griculture always an essential sector of the Armenian economy, experienced a rise of 50 to 55 percent in the share of GDP as a result of the sharp decline in the industrial sector. 

The sector consists of 314,000 individual private farms, 1600 private cooperative farms, and approximately 150 large state and private agricultural enterprises. The Ministry of Agriculture and Food is responsible for implementing agricultural policy and administrates the activity of state owned agricultural and food processing enterprises. 

Land Reform and Privatization 

efore privatization, 886 large state owned agricultural enterprises accounted for the 66 percent of gross agricultural output, while individual part time small farms produced the remaining 34 percent. As a result of the disastrous earthquake in 1990 the agricultural output fell by 28 percent of the 1988 level. In 1991, the Government implemented land privatization and the former structure of Collective and Soviet farms was dismantled. By the end of 1993. 69 percent of plow land. 79.o percent of perennial plantations, and 44.1 percent of hayfields were privatized and widely dispersed among new owners. The remaining 20 percent of land was reserved under state control for further distribution Emerged individual farms were generally small (average 1.26 ha) and land insufficient. Simultaneously 350,000 head of cattle were sold to private owners. Approximately 30 percent of remaining assets (real estate, transport. machinery. and equipment) were also privatized. As a result, agricultural outputs gradually increased in the following three years (see chart below). In 1994 outputs grew by 11.6 percent comparing with 1390. though there was a contrast between dynamics in crop sector (a rise of 54.1 percent) and livestock sector (a fall of 23.4 percent). 

The major share of supply, storage, processing, and marketing enterprises remained under state control and deceleration of its privatization considerably hampered development for the three years following land privatization. In 1994, the Government corporatized and introduced for privatization the major part of state owned enterprises in the agricultural sector. By the end of 1995, 77 enterprises had been sold to private owners. Currently state owned enterprises are mainly carrying out activities on agrotechnology, fertilizer and chemical supply, seed growing, pedigree breeding, and water supply. By the end of 1997, the Government intends to complete privatization gradually restricting their direct involvement in the agricultural sector. 

Crop Cultivation 

rmenia's weather is favorable for cultivation of many high quality foods including grapes, apricots, peaches, pears, figs, nuts, walnuts, geranium, sea-buckthorns, olives, tobacco, gourds, and vegetables throughout the country. Cereal crops and potatoes are extensively cultivated mainly in the foothills areas. After land privatization the area for cereal crops and potato cultivation increased significantly by lowering the fodder areas. Attachment 9 reflects the dynamics of agricultural areas and crop product yields. 

Comparing to 1990, the gross agricultural product increased; however, by 1994 it had not reached the 1986 level due to the transitions to a market economy, land erosion deteriorating irrigation system, and a lack of sufficient fuel, fertilizers, and chemicals resulting from the transport blockade. 

Stock Breeding 

n 1986 to 1988 stock breeding accounted for 50 to 55 percent gross agricultural product. Cattle, sheep, pig breeding, poultry, and apiculture were extensively developed. However, a large share of the country's needs in meat, butter, and milk was met by imports. After the earthquake in 1988, there was a dramatic reduction in the number of animals and production yields. This was followed by reductions of import and domestic production of fodder, energy and fuel cost increase, and unfavorable market conditions leading to subsequent deterioration of the sector. A decease of 20 percent of gross agricultural product resulted. Attachment 10 reflects the dynamics of livestock number and production yields. 

After a sharp decline of livestock, a balance between livestock numbers and fodder availability developed to equilibrium. In the Government privatized many of the pig breeding and farms. The introduction of pedigree breeds and efficient tech will provide improvement in cattle breeding. 

Irrigation 

rmenia has 286,000 ha of watered fertile land. Two separate state enterprises are responsible for water supplies, repairs, and maintenance of the irrigation system, and the construct irrigation projects. The irrigation system consists of 83 reservoirs, totaling .977 million cubic meters; 365 pumping stations with 440 MW capacity; 2100 deep wells; and 21,000 km of main and branch canals. The irrigation system has had inadequate maintenance and repair for the last several years. Currently it is obsolete, consumes a large amount of energy (1 KW/h per 3.25 cubic meters), and has losses of approximately 50 percent of water. In 1994, the World Bank approved the Irrigation Rehabilitation Credit ($43 million) to assist rehabilitation of the irrigation infrastructure. It proposes the reconstruction of eight irrigation systems, four reservoirs, four pumping stations with a pressurized pipeline, and 650 deep wells with pumps. 

Food Processing 

he food processing sector of industry, closely related with domestic agricultural production. consists of 160 state owned large and medium enterprises, producing canned fruits and vegetables, milk and dairy products, meat and its quality products, mixed feed, flour and bread. alcohol. soft drinks and mineral water, and cigarettes. 

Canned Food Production 

The available varieties of quality domestic fruits, gourds, and vegetables gives Armenia the opportunity of having a profitable canned food production. This sub-sector consists of 14 plants having capacity of 457 million conventional units (0.65 kg) annually. During 1994 only ten percent of the designed capacities was used resulting in production of 35,000 tons of fruits and 11,400 tons of vegetables, Far below possibilities. Currently the FSU countries are the traditional markets; however, the potential for exports remains under utilized. 

Dairy Production 

In the mid 1 980s, the domestic demand for milk and pure dairy products was larger than the supply. Modern dairy farms were established after the earthquake under the program of economic rehabilitation; however. the sharp decline in volumes of imported fodder caused a decrease in production allowing for the demand to be met by imports. Currently 35 milk, cheese, and dairy factories are operating with a annual total capacity of 320,000 tons of milk and dairy products 20,000 tons of cheese; and 13.000 tons of ice cream. The level of capacity utilization in this sub-sector, higher than others, was approximately 40 percent as a whole in 1994. 

Meat and its Quality Products 

In 1986 to 1988, the average consumption of meat and its quality products was 130,000 tons annually Five large state owned meat processing enterprises provided approximately 80 percent utilizing domestic and imported raw materials. The blockade caused a substantial increase in transport costs resulting in an abrupt reduction in forage and meat raw materials imports. Faced with large operating losses, meat enterprises reduced production levels dramatically. In 1994, the sub-sector was virtually out of operation with only 0.5 percent still in use. 

Mixed Feed, Bakery, and Flour Milling 

Sharp declines in the production levels of major food products occurred with the exception of bread production. The country's annual demand for grain-crops is estimated as 1.0 million tons of which 300,000 tons are met by domestic production. Recently small private bakeries have successfully emerged and along with state owned enterprises are in operation. Throughout the country there are 39 mills, four of large capacity. Milling waste and barley are utilized in the production of mixed feed. Total annual capacity of mixed feed production is 897,000 tons; however, after cessation of forage imports only 20 percent of it is being used. 

Alcohol Beverages 

The availability of high quality grapes, ancient traditions of viticulture, well developed infrastructure, and production capacities currently provide for the sub-sector an essential role in national economy. Armenian brandies are traditionally famous in international markets. Varieties of dry, sweet, and sparkling wines are consumed mainly in the markets of FSU. Presently the sub-sector consists of 35 wineries, 3 brandy distillers, and 1 sparkling wine plant, as well as approximately 170 grape purchasing and primary processing branches. The average level of production capacity utilization in 1994 was at 25 percent, varying for different enterprises. The interruption of main transport routes, loss of traditional markets, and a complicated financial situation caused a decline in production volumes during recent years. Financial improvements and expansion of markets has resulted in a tendency toward recovery since 1994. 

Cigarettes, Mineral Water, and Soft Drinks 

Tobacco was extensively cultivated in the northeast region of Armenia. Cigarettes were produced using both domestic and imported tobacco. After a price and import regime liberalization caused increased international competition in domestic markets, volumes fell to 16 percent of the 1988 level. Throughout the country there are 1300 natural springs with high quality mineral water; however, there was a sharp decrease also in the production of mineral water and soft drinks due to difficulties in exporting and a decrease in domestic demand. The beginning of 1995 saw a tendency for recovery for this division. 

Summary 

resently agriculture and food processing are extensive and dynamic sectors of the national economy. Different sub-sectors of the food industry have been faced with common difficulties concerning sharp competition both in international and domestic markets, low level of management and marketing, gradual outdating of equipment, lack of relevant packaging, and transport constraints. As a first step of relief, the Government in 1994 introduced for privatization 127 enterprises; most privatized during 1995. In 1996, the Government plans to proceed with privatization of mills and bakeries. 

The formation of modern agriculture is also hampered by difficulties, both inherited from the former economical system and newly emerged. Particularly, the development of agricultural markets is strongly confined by unfavorable financial and pricing situations, with high level of loan interests, abrupt seasonal changes in demand and prices, and lack of adequate infrastructure (proper insurance, mutual loans, etc.). The Government, with the assistance of multilateral donors, intends to implement several projects to improve present situation. Significant urgent projects are as follows: 

Agricultural Reform Support Program will be implemented by the World Bank through the FAO. The estimated amount is $26 million.

Agricultural Wholesale Market Project of $24.6 million was approved by the EBRD. This project includes fresh food market restructuring and improving. 
 

However, public investments can only cover a relatively small share of the sector needs. The agricultural and food processing sector requires a significant amount of private investments, both foreign and domestic. The main objective of the Government in sector policy is to create a favorable environment for private investments and profitable returns.