22 BFC Georgia Agriculture Finance Bulletin

06/2014

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22 Ge o r g i a Agriculture Finance Bulletin Government to Establish a Cooperative Bank “Rosselkhoznadzor” Arrives in Preparation for New Exports to Russia EBRD to Support New Trade Opportunities With EU Tea Brand Gurieli Hopes to Pioneer the Exporting of Georgian Tea

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Georgian Agriculture Finance Bulletin Edition #22, June 2014

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

Government to Establish a Cooperative Bank ................................................................................. 2 NASA Analysis of Unearthed Artifacts to Shed Light on Ancient Wine-Production in Georgia ...... 2 11th Georgia-Ukraine Group on Agro-Industrial Cooperation Held in Kiev .................................... 2 Grain Importers Demand Continuation of Preferential VAT treatment.......................................... 2 Pipia Outlines Plans for the Government Agricultural Fund (2014-2020)....................................... 3 Russian Phytosanitary Team to Inspect Quality of Peaches in Kakheti ........................................... 3 “Land Code'' Expected by the End of the Year ................................................................................ 3 "Rosselkhoznadzor" Arrives in Preparation for New Exports to Russia .......................................... 3 Georgia and Israel to Begin Agricultural Cooperation..................................................................... 4 Georgian Goods to Be Imported to EU Without Customs Duty ...................................................... 4

Foreign Aid ................................................................................................................. 4 11) EBRD to Support New Trade Opportunities With EU ...................................................................... 4 12) KFW To Issue 200,000 EUR Grant for a Study on Agricultural Insurance ........................................ 5

Private Sector.............................................................................................................. 5 13) 14) 15) 16) 17) 18) 19) 20) 21)

70 Companies take part in "WinExpo Georgia 2014"...................................................................... 5 Marneuli Food Factory Targeting 20% Growth in 2014 .................................................................. 5 Tea Brand Gurieli Hopes to Pioneer the Exporting of Georgian Tea ............................................... 5 Kula Increases Sales by 40% ............................................................................................................ 6 Bigger Peach Harvest - Bigger Problem? ......................................................................................... 6 GeoStat Presents Agricultural data for 2013 ................................................................................... 6 "Tbilvino" to Export 1.5 Million Bottles of Wine to Russia .............................................................. 7 Stricter Bioorganic Control Required for Diary Exports to the EU .................................................. 7 Wine exports grew by 147% for in January-May 2014.................................................................... 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 #22, June 2014

State Initiatives 1)

Government to Establish a Cooperative Bank

June 5th, 2014, http://commersant.ge/?menuid=11&id=12041&lang=2

The Chairman of the Parliamentary Committee on Agrarian Issues, Gigla Agulashvili, announced longterm government plans to create a farmer-owned Cooperative Bank. The bank will take the form of a network of agricultural cooperatives offering financial services, and will operate alongside the existing Cooperative Development Agency. The successful creation of a Cooperative Bank will, however, depend on the willingness of farmers to form and join cooperatives. Read More »

2)

NASA Analysis of Unearthed Artifacts to Shed Light on Ancient WineProduction in Georgia

June 5th, 2014, http://commersant.ge/?menuid=11&id=12042&lang=2

The Director of the National Wine Agency, Levan Davitashvili, has reported that a number of international scientific research centers—including "NASA" and several leading universities—are analyzing traces of acid on recently unearthed artifacts from the Kartli region. Davitashvili hopes that the study will prove that vine domestication and wine production began in Georgia. Read More »

3)

11th Georgia-Ukraine Group on Agro-Industrial Cooperation Held in Kiev

June 6th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041389

Delegations from the Georgian and Ukrainian Ministries of Agriculture met for the 11th Georgia-Ukraine working group on agro-industrial cooperation. Ukraine’s Minister of Agrarian Policy and Food Ihor Shvaika and Georgian Deputy Minister Otar Danelia are said to have discussed the expansion of agricultural cooperation in the field of cattle breeding, poultry, winemaking, flour and grain production, as well as the prospects of exporting Georgian fruit and citrus to Ukraine. While in Kiev the Georgian delegation took part in the international agricultural exhibition “Agro 2014”.

4)

Grain Importers Demand Continuation of Preferential VAT treatment

June 9th, 2014, http://commersant.ge/?menuid=11&id=12140&lang=2

The Chairman of the Grain Growers Association, Levan Silagava, has demanded that Parliament continue to allow companies with an annual turnover of over 200,000 GEL to postpone VAT payments on imported grain. Parliament abolished this preferential treatment earlier this month, apparently in order to comply with the constitution, antitrust laws, and the tax code.

Silagava claimed that tax-free importing allow the accumulation of grain reserves and thus helps keep prices stable in crisis situations. He warned that, without preferential VAT treatment, grain reserves would decrease by 18-20% leaving Georgia vulnerable to external market fluctuations, since 90% of the country’s grain is imported. Read More »

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BFC. Georgian Agriculture Finance Bulletin. Edition #22, June 2014

5)

Pipia Outlines Plans for the Government Agricultural Fund (2014-2020)

June 16th, 2014, http://commersant.ge/?menuid=11&id=12463&lang=2

In an interview with Commersant the Minister of Agriculture, Shalva Pipia, outlined the priorities and initial results of the Government Fund for Agriculture 2014-2020, created with the support of experts from the EU and the International Association for Food Protection.

The Fund’s strategic aims are to increase competitiveness, to develop food security, and to conserve biological diversity. It focuses on 40 economically-weak districts of the country, aiming to create more favorable conditions for business, in part through grants and preferential loans. Of the 30-50 projects to be approved before the end of the year, 5 have so far been confirmed.

Extensive rehabilitation works on the irrigation system also began last year, nearly doubling the area of land irrigated (compared to 2012) to just under 50,000 ha. Within 4 years the Government intends 400,000 ha to be irrigated, returning Georgia to the irrigation levels of the Soviet era. Since last year the preferential agro-loan program issued loans totaling 400 million GEL. The government is also developing a draft model for agricultural insurance and working on implementing a rocket system to prevent the frequent destruction of crops by hail. Read More »

6)

Russian Phytosanitary Team to Inspect Quality of Peaches in Kakheti

June 17th, 2014, http://commersant.ge/?menuid=11&id=12504&lang=2

Experts from the Russian phytosanitary inspection are expected in Kakheti for the peach harvest to conduct on the spot checks on products for export. The Ministry of Agriculture has announced that a headquarters will be opened for the inspectors in Kakheti, presumably in Gurjaani, where peach transporters will be able to obtain all necessary information under the “one-window" principle. Read More »

7)

“Land Code'' Expected by the End of the Year

June 19th, 2014, http://commersant.ge/?menuid=11&id=12597&lang=2

The Chairman of the Sector Economy Committee, Zurab Tkemaladze, has told Commersant that the Interagency Commission is expected to complete work on a land code by the end of the year. Tkemaladze reported that the Commission set up last year to develop a unified state policy on agricultural land ownership and to organize a single land management system, has not met for a long time, but he indicated that work on the project will resume in the near future. In the meantime the moratorium prohibiting the sale of land to foreigners will remain in force until December 31st 2014. Read More »

8)

"Rosselkhoznadzor" Arrives in Preparation for New Exports to Russia

June 23rd, 2014, http://commersant.ge/?menuid=11&id=12708&lang=2

Following the opening of the Russian market to Georgian goods on May 26th, the Agriculture Minister, Shalva Pipia, has reported that the Russian phytosanitary inspection unit “Rosselkhoznadzor” has arrived in Georgia to verify compliance with phytosanitary norms. The National Food Agency indicated that inspections will be carried out prior to loading. Foods of high phytosanitary risk to be inspected include: new potatoes, tomatoes, cucumbers, cabbages, eggplants, cherries, apricots, peaches, plums, persimmons, kiwi, and berries. Read More »

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BFC. Georgian Agriculture Finance Bulletin. Edition #22, June 2014

9)

Georgia and Israel to Begin Agricultural Cooperation

June 23rd, 2014, http://sarke.com/cgi/search/news.asp?Code=10041548

An Israeli governmental delegation, headed by the Minister of Agriculture and Rural Development Yair Shamir, visited Georgia to sign an intergovernmental agreement on agricultural cooperation. The agreement aims to deepen cooperation in agricultural production and food safety (including winemaking, cattle breeding, poultry, and veterinary healthcare). The agreement provides for exchange programs and seminars, allowing Israel to share its experience in setting up cooperatives and market-oriented farms, in business development, and in the creation of agricultural logistic centers. According to Agriculture Minister Shalva Pipia, there will be cooperation between research institutes, possibly leading to joint research projects.

One June 23rd, Ministers Pipia and Shamir participated in the opening of the Israel-Georgia businessforum in Tel Aviv, organized by the Georgian National Investment Agency (part of the Georgian Embassy in Israel) and the Israeli Export and International Cooperation Institute. The forum was attended by about 80 Israeli and 25 Georgian businessmen representing sectors such as agriculture, industry, real estate, and energy.

10) Georgian Goods to Be Imported to EU Without Customs Duty June 24th, 2014, http://commersant.ge/?menuid=11&id=12687&lang=2

The signature of the Association Agreement with the EU gives Georgia a phased access to the European market in three of the four major areas: freedom of goods, services, and capital (the fourth, freedom of movement, will depend on a liberalization of the visa regime). From now on all Georgian products, except garlic, can be imported into the EU without incurring customs duty. According to Deputy Economy Minister, Mikheil Janelidze, the private sector will receive assistance from the state to adapt to legislative and institutional changes. Read More »

Foreign Aid 11) EBRD to Support New Trade Opportunities With EU June 16th, 2014, http://finchannel.com/index.php/world/south/item/38193-

In view of Georgia’s signing the Association Agreement and the Deep and Comprehensive Free Trade Area (DCFTA) with the European Union, the EBRD anticipates that it will double its investment in the country (from 100 million EUR in 2013) facilitating Georgia’s transition to a fully-fledged market economy, and helping it overcome its budget deficit (ca. 6% in 2013).

The EBRD has invested 2 billion EUR in 170 projects in Georgia over the last 20 years, principally in the financial and energy sectors. Andras Simor, Vice President of Policy at the EBRD, sees an opportunity to develop the country’s export potential. The EBRD, he said, is keen to provide technical assistance, grants, and financing to help Georgian companies open businesses in the EU and to allow companies established in Georgia to develop their EU exports by adapting to EU technical and quality standards.

The EBRD particularly plans to support SMEs, improving the export of traditional Georgian products like wine, but also developing other sectors such as hydropower, food processing, and hotel infrastructure, as well as the machinery and manufacturing industries.

The priorities of the current EBRD strategy for Georgia are the development of the private sector (focusing on MSMEs and local banking system), the development of energy generation (focusing on renewable sources and hydropower), and the promotion of regional integration, taking advantage of Georgia’s strategic location between the west and the east. Read More » Page 4

BFC. Georgian Agriculture Finance Bulletin. Edition #22, June 2014

12) KFW To Issue 200,000 EUR Grant for a Study on Agricultural Insurance June 17th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041494

Yesterday Eva Witt, vice-president of the German Bank for Reconstruction (KfW), and Georgia’s Minister of Agriculture, Shalva Pipia, signed a grant agreement for 200,000 EUR to fund a study exploring how agricultural insurance might be developed in Georgia. The aim, Pipia said, is to set up a balanced insurance scheme beneficial to both farmers and entrepreneurs.

Private Sector 13) 70 Companies take part in "WinExpo Georgia 2014" June 6th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041398

The 7th international wine and alcoholic drinks fair “WinExpo Georgia 2014” took places on 6th - 8th June in Tbilisi’s exhibition center ExpoGeorgia. Organized by ExpoGeorgia and the National Wine Agency, and supported by the Agriculture Ministry and the Georgian Wine Association, WinExpo gathered 70 companies from Georgia, Bulgaria, China, France, Germany, Italy, and Ukraine to present their products.

During the fair the 6th international Wine Awards were held, ranking products by the standards of the OIV (International Organization of Vine and Wine).

14) Marneuli Food Factory Targeting 20% Growth in 2014 June 11th, 2014, http://finchannel.com/index.php/world/south/item/38117-

The Marneuli Food Factory produced more than 5 million cans of various products in 2013, representing a 15% growth in comparison with 2012. Next year the company, which is committed to using only local Georgian produce in its manufacturing, plans to start exporting products like walnut preserve, wild plum sauce, and the Georgian specialty “ajika”, which has already gained popularity with foreign consumers.

Read More »

15) Tea Brand Gurieli Hopes to Pioneer the Exporting of Georgian Tea June 11th, 2014, http://world.einnews.com/article__detail/208496727?lcode=cQYMhwwjZuVi5QBUIThfkxg2h4D1Is6lN1iuLy2H_9g%3D

Geoplant LLC, the Georgian tea producer trading under the brand name Gurieli, plans to expand its local sales by 15%, which would increase its market share from 12% (in 2014) to 14%. This year the company launched its premium tea “Prince Gurieli” alongside a new herbal tea line. Gurieli is also preparing to enter the Russian market for the first time this year. In an interview with The Financial, Mikheil Chkuaseli, CEO of Geoplant, discussed the company’s strategy: to combine top quality products, stylish packaging, and eco-friendliness. The company is blending well-known international teas with those produced in plantations in Guria, Imereti and Samegrelo.

Chkuaseli pointed to the company’s successes to date: Gurieli tea is sold in almost every part of Georgia, including ethnically Azeri regions, where it competes with tea imported from Azerbaijan. With exports to France, Germany, England, Czech Republic, the Baltic countries, and South Africa the company’s turnover was close to 4 million GEL in 2013. Chkuaseli is now appealing to the government to support tea producers, for example by reimbursing them for custom taxes incurred through exports and by international marketing campaigns—policies currently in place to aid wine production. Opposed to subsidies, Chkuaseli believes that cheap and better-tailored credit is necessary to help the sector meet the challenges posed by market innovation. When Geoplant LLC was getting started in 2008, it benefitted from a preferential government loan of 1.2 million USD with an annual 9% interest rate. Such incentives, Chkuaseli said, should be repeated in order to support the many ecologically and socially important tea plantations in mountainous regions which are currently being neglected. Read More » Page 5

BFC. Georgian Agriculture Finance Bulletin. Edition #22, June 2014

16) Kula Increases Sales by 40% June 13th, 2014, http://finchannel.com/index.php/world/south/item/38120-

Kula, a producer of ecologically clean fruit and vegetable juices and compotes, has added six types of sugar-free juice to its current range of products to cater to sporty, diabetic, and health-conscious customers. In 2014 Kula began exporting to the USA and Canada, England, and France, having successfully entered the Russian market in 2013. Due to current instability in Ukraine, Russia now represents Kula’s main export destination. To further promote Kula abroad, the company will participate in three international exhibitions in Dubai (GULFOOD), Germany (ANUGA), and Ukraine. Kula’s sales increased by 40% in 2014 as compared with the same period in 2013.

Vano Goglidze, Director General at Kula, anticipates that the new Association Agreement with the EU will not confer any particular advantage on the company, which was already exempt from customs duty.

He also noted that, by opening up the Georgian market to European competitors, the DCFTA will provide Georgian businesses with stiff competition. In response, Goglidze suggests, the Government should institute measures to support local firms, for instance by reducing utility fees. Goglidze explained that organic, healthy food lies at the center of Kula’s strategy, and stressed that the company is socially active, supporting the poor and the internally displaced, including the Union of Blind People of Georgia. Read More »

17) Bigger Peach Harvest - Bigger Problem?

June 16th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041476

According to unofficial forecasts, this year’s peach harvest will reach 80,000 t, exceeding last year’s harvest by 20,000 t. Ironically, the prospect of an abundant harvest is causing anxiety among Georgian farmers, who will have to sell the perishable fruit rapidly. On a small market this typically leads to a drop in price, harming peach producers. To counter this problem the Agriculture Ministry has announced that a processing plant will be launched at the end of June (the start of the peach harvest), but critics note that a purchase price for fruit has not yet been specified.

In 2012 the price of 1 kg of quality peach in Kakheti was 0.80-1.00 GEL in 2012; in 2013 this dropped to 0.10-0.60 GEL, which led to farmers leaving part of the harvest on the trees, the newspaper Kviris Palitra reported. Farmers were also unable to benefit from increased exports to Azerbaijan (1,256 t in 2013 compared to 934 t in 2012) due to a drop in sales price, which producers attribute to increased custom fees.

18) GeoStat Presents Agricultural data for 2013 June 16th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041481

GeoStat’s report on Georgian Agriculture has calculated that, over the course of 2013, Georgia’s rural population increased by 0.3% to 2,079 million people. Over the same period the proportion of Georgia’s total population that is classified as ‘rural’ increased by 0.1% to 46.3%.

The data also shows a 0.7% increase in agriculture’s share of Georgian GDP, to 9.3% at the end of the year. Total agricultural output increased by 11.4% over the year to 3.36 billion GEL. GeoStat also reported that the total output of processed agricultural production increased by 10.4% to 4.1 billion GEL.

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BFC. Georgian Agriculture Finance Bulletin. Edition #22, June 2014

19) "Tbilvino" to Export 1.5 Million Bottles of Wine to Russia June 17th, 2014, http://commersant.ge/?menuid=11&id=12493&lang=2

The company "Tbilvino" plans to export 1.5 million bottles of wine to Russia this year. According to the company's Director, Giorgi Margvelashvili, about 700,000 bottles had been sent to Russia by May 2014.

However, he notes that the road closure caused by the landslide in the Dariali Gorge is currently hindering further exports to Russia: of 150,000 bottles ordered for May only 30,000 were delivered. Read More »

20) Stricter Bioorganic Control Required for Diary Exports to the EU June 18th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041521

The Deep and Comprehensive Free Trade Agreement allows Georgia to export 1,650 t of dairy products, on the condition that the produce meets the EU standards. But, according to Ana Mikadze, head of the Georgian Cheese Producers’ Guild, only 4 or 5 farms currently comply with EU standards requiring low levels of antibiotics and somatic cells. While the Agriculture Ministry possesses an ISO 17025-certified laboratory to test produce quality, Mikadze believes that stricter bioorganic control of cattle feed and cattle health is necessary. Meanwhile many farmers, believing that they will be unable to compete with EU producers on price, hope instead to conquer the organic niche.

21) Wine exports grew by 147% for in January-May 2014 June 30th, 2014, http://www.geotimes.ge/index.php?m=home&newsid=31728&lang=eng

According to the Georgian Wine Agency, 22.8 million bottles of wine (worth 73.8 million USD) were exported between January and May this year, 147% higher than the same period in 2013. Of the 32 countries that imported the wine, Russia received the most (68%), followed by Ukraine, Kazakhstan, Poland, and Latvia. In the same period Ukraine imported 2.8 million (0.5L) bottles of Georgian brandy, followed

by Russia, which imported 1.8 million bottles. 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.