer developing, selling products, earning and paying off the loans in time," he said. "This is a new stage in the agricultural sector. This mechanism has been successfully used in other countries for a long time."

Along with the ability to issue loans, the fund will coordinate these activities.

The ministry is considering the possibility of using similar mechanisms in other areas of agriculture, namely fishery and crop production.

The fund was established in 1992. Some 104 industrial projects worth 730 million manat have been financed through preferential loans for the past 10 years. Some 80 enterprises were commissioned under these projects and operations on the remaining ones are underway.

At least 64 percent of loans issued by the National Entrepreneurship Support Fund were directed for the projects on production and processing of agricultural products.

At least 94,000 new jobs have been created at the enterprises established through these loans for the past 10 years.

The loans are issued to the entrepreneurs through authorised banks and non-bank credit organisations. Their total number is 44.