Cereal, Vegetable and Fruit Processing
Cereal, Vegetable and Fruit Processing
Business Model Description
Pursue sustainable production of agricultural products, such as processed cereals, canned vegetables and fruits, and dried fruits for local consumption and export through Business to Business (B2B) including retailers and supermarket chains and / or Business to Consumer (B2C) modalities for main agricultural products, including pomegranate, apple (fresh and dried), tomato paste and walnuts.
Expected Impact
Increase food security and purchasing power of the population, creating more jobs for the processing industry in Azerbaijan, and improving the agribusiness value chain.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Azerbaijan: Baku
- Azerbaijan: Guba - Khachmaz
- Azerbaijan: Ganja - Dashkasan
- Azerbaijan: Gazakh - Tovuz
- Azerbaijan: Mountainous Shirvan
Sector Classification
Food and Beverage
Development need
Although Azerbaijan's agricultural sector is the second largest employer in the country employing approximately 36.3% of the workforce, it underperforms by only contributing 5.9% to the country's GDP. Over 20% of agricultural lands are affected by varying degrees of salinity and degradation due to intensive farming practices, while more than half of farmers suffer from water shortages due to the country's arid climate (1, 2, 3).
Policy priority
Strategy of Socioeconomic Development of the Republic of Azerbaijan sets the target to increase agriculture-generated value added by 4% per annum for the 2022-26 period. State Programme on the Socioeconomic Development of the Regions from 2019 to 2023 highlights the priorities to increase food security, development of traditional agricultural fields, and enhance production and processing of agricultural products (4, 5).
Gender inequalities and marginalization issues
While agriculture jobs are most frequently held by rural women due to cultural norms, women are primarily involved in backyard farming and gardening. Women farmers demonstrate limited engagement in commercial farming and constitute 48.7% of farmers working in private or family-owned farms (6, 7, 8).
Investment opportunities introduction
Azerbaijan has a significant arable land mass at 54.9% suitable for agriculture activity. The European Union aims to invest EUR 50 million (USD 54.8 million) in an innovative rural development flagship by 2025, enabling sustainable agricultural production and irrigation methods under its Recovery, Resilience, and Reform agenda (9, 10, 11).
Key bottlenecks introduction
Limited application of modern irrigation techniques, lack of experience and innovation in the agri-food sector, absence of modern storage and processing facilities, short distribution channels between producers and buyers, and scarcity of available market data on agricultural production are among the key challenges facing the sector (13, 14).
Food and Agriculture
Development need
Azerbaijan ranked 66th out of 113 in the Global Food Security Index 2022 mainly due to the vulnerability against food price fluctuations increasing by 18.4% during 2021-22, and food products accounting for 43.6% of household expenditure. Farmers continue to suffer from water shortages as merely 5% of agricultural lands are equipped with modern irrigation (15, 16, 17, 3).
Policy priority
Strategy of Socioeconomic Development of the Republic of Azerbaijan between 2022 – 2026 states that the government of Azerbaijan targets to increase the supply of irrigation water from 80% to 90% by 2026. National Pathways to Sustainable Food Systems by 2030 prioritizes fostering food processing and promoting sustainable use of water resources for national food systems (4, 3).
Gender inequalities and marginalization issues
Social norms have led to a gender division of labor in the agriculture sector, with women representing only half of the planters. Most of the planting activities are performed by men, who also make decisions about land use and income-generating activities since they are the ones who plant and sell the products. Smallholder farmers accounted for 90% of the country’s total agriculture production (18).
Investment opportunities introduction
The food-processing sector accounts for more than 38% of Azerbaijan's total manufacturing activity. In 2021, the export of canned fruits and vegetables are reached around USD 9.6 million (19, 12).
Key bottlenecks introduction
Informality in the agricultural labor force, limited number of agricultural experts, regional disparities in access to water coupled by limited data on drought trends, and absence of a national water management strategy for the agriculture sector are among the key bottlenecks (13, 20).
Processed Foods
Pipeline Opportunity
Cereal, Vegetable and Fruit Processing
Pursue sustainable production of agricultural products, such as processed cereals, canned vegetables and fruits, and dried fruits for local consumption and export through Business to Business (B2B) including retailers and supermarket chains and / or Business to Consumer (B2C) modalities for main agricultural products, including pomegranate, apple (fresh and dried), tomato paste and walnuts.
Business Case
Market Size and Environment
> USD 1 billion
9,063 tons of canned fruits and vegetables exported in 2021
Food processing approximately accounts for 32%, worth USD 2.9 billion, of Azerbaijan's total processing industry (25).
Export of agricultural and processing products was worth USD 155.5 million in January-February 2023 (26).
In 2021, 28,465 tons of canned fruits and vegetables were imported, while 9,063 tons were exported (27).
Indicative Return
20% - 25%
> 25%
A development fund, providing finance for food processing enterprises and other non-oil sectors in Azerbaijan, estimates that investments in food processing can generate an internal rate of return greater than 25%, while a concessional finance fund has recorded an IRR between 15-20% . Commercial financing may deliver lower returns, as the provided soft loan entailed more generous terms than market loans (29, 40).
Both financiers agree that investments in food processing facilities can generate a gross profit margin up to 25% or above (29, 40).
Investment Timeframe
Short Term (0–5 years)
An investment fund, providing finance for food processing enterprises and other non-oil sectors in Azerbaijan, estimates that the food processing companies generate returns in less than 5 years (29).
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Market - Highly Regulated
Business - Supply Chain Constraints
Capital - CapEx Intensive
Impact Case
Sustainable Development Need
While food processing accounts for 32% of the total local processing industry, the amount of import of the processed food is nearly three times more than the exported amount, which indicates that there is an import-dependency of the sector, undermining the country's food security (25, 27).
Traditional practices dominate the food sector and value chain, leading to an informal increasing food system that is unable to reduce food insecurities in the country. The level of prevalence of undernourishment in the country remains stable at 2.5% since 2008 while the proportion of the adult population suffering from moderate or severe food insecurity has increased to 9.5% by 2020 (13, 30).
More than 90% of agricultural output is derived from small privately-owned farms, who are negatively impacted by excessive land fragmentation, poor access to inputs, and outdated processing technologies. Agribusiness value chains need substantial improvements including processing operations (42).
Gender & Marginalisation
According to the Food and Agriculture Organization (FAO), the poorest 20% spend more than 60% of their budget on food in Azerbaijan, which indicates that food products are coming closer to high-end sectors and are not feasible for the minimum purchasing power (28).
Female farm managers made up 9.4% of the total number of farm managers who owned land in 2015. Women farmers are also less likely to be involved in agricultural processing and commercialization which indicates a gender gap of the industry (8, 36).
About 47% of the population lives in rural areas, and about 39% of employment is in agriculture and agro-processing, highlighting the significance of the sector for rural livelihoods (43).
Expected Development Outcome
Increased and developed food processing will result in lower import-dependency for the processed products.
Increased and developed food processing will decrease the food insecurity in the country as increased processing will lead to escalated productivity of the food sector which will enable the local value chain to respond to the existing demand of the market.
Investments in food processing will enhance agribusiness value chains, currently burdened by outdated processing technologies and limited integration of small-scale producers.
Gender & Marginalisation
Increased production of processed products will decrease the increased market prices due to import dependency, enhancing access to quality food products for low-income groups while increasing domestic consumption of products.
Increased production of processed products will lead to increased employment opportunities for local people including increased participation for women in the agricultural processing industry.
Primary SDGs addressed
2.1.1 Prevalence of undernourishment
2.1.2 Prevalence of moderate or severe food insecurity in the population, based on the Food Insecurity Experience Scale (FIES)
2.3.2 Average income of small-scale food producers, by sex and indigenous status
The proportion of population suffering from hunger was reduced from 17.0% in 2001 to 2.5% in 2020 (30).
The proportion of the adult population suffering from moderate or severe food insecurity increased from 5.9% in 2015 to 9.5% in 2020 (30).
Average monthly nominal income of the people employed in agriculture of which 90% are privately-owned small farms, forestry and fishing is 456.9 AZN in 2021 (268 USD) (38, 42).
N/A
N/A
The 2022-2026 Social and Economic Development Strategy of Azerbaijan sets a target of 10% growth in overall income (4).
12.3.1 (a) Food loss index and (b) food waste index
N/A
N/A
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Corporates
Outcome Risks
If not treated properly, the waste stemming from food processing, handling and packaging operations could lead to increased disposal and pollutions problems (44).
Local processing of fruits, vegetables and cereal may lead to increased market pricing for the raw products, thus lead to further increase of food insecurity.
Impact Risks
Insufficient data collection or low-quality of the collected data may constrain the measurement of the impact created by cereal, vegetable and fruit processing.
Small-scale processors may struggle to compete with larger industrial-scale food processors which may lead to the marginalization of small-scale farmers and producers.
Impact Classification
What
Increased food processing would decrease import-dependency, lower prices, and increase domestic consumption and exports, while creating more employment opportunities for locals, including women.
Who
Small-scale farmers, food processors, local consumers and the poorest 20% of the country will benefit from increased industrial activity, job opportunities and decreased prices.
Risk
Small-scale processors may become marginalized as they struggle to compete with larger industrial-scale food processors, limited data collection may impede measurement of impact.
Contribution
In addition to government efforts on increasing agricultural value-addition investments in food processing can increase the productivity of the sector and decrease import-dependency.
How Much
Increasing investments in food processing can enhance the productivity of the sector, as the food processing sector which accounts for 32% of the total local processing (25).
Impact Thesis
Increase food security and purchasing power of the population, creating more jobs for the processing industry in Azerbaijan, and improving the agribusiness value chain.
Enabling Environment
Policy Environment
Strategic Vision and Roadmap for Azerbaijan Agriculture, 2016: States long-term vision for 2025, targeting fully modernizing the agriculture sector, entails raising productivity, cultivating products with value-added, and bolstering value chains related to agro-processing (35).
Strategy of Socioeconomic Development of the Republic of Azerbaijan between 2022 – 2026, 2022: Targets a 20% increase in the number of processing and sales chain associations, double companies participating in industry associations and a 4% increase in agriculture-generated added value by 2026 (4).
National Pathways to Sustainable Food Systems 2030, 2021: Highlights promoting small and medium-sized food processing firms and encouraging cooperative efforts among small-scale producers as part of key priorities of the government to enhance Azerbaijan's food systems (3).
State Program of Socio-economic Development of the Regions of the Republic of Azerbaijan in 2019-2023: The Program includes the priorities of ensuring food security in the country and self-sufficiency of available food products (37).
Financial Environment
Financial incentives: In 2020, no more than 20 ha of wheat sown area will receive a seed subsidy of AZN 200 (USD 118). The amount of the sowing subsidy for plots larger than 20 ha is fixed at AZN 160 (USD 94). The subsidy for sowing clover is fixed at AZN 50 (USD 29), beginning in 2020 (Decree No. 759, 2019) (31).
Fiscal incentives: Producers of agricultural products including industrial producers are exempt from income, value added and property tax for a period of five years, as per the Law No. 824 dated November 2013 (32).
Other incentives: In the Shamkir Agropark, focused on processing and storage of fruit and vegetables, investors are exempt of income tax and VAT while the infrastructure necessary for the business model is already provided (39).
Regulatory Environment
On Foodstuffs No 759-IG, 1999: Provides the legislative framework to monitor the quality of food, regulate food production, and ensure the food security of the population of Azerbaijan (33).
Land Code of Azerbaijan: Lays the framework for the legal division of land rights and defines all types of land ownership including state and private. In addition, Article 52 includes the definition of farmland (34).
Marketplace Participants
Private Sector
Baku Konserv, Balkhoorma, AzAgro Holding, Gilan Holding, Azersun Holding, Balacans Agro Food.
Government
Ministry of Agriculture, Azerbaijan Food Safety Agency, Agricultural Subsidy Council, Azerbaijan Investment Company, Entrepreneurship Development Fund, Ministry of Economy.
Multilaterals
Food and Agriculture Organization of the United Nations (FAO), United Nations Development Programme (UNDP), International Finance Corporation (IFC), EU4Climate, EU4Digital, EU4Business, European Bank of Reconstruction and Development (EBRD), Asian Development Bank (ADB), World Bank, International Fund for Agricultural Development (IFAD), Islamic Development Bank (IsDB).
Non-Profit
Azerbaijan Agricultural Research Center, Fruit and Vegetable Producers and Exporters Association of Azerbaijan, Azerbaijan Young Entrepreneurs Network, Center for Economic and Social Development.
Target Locations
Azerbaijan: Baku
Azerbaijan: Guba - Khachmaz
Azerbaijan: Ganja - Dashkasan
Azerbaijan: Gazakh - Tovuz
Azerbaijan: Mountainous Shirvan
References
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