One of the biggest privatization deals in the post-Soviet decade in Armenia was the sale of the Yerevan Brandy Factory (YBF). Despite some difficulties, it has perhaps been the most successful deal to be closed to date. Cognac (brandy) production in Armenia began as far back as 1886. Armenian brandies have always been highly appraised due to the exclusive taste properties of Armenian grapes and to the local timber used in the production of storage barrels. The Yerevan Brandy Factory (Company) was founded in 1953.
On June 7, 1998, YBF was handed over to the French Pernod Ricard Company - the world's fifth largest producer of alcoholic beverages. In exchange, the company was to pay $30 million, though at the time it paid only $2 million. In 1998 Pernod Ricard managers declared that they had bought the Yerevan Brandy Company to operate it for more than a hundred years and that they would export Armenian brandy to other countries where there are Armenian communities. Armenian brandy is to be distributed in about 20 countries during the next few years - from Europe to Japan, China, and the United States, including France-the home of cognac.
The privatization of the Yerevan Brandy Company, without exaggeration, opened a new stage in relations between farmers and buyers of agricultural produce. For the first time, at least in the recent decade, farmers began to receive sizable sums for the grapes they had grown and, most importantly, they received them immediately. Contractual relations began to take shape between the factory and farmers, which is a novelty on the Armenian scene and is likely to result in other local factories' having to follow suit and pay for the products they purchase on time.
There were difficulties in this matter too. Though during the first year, the factory purchased grapes almost without restrictions, during the following year, proceeding from the previous year's experience, the factory declared that it would buy only 4-5 types: white, low sugar content and unripe grapes. This approach was first of all a blow to the factory's own short-term profit, but according to Mr. Larretche, Yerevan Brandy Company President, it is the only way to maintain the required quality.
For years the factory had seen no investments. Technical equipment was worn out. The new owners had to renovate the factory at an accelerated speed. The result was felt quite quickly. "Now the quality of our products is close to international standards. And we hold presentations accordingly," says Mr. Larretche. In 1999, $5 million was spent to adjust bottles and labels to 'international appearance'. 1999 saw an output reaching 900,000 deciliters, i.e. it more than doubled compared to the previous year. The same year, maintaining the trend of the previous year, the factory sold 1 million liters of brandy.
In 2000, the company's sales amounted to 1.5 million liters. More than 100,000 bottles were sold in the USA alone, just in line with the sales plan. Last year Armenian brandy was exported to France for the first time and also to a few countries of the East. However, the lion's share of sales still falls on the Russian market where close to 70% (over 1 million liters) of the total production was sold in 2000.
YBF received a $20 million loan from the European Bank for Reconstruction and Development in 2000, much more than any Armenian enterprise has received during the last five years. The funds are expected to be spent to further upgrade the enterprise. Also last year, YBF, for the first time in its history, began to produce wine, and according to Pernod Ricard's director, the company made its first one million USD of profit in Armenia in 2000.