11 BFC Georgia Agriculture Finance Bulletin

07/2013

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11 Ge o r g i a Agriculture Finance Bulletin 60,975 million GEL is issued in the framework of Preferential Agro Credit Program IFC Helps Georgian Dairy Producer Improve Efficiency and Help the Environment VTB Bank to Insure Risks of Exporters to Russia Agricultural Fund Denies Charges of Victims of Hybrid Corn Program

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Georgian Agriculture Finance Bulletin Issue #11, July 1–31, 2013

Contents

State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11)

VAT Offset for Importing Farming Machinery ................................................................................. 2 Two agricultural projects are in the top 3 of Georgias new government achievements ................ 2 Agricultural production made up 2.74 Lari in 2012......................................................................... 2 First Agricultural cooperative will be established in 2014 .............................................................. 3 Construction of 81 enterprises is underway ................................................................................... 3 Rosselkhoznadzor simplified procedures for the import of Georgian nuts, spices, bay leaf .......... 3 Law Suspending Sale of Agriculture Land to Foreigners to Be Challenged ..................................... 4 No subsidies for vintage this year ................................................................................................... 4 Agriculture Ministry Denies the Termination of the Vintage Subsidizing ....................................... 4 Parliament Moves to Further Tighten Agriculture Land Regulations .............................................. 5 60,975 million GEL is issued in the framework of Preferential Agro Credit Program ..................... 5

Foreign Aid ................................................................................................................. 5 12) IFC Helps Georgian Dairy Producer Improve Efficiency and Help the Environment ....................... 5 13) EBRD Provides $1.32m Funding for New Dairy in Georgia.............................................................. 6

Private Sector.............................................................................................................. 6 14) 15) 16) 17) 18) 19) 20) 21) 22) 23)

VTB Bank to Insure Risks of Exporters to Russia ............................................................................. 6 Kakheti Wine Cellar purchased modern winery equipment from Della Toffola ............................. 6 20-30% Higher Nut Crop Expected this Year ................................................................................... 6 Agricultural Fund Denies Charges of Victims of Hybrid Corn Program ........................................... 7 Export of alchoholic drinks increased by 24% ................................................................................. 7 As last year, Turkey will dictate hazelnut prices.............................................................................. 7 Tsinandali Old Wine cellar got $480,000 within preferential agroloan program ........................... 8 Schuchmann wines Georgia built a new wine cellar through preferential agroloan ...................... 8 Fertilizers based on nanotechnologies will help Georgian farmers ................................................ 8 Despite the Ban, Land is still Sold to Foreigners ............................................................................. 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 #11, July 1–31, 2013

State Initiatives 1)

VAT Offset for Importing Farming Machinery

July 2nd, 2013, http://en.bpi.ge/index.php?option=com_content&view=article&id=13860:qoffset-right-for-farming-machineryimportq&catid=49:2011-11-06-16-56-03

Temur Maisuradze, deputy chairman of the ParliamentaryCommittee of Sector Economy and Economic Policy explained that farmerswhose turnover exceeds 100,000 lari, will have a right of VAT offset. The matter concerns offset of VAT (18%) paid during import of farming machinery, he noted.

This preference incentivizes purchase new technologies and machinery, Maisuradze notes, but adds that in connection with offset mechanism, “there still are issues which should be elucidated.”

Regarding aninitiativeto release of primary production of eggs from VAT, Maisuradze says that “such kind of preferences will put the competition on the market into question”.

2)

Two agricultural projects are in the top 3 of Georgias new government achievements

July 2nd, 2013, http://sarke.com/cgi/search/news.asp?Code=10038338

Research of International Republican Institute (IRI) showed that distribution of agricultural cards (vouchers) is perceived as the main achievement of the new government. The second achievement is reduction of utility bills and the third—agriculture reform.

Agriculture Minister Shalva Pipia says in his interview to the newspaper that rural supporting program will be continued. “The format might be changed, as we will have better starting conditions than we had initially”, he declares.

Pipia declares that in the course of the program’s implementation, difficulties arose due to inaccurate lists of farmers and some claims appeared towards the farm supply shops participating in theprogram. Many shops were fined, and in case of repeat violations, some have been removed from the program, he declares.

3)

Agricultural production made up 2.74 Lari in 2012

July 2nd, 2013, http://en.bpi.ge/index.php?option=com_content&view=article&id=13863:agricultural-production-made-up274b-lari-in-2012&catid=49:2011-11-06-16-56-03

Sakstat reported that agricultural production of 2012 totalled to 2.74 billion lari. If compared with 2011, the volume has increased by 2.74%.

Of the total, plant growing accounted for 1 billion lari, a reduction of 18.42% year-on-year. In its turn, production of cattle-breeding amounted to 1.62 billion lari (growth—21.17%).

Agricultural services accounted for 109 billion lari (growth—11.1%).

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BFC. Georgian Agriculture Finance Bulletin. Issue #11, July 1–31, 2013

4)

First Agricultural cooperative will be established in 2014

July 9th, 2013, http://sarke.com/cgi/search/news.asp?Code=10038416

The newspaper reports that first agriculture cooperative will be established in Georgia in 2014. In a few days, the Parliament must approve the corresponding draft bill.

Agrant program of theEU, with a cost of 15 million EUR, should be launched from Septemberwith theaim to support establishmentof cooperatives.

As the article notes, about 78% of farmers use land areas up to 1 ha. The bill envisages privileges to encourage the farmers’ unions.

People united in the cooperative will have thestatus of corporate clients in their relations with the banks, the Parliament points out.

Participation of foreign citizens in cooperatives won't be allowed.

5)

Construction of 81 enterprises is underway

July 9th, 2013, http://sarke.com/cgi/search/news.asp?Code=10038415

Eighty-one loans have been issued within the framework of the third component of the preferential agrocredit program (credits for agricultural enterprises with volume of up to 1 million lari and interest rate of 3%), while 24 loan applications are under consideration. As of July 1, the issued sum has amounted to 11.66 million lari.

Within the framework of the second component (loans of 5,000-10,000 lari), 1,272 credits have been allotted, while 72 applications are under consideration. Total allocation amounts to 24.49 million lari.

Furthermore, 1,410 farmers have applied for the first component loan (interest-free loan against goods of up to 5,000 lari).

In terms of regional distribution, most of the loans have been issued in Kakheti, where 9 farms, 22 dairy enterprises, 6 cool storage facilities and 13 wineries should be constructed.

About 18 loans have been approved for start-up businesses, with a total sum of 4.75 million lari.

6)

Rosselkhoznadzor simplified procedures for the import of Georgian nuts, spices, bay leaf

July 11th, 2013, http://news.boom.ge/eng/11/20130711/2827272/

Rosselkhoznadzor simplified procedures for the import of Georgian nuts, spices, and bay leaf, Gazeta.ru reports.

The agency made the decision at the end of June, according to which phytosanitary certificate is not necessary for the export of low phytosanitary risk products from Georgia, although the product will pass quarantine phytosanitary control

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BFC. Georgian Agriculture Finance Bulletin. Issue #11, July 1–31, 2013

The list of low phytosanitary risk products includes tea, nuts/walnuts, bay leaf and other species. Besides, Russia still prohibits import of high phytosanitary risk products from Georgia. In particular—greens, vegetables and fruit. Their return to the Russian market is being discussed on the governmental level.

It's also noteworthy that prohibition was not cancelled on the quarantine products import with luggage by the citizens arriving from Georgia to Russia Read More »

7)

Law Suspending Sale of Agriculture Land to Foreigners to Be Challenged

July 20th, 2013, http://www.civil.ge/eng/article.php?id=26287

A new law suspending sale of agriculture land to foreign citizens or to entities established by foreign nationals till end of 2014 will be challenged to the Constitutional Court by the Tbilisi-based watchdog Transparency International Georgia.

The bill was confirmed by the Parliament on June 28 and went into force on July 17 after it was signed into law by President Saakashvili.

TI Georgia says that the new law contravenes article 21 of the Georgian constitution, which states that “the abrogation of the universal right to property, of the right to acquire, alienate and inherit property shall be impermissible.” Read More »

8)

No subsidies for vintage this year

July 24th, 2013, http://sarke.com/cgi/search/news.asp?Code=10038563

The Agriculture Ministry reports that a grape harvest of 120,000 tons is expected in Kakheti this year. Last year, this region harvested 90,000 tons.

According to preliminary data, this year wine enterprises will purchase 1 kg of Rkatsiteli (white variety) for 1 lari, while Saperavi (red variety) will cost 1.1 lari, Rezonansi newspaper reports.

Paata Chavchanidze, deputy head of National Wine Agency, declares that special headquarters are established in Kakheti, which will make the vintage season smooth. At that, “there is still no information, whether subsidies will be allocated or not”, he notes.

As the article points out, winemakers do not consider subsidies healthy mechanism. However, farmers do continue to hope for subsidies.

9)

Agriculture Ministry Denies the Termination of the Vintage Subsidizing

July 25th, 2013, http://www.commersant.ge/eng/?page=news&id=1177

The 2013 vintage will not be denied subsidies, Deputy Head of the National Wine Agency Paata Chavchanidze states.

He says subsidizing is a vicious side of any industry, but if necessary, the authorities surely will apply it.

Yesterday it was reported that the new government had no plans to continue the practice of subsidizing the vintage. The Ministry of Agriculture strongly denies this in a conversation with commersant.ge saying the government will subsidize the vintage in a case of the excessive harvest.

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BFC. Georgian Agriculture Finance Bulletin. Issue #11, July 1–31, 2013

“It is impossible that the vintage will not be subsidized. But the form of compensation is not yet decided.

We want the farmers to get adequate compensation for their labor, "- says Chavchanidze.

He adds that this year will be different due to the opening of the Russian market for Georgian goods and the demand for grapes will be much higher compared to previous years. Read More »

10) Parliament Moves to Further Tighten Agriculture Land Regulations July 29th, 2013, http://www.civil.ge/eng/article.php?id=26317

Less than a month after imposing temporary ban on sale of agriculture land to foreigners for next seventeen months, the Parliament passed on July 29 with its first reading a bill suspending change of status of agriculture land plots to non-agriculture for the same period of time.

Change of status till December 31, 2014 will only be possible in case of “urgent necessity” after proper evaluation and decision by the government, according to the bill, sponsored by two Georgian Dream lawmakers Gigla Agulashvili and Zurab Tkemaladze. Read More »

11) 60,975 million GEL is issued in the framework of Preferential Agro Credit Program July 30th, 2013, http://en.bpi.ge/index.php?option=com_content&view=article&id=14336:60975-million-gel-is-issued-in-theframework-of-preferential-agro-credit&catid=920:2011-11-06-16-35-52

Currently 4,085 beneficiaries have received Preferential Agro Credit loans, with a total amount of lending of 60,975,041 GEL. The Ministry of Agriculture announced that in the framework of the thirrd component, 128 loans of $15,828,063 is issued. This component provides loans up to 1 million GEL (USD equivalent), up t o 7 years, with annual 3% interest rate. Read More »

Foreign Aid 12) IFC Helps Georgian Dairy Producer Improve Efficiency and Help the Environment July 24th, 2013, http://commercial.ge/ifc-helps-georgian-dairy-producer-improve-efficiency-and-help-the-environment/#

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.

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 $600,000 per year, after an initial cost of $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.

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BFC. Georgian Agriculture Finance Bulletin. Issue #11, July 1–31, 2013

13) EBRD Provides $1.32m Funding for New Dairy in Georgia July 31st, 2013, http://www.ebrd.com/english/pages/news/press/2013/130801.shtml

The European Bank for Reconstruction and Development (EBRD) is lending US$ 1.32 million to a Georgian company, Kvareli Baga, for the construction of a greenfield industrial-sized dairy complex in the Kakheti region. Kvareli Baga was established by Georgian businessman Mr Lasha Papashvili, who has previously built commercial properties with EBRD financing. Mr Papashvili understands the need for Georgia to become self-sufficient in milk production, and he believes that such dairy complexes are the answer to the current situation. Read More »

Private Sector 14) VTB Bank to Insure Risks of Exporters to Russia July 1st, 2013, http://www.finchannel.com/news_flash/Banks/128065_VTB_Bank_to_Insure_Risks_of_Exporters_to_Russia/

VTB Bank Georgia has started offering the new financial instrument—Factoring—to its consumers. Wine company Kindzmarauli Marani has been one of the first to receive over USD 2 million of financing within the framework of the new product. The funding has no limits and is ready to satisfy consumers’ demands.

Factoring offers optimization of cash flow and freeing up working capital. Instead of waiting for payment from their customer, suppliers receive money from factoring. Services allow consumers to deliver products with payment upfront, while customers may continue to defer payment. Read More »

15) Kakheti Wine Cellar purchased modern winery equipment from Della Toffola July 11th, 2013, http://news.hvino.com/2013/07/kakheti-wine-cellar-purchased-modern.html

National Wine Agency reports that wine producer Kakheti Wine Cellar has purchased new winery equipment and wine reservoirs from the Italian manufacturer Della Toffola. For that purpose the company borrowed $600,000 in the framework of governmental program on preferential agricultural crediting.

According to Public Register, Kakheti Wine Cellar was established in 2007. Current owner of 100% is Mr. Giorgi Kevkhishvili.

Della Toffola Spa is leading Italian producer of wine-making equipment.

16) 20-30% Higher Nut Crop Expected this Year July 17th, 2013, http://www.commersant.ge/eng/?page=news&id=1129

If Georgian products are allowed on the Russian market, the Georgian nuts will enter the Russian market as well.

The head of the Nut Exporting Company Begi Sioridze explains to Bpi.ge that a good harvest of nuts is expected in Georgia this year and if the Russian market opens, manufacturers do not rule out the possibility that the Georgian nuts will enter the Russian market.

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BFC. Georgian Agriculture Finance Bulletin. Issue #11, July 1–31, 2013

Sioridze notes that in 2013 20-30% higher crop will be harvested in the country compared with 2012. Read More »

17) Agricultural Fund Denies Charges of Victims of Hybrid Corn Program July 17th, 2013, http://www.commersant.ge/eng/?page=news&id=1128

Agriculture Development Fund strongly denies a statement made by the Union of Victims of Hybrid Corn Program.

In a conversation with "Commersant", the Head of the Union said that despite the promise, the Agriculture Corporation had not delayed the amount and forcibly sold the remained harvest to cover a debt to the Corporation.

Agriculture Development Fund, to which the Agriculture Corporation is subject, announces that payment of the amount has been delayed until November for all affected farmers and the appropriate documentary materials are available. They add that the Corporation sold only a part of the crop to pay the rent for the storage of crops.

18) Export of alchoholic drinks increased by 24% July 20th, 2013, http://bpi.ge/en/index.php?option=com_content&task=view&id=14179&Itemid=0

The National Wine Agency of Georgia reports that 7 wine companies have already exported production on the Russian market: GWS—280,000 bottles, Dugladze Wine Company—270,000, Kakheti Traditional Winery—250,000, Wine Cellar's Door—108,000, Batono— 72,000, Tbilgvino—30,000, Georgian Wine—15,600.

According to head of the Agency Levan Davitashvili, the average cost of Georgian wine in Russia is $3.5 and "it is selling well". Read More »

19) As last year, Turkey will dictate hazelnut prices July 22nd, 2013, http://sarke.com/cgi/search/news.asp?Code=10038539

Nobody tries to forecast this year’s purchase price of hazelnut, as world prices are dictated by Turkey, as the biggest producer, Kviris Palitra reports.

Last year, the cost of 1 kg of hazelnut was 3.20-3.30 lari, and Georgia’s hazelnut export totalled to $15 million.

About 24,700 t of hazelnut was harvested last year, while specialists expect a record mark for this year, exceeding last year’s harvest by 15,000t.

In 2012, Turkey accounted for 74% of world hazelnut export, Italy—for 7% and Georgia—for 6%.

As PR manager of EPI (USAID-funded Economic Prosperity Initiative) Tamar Razmadze declares, Georgia has a good chance to improve its showing and outstrip Italy in this year.

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BFC. Georgian Agriculture Finance Bulletin. Issue #11, July 1–31, 2013

Alex Antoniuk, EPI manager for hazelnut production in Samegrelo, notes that 75-80% of Georgia’s hazelnut harvest is exported to Europe, of which 90% is shelled.

“Turkish hazelnut is more beautiful, when it is shelled”, Antoniuk declares, but adds that “everyone unanimously agree that Georgian nut is tastier”.

20) Tsinandali Old Wine cellar got $480,000 within preferential agroloan program July 22nd, 2013, http://www.sarke.com/cgi/search/news.asp?Code=10038546

The Agriculture Ministry reported that Tsinandali Old Wine Cellar started expansion of the enterprise through a credit of $480,000, received within the preferential agroloan program.

The company has already purchased modern refrigerators and tanks, and plans reconstruction in order to start operations with a full load in autumn. According to the Ministry, Tsinandali Old Wine Cellar has passed all required procedures and is going to start export to Russia upon receipt of requested 500,000 excise stamps in the next few days. Currently, the company exports production to Poland, Belorussia, Ukraine, and Latvia among others.

21) Schuchmann wines Georgia built a new wine cellar through preferential agroloan July 22nd, 2013, http://www.sarke.com/cgi/search/news.asp?Code=10038545

The Agriculture Ministry reported that within the preferential agroloan program, Schuchmann Wines Georgia has borrowed $135,000. Through this credit, the company is building a new marani (wine cellar) with 40 kvevri (traditional subground wine pitchers).

According to the Ministry, the company also bought French oak barrels and 6 rustproof tanks, while almost completed construction of a storehouse for 1 million bottles of wine. Schuchmann Wines purchases grapes of Tsinandali, Mukuzani and Akhasheni varieties from the population every year. As the Ministry said, the company plans to purchase about 150-200 tons this year.

Schuchmann Wines Georgia exports more than 30 types of wine to Europe (Germany, Switzerland, Austria, France, Poland, Sweden). Upon receipt of excise stamps, the first lot will be exported to Russia as well (in about 2 weeks).

22) Fertilizers based on nanotechnologies will help Georgian farmers July 26th, 2013, http://sarke.com/cgi/search/news.asp?Code=10038592

Mahmud Ogkoy, chairman of Golden Era, official representative of Biozar in Eastern Europe and Asia declares that “fertilizers based on nanotechnologies will be profitable for Georgian farmers.” According to Ogkoy, production can grow by 40% in case of their use.

“Usage of 1 kg of these fertilizers equals to usage of 1 t of pesticides”, the expert notes. Furthermore, “nano-bio-organic chemicals are ecologically cleaner, cost less and require less human resources”, he adds.

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BFC. Georgian Agriculture Finance Bulletin. Issue #11, July 1–31, 2013

As the article notes, laboratory tests are already done in Georgia and the company has appealed to the Agriculture Ministry for registration.

The use of fertilizers and other issues were discussed at 2-day seminar in Bazaleti training center, organized by the Institute of Horticulture of Georgian Agrarian University.

23) Despite the Ban, Land is still Sold to Foreigners July 26th, 2013, http://www.commersant.ge/eng/?page=news&id=1196

If the interim ban on selling land to foreigners will hamper the inflow of investments to Georgia?

Note: A Moratorium on sale of agricultural land to foreigners has been in force. He was signed by President. As a result, the purchase of rural-agricultural lands by foreigners is restricted in Georgia until 2014.

However, it became known after the adoption of this decision that landowners still found a way of selling a land to foreigners- they started to change agricultural land status for non—agricultural but the authorities have blocked this way as well. 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.

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