21 BFC Georgia Agriculture Finance Bulletin

05/2014

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21 Ge o r g i a Agriculture Finance Bulletin Moratorium on Sale of Land to Foreigners Causes Loss of Investment Georgian Fruit and Vegetables Allowed into Russia New World Bank Strategy Allots 1.28 Billion USD to Georgia Sakartvelos Ekonomika: Demographic Challenges Facing Georgia’s Agricultural Industry

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Georgian Agriculture Finance Bulletin Edition #21, May 2014

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

Rehabilitated Irrigation Channels Ready for Operation .................................................................. 2 Land-use of 101 Agricultural Land Sites Changed ........................................................................... 2 Moratorium on Sale of Land to Foreigners Causes Loss of Investment .......................................... 2 Tbilisi Hosts Georgian-French Economic Forum .............................................................................. 2 National Wine Agency Launches Cadaster Program ....................................................................... 3 Georgian-Russian Business Forum Back on the Agenda ................................................................. 3 Import of Genetically Modified Seeds to be Banned from January 1, 2015 ................................... 3 Georgian Fruit and Vegetables Allowed into Russia........................................................................ 3 Large Iranian Business Delegation to Visit Georgia in August ......................................................... 4 Final Look at the Tea-Growing Improvement Program ................................................................... 4 Unified System of Land Registration Yet to be Defined .................................................................. 4 Agricultural Policy Shows Limited Impact ....................................................................................... 4

Foreign Aid ................................................................................................................. 5 13) New World Bank Strategy Allots 1.28 Billion USD to Georgia ......................................................... 5

Private Sector.............................................................................................................. 5 14) 15) 16) 17) 18) 19) 20) 21) 22) 23)

Development Planned for Georgia’s Agricultural Cooperatives ..................................................... 5 Export Growth to Russia Increase Wine Price ................................................................................. 5 Georgian Wine Producers Increasingly Dependent on Russian Market ......................................... 6 Sakartvelos Ekonomika: Demographic Challenges Facing Georgia’s Agricultural Industry ............ 6 "Askaneli Brothers” to Begin Construction of Fruit Processing Enterprise in Guria ....................... 6 Businessmen Ask Government to Insure Export ............................................................................. 6 Total Export Volume from Georgia to Ukraine Dropped by 55% .................................................... 7 Georgian Mill Plants Unable to Compete with Large Azerbaijani Compan ..................................... 7 New Wine Festival to be Held on May 24 ....................................................................................... 7 Darial Gorge Disaster Hurts Georgian Exporters ............................................................................. 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)

Rehabilitated Irrigation Channels Ready for Operation

May 1st, 2014, http://sarke.com/cgi/search/news.asp?Code=10041076

The Ministry of Agriculture declared that almost the entire irrigation system has been cleaned and is ready for operation. 300 of the 306 rehabilitation works planned by the United Melioration Systems Company have been completed. 1,292 km of channels and distribution branches are currently being cleaned and repaired.

The Ministry declared that, as a result of the maintenance work, 74,300 ha of land was irrigated in 2013 and projected this figure would rise to 88,000 ha in 2014 (an increase of 18.4%).

2)

Land-use of 101 Agricultural Land Sites Changed

May 5th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041108

According to the decree of Prime Minister Irakli Garibashvili, 101 agricultural land sites representing a total area of 70,147 m2 have been changed to non-agricultural land. The largest areas concerned are state-owned lands in Gori (11,263 m2), Kvareli (10,000 m2) and an area of 8,399 m2 in Khelvachauri, owned by Batumi City Hall.

The Prime Minister changed the status of 96 land sites this year, totaling an area of 412,272 m2.

3)

Moratorium on Sale of Land to Foreigners Causes Loss of Investment

May 13th, 2014, http://commersant.ge/?menuid=11&id=11195&lang=2

10 months after Georgia’s moratorium on sale of agricultural land to foreigners came into effect, "Netgazete" reports that experts and business representatives consider the policy to be a serious mistake.

The President of the New Economic School, Paata Sheshelidze, suggested the moratorium was short sighted and anti-market, adding that the best solution is to allow anyone to purchase land.

According to an analyst of Transparency International Georgia, Natia Kutivadze, the moratorium has limited competition in the market and lead to an infringement of the rights of foreign investors. The moratorium is due to expire in on December 31st 2014, but the parliamentary Agrarian Committee decided that, in the meantime, foreigners may buy land by submitting a request to a special Commission. Read More Âť

4)

Tbilisi Hosts Georgian-French Economic Forum

May 13th, 2014, http://commersant.ge/?menuid=11&id=11214&lang=2

The Georgian-French Economic Forum opened at the exhibition center "Expo-Georgia". Organized by the Georgian National Investment Agency, the French Embassy, the Chamber of Commerce and Industry France-Georgia, and the Georgian Co-investment Fund, it will be attended by public and private sector representatives of both Georgia and France.

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

Among the co-rapporteurs of the Forum will be Georgia’s Prime-Minister, Irakli Garibashvili, and the French President Francois Hollande, as well as the State Minister for European and Euro-Atlantic Integration Alexander Petriashvili, the Director of the National Investment Agency Giorgi Pertaia, the Minister of Economy and Sustainable Development Giorgi Kvirikashvili, the French Ambassador Reno Salens and the Executive Director of the Georgian Co-investment Fund Giorgi Bachiashvili.

The governments of Georgia and France plan to sign two agreements on cooperation within the framework of the event.

5)

National Wine Agency Launches Cadaster Program

May 16th, 2014, http://commersant.ge/?menuid=11&id=11370&lang=2

The National Wine Agency is carrying out a vineyard cadaster program, intended to introduce better order into viticulture and vineyards. The program’s objectives include the registration and passportization of vineyards, and the clarification of the specific border zones. Measuring works began in RachaLechkhumi. The program will also extend to the Kakheti region. Read More »

6)

Georgian-Russian Business Forum Back on the Agenda

May 19th, 2014, http://commersant.ge/?menuid=87&id=11410&lang=2

In an interview with the Russian newspaper “Rossiskaya Gazeta”, the Prime Minister’s Representative for Relations with Russia, Zurab Abashidze, announced that the Georgian-Russian Business Forum will again be organized in Tbilisi in the near future. While specific details have not been communicated so far, this initiative reflects the increasing number of Russian business visits to Georgia since the reopening of the Russian market. Read More »

7)

Import of Genetically Modified Seeds to be Banned from January 1, 2015

May 20th, 2014, http://commersant.ge/?menuid=11&id=11486&lang=2

The Chairman of the Parliamentary Environmental Protection Committee, Gia Tsagareishvili, announced that the law banning genetically modified organisms has been adopted in its second reading in Parliament; the third reading will take place after the municipal elections in mid-June. The law provides for fines up to 500 GEL for the illegal importation of GM products.

8)

Georgian Fruit and Vegetables Allowed into Russia

May 22nd, 2014, http://commersant.ge/?menuid=11&id=11588&lang=2

After an 8-year ban on Georgian agricultural products, Georgian fruit and vegetables are once again allowed into the Russian market. According to the Russian Federal Service for Supervision of Consumer Protection “Rospotrebnadzor”, deliveries were scheduled to begin on May 26. The business newspaper "Vedomosti" reports that the products should be accompanied by phytosanitary and re-export certificates issued by the National Food Agency of the Georgian Ministry of Agriculture. Alongside other products, Georgian goods now permitted include tomato, cucumber, cabbage, potato, orange, kiwi, berries, and cherries. Read More »

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

9)

Large Iranian Business Delegation to Visit Georgia in August

May 22nd, 2014, http://commersant.ge/?menuid=87&id=11581&lang=2

According to Vano Mtvralashvili, a member of the Board of Directors of the Georgian-Iranian Chamber of Commerce and Industry, this visit marks the beginning of an active strengthening of trade and industrial relations between the two countries.

Iranian companies showed interest in Georgia’s tourism, agriculture, construction, and energy industries. Mtvralashvili noted that today 5,000 registered legal entities in Georgia are from Iran and that 10,000 Iranians visit the country each year, spending ca. 100 million USD. Read More »

10) Final Look at the Tea-Growing Improvement Program May 22nd, 2014, http://commersant.ge/?menuid=11&id=11573&lang=2

In cooperation with the Tea Growers Association, the Ministry of Agriculture is currently finalizing the tea-growing support program. According to the President of the Tea Growers Association, Tengiz Svanidze, the program envisages the passportization of tea plantations, the breeding of tea seedlings, and the advertising of new tea brands. Svanidze notes that, with 10 ha of tea plantations, Georgia has the potential to produce 20-25 tons of tea per year. Read More »

11) Unified System of Land Registration Yet to be Defined May 26th, 2014, http://commersant.ge/?menuid=11&id=11300&lang=2

Reports indicate that the Georgian parliament and government are still in the process of developing a state register to record the ownership of agricultural land. According to the State Registry of Georgia, 75-80% of land is currently unregistered.

Gigla Agulashvili, Chairman of the Parliamentary Committee for Agricultural Issues, said consultations on the issue of the cadaster are complex and lengthy. Eventually, however, the system is intended to provide the state with detailed information about the ownership of land and produce. Read More »

12) Agricultural Policy Shows Limited Impact May 27th, 2014, http://commersant.ge/?menuid=11&id=11679&lang=2

As part of its new agricultural policy, the Georgian government spent 223.5 million GEL on agriculture in 2013 (representing 2.7% of total public expenditure that year). The funds were used to finance, among other things, melioration programs, subsidies and farmer training. In addition to government funds, the agricultural sector received grants and loans from international organizations totaling 3.4 million GEL. These measures have had limited impact. Seasonal crops (including melons, vegetables and the grain harvest) decreased by 4%. While fruit production as a whole increased by 32%, processing methods remain unchanged, despite being necessary to improve exports. As a proportion of Georgia’s GDP, agriculture increased by only 0.7% to a total of 9.3% - a very low figure considering that about 50% of the workforce is employed in agriculture. Such figures point to low productivity and technological underdevelopment, compounded by a weak agricultural processing industry. Of the 556,692 registered businesses in Georgia, only 3,499 companies work in the agricultural industry, a figure that has remained static since September 2013. Read More »

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

Foreign Aid 13) New World Bank Strategy Allots 1.28 Billion USD to Georgia May 13th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041155

In a press release the International Finance Corporation (IFC), a member of the World Bank Group, announced a new cooperation strategy with Georgia for 2014-2017. The report foresees the allocation of ca. $1.2 billion in loans from the International Bank for Reconstruction and Development (IBRD), investments from the IFC, and risk insurance guarantees from the World Bank’s Multilateral Investment Guarantee Agency (MIGA). The new strategy aims to enhance economic growth through improved public services and to promote private sector jobs.

The IFC plans to continue existing projects which are aimed at improving access to financial resources for SMEs, promoting a competitive investment environment and developing agricultural business and renewable energy. Thomas Lubeck, the ICF’s regional manager for the South Caucasus, declared that assistance will be given to private companies operating in fields where Georgia has a competitive advantage.

Since Georgia joined the World Bank in 1992, the Group has implemented 57 projects in the country, totaling $1.95 billion. Currently seven investment projects are in progress, totaling $600 million.

Private Sector 14) Development Planned for Georgia’s Agricultural Cooperatives May 6th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041111

As reported by the newspaper “Bankebi da Finansebi”, 41 cooperatives currently operate in Georgia.

Oxfam and Care International in the Caucasus are currently implementing the European Neighborhood Program for Agriculture and Rural Development (ENPARD), a scheme offering interest-free loans to cooperatives. Upon repayment loans will be fed back into the fund, which can then offer further loans to other cooperatives.

Despite having a budget of 15 million USD, the ENPARD program will reach only 1% of Georgia’s 700,000 farmers, the Ministry of Agriculture has observed. 90% of these farmers own land equaling 2 ha or less.

Although the creation of cooperatives is necessary to improve efficiency, their de-velopment is slow, due to non-adapted legislation and poor management,argues Paata Koguashvili from Georgia’s Academy of Agrarian Science . In his view, the Georgian Agricultural Cooperatives Development Agency merely registers cooperatives and leaves the development work to non-governmental organizations.

15) Export Growth to Russia Increase Wine Price May 8th, 2014, http://commersant.ge/?menuid=11&id=11133&lang=2

The newspaper “Rezonansi” reported that a sizeable growth in wine exports to Russia led to sharp price increases of between 30% and 50% on the local market. While the average price of locally produced wine is now 4-5 GEL per liter, it can reach 12-17 GEL in some cases. Winemakers noted shortages in the supply of homemade wine. Read More » Page 5

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

16) Georgian Wine Producers Increasingly Dependent on Russian Market May 12th, 2014, http://finchannel.com/Main_News/Geo/130808_Georgian_Wine_Makers_Still_Dependent_on_Russian_Market/

As a result of the crisis in the Ukraine, exports of Georgian wine to Ukraine have dropped by almost 40% in Q1 2014 compared to the same period last year. At the same time total wine exports have shown an unprecedented increase in 2014, one year after the Russian embargo was lifted. With 81% of Georgian wine exports now going to Russia, winemakers have become completely dependent on the Russian market and there is some concern that EU and US sanctions may have a knock-on effect. Read More »

17) Sakartvelos Ekonomika: Demographic Challenges Facing Georgia’s Agricultural Industry May 13th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041153

An article recently published in Sakartvelos Ekonomika offered an assessment of the demographic challenges facing Georgia’s agricultural industry. The authors, Paata Koguashvili, member of Georgia’s Academy of Agrarian Science, and Badri Ramishvili, professor at Tbilisi State University and Georgian Technical University, stress the importance of effective land usage, and advise an optimal farm size of 10 ha per employee.

Such a ratio could see as few as 250,000 people employed in Georgian agriculture, significantly less than the current figure, which the article’s authors have estimated at between 345,000 and 355,000 (contrasting with the figure of 330,000 given by the UN Food and Agriculture Organization). At the same time, the authors point to a lack of human resources in rural areas, particularly mountainous regions, where the rural population of 2 million people is under the 2.3 to 4.5 million estimated to be required.

18) "Askaneli Brothers” to Begin Construction of Fruit Processing Enterprise in Guria May 14th, 2014, http://www.commersant.ge/index.php?menuid=87&id=11246&lang=2

The “Askaneli brothers”, one of Georgia’s leading manufacturers of alcoholic beverages, will begin construction of a fruit processing site in Guria in approximately two months.

According to one of the company’s founders, Jimmy Chkhaidze, the project is currently under development and the enterprise will mainly process crops harvested in the region, and employ a local workforce. Read More »

19) Businessmen Ask Government to Insure Export May 15th, 2014, http://commersant.ge/?menuid=87&id=11298&lang=2

Irina Gaprindashvili, director of the food manufacturing company “Marneuli", has advocated the development of export insurance for Georgian manufacturers. In an interview with “Commersant” she explained that this is established practice in many developed countries, such as Germany, where the government guarantees to compensate exporters for any losses suffered if they export without prepay-

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

ment. Such guarantees can, Ms. Gaprindashvili argued, motivate more entrepreneurs to export, and she encouraged other businessmen to join the initiative. Read More »

20) Total Export Volume from Georgia to Ukraine Dropped by 55% May 16th, 2014, http://commersant.ge/?menuid=11&id=11379&lang=2

Due to the Russian-Ukrainian crisis, exports from Georgia to Ukraine dropped by 55%; the imports from Ukraine to Georgia by 22, 5%. Accordingly, the European Bank for Reconstruction and Development (EBRD) reduced its projections for economic growth from 4,5% to 4%. For the same reason the EBRD has lowered the forecast for economic growth in Europe from 2, 7% to 1, 4%. In 2013, Ukraine has been the third trade partner of Georgia. Read More »

21) Georgian Mill Plants Unable to Compete with Large Azerbaijani Compan May 19th, 2014, http://commersant.ge/?menuid=87&id=11443&lang=2

Only one fifth of Georgia’s 70 mills remain in operation today. Most of the closed enterprises blame the Azerbaijani-owned company "Karat Holding". The company has a significant manufacturing pres-ence in Georgia and is able to drive market prices down, in part by importing cheaper grain in large quantities from outside Georgia. According to Levan Silagava, President of the Grain Growers Association of Georgia, “Karat Holding” can process 1,200 tons of grain per day, enough to entirely satisfy the Georgian bread market. Georgian mills still in operation are on the verge of bankruptcy, and hope for state intervention on the basis of the newly enacted anti-monopoly legislation. Figures provided by the Association of the Mill Plants indicate that Karat Holdings possesses 70% of the market and 90% of the elevators.

Read More »

22) New Wine Festival to be Held on May 24 May 19th, 2014, http://commersant.ge/?menuid=87&id=11437&lang=2

The Ethnographic Museum will host a new wine festival on May 24. As festival organizer Malkhaz Kharbedia explains, a jury has selected 40 participants from nearly all parts of Georgia to present their products during the festival; among these are most of the leading wine companies operating in Georgia.

The main selection criterion was healthiness. "One of our main goals is to eradicate the problem of unhealthy domestic wines", said Kharbedia. Read More »

23) Darial Gorge Disaster Hurts Georgian Exporters May 19th, 2014, http://commersant.ge/?menuid=87&id=11421&lang=2

Zurab Ramazashvili, chairman of the supervisory board of "Telavi Wine Cellar", has predicted that the closure of the Kazbegi-Lars section of the road connecting Georgia and Russia will have a negative impact on Georgian exporters. The road remains closed due to a landslide in the Dariali Gorge. Search and rescue operations continue in the flooded Terek River bed, and Russian agencies report that the road may be closed for two weeks. Georgian exporters and their Russian counterparts are considering more costly alternatives, including transportation via Azerbaijan, although this, too, has complications. Delays and increased transportation costs will, it is feared, push up prices on the Russian market and decrease profitability. Read More » Page 7

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

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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.