Armenia - agricultural policy update

~~WORLD 59 A o EC4NR - Agriculture Policy Note #1 ARMENIA AGRICULTURAL POLICY UPDATE December 29, 1995 Natural Resources Management Division Country Department IV Europe and Central Asia Region  CURRENCY EQUIVALENTS Currency Unit Dram (D) US$1 D14 (November 1993) US$1 = D408 (February 1995) US$1 = D402 (November 1995) FISCAL YEAR January 1 - December 31 UNITS OF MEASURE ha = hectare kg = kilogram 1 = liter sq am = square kilometer ton metric ton ABBREVIATIONS AND ACRONYMS CIS Confederation of Independent States EU European Union FSU Former Soviet Union NMP Net Material Product USAID United States Agency for International Development  Table of Contents 1. Reform Performance in 1995 ................................ 1 2. Reform Progress and Outlook ............................... 1 3. Rehabilitation of Agroprocessing and Agricultural Services ............. 2 4. Financing Primary Agriculture and Agroprocessing .................. 4 5. Other Priorities ........................................ 5 Policy Matrix ........................... 9 Annex 1: Organizational Structure of the New Ministry of Agriculture and Food Industry ...................................... 16 Annex 2: Statistical Tables .................................... 17 Table: 1 - Self-sufficiency and Per Capita Food Consumption (1985-1994, 1995) Table: 2 - Output of Major Crop Products Table: 3 - Production of Principle Livestock Products Table: 4 - Fruits and Vegetables Canning Industry Capacity and & Utilization, 1994-Sept.1995 Table: 5- Meat Processing - Sausage and Semi-Finished Meat Products Plant Capacity and Utilization Table: 6 - Retail Prices for Staple Food Table: 7 - Agricultural Transfers and Taxes, 1995 Table: 8 - Utilization of Agriculture Land (January 1995) The Armenian Food and Agriculture Sector Review* provided a status report on the food and agriculture sector and assesses the progress of ongoing sectoral reforms through late 1994, when the fmal version of the report was completed. This note covers agricultural policy developments in Armenia since then and gives a brief assessment of the performance of agriculture and food processing in 1995 based on the preliminary estimation provided by the Ministry of Agriculture and Food Industry. This note was prepared by Csaba Csaki, EC4NR. *Armenia. The Challenge of Reform in the Agricultural Sector; A World Bank Country Study. World Bank. Washington, DC, 1995.   Production Performance in 1995 1. Background. Traditionally, Armenia has been a net importer of food and agricultural products. In 1990, the country produced only about 25 % of its grain, 35 % of its dairy and 65 % of its meat product requirements. At the same time, a high proportion of vegetables, grapes, and fruits were exported in the form of fresh and processed produce, wines, and brandies. Total agricultural production fell only about 4-5 % between 1991 and 1995, while other sectors declined significantly. As a result, the relative importance of agriculture in the national economy has increased. By 1993, agriculture accounted for 46% of the net material product (NMP) and over 25% of total employment (compared with 18% before independence). Yet, the country has also remained a net food importer, even though levels of consumption are substantially lower than before independence. 2. Growth. There is no verifiable information available on the overall growth rates of food and agriculture. Various sources indicate that the decline of agricultural production stopped in 1992 and leveled off in 1993. In 1994, overall production was close to, or somewhat below, the 1993 level while a modest 2-4% growth is projected for 1995. Per capita food consumption (Table 1) declined further in 1995, while self-sufficiency ratios remained at the level of previous years. 3. Prinarv Agriculture. The harvests of most major crops were lower in 1994 than in 1993. However, 1995 shows an increase in grain and vegetable production. In 1995, grain production increased by 13 % compared to 1994 (Table 2). In 1995 livestock performance in general has remained on the same level as the previous year (Table 3). There are signs of recovery in cattle and pork production while the sheep and poultry subsectors continue to decline. 4. Agroprocessing. Agroprocessing is still in a deep crisis (Tables 4 and 5). The fruit and vegetable canning industry is working with about 10% of capacity utilization while capacity utilization in meat processing is only 2%. The decline of wine-based agroprocessing is also remarkable. The wine/brandy subsector provided about 50% of agroprocessing outputs in the late 1980s, while today its contribution is only 17%. The grain-based industries (bread, pasta and feed) operate closer to the pre- independence levels (60-80% of capacities). Reform Progress and Outlook 5. Armenia has implemented one of the most comprehensive land reform programs in the FSU Republics. Land reform was initiated in 1991, and by the end of 1992, most of the agricultural land had been privatized. Concurrent with land reform, in 1991 the Government also began to develop a new incentive framework for the food and agriculture sector. The state order system was fully dismantled, producer prices and most input prices were liberalized, and almost all subsidies were eliminated. However, this process was compromised and limited in its effect by the lack of competition in input and output marketing, by the delay in restructuring and privatizing agricultural industries, and in the reformation of institutions inherited from the Soviet period. 6. During 1995, Armenia has made further significant progress in reforming food and agriculture. The accelerated privatization of agroprocessing and the achievements in institutional reform can be highlighted as the most important achievements of the year. The continuation of market reforms such as the further liberalization of bread prices, as well as the decision to begin with the privatization of  2 Arnenia the state reserve land, are also additional important steps in the right direction. 7. The most critical issues that will determine the further success of reforms in the sector and the recovery of food and agriculture in general are: a) the success of the restructuring of the agroprocessing industries; b) the speed in estal<ishing a support service environment, particularly a working rural financial system to support privatized agriculture, farmers, and processors. Efforts to strengthen liberal trade and market policies, to consolidate private farming, and to reform institutions should also be continued. Rehabilitation of Agroprocessing and Agricultural Services 8. The delay in privatizing agroprocessing and agricultural services has been one of the most critical constraints to the emergence of privatized agriculture. Status of Privatization. Out of 220 agroprocessing enterprises, 25 were fully privatized in 1995, and 122 are in the process of privatization (expected to be comple.ed in early 1996). nTese 157 enterprises represent the entire food processing sector except the grain and brandy industries. The new owners are mainly employees and local buyers. The interest in wine enterprises is limited, which slows down the pr- :: ss. The grain sector and cognac factories are not covered by the current privatization program. TMe agricultural input supply companies are also in the process of privatization. Some local units have already been sold. The whole process, however, will be completed in 1996. Ie Grain Sector. Currently, grain elevators, mills, and bakeries are state-owned and operated by the State Enterprise for Grain. The grain subsector is regulated by the Department of Bread and Bakeries and the Department of Purchasing and Distribution of Grain Based Products. Government plans to privatize all of the bakeries in 1996, while the elevators and mnills will remain in state ownership at least for the forthcoming period. This decision has been heavily debated in the Government, and the status of cognac factories as well. Even partial privatization of grain handling and milling facilities would definitely increase competition and the efficiency in use of limited grain resources. There are already 30 smaller scale mills run by private operators and about 20% of bread is produced by private bakeries. Although bread prices are liberalized, the state-owned bakeries sell bread below the prices of the private sector. The ministry officials deny any direct Government intervention, however, there is an informal request to the managers of the state-owned bakeries/rnills to keep prices as low as possible. 9. A working and efficient agroprocessing industry capable of producing competitive products for the international markets is a critical condition for the development of the sector. Further actions are needed to create independent owners who can efficiently control management and are able to bring in additional investment. In order to achieve this: * the role of auctions in the privatization process should be increased; * the grain sector and the brandy factories should be included in further privatization programs; * the shares of companies privatized should be traded as soon as possible; * the participation of foreign investors should be promoted both in auctions and in the further rounds of privatization; * post-privatization programs should facilitate the restructuring of privatized enterprises, and * strictly enforced bankruptcy legislation should be used to consolidate the newly established private sector.  Agricultural Policy Update 3 10. Privatization, however, is just the beginning of the process to achieve efficient agro- industries. The recovery of the sector requires: * reliable and continuous supplies of energy; * substantial improvements in transportation; * improvements in technologies and productivity; and * recapitalization and significant additional investment in the privatized agroprocessing and services. Financing Primary Agriculture and Agroprocessing 11. The lack of liquidity and the limited availability of credit is one of the most important bottlenecks in the sector. In 1995 there was no new Government credit available for agriculture. The Armagrobank and other commercial banks are under-capitalized and only occasionally provide credit for agriculture. Current commercial interest rates are around 65-70% per year. The creation of a new financial intermediary system for food and agriculture is progressing slowly. Armnafobank. Auditing and restructuring of the Armagrobank is underway and is expected to be completed in early 1986. Armagrobank is the successor bank to the Armenian branch of the Soviet Agroprombank which was the key institution to finance agriculture and agroprocessing industries. Armagrobank is an open type shareholding company which, according to the annual report, became a 'private organization' at the beginning of 1994. Ninety five percent of the bank's shares belong to individuals and private companies and 5 % belong to state-owned enterprises. The number of shareholders is 2,441. The majority of shareholders are in the agriculture and food businesses. A total of 29% of the bank's loans are to shareholders. The bank has been making a concerted effort to reduce this figure (it has already been reduced by almost 50% since March 1995). Armagrobank has 42 branches and a total staff of over 1000. As of early August 1995, Armagrobank had not received any financial assistance from Government, although some had been requested. In 1994 the bank received 280 million dram (slightly under 10% of total loans as of July 1, 1995) for onlending, at a margin of 18%. The borrowers used the financing to purchase products from farmers. The bank has prepaid the loan, although it has not yet been repaid by all of the borrowers. Of the bank's Dram loans, 64% are to state-owned enterprises, and 36% are to private borrowers. Ten percent of the total amount of dram loans is to small farmers (approximately 15,000-17,000 loans with an average size of Drams 100,000-200,000). Twenty percent of the total amount of Dram loans is not related to the agriculture or food industry. Loan maturities range from three months to one year, with the average in the 6-8 month range. Rural Credit Cooperatives. Supported by EU grant, Credite Agricole has initiated the creation of a network of rural credit unions and the Armenian Cooperative Bank. So far in three districts, 56 credit unions have been organized. The new financial institutions have not been officially registered and no lending has taken place so far, due to the lack of start-up capital. There is a need to begin mobilizing deposits as well as for further improvements in the operational strategy. 12. Without visible progress in developing a working rural financial system and financing for the privatized agroprocessing, the productivity and output in agriculture will hardly increase. The development of a new rural financing system should be prioritized by: * speeding up the auditing and consolidation of Armagrobank and other commercial banks having an interest and potential to finance agriculture; * using some of the EU food aide counterpart funds to recapitalize some of the restructured banks to provide credits for the sector; and  4 Armenia * accelerating the development of rural credit cooperatives through TA to improve operational procedures and by providing grants to begin with the actual operation. Other Priorities 13. Macroeconomic and Incentive Framework. The country has made significant progress in liberalizing agricultural markets. The process of liberalization continued in 1995 and has come close to completion. Prices, Transfera: The last interventions in agricultural prices were eliminated in June 1995 by the liberalization of bread prices and the removal of most of the margin control in bread production (margin control remained on flour). Domestic agricultural prices come somewhat closer to international prices, except grain producer prices which are fully adjusted to border prices. Bread retail prices are still below the level in other FSU countries. Other than grain, domestic producer prices are still depressed due to limited demand by the processing industry and the population (Table 6). The water charge is the major channel for subsidizing agriculture. As outlined in Table 7, the budgetary balance for food and agriculture in 1995 is negative. It is rather difficult, however, to estirmate the actual situation due to the low tax collection rates from producers. Water Charges. Until to November 1, 1995, water was delivered to the farmers at a price which was equivalent to about 10% of European water charges (Dram 5 per cubic meter). The water charge at that time was increased to Dram 14.5 per cubic meter which still does not cover expenses and represents about 30% of European prices. The collection of water charges still represent a problem, less than 50% of charges were collected this year. In 1995, an advance payment was requested, but most of the farmers did not pay and the water delivery started without enforcing pre-payment requirements. Attempts to increase the collection rate are constrained by: a) the fact that the system physically is not allowing the cut of non-paying users from the service; b) water deliveries are uncertain and not adjusted to the actual needs of the farmers; c) water charges are calculated based on a theoreticaly estimated supply, therefore, the charge does not necessarily reflect the amount of water delivered or needed by the farmers; and d) there is no adequate way To collect charges because the organization of Water Users Associations has only recently been formed. Trade Policie. The domestic markets are almost filly free from Govermnent intervention. The system of state orders to procure grain and goods needed for barter trade has been replaced by state procurement based on commercial methods. In 1995 the pnce of grain actually paid by the Government reflects the development of internanonal gramin prices (the starting price of 65 dram per kilogram increased up to 95 dram per kilogram by the end of October). The liberal foreign trade policy has been continued with the exception of grain and brandy. The export of grain is prohibited by informal requests to state owned grain companies, the export of brandy is regulated by the foreign trade clearing mechanism. Taxaton. The farmers pay only land tax, which is equivalent to 15% of the estimated cadastre income of the land and is in the magnitude of US$30-50 per ha. The agricultural producers are not subject to any additional taxation. The land tax on amounts to about 10% of total estimated farmers revenue on average. Due to the fact that most of the products are consumed directly by the farmers, the current land tax represents a significant burden on farming population and is at least comparable to the level of taxation in the rest of the economy. In 1994, only 35% of land tax was collected. The unpaid land tax is added to the next year's taxation. Seventy percent of the land tax remains with the local municipalities. There is a proposal to increase this rate up to 100% to provide more incentives for collection. Due to difficulties in the marketing of grapes, the land tax for grape yards was decreased by 50% for 1995. Agroprocessing and the incorporated farms are subject to a rather complicated and in many respects pervasive system of taxation. 14. The following actions are recommended to move further toward a distortion free marketing and incentive system: a full phase-out of subsidies to irrigation, and increased water charge recovery rates up to 80-90% by active promotion of the Water Users Association; removal of all remaining intervention on the grain and bread market; removal of remaining administrative restrictions on exports and imports;  Agricultural Policv Update 5 * removal of export taxes and reduction of import tariffs to a low and uniform rate; * an active trade policy to improve market access for Armenian food and agricultural products, especially in republics of the FSU and Central and Eastern Europe; * incorporation of larger farms into the regular business tax system; and * simplification and reduction of taxation in agroprocessing and promotion of investments by tax incentives. 15. Land Reform and Consolidation of Private Farming. Recently, the creation of conditions for an operational land mnarket as well as establishing support services for the private farming sector have been the focus of Government's activities. The consolidation of individual farns is still at a rather early stage. Faning Strture. There has been only nodest change in the structure of farming in the last year. Approximately 300,000 private farms use 69% of the arable land and 80% of perennial (orchards, grape yards) land (see Table 8). The number of cooperatives established after the distribution of land further decreased as farmers preferred to operate independently. There are only five kolkhoz type farms left and 29,600 ha of arable land are used by 728 state-owned enterprises engaged in research, education and extension. Utilization of Reserve Land. As a part of the land reform, approximately 25% of arable and perennial land was left in state reserve. This land resource is now being utilized to provide more efficient farmers with additional land. Land is provided through a maximum lease of 10 years, however, the average period of a lease is currently one to five years. Lease rights are provided by the local village comnittees based on the evaluation of business plans provided by the applicants. The lease fee is equivalent to the land tax paid by the private farmners, and the lease rights are not transferrable. Recently, a decision was made to begin the auctioning of reserve land. In the Ashtarak area 15 ha was selected for the first auction. The starting price of land was estimnated by the National Cadastre Service (US $8,437 per ha for irrigated, US$2,547 per ha for non- irrigated, US$17.192 per ha for perennial land on average). No sales will be conducted below this price. If the experience with the first auction is positive, the Government intends to speed up this process. There is no limitation on the amount of land that one person can lease or buy. There is, however, a proposal prepared for the Parliament to linmit the upper size of farms (25-30 ha per farnily in the Ararat valley, 60 ha per family on the slopes and 120-130 per famnily in the mountains). Titling and Registratio. The registration and titling of privatized land is proceeding very slowly. Thirty-one thousand titles have been issued so far. The current capacity is about 30-35,000 titles per year, which would require an additional 4-5 years to finish the whole process. The farmers need to pay for titling. One title costs approximately US $40 which seems to be high and discourages farmers from replacing temporary ownership certificates with permanemnt titles. Only 10% of fees were collected so far from those who received titles. Emernine Land Market. There is no information on the scale of private land transactions. According to the information provided by the Ministry of Agriculture and Food Industry, private land markets are becoming more active. Prices are somewhat lower than those set for state land auctions. The first detailed information on land transactions will be available in January 1996. Land transactions are not taxed. The administrative cost of transactions are estimated at 5 % of the deal. Pastures and Meadows. The pastures and meadows will permanently remain in state/communal ownership. The use of the land is organized by the village councils. Lease rights are provided for 10 years for a fee equivalent to the land tax. Farmers Associations. There are two major organizations for private farmers. The Association of Armenian Farmers is locally oriented and focuses on services for farmers. The Armenian Farmers Union (five regional units, 3,000 members) has a more political orientation and its major objective is to lobby for the interest of private farmers on the national level. T1his organization protested against the recent increase of water charges and demanded the strengthening of legal framework for private farming and the implementation of anti-monopoly legislation. 16. The consolidation of private farming and completion of land reforn requires:  6 Armenia * development and implementation of a land registration, information, and cadastre system to provide security of tenure, full information on land transactions, and a basis for land taxation; * acceleration and completion of the privatization of reserve land; a preparation and implementation of a program to promote the emergence of land markets to support land consolidation and a move toward a more efficient holding structure; a establishment of a competitive land mortgage and credit system; and * creation of a conducive framework for organizing local and regional service cooperatives. 17. Institutional Framework. In 1995 the Government made significant changes in adjusting the institutional structure around agriculture. New Ministry of Aericulture and Food Industry. The Ministry of Agriculture and the Ministry of Food and Procurement were merged into one unified structure. The structure of the new ministry reflects the need for a market-based agriculture although some remaining elements of command economy structures still prevail. The ministry's leadership considers the current structure as a temporary one which will be further adjusted in the near future. (Appendix I presents the organizational structure of the Ministry of Agriculture and Food Industry.) The new ministry will concentrate on regulations and public services. The ministry employs 240 people, 20% less than the joint staff of the two merged ministries. Regional Agricultural Administration. Armenia will change its administrative structure from 39 to 11 regions and the regional agricultural administration will be adjusted accordingly. Currently, there are about 10 people employed in each regional office. The role of the regional agricultural offices will be changed towards regulation, enforcement of standards, and inspection. Reform in Higher Education. Higher level agricultural education was reorganized in 1995. A three-level structure was introduced: four years, BA, additional two years, MA, an additional three years, PhD. The Armenian Agricultural University was created as a single university level institution for the country. The university has six faculties, 470 teaching staff, and 4,120 students. The university provides training on all three levels. The structural change has not been combined with a major curriculum reform. Four colleges in the countryside provide BA level training as well as offer programs for farmers. Agriculture Research. Currntly, six institutes employ about 400 staff and another five research stations together work with 50 scientists. The research system is rather fragmented and underfinanced. One hundred and eighty research subjects are investigated with an annual budget of Dram 64 million dram (US $160,000). Almost all of the young people have left the research system. The average age of researchers is around 60. There is a plan to reorganize the system and concentrate activities in three institutes (agronomy, livestock, economics). Exte rvice. With the support of USAID, an independent Armenian Agriculture Extension Service was created. There are 22 regional extension offices with 180 people, an additional 20 people work in Yerevan and a further 15-17 regional offices will be created. USAID continues to support the extension service from the food aid counterpart fund. The USAID extension activities continuously involve four to five permanent expatriates. The annual expenses of USAID extension support are about US $1 million. It is worth mentioning that the annual budget for the Armenian Agricultural Extension Service, (about 200 employees) is Dram 35 million, less than US $100,000 per year. 18. In order to develop an efficient and effective public sector administration the institutional reforms need to be continued as follows: * government needs to be fully disconnected from agricultural production planning and management; * reorganization at the ministerial and regional levels needs to be finished;  Agricultural Policy Update 7 * market conforming public services and analysis (e.g. agricultural statistics) have to be established; * the reform of agricultural research system has to be completed; and a the agricultural extension system needs to be extended to the whole country.  I  ARtMENIA - POLICY MIATRIX (DECEMBER 1995) Total Population 3.7 iinillion l:ood and agriculture in NMP 1993 45.6% Decline of overall agriculture 15% Rural Population 31% ltood aind agriculture in active labour 25% production 1995/1988 (1992) Decline of livestock sector 1993/1988 64% Total Area 3.0 million ha. Food and agricullure in export (1993) 7% Share of livestock (1993) 34% Agriculture area: 1.4 million ha. in import (1993) 51% Agriculture area In private use (1995) 33% Traditionally net importer- grain, Share of independent private 69% Arable land 36% sugar, vegelable oil and livestock agricultural fanms in total arable area Orchards 6.5% products. (1995) Irrigated 22% Share of private sector in total 95% Forested 11.2% agricultural output (1994) ISSUE STATUS OF REFORMS WORLD BANK PROPOSED 0 ACTIONS/OUTSTANDING REFORMS NEEDED 1. Macro-economic Framework for Market liberalization is close to completion. Distortion free marketing and Incentive system. Aericulture A. Prices/Subsidies * Agricultural producer and consumer prices were deregulated * Move as rapidly as possible to fully liberalize prices already in 1992. and unify markets. * Slate orders (state tasks) set for grain and somc otcr major * Guarantee that farmers are able to relain profit for products wcre climinated in 1995. devclopment. * Subsidizalion of agriculture has largely been discontinued, * A full phase-out subsidies to irrigation, and increased however subsidization of irrigalion waler still exisls. water charge recovery rates up to 80-90%; Removal of all remaining interventlion on the bread marke. * Domestic grain price adjusted to border price, limited informal control of brcad prices exists. e lntri'duction of an adequate social safely net' of subsidics targeted lo low income and vulnerable * Underdcvelo,)ed markels and limited demand keep producer consumers. prices, exccpl grain under border prices. * Profit and marketing margin control in ihe food processing industry.  ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED B. Trade Policies * Grain and other commodities for state reserves are procured by * Introduction of market methods to procure products commercial methods. for inter-Governmental barter commilments instead of *state tasks.' * There is an export ban on grain products. * Remove remaining administrative restrictions on * Exports do not require licenses except brandy. exports and imports, and remove export laxes and reduce import tariffs to a low and uniform rate. * Exports are subject to minimum reference prices. * Proceed with demonopolization, corporatization, and * Exports by private enterprises are subject to 25% prepayment. phased privatization of internal and external trading enterprises. * Tariffs on non CIS food imports are 0-50%. * Pursue active trade policy to improve market access for Armenian food and agricultural products, especially in republics of the FSU and Central and Eastem Europe. C. Taxation * 20% VAT, some major agricultural and food commodilies are * Larger farms should be incorporaled into the regular exempt. business lax system. * Land tax equivalent 15% value of net income. * Simplify and reduce taxation in agroprocessing and promote Investments in tax incentives. * Over taxation of food processing by a rather complicated system.  ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING RE-FORMS NEEDED 2. Land Reforn and Farm The most comprehensive land reformn In FSU trunsrerrlng most Individual private farning as the dominant component Ilestructurint or arable and perennial crop areas to private farners. of farning system until secure and transferrable ownership rights. * Agricullure was decollectivized in 1991. * Develop and implement a land registration, * About 20% of arable land is kept in state reserve. information and cadastre system to provide security of tenure, full information on land transactions, and a basis * Reserve land is utilized by leasing and intends to be sold for for land taxation. privale farners. * Speed up and complete the privatization of reserve * Pastures and medows remained state and municipality owned. land. * Land sales are allowed, however, market for land and leasing is * Prepare and implement a program lo prmote the developing slowly. emergence of land markets to support land consolidation and the move towards a more efficient holding struclure. * Law creating legal conditions for a funclioning land market was adopted in 1995. * Rearrange responsibilities for providing social services in rural areas and guarantee the continuation of rural * Technical conditions (tilles, registralion system) for a functional social services after transfer. land market are not in place. * Establish competitive land mortgage and credit system. * Adjust irrigation system to the new reality of private fams. * Create a conducive framework for organizing local and regional service cooperatives. * Provide technical assistance to farmers to achieve optimum production mix and efficiency.  ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 3. Comtetitive Agroprocessing and Delays In privalizing agroprocessing and services for agriculture. Private based, competitive agroprocessing, Input Services for Agriculture. supply. * Agroprocessing privatization was not part of original agricultural reform package. * Fully implement program of demonopolization, corporatization, and privatization of the centralized * The privatization of agroprocessing and Input supply is part of agricultural input supply, output marketing, and agro- overall privatization program which has been excelerated only in processing enterprises. 1994-1995. * Establish feasible and reasonable quality and safety * One hundred fifty-seven agroprocessing plants out of 220 are in standards for agricultural imports and exporls. the process of privatization. * Acquire technical assistance and training in enterprise * Tie grain and brandy indusiry is not covered by current management. privatization programs. Bakeries are intended to be privatized in 1996. * Promote joint ventures to tap foreign expertise, technology, capital, and provide access to foreign * Foreign participation in the agroprocessing privatization Is markets. modest. * Promote research and devclopment of new producis and markets.  ~1 ISSUE STATUS OF REFORMS WORLD BANK PROPOSFI) ACTIONS/OUTSTANDING RE-FORMS NEEDED 4. Rural Financing Lack or an appropriate lnnanclal system for privatizi d Viable financial Institutions serving the agricultural agriculture. sector eMciently. * Financing in agriculture is no( adjusted lo the needs of a market * Use Fiscal means other than financial institulions to t based privatized agriculture. sustain the operation of state enterprises crilical to food security. * ligh interest rates and the lack of collateral seriously limits lending to agriculture. * Study the feasibility of providing: (a) equity rather than credit lines; (b) dollar denominated loans, or hard * Restructuring of Agrobank is in process. currency loans. * Establishment of rural credit cooperatives has started with foreign * Establish legal framework and implement program to TA. organize local savings and credit societies. * Promole the emergence of compelitive insurance services for agriculture. 5. Institulional Framework AdJustmcnt of institutioial structure Is slow and constrained by Emclent and effective public sector administration budgetary diMcultles. and support for commercial and pri ate agriculture. * New Ministry of Agrk ilture and Food Industry was created. * Complete the reorganization of public agricullural administration to the needs of a market economy. * Education system has been partially adjusted to emerging new conditions. * Fully de-link the Government from agricultural production planning and management. * Recognition of the research system is planned for the near fiuture. * Complete the reform of agricultural educalion and * Public activities (govemment research-education) in agricullure research. are seriously hampered by budgetary difficulties. , Promote the establishment of a system to provide for * Armenian agricultural extension systein was created but does not technical assislance for enterprise restructuring. cover the whole country yet.   | Crop Producuion Dept,|t > Livestock Producoon DpL 3 S- r | Impaoon ad Water Management Dpt. C_. | Bre d Pruccssung and Disrnbuton DPL M rkexulg ud Courserlng DpL e o _ l ~~~~~~~Wine Industry Dpt . Food Industy DpL_ Finance-s Taxacon and Inve"-nt Dpt. Analysis and PTo;nosis DpL_ Accounnog and Sratstcs DpL| nIcensin Dp_ _ O [ Grnm Procement and Reserves DpL_ LAnd Reform and Privaozacon DpL F rmer Urucru n n New Org_r_z___ns DpL| i and Development Dpt. | Z E 0 | L Sciemnfrc Research and Educat on Dpi a 0 Foreign Reciaons Dp|- ,~~~~~~~~~~~~~~~' - .- al Dept. of Programming Transportation and Supply Dpi. | c Ne- Technolo and Services DPL | I rz t4 l l CapiLal Consirucuon Dpt | Vetiennarv and Breedinr Ircircionn Crup Produ i.on Inspe:on_ Land Resources Utiliation Inspcetion a waicr Retources UtlizaLion Inspection Tcchnil Control Inspeciion Qua,lri and S.andardizaiii,n DpI. .nsnpuI P