Strange stir around the dairy market

The story of “Ashtarak Kat” Company pretends to become the second “Nairit”—with as much complicated and incomprehensible processes.

News was being circulated on issues of this big company yet from the previous year. Then it turned out that the news not only corresponds to the reality, but everything is even more serious—the company goes to bankruptcy.

It reached to the point that on November 17 NA MP Mikael Melkumyan posed a question to the Government with a rather indignant tone regarding why steps aren’t taken to save the company, providing 40% of the dairy market, accounts of which are under custody. As by closing of that company the market will go to monopolization, and 2 actors will remain in the market, weight of which will reach 80%. The MP stated that about 600 employees are on the threshold of losing their jobs, not touching upon 4-5 thousand farmers, from which the company buys milk. We’ll yet reflect to this observation by Mr. Melkumyan, however, the developments following his statement are worth touching upon.

Suren Karayan, RA Minister for Economic Development and Investments, in reply stated that the department headed by him follows the situation. “We had meetings both with the company representatives and creditors. The Ministry analyzes the situation. However, as currently the company is a functioning subject, I wouldn’t like to make statements, which can damage it,” Karayan said, assuring that within the state liabilities all necessary measures will be taken.

In that period the company production disappeared from the markets for some time. News was being circulated that many employees left the company not receiving salaries for the last months. In that very period PM Karen Karapetyan stated that the issue is under his control.

However, the news touched upon among the public again trespassed the official part. People began talking that “Ahstarak Kat” Company already has a new owner—“Pargev” Company, which imports food.

Two days ago RA Ministry for Economic Development and Investments issued a statement covering “Ashtarak Kat.” It particularly read that Minister Suren Karayan met businessmen Artak Asatryan Artak Avargayn, head of recovery program of “Ashtarak Kat” Company. It was also stated that prior to this stage, as a result of cooperation between RA Ministry for Economic Development and Investments and Central Bank of Armenia (CBA) steps necessary for natural operation of the company involved in recovery process, have been taken.

Then Suren Karayan was cited, “We had discussions targeted at solving issues around “Ashtarak Kat” Company. Now we have reached to the stage of settlement. It’s important for us to understand: in which direction it’ll continue functioning? Which workplaces will be kept? How will debts of the company be paid? During our former discussion we have fixed approaches. Today they will be finalized.”

Then a private discussion or negotiations have been launched, following which Deputy Minister Tigran Khachatryan and Artak Avagyan met with the reporters. Seemingly some clear information could be provided on that issue, however…

It’s worth citing that part of the official statement, “According to the Deputy Minister, the most important issues at this stage are as follows: restoration of the former market position of the company, stabile purchase of villagers’ production and maintenance of workplaces. Artak Aavagyan, head of the company’s recovery plan, assured that it has been 3 days that the company production is in the market. Within the recovery program the company will attempt to do its best not to lose its buyer. Artak Avagyan also informed that separate negotiations are ongoing regarding the debt payment.” No clarity, a statement about nothing.

Later the media outlets present at the press conference issued the video of the Q&A session, and it became clear why the statement is so unclear. The point is that a clear answer wasn’t given to any question: who’s the new owner? What will be the future of the company debtors? How much does the company debt comprise?

In short, people invited the reporters to say nothing.

To the direct question whether the potential buyer has connection to “Pargev” company, a negative answer was given (despite the circumstance that Artak Asatryan is the co-founder of that company). It was also stated Adra Remara international company is interested in making investments, Armenian representation of which are Ara and Artak Asatryans. However, it isn’t yet clear whether it’ll become the owner or not. In short, nothing concrete was heard.

News in the air

As there was no any official clarity in this issue, it’s worth introducing the information, circulating in business environment. Regarding debts of “Ashtarak Kat” the press conference participants gave only one number—about AMD 180 million debt to farms (for milk).

However, this is a small part of the iceberg. The company has big debts to suppliers and partners. Upon the data issued by DataLex system about 15 companies filed a suit with a claim of money compensation against “Ashtarak Kat”. For instance, “Ashtarak Kat” owes AMD 30 million to “PanArmenian Media Group” and “Armenia TV.”

Upon information at our disposal “Ashtarak Kat” has a debt of a few million dollars to one of the banks. In business environment it’s being touched upon that, on the whole, debt of “Ashtarak Kat” reach USD 8-9 million. And one of the most curious rumors is that a debtor of “Ashtarak Kat” is the very “Pargev LLC.” And now the key point of ongoing negotiations is that by doing certain investment, in fact, “Pargev” will become manager of “Ashtarak Kat” and it’ll have its money back by operating it, and will develop the company. Time will show whether it’ll succeed or not.

It should only be stated that for the time being “Ashtarak Kat” isn’t managed by its former owners. It’s being headed by the responsible of the recovery program, who until now succeeded to timely find a common language with the debtors, get raw material and bring the production to the market.

The state’s role

Now it’s worth returning to the statement and call by Mikael Melkumyan, that the state should support this company. The most crucial question is the following—why? If the state had its part of guilt in the issues of “Ashtarak Kat,” it could be comprehensible. However, as it’s known, “Ashtarak Kat” can blame for its issues only to itself. Finally, being market’s biggest actor, talent is needed for appearing in such a condition.

This means, that the company has failed. This, of course, isn’t good for the company owner and, to some extent, for the employees as well. However, globally, on the dimension of whole economy, it’s not only tragedy, but a normal competitive process: the one fails, the other succeeds and increases its weight in the market.

Armenian market of dairy products is really competitive. More than 2 dozens of companies function in the market. Seven of them—“Ashtarak Kat,” “Marianna,” “Tamara and Ani,” “Chanakh,” “Tamara,” “Biokat” and “Igit” are included in the list of Armenia’s 1000 large taxpayers (upon the results of January-September 2016), i.e.  they are large companies. Besides these, there are companies not included in the list of biggest taxpayers, however, they have recognition and weight in the market, e.g. “Arzni Kat,” “Marila,” “Bonilat,” “Aparan Group,” “Dili” and etc. Companies importing dairy products may also be included in this list.

Yes, there are 3-4 large companies—“Ashtarak Kat,” “Dustr Marianna,” “Tamara and Ani” and “Chanakh,” which share 80% of the market. However, even the Commission for the Protection of Economic Competition stated in its report for 2014, that despite the existence of production and consumption volumes, considerable competition is available in the market.

“Ashtarak Kat” surely had about 40% weight in the market, however, for the time being, it comprises 20-22%. This number is based on taxes paid for the companies functioning in the dairy market, isn’t correct, but it reflects the reality. Based on the previous year’s indices, weight of “Ashtarak Kat” comprised about 35%.

And in this case a question arises here: why should suspension of “Ashtarak Kat’s” operation lead to monopolization? And maybe the contrary, the latter’s market is distributed between other companies, and the competition environment will improve?

For instance, comparison of the same tax data shows that parallel to reduction of “Ashtarak Kat’s” weight, those of other companies have proportionally grown—“Dustr Marianna” by 2pp, “Tamara and Ani” by about 5pp, “Chanakh” by 2pp, “Tamara” by 3pp, “Biokat” by more than 2pp. For the time being the biggest actor is “Dustr Marianna” by 30%, which is followed by “Ashtarak Kat” and “Tamara and Ani.”

Thus, there is no tragedy, simply market rearrangement has taken place. At worst, even if “Ashtarak Kat” suspends operation, its 20-22% will be distributed between other companies. Which, naturally, will need new employees and will fill it with cadres of “Ashtarak Kat.”

In short, here, perhaps, interference of state wasn’t necessary. Moreover, state’s interference could be negatively observed, as they interfere with market processes. Finally, although “Ashtarak Kat” is a big company, it isn’t a system-building and strategic company on account of the fact that there are many other producers.

In this case why did the state decide to interfere with this? Maybe by that they intended to show that they’re next to the business and support business. However, as possibilities of state support are rather restricted (debts of “Ashtarak Kat” can’t be paid by taxpayer’s money), that’s why the function of the mediator is left. For this very reason the Ministry’s statement said nothing—at large there is nothing to say.

By Babken Tunyan