10 BFC Georgia Agriculture Finance Bulletin

06/2013

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10 Ge o r g i a Agriculture Finance Bulletin Discussion on Agricultural Products, between Georgia and Russia Interview with Agriculture Minister Pipia: Cooperatives, Vouchers, Subsidies, Agriculture Fund Donors IFC Helps Georgian Dairy Producer Improve Efficiency and Help Environment Will bread become more expensive?

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Georgian Agriculture Finance Bulletin Issue #10, June 1—30, 2013

Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5) 6) 7) 8) 9) 10)

Ukraine will take 500 tons of Georgian citrus ................................................................................. 2 Georgia is restoring anti-hail systems ............................................................................................. 2 Discussion on Agricultural Products, between Georgia and Russia ................................................ 2 Fruits, Vegetables and Honey Export from Georgia to Russia may Begin in 2-3 weeks.................. 3 Wide-scale cattle vaccination is planned for 2014—2017 .............................................................. 3 State subsidizing of vinciculture/winemaking is planned to resume .............................................. 3 Demand on Georgian honey has appeared in Europe and Russia .................................................. 3 195 Million Gel spent to plow 192,568 acres of land ...................................................................... 4 “Demand for grapes this year will be much higher than in the past”— Shalva Pipia ..................... 4 Interview with Agriculture Minister Pipia: Cooperatives, Vouchers, Subsidies, Agriculture Fund Donors ............................................................................................................................................. 4 11) Land Sale to Foreigners is Temporarily Banned .............................................................................. 5 12) Aiming at agricultural development, assisting leasing companies is planned ................................ 5

Foreign Aid ................................................................................................................. 5 13) 14) 15) 16)

“EBRD Will Be Very Much Focused on Real SMEs,” New EBRD Regional Director ......................... 5 The EU and UN have financed the Ministry of Agriculture for 2 million Euro ................................ 6 EU and UNDP promoting agriculture in Adjara ............................................................................... 6 IFC Helps Georgian Dairy Producer Improve Efficiency and Help Environment ............................. 6

Private Sector.............................................................................................................. 7 17) 18) 19) 20) 21) 22) 23)

Hazelnuts and Tangarines—The best product for export ............................................................... 7 Georgia Remains a Relatively High Risk Operating Environment, Fitch .......................................... 7 Brief interview with Shalva Pipia, the minister of Agriculture ........................................................ 8 Agri-Insurance Set to Become Leading Product despite Scepticism among Agri-Producers .......... 8 Within Agricultural Crediting program, Procredit bank funded grain storage construction .......... 9 Will bread become more expensive? .............................................................................................. 9 “Marniskari” Exported 50 Thousand Bottles of Wine to the Russian Market................................. 9

Note: The Georgian Agriculture Finance Bulletin presents a monthly roundup of headlines and news stories related to investments and financing flows to Georgia’s agricultural sector.

This bulletin is prepared by Business & Finance Consulting—a Swiss-based development finance consulting company with a long history of working in Georgia. Currently, BFC is implementing the Agricultural Lending Programme for KfW. Read more » BFC Max-Högger-Strasse 6 CH-8048 Zurich, Switzerland

Phone: +41 44 784 22 22 Fax: +41 44 784 23 23

info@bfconsulting.com www.bfconsulting.com

BFC. Georgian Agriculture Finance Bulletin. Issue #10, June 1—30, 2013

State Initiatives 1)

Ukraine will take 500 tons of Georgian citrus

June 10th, 2013, http://bizzone.info/agriculture/2013/1370907006.php

According to Urushadze, in addition to efforts to find a financier for the football team, “Guria” Lanchkhuti, in parallel, he met with business leaders, with whom it was possible to arrange a contract to export Georgian products to the Ukrainian market. Specifically, he met with the head of the “Top August” and agreed with the export of products from Lanchkhuti laurel, myrtle, kiwi, oranges, persimmons and 500 tons of citrus.

“I met with three huge firms, except of the mentioned products, we also talked about tea. We agreed on the Exchange. I believe that this is the most appropriate form. It is better for us because of the peasants difficulties in connection with the products. It would be nice if we could take their Mandarin, and give them sugar and flour”.—Urushadze noted. Read More »

2)

Georgia is restoring anti-hail systems

June 11th, 2013, http://bizzone.info/agriculture/2013/1371001316.php

Works on restoration of anti-hail systems have began. Today, the Ministry of Regional Development and Infrastructure held a meeting discussing this topic. Minister David Narmania, his deputies and Tengiz Shergelavshili and Shota Murgulia, representatives of the Ministry of Agriculture and Ministry of Natural Resources, as well as the heads of the departments of Regional Development attended the meeting.

At the meeting of the heads of the Research and Development Center “Delta”, different types of antihail systems were presented.

According to Narmania, meeting will be held again in two weeks, by that time, the systems will be presented with financial calculations.

3)

Discussion on Agricultural Products, between Georgia and Russia

June 18th, 2013, http://bizzone.info/agriculture/2013/1371580348.php

A discussion was held today between the head of Rosselkhoznadzor Sergey Dankvert and the chief of the National Food Agency of Georgia Zurab Chekurashvili. Possible export of Georgian agricultural products, including dairy products, honey and more. Import of russian livestock products was also mentioned.

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BFC. Georgian Agriculture Finance Bulletin. Issue #10, June 1—30, 2013

4)

Fruits, Vegetables and Honey Export from Georgia to Russia may Begin in 2-3 weeks

June 19th, 2013, http://commersant.ge/eng/?page=news&id=882

Export of agricultural products from Georgia to Russia may launch in two—three weeks. The Head of the National Food Agency Zurab Chekurishvili said after a meeting with the Head of the Rosselkhoznadzor Sergei Dankvert held in Moscow. The sides note that the sides have reached mutual understanding and formalization of the terms of supply of certain agricultural products is being carried out. Read More »

5)

Wide-scale cattle vaccination is planned for 2014—2017

June 20th, 2013, http://sarke.com/cgi/search/news.asp?Code=10038241

Program on food safety, sanitary and plant protection envisages vaccination of total livestock of the country against foot-and-mouth disease during 2 years (2014—2015). In 2016—2017, the vaccination will continued for cattle in high-risk zones. Preventive vaccination against anthrax will be also conducted. At that, creation of reserve of biopreparations and disinfection means is envisaged for liquidation of diseases, which may occur in 2014—2017. Owners will get passports for their cattle. The programs envisage also planned and unplanned checkings of food producers/distributors, taking samples in retail trade network and testing them in respective certified laboratories. The checking’s will apply to total 17,800 business operators. Creation of 3 labs is envisaged countrywide, able to conduct testing of 23,680 various food samples.

6)

State subsidizing of vinciculture/winemaking is planned to resume

June 20th, 2013, http://sarke.com/cgi/search/news.asp?Code=10038240

Within the agricultural programs planned for 2014—2017, partial compensation for the cost of grapes purchased by Georgian winemaking companies from local winegrowers is envisaged. As an Agriculture Ministry official told Sarke, the compensation per kilogram will depend on variety and volume of purchased grape, noting however that “the total volume of compensation is not defined yet.”

The compensation will be provided as vouchers, which winegrowers will be able to cash themselves, he said. The mentioned programs envisage also inventory of vineyards according to regions, grape varieties and condition of vine, which should be followed by definition of boundaries for specific winegrowing zones.

7)

Demand on Georgian honey has appeared in Europe and Russia

June 22nd, 2013, http://bizzone.info/agriculture/2013/1371934550.php

“As part of the sanitary and phytosanitary agreement on a deep and comprehensive free trade, European Union agreed on export of Georgian honey to Europe”—a representative of the Ministry of Agriculture, Zurab Chikuashvili noted on a meeting of the Agricultural Committee of the Parliament. According to the statement, representatives of Ministry of Agriculture have spoken with the mass producers of honey in Georgia and they are ready to export. Chikuahsvili also mentioned that there are no special laboratories in Georgia to test the honey for pesticides, state is gathering information on European Union and Russian regulations, but so far the honey will be tested in Estonia and Sweden, the agreement on this has already been achieved. Repreesentative also said that required laboratories will be built soon.

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BFC. Georgian Agriculture Finance Bulletin. Issue #10, June 1—30, 2013

8)

195 Million Gel spent to plow 192,568 acres of land

June 24th, 2013, http://bizzone.info/agriculture/2013/1372125144.php

In terms of the Project to promote smallholder farmers in the summer season, 195 million Gel has been spent to plow 192,568 acres of land. The Ministry of Agriculture summarized the projects on a media tour, which included familiarization with the agricultural works in the regions of Kartli, Imereti and Samegrelo.

Media representatives visited farmers who are currently using preferential agricultural loans, they also paid a visit to rehabilitated irrigation canals.

According to Shalva Pipia, the Project to Promote summer works has helped 707,918 farmers, in total smallholed farmers received free fertilizer worth 53 million GEL, pesticides worth 24 million GEL, seeds worth of 5 million GEL and farming equipment with the total amount of 39 million GEL. Read More »

9)

“Demand for grapes this year will be much higher than in the past”— Shalva Pipia

June 27th, 2013, http://bizzone.info/agriculture/2013/1371941864.php

The Minister of Agriculture of Georgia, Shalva Pipia believes that the demand for grapes this year will be much higher than in the past. Today Pipia brified reporters on the plans of the Ministry of Agriculture about the harvest. “We have a number of plans. A week ago, we met with winemakers and meetings will be pursued vigorously in the future. We’re already getting information about the amount of interest in this product, but this will become clearer in the second ten days of July. At this point, you can say, that due to a number of reasons this year, the demand for grapes will be greater than in the past “—said Pipia. Regarding subsidization of harvested grapes, the Minister said that the Ministry of Agriculture plans to use “better practices.”

10) Interview with Agriculture Minister Pipia: Cooperatives, Vouchers, Subsidies, Agriculture Fund Donors June 28th, 2013, http://commersant.ge/eng/?page=news&id=946

An interview with the Minister of Agriculture Shalva Pipia Q: Small Farmer Support (SFS) project will be completed on August 1. Will the distribution of agricultural vouchers continue next year?

A: Of course, it will continue, no statistics have been available so far in this regard. A certain number of peasants and farmers were not included in lists, in some cases even the villages. In the future we will have much better starting conditions, as we have the information on these people, the beneficiaries.

Maybe next year the format will be changed, but the project is still in force.

Q:What changes will be included?

A: I think it’s still too early to talk about specific changes, but we have absolutely correct information and this project will be more effective in the future. Read More » Page 4

BFC. Georgian Agriculture Finance Bulletin. Issue #10, June 1—30, 2013

11) Land Sale to Foreigners is Temporarily Banned June 28th, 2013, http://sarke.com/cgi/search/news.asp?Code=10038310

According to amendments, drafted for the bill “On Agricultural Land Ownership,” obtaining land ownership rights is suspended for foreigners and foreign legal entities until January 1, 2015. Authors of this legislative initiative are MPs Zurab Tkemaladze and Gigla Agulashvili.

As Agulashvili notes, initially the moratorium had been planned until 2017, but later the term was moved back. “We think that the government will have a strategy regarding the Land Code within a year or even earlier, in about 6 months”, he declares.

Agulashvili points that moratorium will not be negatively reflected on investment environment, because investments’ inflow in agriculture sector was small through the years.

12) Aiming at agricultural development, assisting leasing companies is planned June 28th, 2013, http://sarke.com/cgi/search/news.asp?Code=10038238

Within agricultural programs, planned for 2014—2017, “funding of leasing companies with aim to intensify their engagement in funding agricultural sector” is envisaged. Correspondingly, gradual recapitalization of rural economics will happen, the programs’ describing document says. As a result, growth of agricultural production is expected at 50—60%, while primary cost of production should be decreased by 40—50%. The document also points out that planned growth of agricultural production requires continuation of replenishment/renovation of tractor/vehicle fleet and farming machinery. Consideration of the mentioned programs was held today on joint sitting of the Parliament’s agriculture and fiscal committees, being supported by UNDP.

Foreign Aid 13) “EBRD Will Be Very Much Focused on Real SMEs,” New EBRD Regional Director June 3rd, 2013, http://finchannel.com/Main_News/Geo/127863_%E2%80%9CEBRD_Will_Be_Very_Much_Focused_on_Real_SMEs%2C%E2%80 %9D_New_EBRD_Regional_Director/

“EBRD will be very much focused on real SMEs, which are neither the large companies, nor the micro companies that there are large numbers of in Georgia. This is really for the companies that have between 20 to 200 employees and which are not very common in Georgia,” Bruno Balvanera, the new Director of EBRD in Georgia, told The FINANCIAL.

“EBRD is focused on agriculture because more than half of the population works in agriculture and contributes 5—6 percent to the GDP. It is addressed to bringing in technologies and foreign direct investments, and to developing an entrepreneurial culture,” Balvanera said. Read More »

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BFC. Georgian Agriculture Finance Bulletin. Issue #10, June 1—30, 2013

14) The EU and UN have financed the Ministry of Agriculture for 2 million Euro June 12th, 2013, http://bizzone.info/agriculture/2013/1371066936.php

In the context of a new three-year project funded by European Union and United Nations, the Ministry of Agriculture received 2 million Euros from these organizations.

According to Shalva Pipia, this project is going to increase the competitiveness of this sector, by designing efficient policies.

The Ministry will invite highly qualified international experts who will offer the Ministry support in address issues such as cooperation between farmers, improving consultation services and so on.

Read More »

15) EU and UNDP promoting agriculture in Adjara June 17th, 2013, http://bizzone.info/agriculture/2013/1371527959.php

The Chairman of Government of Adjara Archil Habadze, deputy head of the EU mission in Georgia Ramon Reygada and deputy permanent representative of the UN Development Programme (UNDP) Inita Paulovich will sign an agreement to launch programs to promote agricultural development in Adjara.

ENPARD three-year project program provides assistance to small farmers in Adjara. With a budget of 3.3 million euros. Partners of the project are the Government of Adjara and Adjarian agricultural service, its primary goal—improving the efficiency of agriculture, strengthening of small farmers as the main support of the agricultural sector and institutional development of the Ministry of Agriculture of Adjara.

Initiative of agricultural development of Adjara is a part of the program of the European Union Neighbourhood Policy ENPARD. In Georgia, the program began in March 2013 and aims to increase food production and reduce poverty in rural areas.

16) IFC Helps Georgian Dairy Producer Improve Efficiency and Help Environment June 24th, 2013, http://www.prime-news.ge/?p=110524&lang=en

IFC, a member of the World Bank Group, has helped a leading dairy producer in Georgia identify opportunities to limit waste, save resources, and reduce environmentally harmful greenhouse gas emissions.

As Prime-News has been informed from IFC –Georgia, IFC advised Sante GMT Products on the potential savings and environmental benefits of resource efficiency projects. Sante GMT Products has since adopted a program that will enable savings of more than USD 600,000 per year, after an initial cost of USD 1.4 million, meaning greater profits within two years. The program reduces energy consumption by at least 16 percent, water consumption by 25 percent, and finds innovative uses for previously wasted by-products like whey. Read More »

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BFC. Georgian Agriculture Finance Bulletin. Issue #10, June 1—30, 2013

Private Sector 17) Hazelnuts and Tangarines—The best product for export June 7th, 2013, http://bizzone.info/agriculture/2013/1370639604.php

Agriculture in Georgia was often called promising, but as yet no agricultural products have made a turnaround in growth of the whole sector. International expert Remer Lane is doing a special study, mainly regarding two products of Agriculture of Georgia. Hazelnuts and tangerines. These areas have significant growth potential but only with better marketing he says.

“We cannot explain to the world what we have for sale, especially we can’t explain how good the Georgian products are. This requires a change in approach. When you change the perception of people, together with a significant increase in quality, the price of products can increase. So we have to explain to people that this is different, that this is good.”—Lane noted.

According to Lane Georgia ranks second among filbert exporting countries. It accounts for 6% of the market. Hazelnut production in Georgia is much cheaper than Turkey or other countries producing nuts.

Remer assures as that this statistics can be improved and a big factor of it is the expected abundant harvest of hazelnuts. Read More »

18) Georgia Remains a Relatively High Risk Operating Environment, Fitch June 10th, 2013, http://finchannel.com/news_flash/Banks/127877_Georgia_Remains_a_Relatively_High_Risk_Operating_Environment%2C_Fitch/

“A marked deterioration in the operating environment and in banks’ financial metrics could put downward pressure on Fitch’s bank ratings in Georgia,” Lindsey Liddell, Director, Financial Institutions at Fitch Ratings, told The FINANCIAL. Liddell said that maintaining profitability and asset quality ratios in the face of slowing loan growth and increasing competition are the main challenge that the Georgian banking sector will face in the current year. “The high level of foreign currency lending in banks’ loan books also remains a key weakness of the sector. In addition, Georgia remains a relatively high risk operating environment, vulnerable to external shocks,” she added.

According to Fitch ratings , Georgian banks are focusing increasingly on SME lending, reflecting weaker demand for corporate lending and a limited pool of high quality corporate borrowers in Georgia on the one hand, but also the chase for yield, volume growth and diversification on the other. Read More »

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BFC. Georgian Agriculture Finance Bulletin. Issue #10, June 1—30, 2013

19) Brief interview with Shalva Pipia, the minister of Agriculture June 17th, 2013, http://www.sarke.com/cgi/search/issue.asp?Day=17&Month=6&Year=2013&Type=5#2

In his interview with the newspaper, Georgian Agriculture Minister Shalva Pipia commented on the program of preferential agro-credits.

As the Minister noted, “Administration of the credits is not the state’s business” and within the mentioned program, “the state will accept only part of the risks, linked to these credits”.

Pipia assures that quite many start-ups have been funded within the frames of this program. However, if the applicants don’t have any kind of experience, a source of income and they barely have an idea, none of the banks will allot money”, he notes.

On the newspaper’s question regarding cold storage infrastructure, Pipia answered that the existing facilities can store 90,000 tons of agriculture products. “Unfortunately, even this facilities aren’t fully loaded”, he declared and added: “The 3rd component of agro-credits’ program envisages arrangement exactly of this infrastructure”.

20) Agri-Insurance Set to Become Leading Product despite Scepticism among Agri-Producers June 17th, 2013, http://finchannel.com/Main_News/Insurance/127939_AgriInsurance_Set_to_Become_Leading_Product_despite_Scepticism_among_Agri-Producers/

Since the agriculture sector has become one of the priorities of the new government in Georgia experts expect agricultural insurance to soon become one of the leading insurance products in Georgia.

The main challenges are overcoming the problems related to risk management, since no proper database exists for statistical information about possible natural disasters. Another problem is that agriinsurance in Georgia is very expensive and farmers, including agricultural producers, are sceptical about the insurance packages being offered to them.

“There are 50—10,000 identified farmers with land plots in Georgia which should be insured,” said Archil Tsertsvadze, expert in agri-insurance and risk management issues. “Can you imagine how massive this product could soon become? It is absolutely right and logical that it might become a leading insurance product in the future,” he added. Read More »

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BFC. Georgian Agriculture Finance Bulletin. Issue #10, June 1—30, 2013

21) Within Agricultural Crediting program, Procredit bank funded grain storage construction June 18th, 2013, http://en.bpi.ge/index.php?option=com_content&view=article&id=13602:within-agro-crediting-programprocredit-bank-funded-grain-storage-construction&catid=49:2011-11-06-16-56-03

Agriculture Ministry reported that LLC Lomtagora, established in 2000, has constructs grain drying and storage facility in Marneuli. As the Ministry said, the facility with capacity of 5,000 t will be completed within 1 month.

For this project, the LLC had borrowed USD 400,000 from ProCredit Bank as a preferential loan within the 3rd component of agro-crediting program.

According to the Ministry, total lending within this component (funding of agricultural enterprise creation) amounted as of June 15 to USD 8.36 million. These funds were issued as 54 loans, including startups.

To remind, financial institutions started issuing loans within the mentioned program on March 27. There are 12 banks involved in the program.

22) Will bread become more expensive?

June 20th, 2013, http://www.sarke.com/cgi/search/news.asp?Code=10038233

Levan Silagadze, executive director of Wheat and Bread Producers Association, declares that the wheat harvest in Georgia is expected to total to 100,000 tons this year.

Wheat annual consumption in Georgia amounts to 700,000—800,000 t. Product is mostly imported from Russia, Ukraine and Kazakhstan.

As Silagava noted that an abundant harvest is expected in the world, so prices on flour will not go up.

Today, 1 sack (50 kg) of high-quality flour, processed by Georgian milling plants, costs 40—44 GEL. According to Silagava, the Association is interested in satisfying consumers’ demand with local wheat. In case of Georgian wheat production, transportation costs will be much less and both farmers and milling plants will be content, he declares, but he says Georgian infrastructure isn’t ready for this just yet.

23) “Marniskari” Exported 50 Thousand Bottles of Wine to the Russian Market June 28th, 2013, http://commersant.ge/eng/?page=news&id=956

After “Dugladze Wine House”, this time “Marniskari” company talks of the increased demand for Georgian wine in the Russian market.

“Marniskari” Director explained to radio “Commersant'' that at this stage 50 thousand bottles of wine were sent to the Russian market. However, the company has already received additional orders for the next week. According to Lasha Revazishvili, “Marniskari” is collaborating with six Russian distribution companies, but another distribution companies also express their interest in their products.

Read More »

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Prepared by Business & Finance Consulting (BFC) www.bfconsulting.com In this bulletin, BFC provides extracts from articles that have been published by others and as a result cannot be held responsible for such content.

The articles do not necessarily reflect the opinions of BFC, its staff, its associates or its partners.

Copyright of articles is retained by their authors.