Content from Financial Times Azerbaijan 2008 Report

Azersun: Plants help stem the flight from the land
By Isabel Gorst

The manager at the Imishli factory grasps a handful of fresh sugar from the production line and lets it run sparkling through his hands. “It looks like diamonds,” he says.

The brightly-lit sugar plant is a beacon of hope in the bleak plains of Imishli, one of the poorest regions of Azerbaijan.

Built by Azersun, a Turkish food processing and distribution company, the plant is providing employment and stimulating the revival of agriculture, two of the government’s most pressing tasks. The $100m plant, Azersun’s biggest investment in Azerbaijan to date, is the most profitable segment of its business.“This is my favourite factory,” says Abdulbari Gozal, the president of Azersun. “It is bringing life to the region.” It has also brought Azerbaijan a source of non-oil export revenues by supplying about 100,000 tons of sugar a year to Georgia, Iran, Afghanistan and Turkmenistan. Azersun began working in Azerbaijan in the 1990s and is now one of country’s biggest non-oil industry investors. The company owns 11 food plants in Azerbaijan, which produce cooking oil, preserves, tea and hazelnuts from local sources. In addition, it owns a food packaging company.

Azerbaijan was once known as the vegetable garden of the Soviet Union, but agriculture has contracted since independence in 1991. About 40 per cent of the workforce is engaged in agriculture but the sector accounted for only 6.2 per cent of gross domestic product last year. Large collective farms have been privatised, and the new generation of mainly small landowners are mostly too poor to invest in modern equipment or fertilisers. Many agricultural labourers have abandoned the countryside to seek work in Baku or Russia. Heydar Babayev, Azerbaijan’s economy minister, says the government is keen to revive agriculture, not least to stem the tide of migrant workers to the capital. Government subsidies, such as the cheap equipment and fertilisers that are being offered by a new state agro-leasing company, have helped prompt an increase in agricultural production in the past two years.

Grants are also available for farmers ready to switch to growing high-priced crops such as grain. Pressure is applied to the private sector to shoulder responsibility for reviving inhospitable regions. Azersun originally planned to build its sugar factory closer to Baku, but was asked by the government to choose Imishli instead. It was not an inviting prospect. Sandwiched between Azerbaijan’s border with Iran and Nagorno Karabakh, a disputed enclave occupied by Armenia, Imishli was shunned by investors. Most agricultural workers left for Russia and the only newcomers were people fleeing Nagorno Karabakh. Infrastructure was either non-existent or in disrepair. Fevzihan Aras, the general director of Azersun, recalls: “There was nothing here. All I remember from our first visit [in 2003] is the mosquitoes.” The first task was to install a railway, gas pipeline and electricity cables to serve the factory.

Housing was built for workers nearby and a luxurious residence for visiting dignitaries. All equipment was imported, including a giant hosing system to wash sugar beet brought in from the regions. Imishli began producing sugar in 2005 and has since branched into other areas, including animal feed, soya and industrial alcohol. Mr Gozal says he is considering a move into confectionery and dairy production with a target to add a plant at Imishli each year. Azersun has acquired a large swathe of land in south Azerbaijan to produce sugar beet for the Imishli factory as well as fruit and vegetables for its other food processing plants. Again, the tasks are daunting. Salty land must be washed and irrigation systems installed before cultivation can begin. Azerbaijan does not have the potential to become a big food exporter. But Mr Gozal says that rising world prices will steadily improve the profitability of the business. Food, he says, will become a strategic product, as demand goes up in the booming markets of China and India.

Copyright The Financial Times Limited 2008