14 BFC Georgia Agriculture Finance Bulletin

10/2013

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14 Ge o r g i a Agriculture Finance Bulletin Preferential Agro Credit Line Amounted to GEL 166 Million in the Six Months from April 2013 Hungary Plans to Invest Euro 350 Million in Georgia Georgia Expects to Harvest 92,000 Tonnes of Citrus in 2013 Georgian Green Tea Surpasses Chinese Tea in Central Asia Due to Lower Tannin Content

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Georgian Agriculture Finance Bulletin Edition #14, October 1—31, 2013

Contents State Initiatives ................................................................................................... 2 1) 2) 3) 4)

Russian Market Opens for Georgian Fruit and Vegetables......................................................... 2 Preferential Agro Credit Line Amounted to GEL 166 Million in the Six Months from April 2013 ... 2 From Subsistence Agriculture to Exchange: Build Roads............................................................ 3 Uncultivated Land to be taxed?............................................................................................... 3

Foreign Aid ......................................................................................................... 3 5)

Hungary Plans to Invest Euro 350 Million in Georgia................................................................. 3

Private Sector ...................................................................................................... 4 6) 7) 8) 9) 10) 11) 12) 13) 14) 15)

Georgia Expects to Harvest 92,000 Tonnes of Citrus in 2013 ..................................................... 4 Georgian Green Tea Surpasses Chinese Tea in Central Asia Due to Lower Tannin Content .......... 4 Grape Price Reached Record Levels of 7-8 GEL in Racha............................................................ 4 Vintage 2013: Companies Speak about Release from State Pressure, Farmers from the Problem of Delivering Grapes ............................................................................................................... 5 “2013” – THE MOST SUCCESSFUL VINTAGE .............................................................................. 5 Georgian Entrepreneurs: Preferential Agriculture Credits are the Phenomenon of the Year........ 5 Volume of Production of Fruit and Vegetable Companies not enough to enter the Russian Market .................................................................................................................................. 6 Import of Eggs to Georgia almost stopped ............................................................................... 6 Ukrainian Journalists Visited Adjara in Order to Popularize Georgian Mandarins........................ 6 “TBILGVINO” has purchased more than 6,000 tonnes of Grape from Farmers of Kakheti ............ 7

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.Edition #3, January 2013

State Initiatives 1)

Russian Market Opens for Georgian Fruit and Vegetables

October 10th, 2013, http://commersant.ge/eng/?page=news&id=1803

According to the National Agency for Food, from October14th restrictions will be lifted In Russia on the following fruits from Georgia: nuts, grapes, apple, pear, quince, citrus and some others.

Head of the Agency, Zurab Chekurashvili, visited Russia on October 10th, where he met with the Head of the Federal Veterinary and Phytosanitary Control Service (Rosvetnadzor), Sergey Dankvert. According to Aleksey Alekseyenko, Assistant Director of Rosvetnadzor, a batch of tangerines will be the first fruits sent to Russia. He also stated that quality supervision will be carried out in the usual manner and that fruits would not be subjected to enhanced supervision by the Russian Federation.

There are plans to export 45,000 t of hazelnuts, 50,000 t of apples and 80,000 t of citruses to Russia.

Greens and persimmons will be sent during the next stage. Georgian products will compete with fruits from Turkey, Morocco and Spain in the Russian market.

Shalva Pipia, Georgia’s Agriculture Minister, has declared that negotiations on the export of livestock will start in near future.

2)

Preferential Agro Credit Line Amounted to GEL 166 Million in the Six Months from April 2013

October 21st, 2013, http://finchannel.com/Main_News/Geo/128753_Preferential_Agro_Credit_Line_Amounted_to_GEL_166_Million_in_the_Six_M onths_of_2013_/

The Agriculture Projects Management Agency, responsible for planning and carrying out government projects in the agriculture sector at the Ministry of Agriculture, has provided GEL 166 million to 5,800 beneficiaries since April 2013 under the Preferential Agro Credit Line programme. As a result, 51 new enterprises have been opened in Georgia, mainly targeted at developing domestic crop, vegetable and grape production with the aim of reducing Georgia’s dependency on imported products for local consumption. For example, high-quality greenhouse tomatoes are already competing with the imported tomatoes from Turkey.

Giorgi Chkheidze, Director at the Agriculture Projects Management Agency, cites the key issues facing the sector as; a lack of technical knowledge, credit constraints facing farmers and a lack of scale. Going forward in 2014, the agency will seek to address these issues through the continuation of the Preferential Agro Credit Line programme, which in effect reduces agricultural lending rates through subsidised loan support, and the development of farming co-operatives, whereby farmers will be encouraged to pool production and processing resources in order to better achieve economies of scale. Read More »

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BFC. Georgian Agriculture Finance Bulletin.Edition #3, January 2013

3)

From Subsistence Agriculture to Exchange: Build Roads

October 29th, 2013, http://finchannel.com/Main_News/Geo/128757_GEORGIA_ON_THE_DEVELOPMENT_FRONTIER%3A_FROM_SUBSISTENCE_AG RICULTURE_TO_EXCHANGE/

In recent years, Georgia has seen a very significant improvement in regional and rural road infrastructure, reducing trade-retarding transport and transaction costs; this should lead commercial agriculture to gradually pick up across the entire nation.

In Samtskhe Javakheti (SJ) for example, 2009-10 road infrastructure improvements reduced travel time to Tbilisi from 8 hours to less than 2.5 hours. SJ households have seen their income increase by more than 60% in just 2 years (from 2009 to 2011); an increase of 250 GEL/month, roughly 170GEL of which is explained by SJ’s growing advantage in commercial farming and exchange, where farmers sell more than half of what they produce.

While investment in regional and rural road infrastructure is no silver bullet, it may still be one of the most effective ways to promote the much needed transition from subsistence farming to exchange and the formalisation of consumption. Read More »

4)

Uncultivated Land to be taxed?

October 29th, 2013, http://sarke.com/cgi/search/news.asp?Code=10039179

Gigla Agulashvili, Chairman of the Parliament’s Agrarian Committee, has not excluded the idea that owners of land sites, having area up to 5 ha, could be charged with a tax if they do not cultivate their land. So far, this is merely a concept and the intention to draft a corresponding bill has not been declared.

According to Paata Koguashvili, an expert on land utilisation, it is good to tax small landowners for uncultivated plots of land; Georgia lacks arable land area and the country can’t afford to “rest” on these sites, he explains. The expert points out that there was a legislative norm in 1992-1995, which envisaged sanctions against landowners who had not cultivated their land for 2 years.

According to the Agriculture Ministry, 400,000 ha of land has been cultivated this year, while 250,000 ha remains uncultivated.

Foreign Aid 5)

Hungary Plans to Invest Euro 350 Million in Georgia

October 1st, 2013, http://www.commersant.ge/eng/index.php?page=news&id=1597

After a meeting of Irakli Kovzanadze, Executive Director of the Partnership Fund [PF] and Péter Szijjártó, Hungarian State Secretary of Foreign Affairs and External Economic Relations, it was announced that Hungary plans to invest Euro 350 million in Georgia. Specifics were not given, however Irakli Kovzanadze did state that the Georgian – Hungarian Business Forum will be held in Tbilisi in December and interested companies and individuals from both Georgia and Hungary are encouraged to participate. Read More »

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BFC. Georgian Agriculture Finance Bulletin.Edition #3, January 2013

Private Sector 6)

Georgia Expects to Harvest 92,000 Tonnes of Citrus in 2013

October 2nd, 2013, http://commersant.ge/eng/?page=news&id=1610

According to the Chairman of the Parliamentary Committee on Agriculture, Gigla Agulashvili, Georgia is expecting to harvest at least 92,000 tons of citrus in 2013 and the government has already started to prepare for the harvest. The MP notes: “Currently, there are five manufactures in Adjara which collect containers for citrus fruits and there are plans to open new ones. On November 1st, reception points will open in the region’s growing citrus fruits while 12 processing plants are already operating. Products will be purchased and sorted in the collection points. In addition, Kobuleti cannery will accept sub-standard citrus.”

Zaur Putkaradze, Minister of Agriculture of Adjara Autonomous Republic, suggests the harvest could be closer to 110 thousand tons of citrus.

As well as Russia, the Georgian citruses will be exported to Ukraine, Moldova, Azerbaijan, Armenia and Central Asia.

7)

Georgian Green Tea Surpasses Chinese Tea in Central Asia Due to Lower Tannin Content

October 7th, 2013, http://sarke.com/cgi/search/news.asp?Code=10039152

According to Giorgi Maisuradze, director of LLC Millmart, Chinese tea replaced Georgian tea on the Central Asian market during the crisis years, but local residents started to get cardiovascular problems from the product and given Georgian green tea has lower tannin content, demand has grown despite its higher price compared to Chinese tea.

Millmart currently produces 10 tons of tea, with half of production sold in the local market and the rest exported abroad. The article suggests 75% of Georgian market is occupied by low-quality cheap imported tea, which according to Maisuradze, is the result of unhealthy regulation, whereby customs clearance of imported tea is conducted with preferential rates and local production is adversely taxed.

8)

Grape Price Reached Record Levels of 7-8 GEL in Racha

October 10th, 2013, http://www.commersant.ge/eng/index.php?page=news&id=1672

In Racha, a record price has been observed for the grapes out of which Khvanchkhara wine is made. According to the National Wine Agency, a kilo of Mujuretuli and Aleksandrouli grapes costs 7-8 GEL this year, compared to the average of 5 GEL over recent years. 979 tonnes of these grapes were harvested in Racha this year, beating expectations of 800 tonnes.

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BFC. Georgian Agriculture Finance Bulletin.Edition #3, January 2013

9)

Vintage 2013: Companies Speak about Release from State Pressure, Farmers from the Problem of Delivering Grapes

October 11th, 2013, http://www.commersant.ge/eng/index.php?page=news&id=1680

The decision by the State not to intervene in the acquisition of grapes, so that wine companies purchase grapes on equal market conditions, has according to Zurab Ramazashvili, Director of Telavi Wine Cellar, led to the most “organised vintage” in years.

According to Ramazashvili, this year the state companies “Gruzvinprom” and “Akura” received grapes after the satisfaction of commercial structures while in previous years these companies were competitors to the private sector. Read More »

10) “2013” – THE MOST SUCCESSFUL VINTAGE October 15th, 2013, http://sarke.com/cgi/search/news.asp?Code=10039219

In Kakheti you will rarely see farmers disappointed with this year’s vintage. As the experts note, the preferential loan project and opening of the Russian market have been the main factors contributing to the successful vintage.

According to Levan Davitashvili, the chairman of Wine National Agency, realization of Georgian wine has increased this year by 20% excluding export to Russia, while including the Russian market; by 70%.

According to expert, Lado Uzunashvili: “The most significant thing is that the private sector has purchased four times more grapes compared to the previous year”, and the “State’s interference is not necessary anymore and this is very good”.

Telavi Wine Cellar notes, “Demand on Georgian wine has increased, so all companies have replenished their reserves and everyone was able to sell their grapes”. The company has processed 6,000 t of grapes this year, reaching the highest mark in its own history.

11) Georgian Entrepreneurs: Preferential Agriculture Credits are the Phenomenon of the Year October 22nd, 2013, http://sarke.com/cgi/search/news.asp?Code=10039287

According to Levan Davitashvili, Chairman of National Wine Agency, 91,000 t of grapes have been industrially processed in Kakheti this year, compared to 52,000 t last year. In total, 105,000 t of grapes were processed in Georgia. This he suggests was made possible by the loosening of State intervention in the grape purchasing process and the assistance provided under the agro lending programme.

Similarly, Giorgi Ramishvili, director of the company Bagrationi, credits the agro lending programme with saving his company 300,000 lari through the reduction of interests rates to 3% from 12.5—13%.

According to Davitashvili, the company took a credit of 2.5 million lari, which was spent entirely on grape purchase.

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BFC. Georgian Agriculture Finance Bulletin.Edition #3, January 2013

12) Volume of Production of Fruit and Vegetable Companies not enough to enter the Russian Market October 23rd, 2013, http://www.commersant.ge/eng/?page=news&id=1772

Georgian fruit and vegetable companies surveyed by “Commersant” have no concrete plans regarding the Russian market at this stage.

After wine and mineral water companies, the Russian side opened the market for Georgian fruit and vegetable companies from October 14. However, a founder of the fruit and vegetable company “Mzeta” says that the majority of companies are only capable of satisfying demand in the local market.

Giorgi Enukidze says the company will be interested in the Russian market, but before, they plan to cooperate with the One Billion Agriculture Fund and become involved in cooperatives in order to increase agricultural production. Read More »

13) Import of Eggs to Georgia almost stopped October 24th, 2013, http://www.commersant.ge/eng/?page=news&id=1776

According to the Poultry Growers Association of Georgia, the import of eggs to the country has almost stopped.

According to the head of the Association, Zurab Uchumbegashvili, this is due to a rise in the price of the product in Turkey and Ukraine: “Eggs price went up by 10% in Turkey, in Ukraine the cost of one box of eggs rose from 16 to 46 USD. This has strengthened the position of local producers, and despite the shortage, Georgian products are in great demand. Businesses that were on the verge of bankruptcy due to activation of importers have now resumed activity.”

14) Ukrainian Journalists Visited Adjara in Order to Popularize Georgian Mandarins October 29th, 2013, http://www.commersant.ge/eng/?page=news&id=1812

Ukrainian media is planning to promote Georgian mandarins. For this purpose, on Oct 28th, a 22 member group of Ukrainian journalists visited Batumi.

According to the government of Adjara Autonomous Republic, the press tour is designed to gather information about a mandarin season in Adjara, harvesting, packing and sorting, as well as the coverage of shipping process in the Ukrainian press. Read More »

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BFC. Georgian Agriculture Finance Bulletin.Edition #3, January 2013

15) “TBILGVINO” has purchased more than 6,000 tonnes of Grape from Farmers of Kakheti October 29th, 2013, http://sarke.com/cgi/search/news.asp?Code=10039207

The company, Tbilgvino, has purchased more than 6,000 t of grapes this year, for processing at its own enterprise in Kvareli (Kakheti region).

Zurab Margvelashvili, executive director of the company, notes that rtveli (vintage) “was incomparably well-organized this year”, but notes as well that a “difficult situation has been created” in connection with Saperavi, as the cost of this variety has increased up to 1.80 tetri (1 kg).

“It was caused by the wine companies’ exaggerated expectations in terms of sales on Russian market”, Margvelashvili states, and adds: “Such expectations caused great demand on Saperavi, so price of this variety grew”.

Expert, Irakli Lekvinadze, notes that “vintage was passed quite normally” and “the state’s “interference” was merely expressed in improvement of services”.

Regarding wine export to Russia, the expert considers that, “the share of Russian market should not exceed 20% in any company’s exporting portfolio, meaning that Russia is just one of the realization markets and not a sole one”.

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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.