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Economy, agriculture and food security
During the Soviet era, Armenia experienced robust industrial and agricultural development despite its limited natural resources. It became one of the most industrialized republics, providing machinery, chemicals, electronics and software to Russia and other Soviet Republics. In return, Armenia received raw materials and energy.
In December 1988, a devastating earthquake struck Armenia, killing more than 25 000 people and destroying large areas of the industrial heartland. This was followed by the break-up of the Soviet Union in 1991 and the consequent loss of markets and largely subsidized energy. This further led to a rapid decline in industrial output and to high unemployment. By 1993 the Gross Domestic Product (GDP) had fallen by almost two-thirds. Since 1994, however, Armenia has been among the most reform-minded countries of the former Soviet Union. Factors that have contributed to economic growth include: reforms in the electricity sector; growth in exports in specific sectors, such as cut diamonds, metals, electricity, and processed food; housing construction, and a major programme of international assistance. However, the high levels of economic growth have not yet compensated for jobs lost because of downsizing or the closure of Soviet era enterprises (USAID, 2006).
In 2007, Armenia’s GDP was US$9.2 billion and agriculture accounted for 18 percent (Table 1), down from a share of 41 percent in 1994. Industry on the contrary increased its contribution to GDP between 2000 and 2007 from 35 to 44 percent. Just over 50 percent of the population, 1.5 million people – of whom 21 percent is female - is economically active (2005): 162 000 people, or 11 percent of the labour force, are employed in agriculture whereas in 1994 agriculture employed 15 percent of all workers.
In 2003, crops accounted for 55.8 percent and stock breeding 44.2 percent of agriculture compared with 49.4 and 50.6 percent respectively in 1990. Since the beginning of the transition period the grain sowing areas have expanded by more than 20 percent and areas under cultivated potato by about 40 percent. However, the areas under forage plants have decreased by more than 3 times. In 2004, the main agricultural products were cereals, potatoes, vegetables, forage plants and fruit, especially grapes, given the long tradition of viticulture and wine-making. Agriculture has played a very important role in the economy of the country although it depends heavily on irrigation - half the total cultivated area is currently irrigated.
At present, in the agricultural food products sector, there is a free economy system regulated by the market which includes more than 338 000 farms. More than 98 percent of gross agricultural production comes from the private sector. The contribution of the agriculture and food sectors to the Armenia’s international trade has changed considerably since the start of the transition: exports have shrunk while imports have surged. In recent years, there has been a visible and steady trend to sectoral development, but agriculture continues to be vulnerable, mainly because of the relative shortage of suitable land, the lack of sufficient water resources, the small size and detachment of farms formed as a result of land privatizations, the underdeveloped industrial market and social infrastructure, as well as because agriculture does not at present meet the requirements of a market economy.
An important objective of agricultural development is to ensure appropriate levels of food security for the urban and rural population. It is estimated that expenditure on food accounts for between 60 and 70 percent of households’ total consumption. It can be as high as 85 percent for the poorest quintile, while it is 57 percent for the richest quintile. In view of the high share of food expenditure in total consumption, an adequate level of food security for the population requires that food is provided at affordable and stable prices. Given that farmgate prices of agricultural products are low and unfavourable to farmers’ incomes, increasing food security for the population implies improving significantly the efficiency of the processing and marketing chains for agricultural products. This kind of improvement will be attained primarily through better organization of the markets, increased competition in processing and trade and increased safety of marketed products. Investments in market infrastructure need to be carefully assessed in order to avoid unnecessary costs that would increase retail food prices (FAO and MOA, 2002).