20 BFC Georgia Agriculture Finance Bulletin

04/2014

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20 Ge o r g i a Agriculture Finance Bulletin GEL 317.5 M Disbursed via the Preferential Agrolending Program in Year Ending April 4th, 2014 Government Envisages Tea Plantation Development Program Georgia Third Largest Exporter of Wine to Russia German Companies Praise Business Environment in Georgia

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Georgian Agriculture Finance Bulletin Edition #20, April 2014

Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13)

Irrigated Area to Triple after Clearance of Irrigation Channels ....................................................... 2 396,004 Square Meters of Land Changed to Non-Agricultural This Year........................................ 2 70 Enterprises Established Via 3rd Component of Preferential Agrolending Program................... 2 GEL 317.5 M Disbursed via the Preferential Agrolending Program in Year Ending April 4th, 2014 2 Cattle Breeding Accounts for 39.1% of 2nd Component Loans Issued via the Preferential Agrolending Program....................................................................................................................... 3 Future of the Moratorium on the Acquisition of Land by Foreign Entities Unclear........................ 3 Ploughing Cards to be Valid until November .................................................................................. 3 Restrictions on Georgian Wine Export to Belarus Removed ........................................................... 4 Cattle Breeding Largest Share of Total Loans Disbursed via 3rd Component ................................. 4 Tedzami Reservoir to Irrigate 3000 ha of Farmland ........................................................................ 4 The Fifth Wine Festival to be Held on May 24 ................................................................................ 5 Rehabilitation of Drainage Systems in Kobuleti to Begin in July-August......................................... 5 Government Envisages Tea Plantation Development Program ...................................................... 5

Private Sector.............................................................................................................. 5 14) 15) 16) 17) 18) 19) 20) 21) 22)

Ten Agricultural Cooperatives Established, 20 Under Consideration ............................................. 5 Greenhouse Farm Opened in Marneuli ........................................................................................... 5 Georgia to Chair World Wine Trade Group ..................................................................................... 6 EPRC: Growth in Agriculture is Limited Due to Fragmentation of Farms and Arable Land............. 6 Georgia Third Largest Exporter of Wine to Russia .......................................................................... 6 German Companies Praise Business Environment in Georgia ........................................................ 6 Price of Agricultural Food Stuffs Increase Significantly ................................................................... 7 Wine Industry Already Satisfies EU Quality and Safety Standards .................................................. 7 PMCG: 30% of Georgia’s Total Export to Russia is Wine, 4% Citrus Fruit ....................................... 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)

Irrigated Area to Triple after Clearance of Irrigation Channels

April 2nd, 2014, http://sarke.com/cgi/search/news.asp?Code=10040817

The Ministry of Agriculture reported that nearly the entirety of the irrigation system has been cleared. In total, 1,291 km of mains and distribution channels were cleared and rehabilitated. As a result, irrigated area will triple to 88,000 ha, increasing agricultural production by an estimated 40-50%. The cost of reparation is estimated at 6.85 million lari. Read More »

2)

396,004 Square Meters of Land Changed to Non-Agricultural This Year

April 2nd, 2014, http://sarke.com/cgi/search/news.asp?Code=10040818

This year, the status of 75 plots of land has changed from agricultural to non-agricultural, compromising an area of 396,004 square meters.

6 plots were changed last month, totalling 4,188 square meters. Of these 2,000 square meters were owned by LLC Red Co. and located in Borjomi.

3)

70 Enterprises Established Via 3rd Component of Preferential Agrolending Program

April 10th, 2014, http://sarke.com/cgi/search/news.asp?Code=10040888

The Ministry of Agriculture reported that during the previous year, 70 new enterprises were created via the 3rd component (creation of new enterprise and reequipping of existing enterprise) – or 22.1% (21.4 M lari) of total 3rd component loans.

10 new wineries were founded, accounted for the largest share or loans disbursed for creation of enterprises (28% or 6 million lari); 13 loans totaling 4.8 million lari (22.5%), were issued for cold storages; 7 loans totaling 1.95 million lari (9.1%) for poultry farming; 2 loans totaling 1.1 million lari (5.2%) for pig breeding; 2 loans totaling 1.09 million lari (5.1%) for grain dryers; 5 loans totaling 819,608 lari (3.8%) for greenhouse farming.

The remaining 5.6 million lari (26.4%) was issued to winegrowing (3 loans), milk processing (6 loans), horticulture (3 loans), cattle breeding (5 loans), hazelnut processing (2 loans), sheep breeding (2 loans), fishery (2 loans), forage production (2 loans), packing materials manufacturing (1 loan), etc. Read More »

4)

GEL 317.5 M Disbursed via the Preferential Agrolending Program in Year Ending April 4th, 2014

April 10th, 2014, http://sarke.com/cgi/search/news.asp?Code=10040886

The Ministry of Agriculture reported that loans totaling 317.5 million lari were disbursed to 14,100 beneficiaries via the program between March 27 2013 and April 2014.

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

Of the total, 168.6 million lari (53.1%) was issued via the 2nd component (loans to medium and large farmers); 96.99 million lari (30.5%) via the 3rd component (creation of new enterprise and reequipping of existing enterprise); 49.6 million lari (15.6%) via the 5th component (funding of grape purchase); 1.8 million lari (0.6%) via the 1st component (interest-free loans against goods for small farmers). Only 2 loans were issued via the 6th component (purchase of mandarins), totalling 450,000 lari (0.14%) - however, the Ministry stated that a further 150 applications were being considered.

5)

Cattle Breeding Accounts for 39.1% of 2nd Component Loans Issued via the Preferential Agrolending Program

April 11th, 2014, http://sarke.com/cgi/search/news.asp?Code=10040900

The Ministry of Agriculture reported that of loans totaling 168.6 million lari issued via the 2nd component (loans to medium and large farmers) of the preferential agrolending program, cattle breeding accounted for the largest share (39.1%, or 65.9 million lari via 3,954 loans); viniculture accounted for 22.7% (38.3 million lari, 1,545 loans); grain production for 8.9% (15 million lari, 593 loans); mixed crop cultivation for 5.1% (8.6 million lari, 680 loans); mixed cattle breeding for 5% (8.4 million lari, 306 loans), vegetable growing for 4.1% (6.9 million lari, 483 loans); mixed crop cultivation and cattle breeding for 4% (6.7 million lari, 525 loans); greenhouse farming for 3.1% (5.2 million lari, 426 loans); fisheries for 2% (3.4 million lari, 115 loans); and poultry breeding for 1.5% (2.6 million lari, 126 loans).

Regional distribution was a follows: Kakheti, 54.3% (91.6 million lari, 4,243 loans); Kvemo Kartli, 18.8% (31.7 million lari, 2,111 loans); Shida Kartli, 13.5% (22.7 million lari, 1,240 loans); Imereti, 4.3% (7.3 million lari, 544 loans); Samtskhe-Javakheti, 4.2% (7.1 million lari, 613 loans); Samegrelo, 1.7% (2.8 million lari, 229 loans); Mtskheta-Mtianeti, 1.5% (2.6 million lari, 134 loans); Tbilisi, 1.1% (1.8 million lari, 71 loans of); Ajara, 0.3% (560,050 lari, 34 loans); Guria, 0.2% (345,250 lari, 33 loans), Racha-Lechkhumi, 0.1% (170,200 lari, 6 loans).

6)

Future of the Moratorium on the Acquisition of Land by Foreign Entities Unclear

April 16th, 2014, http://commersant.ge/eng/?page=news&id=3071

It is still unknown whether the interagency commission set up to examine the moratorium on land acquisition by foreign entities plans to recommend its extension beyond December 2014. The moratorium entered force in the spring of 2013.

On the initiative of the Ministry of Economy and Sustainable Development, commercial banks were exempted from the moratorium in February. Banks will be allowed to take agricultural land as collateral.

However, this exemption was not extended to microfinance institutions. Read More »

7)

Ploughing Cards to be Valid until November

April 16th, 2014, http://sarke.com/cgi/search/news.asp?Code=10040940

Agriculture Ministry has extended the validity of so-called “ploughing cards” until November 1st, 2014.

The program provides credit to assist land-poor farmers’ ploughing activities - Liberty Bank issued 73,884 ploughing cards with a total value of 7 million lari. According to the Ministry, as of April 15, total area ploughed with support of the program is 58,496 ha, a year-on-year increase of 60%.

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

The Liberty Bank also issued 362,187 “agro-cards” (for the purchase of fertilizers, pesticides, etc.) with a total value of 3.39 million lari. Agro-cards are valid until June 1st.

8)

Restrictions on Georgian Wine Export to Belarus Removed

April 17th, 2014, http://sarke.com/cgi/search/news.asp?Code=10040959

Chairman of the National Wine Agency Levan Davitashvili announced that restrictions imposed on Georgian wine exports to Belarus at the beginning of the year have now been removed. He did not specify the rationale behind the restrictions. After cancellation of restrictions, the Agency issued Tbilgvino winery with an export certificate for 80,000 bottles of wine.

Davitashvili stated that removal the of the quota system in Belarus in 2015 could double exports to the country.

Wine export to Belarus made up 1.58 million bottles in 2013 and accounted for 3.4% of total export (46.75 million bottles).

9)

Cattle Breeding Largest Share of Total Loans Disbursed via 3rd Component

April 22nd, 2014, http://sarke.com/cgi/search/news.asp?Code=10040968

The Ministry of Agriculture reported that cattle breeding made up the largest share of total loans disbursed via the 3rd component (establishment of new enterprise and reequipping of existing enterprise) in the past year (30%, or 29.7 million lari); followed by alcoholic drinks (23.1%, or 22.4 million lari); crops (16.7% or 16.2 million lari); infrastructure enterprise (12.7% or 12.3 million lari); crop processing (8% or 7.8 million lari); meat and dairy processing (5.6% or 5.4 million lari); mixed enterprises (3.3% or 3.2 million lari).

Cattle breeding also accounts for the largest share (39.1 % or 29.7 million lari) of the loans disbursed via the second component (credits to medium and large farmers).

Share of regional distribution was as follows: Kakheti (42%, or 40.7 million lari); Kvemo Kartli (17.3% or 16.8 million lari); Tbilisi (12%, or 11.7 million lari); Samegrelo/Zemo Svaneti (9.3%, or 9 million lari); Shida Kartli (8.3% or 8.1 million lari); Imereti (3.2% or 3.1 million lari); Samtskhe-Javakheti (2.6% or 2.5 million lari); Guria (2.3%, or 2.3 million lari); Mtskheta-Mtianeti (1.3%, or 1.2 million lari); Ajara (1% or 936,946 lari); and Racha-Lechkhumi/Kvemo Svaneti (0.7% or 647,981 lari).

10) Tedzami Reservoir to Irrigate 3000 ha of Farmland April 23rd, 2014, http://sarke.com/cgi/search/news.asp?Code=10040987

The Ministry of Agriculture announced the construction of a reservoir on the Tedzami river in Kaspi (Shida Kartli region). After completion, the reservoir is expect to irrigate about 3,000 ha of agricultural land. A hydroelectric power plant with a capacity of 2 MW is also envisaged.

Construction of the dam will commence in June-July and is expected to be completed by 2018, the Ministry noted. The estimated cost of the project is 46 million lari. Read More »

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

11) The Fifth Wine Festival to be Held on May 24 April 24th, 2014, http://commersant.ge/eng/?page=news&id=3098

The festival will be attended by thirty wine producers including Teliani Valley, Kakhetian Traditional Winemaking , Khareba, Kindzmarauli, Marani, Imereti Wine Company, Jakeli Wines and others.. Assessment of the 2013 crop will be conducted. The National Tourism Administration said the festival will give producers and small cellars the opportunity to introduce their products to new clients. Read More »

12) Rehabilitation of Drainage Systems in Kobuleti to Begin in July-August April 25th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041018

The Ministry of Agriculture announced the rehabilitation of drainage systems in Kobuleti will begin in July-August and be completed by 2017. Excess water will be removed from an estimated 2.500 ha of land. The project is expected to cost 11.8 million lari.

13) Government Envisages Tea Plantation Development Program April 25th, 2014, http://commersant.ge/eng/?page=news&id=3110

The Ministry of Agriculture requested the Tea Growers Association create a development plan. According to chairman Tengiz Svanadze, the state will provide assistance to tea growers for the rehabilitation of tea plantations.

Georgia consumes 1000 tons of tea per year of which only 18-20% is local produce, says Svanadze. The document will be discussed next month. Read More »

Private Sector 14) Ten Agricultural Cooperatives Established, 20 Under Consideration April 1st, 2014, http://commersant.ge/eng/index.php?page=news&id=2965

The registration process for agricultural cooperatives has recently been simplified.

According to Kakha Nadiradze, director of the Association for the Protection of Farmers' Rights, 80% food in Georgia is imported. Nardiradze see cooperatives as a means of recapturing market share and raising living standards for the rural population. Read More »

15) Greenhouse Farm Opened in Marneuli April 8th, 2014, http://sarke.com/cgi/search/news.asp?Code=10040874

The Ministry of Agriculture reported the opening of a greenhouse farm in Damia Geurakh village in the Kvemo Kartil region.

The owner, Abbas Musayev, borrowed $240,000 through the preferential agrolending program. Of the 13% interest rate, the Agency for Agricultural Project Management will fund 12%, reducing Musayev’s effective interest rate to 1%.

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

Greenhouse area is 1.7 ha. Annual output is estimated at 300-400 t of vegetables. The farm employs 50 local residents.

16) Georgia to Chair World Wine Trade Group April 16th, 2014, http://commersant.ge/eng/?page=news&id=3062

Georgia will chair the World Wine Trade Group (WWTG) for one year starting April 2014.

The WWTG is an informal grouping of government and industry representatives from wine-producing countries including Argentina, Australia, Canada, Chile, Georgia, New Zealand, the United States and South Africa.

It provides a platform for discussion, collaboration and multilateral agreements promoting the international wine trade. At the annual meeting held in Brussels on the 10th and 11th of April, participants discussed technical barriers to trade and pesticide limits. Read More »

17) EPRC: Growth in Agriculture is Limited Due to Fragmentation of Farms and Arable Land April 22nd, 2014, http://sarke.com/cgi/search/news.asp?Code=10040970

The Economic Policy Research Center (EPRC) declared that agricultural products will no longer lead exports, as production and export of pesticides, rubber and plastic materials are expected to increase by 60%; adding that growth in agriculture is limited due to fragmentation of farms and land sites.

The EPRC argued that state policy should support areas in which Georgia has competitive advantages on the international market. The Center pointed to grapes and grape products as possible export champions. The EPRC declared that wine export is relatively small considering the volume of grape production, making up 12.8% in 2012. It added that apples, peaches and hazelnuts are important potential revenue generators.

After the Deep and Comprehensive Free Trade Agreement with EU enters force, the EPRC predicts Georgia’s imports and exports will grow by 7.5% and 12% respectively. Read More »

18) Georgia Third Largest Exporter of Wine to Russia April 23rd, 2014, http://commersant.ge/eng/?page=news&id=3088

Georgian wine, having returned to the Russian market less than a year ago, took the third largest share of the market in the 1st Quarter of 2014. Georgia’s share of Russian wine imports totalled 14% (7.4 million liters) - more than Spain and almost as much as Italy. Read More »

19) German Companies Praise Business Environment in Georgia April 28th, 2014, http://finchannel.com/Main_News/Geo/130680_Germans_on_Doing_Business_in_Georgia/

According to Burkhard Schuchmann of Schuchmann Wines, the penetration of Georgian wine in international markets has been one of Georgia’s greatest recent achievements. He says the company has benePage 6

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

fited from the preferential agrolending program, significantly increasing production. However, he warns that the moratorium on land acquisition may pose significant barriers to development and investment.

Michael Hampel, General Director at Heidelberg Cement, praised the low barriers to starting a business in Georgia, adding the company experienced no problems in entering Georgia and that the process usually requires a maximum of two weeks.

Giorgi Mshvildadze, Commercial Director at Tegeta Motors, reiterated this view, pointing to the transparent business environment, the lack of special privileges for Georgians or foreigners and the near total absence of corruption. Read More »

20) Price of Agricultural Food Stuffs Increase Significantly April 30th, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10041039

According to Rezonansi newspaper, the price of agricultural produce increased significantly. The potato price increased by as much as 200%, linked to a small harvest and excessive export, said the newspaper cauliflower increased by 100-150% and haricots by 40%. The price of dairy products also increased.

21) Wine Industry Already Satisfies EU Quality and Safety Standards April 30th, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10040958

According to Levan Davitashvili, chairman of National Wine Agency, unlike other agricultural products, the wine industry has already implemented quality and safety standards that satisfy the EU’s import requirements.

He added that Georgian certificates are fully recognized by the EU and trade will be further facilitated after the signing of the Deep and Comprehensive Free Trade Agreement (DCFTA). Read More »

22) PMCG: 30% of Georgia’s Total Export to Russia is Wine, 4% Citrus Fruit April 30th, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10041042

The Policy and Management Consulting Group (PMCG) reported that exports to Russia increased 315% year-on-year due to the lifting of the embargo on Georgian agricultural products.

According to PMCG, Georgian exports to Russia totalled $190 million. The largest of the export share was wine (30%); followed by mineral water (18%), ferroalloys (7%), electricity (6%), and citrus fruits (4%). 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.