INDUSTRY OVERVIEW

PROCESSED FOOD& BEVERAGES

PROCESSED FOOD & BEVERAGES

KEY FACTS

Beverage production grew by 34%

in 2017

Export-oriented:37.4% growth in

export of beverages & 48.4% growth in

exports of agro-food in 2017

Armenia is CIS region’s st th1 and world’s 6

largestexporter of brandy

89%, 67%, 56%, and 44% of food processing

companies have EAEU, FDA, ISO and HACCP

certificates, respectively

Access to a consumer market with

1.5 billion people with0% or reduced customs duties

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Competitive labor cost:average monthly salary

is $462 in beverage and $251 in

agro-food industries

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EXPORT OF BEVERAGES

£ Constitutes 10.9% of Armenian total exports£ More than 70% of the total production of Armenian beverages is exported£ Armenia exported about $241.8 million worth of beverages£ About 95.8% of beverage exports are alcoholic drinks, such as brandy, wine, beer,

etc.

£ Armenian brandy export constitutes about 3% of the world’s total brandy export£ Russian market is the biggest consumer of Armenian brandy, followed by Ukraine

and Georgia. 86.4% of all exported brandy was exported to Russia£ Over the last few years, Armenian wine market has expanded to Lithuania, China,

and the US£ The average export price of Armenian liquor, spirits and non-denatured ethyl

alcohol was 8.1 USD/litre£ The average export price of Armenian wine was 3.4 USD/litre

12.4%AVERAGE ANNUAL GROWTH

2014 2017

Brandy export

Beverage industry overview in 2017

+40.1%GROWTH RATE2017

30.1%AVERAGE ANNUAL GROWTH

2014 2017

Wine export

+79.6%GROWTH RATE2017

Main products: brandy, wine, beer, champagne and nonalcoholic drinks, including water and mineral waters

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Source: National Statistical Service of RA

EXPORT OF PROCESSED FOOD

Processed food export

+48.4%GROWTH RATE2017

SUGAR CONFECTIONERY,CHOCOLATE, FLOUR AND BREAD

+121.2%IN 2017

MEAT, FISH AND PRODUCTS THEREOF

+74.6%IN 2017

£ Constitutes 4.5% of Armenian total exports£ Armenia exported about $100.8 million worth of agro-food products£ About 39% of agro-food export are meat, fish, and products thereof£ Booming export of sugar confectionery, chocolate, flour and bread products£ Russian market is the biggest consumer of Armenian agro-food products, followed

by Iran and Georgia. 66.5% of all agro-food products were exported to Russia

Processed food industry overview in 2017

PROCESSED FOOD EXPORT STRUCTURE, % OF EXPORT IN 2017

Meat, fish, and products thereof

Canned fruits and vegetables

Dairy products

Sugar confectionery, chocolate, flour and bread products

Other products

39%

24.7%

16.1%

12.8%

7.4%

Main products: canned fruits and vegetables, dried fruits, meat and fish products and products thereof, milk and other dairy, flour and bread, di�erent types of juices

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£ Constitutes 28.5% of Armenia’s total manufacturing£ Production grew by 2.6% in 2017£ Production of agro-food products was worth about $614.5 million in 2017£ There are 1380 companies of which 350 physical and legal entities in dried fruits

and spices production, 312 in bakery products manufacturing, 171 in the manufacturing of macaroni and confectionery, 75 in dairy products manufacturing, 68 in meat processing, 47 in fruit and vegetables processing and preserving industry, 11 in fish processing industry

£ Armenia has 1240 ha organic agricultural land that has grown by 904 ha in the last 10 years

£ The country also has 1222 ha greenhouses, of which 112 are high-tech greenhouses

MANUFACTURING

x1.4GROWTH

2015 2017

BRANDY

+47.2%IN 2017

WINE

IN 2017+34.2%

£ Armenian winemaking has a history of more than 6000 years. The market has both large-scale traditional wineries and smaller wine producers

£ Constitutes 14.4% of Armenia’s total manufacturing£ Brandy production was worth about $185.9 million in 2017£ Production of wine was worth about $25.1 million in 2017£ There are 134 companies, of which 54 in grape processing£ Grape harvest increased by 17.5% in 2017£ According to experts' surveys, the establishment of a one hectare vineyard in

Armenia costs about $6800 (the cost of land is not included)£ Main grape producing regions are Ararat, Armavir, Aragatsotn and Vayots Dzor.

Vayots Dzor was included in CNN's list of 15 “World's best wine tours and trails” in 2017

Beverage production

+34%GROWTH RATE

309.2MILLION USD

PRODUCTION VOLUMEOF BEVERAGES IN 2017

Processed food production

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Source: The Conference Board & National Bureaus of StatisticsAverage 30$

47.3$

43.2$

39$

37.7$

32.5$

23.4$

8$

4.5$

2$

Germany

USA

Spain

Armenia

China

NetherlandsItaly

France

Belgium

Brazil

34.6$

HOURLY COMPENSATION COSTS IN THE MANUFACTURING INDUSTRY IN 2016ARMENIA COMPARED WITH THOSE OF TOP FOOD AND BEVERAGES EXPORTERS

MANUFACTURING

ELECTRICITY PRICE IN US CENTS/KWH IN 2017ARMENIA COMPARED WITH THOSE OF TOP FOOD AND BEVERAGES EXPORTERS

Labor cost

Source: Doing Business Database

£ Armenia gets around 307 sunny days (2500 hours of sunshine) per year£ There are highly fertile and diverse types of soils£

3Armenia’s water resources are 4 million m annually£ A unique combination of excellent climate conditions and a�ordable and skilled

labor force in agriculture and food production£ Production and processing of beverages in Armenia is rooted in rich history and a

long-established tradition

Favorable conditions for production

Average 17

26.625

20.219.1

13.6

11.110.8

8

GermanyUSA

Spain

Armenia

12.7ChinaIndonesia

Netherlands

Italy

France

Belgium

14.2Brazil

16.7

TRADE OPPORTUNITIES

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BUSINESS ENVIRONMENT

EAEU - 0% tari� rates, 183.4 million

FTA with CIS & Georgia - 0% tari� rates, 98 million (EAEU excluded)

FTA with Iran & Vietnam - 0% or reduced tari� rates, 172.9 million GSP (Canada, Japan, Norway,

Switzerland, USA) - 0% or reducedtari� rates, 503.5 million

GSP + (EU & UK) - 0% or reduced tari� rates, 511.8 million

ACCESS TO A 1.5 BILLION CONSUMER MARKET WITH PEOPLE WITH 0% OR REDUCED CUSTOMS DUTIES

OUT OF 190 COUNTRIES

ECONOMIC FREEDOM INDEX 2018

OUT OF 180 COUNTRIES Source: World Bank, Doing Business Database Source: Heritage Foundation Database

Takes 3 days to open a company, 7 days to register property

E�cient e-governance services in place

No restrictions on investment sectors

100% foreign ownership permitted

Five-year investment protection from changes in legislation

Free exchange of foreign currencies and repatriation of profit

Well-regulated banking system

Foreign companies registered in Armenia have the right to buy land

st41STARTING A BUSINESS

th8 REGISTERING

PROPERTY

th14

th44MODERATELY

FREE

75%

INVESTMENTFREEDOM

MOSTLY FREE

DOING BUSINESS 2019

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GOVERNMENT SUPPORT

£ VAT (Value Added Tax) payments’ postponement for up to 3 years for importing equipment and goods within investment programs

£ 0% VAT for more than 230 product groups imported to Armenia£ Up to 30% profit tax reduction for new jobs created within business projects in the

5 reporting years following the year of launch£ Customs duty exemption for materials and equipment/technology imported

from non-EAEU countries that cannot be replaced by materials and equipment/ technology produced by EAEU countries within investment programs

£ There is no income tax liability for agro-processing sector entities purchasing agricultural raw materials from individuals who cultivate agricultural products

£ VAT - 0%£ Profit tax - 0% (only employees’ compensation)£ Property tax - 0% (property includes all tangible real estate property: house,

o�ce building and property rented to others)£ Corporation income tax - 0% (tax imposed on the net income of the company)£ Customs duty - 0%

Taxes

Tax exemption in FEZ

Food processing Produc�on of

beverages

Profit tax 20% 20%

Impor�ng du�es Depends on products

/0% for EAEU/ Depends on products

/0% for EAEU/

Expor�ng du�es 0% 0%

VAT 20% 20%

Excise tax n/a For the distribu�on of

alcoholic beverages

Licensing requirements no For the distribu�on of

alcoholic beverages

Regula�ve body SSFS* SSFS*

Sector-specific regulations

*The State Service for Food Safety

There are 3 Free Economic Zones (FEZ) in Armenia: Alliance (specialized in ICT, engineering and pharmaceuticals), Meghri (on the Armenian-Iranian border with no sector limitations), and Meridian (specialized in jewelry making). Residents of FEZ are exempt from all taxes except payroll taxes. There are also on site “one stop” services and custom registrations

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£ “Subsidizing interest rates for agricultural loans” program provides loans for theproduction, processing and harvesting of agricultural products with a 12% annualinterest rate of which up to 9% is subsidized interest rate

£ “Lending program for drip irrigation systems integration” o�ers a 14% annualinterest rate of which 2% is non-subsidized interest rate

£ “Lending program for hail-protective network integration” provides loans with upto 14% annual interest rate of which 2% is non-subsidized interest rate

£ “Lending program for intensive fruit gardens establishing” o�ers a 12% annualinterest rate of which 5% is non-subsidized interest rate

£ “Lending program for agro-processing sector for purchasing agricultural rawmaterials” o�ers loans with up to 12% annual interest rate of which 3% is non-subsidized interest rate

Support programs

In 2017, Armenian wine companies were awarded 23 medals of which 10 gold and 13 silver at Mundus Vini Grand International Wine Awards in Neustadt, Germany. As comparison points, Georgia was awarded 4 gold and 7 silver medals, Macedonia 6 gold and 3 silver medals, Moldova 8 gold and 12 silver medals, Romania 6 gold and 5 silver medals, etc.

Armenia Dry Rosé 2014 was awarded a gold medal at Le Mondial du Rosé wine competition held in France in April 2015. It is the first rosé wine produced in Armenia to win a gold medal in an international competition. This achievement adds to the growing collection of prestigious awards received by Armenia Wine Company in recent years: “Muscats du Monde”, France, “Wine and Barrel”, France, “Concours Mondial de Bruxelles”, Belgium, “Decanter World Wine Awards”, UK.

With hundreds of gold medals already under its belt, ARARAT continues conquering new competitions, such as San Francisco World Spirits Competition and Berlin International Spirits Competition, where Yerevan Brandy Factory won a special international award “Distillery of the Year” by a unanimous decision of judges in 2017. The competition featured nearly 400 spirits from more than 20 countries worldwide.

AWARDS

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An international company that cherishes 130 years of unique brandy making tradition

Yerevan Brandy Company and its brand name Ararat were acquired by Pernod Ricard in 1998. Today, world-famous Ararat Brandy is supplied to more than 30 countries and is a registered trademark in more than 65 countries.

Brandy making tradition in Armenia go back to the year of 1887 when a wealthy merchant began distilling brandy at the winery he had founded ten years earlier inside the former fortress of Yerevan. It was then acquired by a well-known Russian vodka and liquor producer (1898). Initial recognition came with the Paris International Exhibition where Armenian brandy received the Grand Prix. The oldest brandy still featured today in the company's museum dates back to 1902.

In 1944, by the end of World War II, Armenian brandy appeared to be so strategic that the soviet leaders reorganized it and built a new plant solely for brandy making. In 1998, Yerevan Brandy Company and its main brand Ararat were acquired by Pernod Ricard after competitive bidding. This was a new beginning. Realizing the growing potential of the Armenian market and pursuing its principle of separating production from sales, the Group set up a distribution subsidiary in Armenia, focusing mainly on marketing and distribution of the world-renowned Pernod Ricard brands, such as Absolut, Chivas, Jameson and others across the country.

While Pernod Ricard invested in marketing and in the modernization of the Armenian plant, which consists of 3 branches located in di�erent regions of Armenia with the main one in Yerevan, it did not change a thing in the brandy making itself. In 1999, YBC initiated a new rigid production standard for being called “Armenian cognac.” Today ARARAT is not just keeping to tradition and reviving the noble brandies of the past, such as ARARAT Dvin and ARARAT Yerevan, but also keeps introducing brand new ARARAT blends.

SUCCESS STORY / ARARAT

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Euroterm CJSC with its trademark NOYAN was established in 1998 and is one of the leading ISO 9001-2008-certified manufacturers of natural juices, nectars and drinks, as well as fruit preserves and canned vegetables in Armenia.

The juice and food production line of the company currently employs 250 workers. The company operates a full production technological cycle, i.e. from fruit reception to processing and packaging.

NOYAN products’ ingredients hail from Armenia’s fields, orchards, and farms - unless the fruit refuses to grow in the country, of course!The company’s very own orchards contain apricot, peach, apple, walnut, almonds, white cherry trees and grape vineyards. Total orchard area constitutes circa 200 hectares of agrarian land, 102 hectares of which are organic.

In 2010, NOYAN started growing organic fruits and vegetables in its own orchards. And in 2015 it was certified to the EU & USDA NOP organic regulations and started producing Organic Products under NOYAN Organic brand. The high quality of NOYAN products has been confirmed by numerous Grand Prix, gold, silver and bronze medals awarded at various international trade fairs.

The company has partners in Russia, USA, Canada, France, Australia, UAE, China, Germany, Czech Republic, Poland, Algeria, Ukraine, Belarus, Kazakhstan, Georgia and Turkmenistan.

SUCCESS STORY / NOYAN

SUCCESS STORY / KARAS WINES

Karas Wines is the first commercial endeavor of Tierras de Armenia, which was founded by Argentinian-Armenian entrepreneur Eduardo Eurnekian in 2003. The company owns and operates 2300 hectares of land just west of Armavir region. Investments in the land and ability to reshape previously uncultivated soil have grown the vineyards that provide grapes for making “Karas” wines. The vineyards house both international and indigenous varieties, including Chardonnay, Viognier, Sauvignon Blanc, Merlot, Cabernet Franc as well as famous Armenian grapes Areni, Khndoghni and Kangun. The vineyards of Karas Wines are cultivated with modern techniques paired with an individual approach toward each variety to fully develop its potential.

The company has also created hundreds of jobs in the region. It currently employs around 400 people.

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5 Mher Mkrtchyan Street, Yerevan 0010, Republic of Armenia Phone: +374 11 597 888

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