25 BFC Georgia Agriculture Finance Bulletin

09/2014

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25 Ge o r g i a Agriculture Finance Bulletin Georgian Delegation Participates in 4th China-Eurasia Expo The Netherlands to Allocate 55 million EUR to Irrigation Project Farmers Protest Against Low Grape Prices Citrus Harvest Quality Increases, Volume Decreases

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Georgian Agriculture Finance Bulletin Edition #25, September 2014

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

Georgian Delegation Participates in 4th China-Eurasia Expo .......................................................... 2 Subsidization of Winemaking to End in 2015 .................................................................................. 2 Cooperation with Georgia in Agriculture is a Priority for Ukraine .................................................. 2 Minister of Agriculture Explains Delay in Budget Expenditure ....................................................... 3 200 Agricultural Cooperatives Registered Since January ................................................................ 3 Law Limiting Land Acquisition by Foreigners Comes into Effect ..................................................... 3 Growth of Agricultural Output Attributed to Small Farmers Support Project ................................ 4

Foreign Aid ................................................................................................................. 4 8) 9) 10) 11)

The Netherlands to Allocate 55 million EUR to Irrigation Project ................................................... 4 Chinese to Invest $25 Million in Agriculture Projects in Senaki ...................................................... 4 EU Offers Farm Equipment Grants to Agricultural Cooperatives .................................................... 5 About 420 Families Receive Aid through USAID’s "New Economic Opportunities Initiative" ........ 5

Private Sector.............................................................................................................. 5 12) 13) 14) 15) 16) 17) 18) 19)

Farmers Protest Against Low Grape Prices ..................................................................................... 5 Wine Exports to Turkey Attain Only 10% of Quota ......................................................................... 6 Difficulties Foreseen for Georgian Products in the EU market ....................................................... 6 69% Increase in Georgian Wine Exports in the first 8 Months of 2014 .......................................... 7 Citrus Harvest Quality Increases, Volume Decreases ...................................................................... 7 Vineyard Expansion and Cadaster Program in Progress ................................................................. 7 Ukraine to Increase Wine, Cheese and Citrus Trade with Georgia ................................................. 8 Decrease in Grape Yield - Price Hike of GEL 0.7 per kilo for Saperavi ............................................. 8

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 »

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info@bfconsulting.com www.bfconsulting.com

BFC. Georgian Agriculture Finance Bulletin. Edition #25, September 2014

State Initiatives 1)

Georgian Delegation Participates in 4th China-Eurasia Expo

September 9th, 2014, http://commersant.ge/?menuid=11&id=15236&lang=2

During their official visit to China last week, the Georgian delegation, led by MP Zviad Dzidziguri, participated in the 4th China-Eurasia Expo. The fair is designed to boost trade among Asian and European countries.

Dzidziguri delivered a speech stressing the regional importance of Georgia and its future role in the construction of the new Silk Road.

During the visit, the delegation discussed potential avenues of cooperation with Chinese government officials, including Vice Prime Minister Wang Yang. They also held meetings with representatives of major businesses to discuss investment opportunities. Read More »

2)

Subsidization of Winemaking to End in 2015

September 16th, 2014, http://commersant.ge/?menuid=11&id=15436&lang=2

As Georgian winemaking is one of the most stable and dynamic sectors of the economy, the industry will no longer be subsidized as of 2015, said the Minister of Agriculture, Otar Danelia.

However, the director of the National Wine Agency, Levan Davitashvili, said that, considering the strategic importance of the sector, a gradual phase-out of subsidies when demand and market prices are optimal is preferential. Read More »

3)

Cooperation with Georgia in Agriculture is a Priority for Ukraine

September 16th, 2014, http://sarke.com/cgi/search/news.asp?Code=10042309

The Ukrainian Minister of Agrarian Policy and Food, Ihor Shvaika, said that cooperation with Georgia in agriculture is a priority for Ukraine. At a meeting with his Georgian counterpart, Otar Danelia, he stressed that the existing links between their respective agencies should be further strengthened.

They agreed that viniculture and winemaking, cattle breeding, poultry farming, and flour and grain production are the areas with the highest potential for closer cooperation.

According to data from Sakstat, Ukraine was Georgia’s 3rd largest trading partner in 2013. Exports to Ukraine ranked 3rd, amounting to $192.77 million (6.6% of total exports) in 2013, while imports from Ukraine were also ranked 3rd, amounting to $602.36 million (7.6% of total imports).

The top exports were alcoholic beverages with a value of $33.26 million (17.3% of total volume); followed by wine ($30.47 million or 15.8%); mineral and spring water ($29.6 million or 15.3%); railway locomotives ($28.35 million or 14.7%); and ferroalloys ($26.97 million or 14%).

The top imports from Ukraine were cigarettes ($73.95 million or 12.3% of the total volume), armature ($43.95 million or 7.3%), sunflower oil ($33.02 million or 5.5%), coal coke and semi-coke ($31.75 million or 5.3%) as well as semi-fabricated carbon steel works ($21.9 million or 3.6%).

From January-June this year, Georgia’s export to Ukraine totaled $91.2 million (5.7% of the total exports), while import from Ukraine totaled $245.73 million (6.1% of the total imports), making Ukraine Georgia’s 5th largest trading partner during that period.

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BFC. Georgian Agriculture Finance Bulletin. Edition #25, September 2014

4)

Minister of Agriculture Explains Delay in Budget Expenditure

September 17th, 2014, http://commersant.ge/?menuid=11&id=15478&lang=2

In an interview with “Commersant”, the Minister of Agriculture, Otar Danelia, explained the delay in the Ministry’s expenditure plan for the first 6 months of 2014. So far the Agriculture Ministry has spent only GEL 145.62 million of the GEL 169.94 million received (or 85.8% of the total budget for the first 6 months).

Danelia noted a tardy purchase of specialized equipment among other reasons, but assured that the issues prompting the delay have already been resolved and that the budget will be allocated as planned by the end of the year.

He added that, although only 23.5% of the budget for export diversification has been used to date, the area remains a top priority, as demonstrated by several trips abroad promoting Georgian exports. Danelia also gave insight to the draft budget for 2015, which focuses on support for cooperatives, as well as funding for laboratories and research centers. Read More »

5)

200 Agricultural Cooperatives Registered Since January

September 17th, 2014, http://sarke.com/cgi/search/news.asp?Code=10042331

According to government records, about 200 agricultural cooperatives were registered throughout the country since the Agricultural Cooperatives Development Agency began receiving applications for cooperative status on January the 27th. Most cooperatives are engaged in primary production. Cooperatives possess a total of 9,675 ha of agricultural land, dispose of GEL 3.66 million in capital and comprise 1,448 shareholders - including 335 women.

About half of the cooperatives are concentrated in four regions: 28 in Kvemo Kartli; 27 in Shida Kartli; 21 in Samtskhe-Javakheti; and 19 in Kakheti. Read More »

6)

Law Limiting Land Acquisition by Foreigners Comes into Effect

September 24th, 2014, http://commersant.ge/?menuid=11&id=15677&lang=2

On the 19th of September, changes to the law on agricultural land ownership came into force. The law stipulates that foreign persons or foreign companies that are registered in Georgia can only acquire agricultural land if they demonstrate 5 years of agricultural activity in the country. The text also bans the sale of agricultural land to foreigners within 5 kilometers of the country's borders. In case of marriage between a foreign and Georgian citizen, land may be owned as common property; in the event of divorce, however, the Georgian citizen will have a preferential right to purchase the site while the foreigner will be required to sell it.

Minister of Economy, Giorgi Kvirikashvili, said the amendment is an attempt to balance investor rights with national interest in a country with little arable land located in a “complicated” region.

NGOs criticized the law and expressed regret that it was drafted without involvement of the public.

While both the Georgian Farmers Association and Transparency International agree, in principle, that some restrictions on land acquisition can be legitimate, they argued that the conditions allowing a foreigner to purchase agricultural land are unclear and too prohibitive. What would qualify as agricultural experience was questioned, as well as whether investors will be able to effectively demonstrate they hold the requisite 5 years of experience. It was also pointed out that the ban on the sale of agricultural land in border areas should have been extended to the country’s conflict zones, which are by far more sensitive. Read More » Page 3

BFC. Georgian Agriculture Finance Bulletin. Edition #25, September 2014

7)

Growth of Agricultural Output Attributed to Small Farmers Support Project

September 25th, 2014, http://sarke.com/cgi/search/news.asp?Code=10042404

The NGO “Society and Banks” attributes the significant growth of agricultural output in 2013 to the positive impact of the state project on support for land-poor farmers’ spring works.

Within the first phase of the project, 264,575 ha of land had been cultivated in 2013. As a result, said the NGO, Georgia’s agricultural export increased by $244 million compared with 2012.

This year, the 2nd phase of the project comes to an end, with more than 200,000 ha cultivated by end of July 2014.

The organization also noted the positive impact of the state program “Produce in Georgia” which aims to improve Georgia’s trade balance by increasing production and export.

While accounting for the smallest share of GDP, 67% of the total work force is employed in household activities, according to the NGO. The organization considers this an inefficient use of human resources.

Foreign Aid 8)

The Netherlands to Allocate 55 million EUR to Irrigation Project

September 9th, 2014, http://commersant.ge/?menuid=11&id=15228&lang=2

The Netherlands is to finance an irrigation project in Georgia worth 55 million EUR. This was announced after a meeting between the Minister of Agriculture, Otar Danelia, and the Ambassador of the Kingdom of the Netherlands, Hans Horbach.

The project aims to rehabilitate the Upper Samgory irrigation canal. Danelia said that, following the enactment of the Deep and Comprehensive Free Trade Agreement with the EU, Georgia’s economy needs large-scale development work in order to meet EU standards and requirements – allowing Georgia to take full advantage of a market with a population of 500 million.

The two sides also discussed the promotion of external investment and the organization of a Business Forum in Georgia. Read More »

9)

Chinese to Invest $25 Million in Agriculture Projects in Senaki

September 12th, 2014, http://commersant.ge/?menuid=11&id=15358&lang=2

During the Georgian delegation’s official visit to China earlier this month, it was agreed that Chinese investors will allocate up to $25 million to develop the agriculture sector in Senaki.

Senaki’s governor, Gocha Dgebuadze, said the funds would be used for the rehabilitation of 630 hectares of tea plantation, the cultivation of 300 ha of rice, the establishment of a poultry farm and a 25 hectare fish farm, as well as the construction of a sugar refinery and a tomato processing plant.

Dgebuadze said the projects were initiated after Georgia’s signing of the Association Agreement with the EU, allowing the Chinese investors to export from Georgia to the EU under preferential terms. He added that, with Chinese staff limited to management positions, many local jobs will be created. Read More » Page 4

BFC. Georgian Agriculture Finance Bulletin. Edition #25, September 2014

10) EU Offers Farm Equipment Grants to Agricultural Cooperatives September 16th, 2014, http://www.geotimes.ge/index.php?m=home&newsid=32737&lang=eng

The European Union (EU) program ‘Support for the development of agricultural cooperatives in Georgia’ was launched in cooperation with humanitarian organization ACF International. The project is part of the European Neighbourhood Program for Agriculture and Rural Development (ENPARD).

Farming cooperatives consisting of at least five members can apply for grants worth between €15,000 and €49,000 (GEL 33,584 to GEL 109,709) for the purchase of production, storage and processing equipment. Successful applicants must contribute 30% of total project cost while the grant will cover the remaining 70%.

Organic farming association Elkana is responsible for meeting cooperative representatives and identifying strong business plans in organic fruit and vegetable production and processing. Read More »

11) About 420 Families Receive Aid through USAID’s "New Economic Opportunities Initiative" September 19th, 2014, http://sarke.com/cgi/search/news.asp?Code=10042365

The non-governmental organization Civil Development Agency (CiDA) reported that about 420 families received assistance from the USAID funded “New Economic Opportunities Initiative” (NEO).

CiDA began implementing the project in Shida Kartli and Mtskheta-Mtianeti in September 2012. The project has a budget of GEL 1 million, with each beneficiary receiving GEL 2,600 on average, CiDA reported.

In total, 381 socially vulnerable beneficiaries received funds for agricultural activities; another 40 for non-agricultural businesses. Among others, 14 sewing workshops, 6 family guesthouses and 23 farms (greenhouses, orchards, beekeeping and poultry) have been financed.

Private Sector 12) Farmers Protest Against Low Grape Prices September 3rd, 2014, http://commersant.ge/?menuid=11&id=15040&lang=2

Grape growers ceased harvesting activities and held rallies in protest of the recent reduction of grape prices, reported Director of the National Wine Agency, Levan Davitashvili. He considers the protest unfounded as, despite the recent decline, this year’s grape price is 50% higher than in 2013. He added that farmers also receive government support to facilitate the sales process.

According to Davitashvili, prices are still at an acceptable level. He said the state does not intend to intervene, as higher grape prices would result in higher wine prices, rendering the product less competitive. He advised farmers not to further delay the harvest, lest the quality of the grapes be compromised.

Read More »

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BFC. Georgian Agriculture Finance Bulletin. Edition #25, September 2014

13) Wine Exports to Turkey Attain Only 10% of Quota September 4th, 2014, http://commersant.ge/?menuid=11&id=15051&lang=2

Despite a free trade agreement allowing Georgia to export of up to 1 million bottles of wine to Turkey per year, Georgian wine companies currently deliver only 100,000 bottles yearly due to a lack of consumer demand. The Director of the National Wine Agency, Levan Davitashvili, sees the underlying problem in "unusual market regulation, which can be modified only by the government of Turkey".

Wine producer “Veliani Valley” is currently only exporting 10,000 bottles per year - which are sold in duty-free shops in Turkish airports. The director of "Tbilvino" winery, George Margvelashvili, said his company does not export to Turkey at all, noting that, while there is high demand for wine in Turkey, there is no interest in Georgian wines. Read More »

14) Difficulties Foreseen for Georgian Products in the EU market September 8th, 2014, http://commersant.ge/?menuid=11&id=15180&lang=2

The Deep and Comprehensive Free Trade Agreement between Georgia and the EU entered into force on September 1st.

While most Georgian products can be traded in the EU without customs duties, there are still certain limitations concerning quantity and pricing. For instance, if the prices of agricultural products are below the average European level, then duties will be levied. In addition, quantitative restrictions will be imposed on 15 product categories - including meat (4400 tons per year); berries (200 000 tons); dairy products (1 650 tons); and sugar (8 000 tons).

According to the Food Safety and Rural Development Attaché of the EU Delegation to Georgia, Juan José Echanove, Georgian agricultural products that are not very common in the EU will benefit from a competitive advantage. Such products include certain types of greens, honey, nuts, pomegranates and almonds. He sees less opportunity in the citrus fruit market, which is dominated by cheaper products from Spain, Italy, and Israel. He also noted that fruit and vegetable volumes available for export in Georgia are too small to significantly penetrate the EU market.

Director of the Georgian Beekeepers Association, Teimuraz Gogoberidze, said that it will be difficult to sell Georgian honey in the EU because of stringent quality standards and competition from cheaper products from Argentina, Mexico, Australia, and China.

Other Georgian products such as potatoes, cucumbers and tomatoes do not even currently satisfy domestic demand.

An additional difficulty will be the long and costly adoption of European quality standards. Many changes must be made to harmonize Georgian law with European legislation - for instance, in the field of sanitary and phytosanitary control; on regulations and standards for industrial products; and in customs policy. Read More »

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BFC. Georgian Agriculture Finance Bulletin. Edition #25, September 2014

15) 69% Increase in Georgian Wine Exports in the first 8 Months of 2014 September 12th, 2014, http://commersant.ge/?menuid=11&id=15333&lang=2

Georgian wine exports increased by 69% in the first 8 months of 2014 compared to the same period last year. The Georgian Wine Agency announced that 36,585,769 bottles of wine were exported to 38 countries, representing a trade volume of $118,493,071 - an 83% increase compared to 2013.

The main export destination is Russia (65.7%), followed by Ukraine, Kazakhstan, Poland and Belarus.

China, Latvia, Lithuania, Estonia and Azerbaijan make up the rest of the top ten export destinations.

In addition, as of August, 7,275,351 bottles of brandy were exported to 13 countries, with a total value of $25,354,169 – also an 83% increase compared to 2013. Ukraine is the top export destination (48.9%), followed by Russia (44.5%). Read More »

16) Citrus Harvest Quality Increases, Volume Decreases September 16th, 2014, http://sarke.com/cgi/search/news.asp?Code=10042304

Adjara’s Deputy Minister of Agriculture, Zaza Meskhidze, said that the region will harvest 60,000 t of citrus this year, including 40,000 t in Kobuleti. While 80,000 t were collected last year, the quality of this year’s harvest is superior, he added. Harvesting will begin in October and will last until late November.

While Ukraine was the core export market in 2013, this year it will be Azerbaijan, Turkey and Russia, noted Meskhidze.

Additionally, a harvest of 15,000 t of citrus (compared to 17,000 t last year) is expected from the municipality of Ozurgeti (Guria region).

17) Vineyard Expansion and Cadaster Program in Progress September 17th, 2014, http://sarke.com/cgi/search/news.asp?Code=10042329

According to the Ministry of Agriculture, in 2014, farmers in Kakheti, Racha-Lechkhumi and Ajara developed new vineyards. The Ministry believes this is due to an “organized and successful vintage” in 2013.

For example, in the Ambrolauri district (Racha region) 100,000 saplings of Aleksandrouli and Mujuretuli varieties were planted on a 30 ha of land.

Georgian company “Mapping” has completed a survey of vineyards in the Racha-Lechkhumi region and will start to work on the Kakheti region. Conducted on behalf of the National Wine Agency, the cadaster program aims to achieve a nationwide inventory of vineyards, including registration and boundaries.

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BFC. Georgian Agriculture Finance Bulletin. Edition #25, September 2014

18) Ukraine to Increase Wine, Cheese and Citrus Trade with Georgia September 19th, 2014, http://commersant.ge/?menuid=11&id=15571&lang=2

Due to trade restrictions with Russia resulting from its regional conflict, Ukraine is studying the possibilities of extending trade relations with Georgia.

Ukrainian Minister of Agriculture, Igor Shvaika, said that the main challenges for exports are transportation problems caused by the loss of the Crimean harbors and replacing Russia with alternative export destinations.

In September, Ukraine negotiated a 5-year-contract for the delivery of grain and corn to Georgia.

The Minister also sees potential to replace products that had been sourced from Crimea with Georgian imports – including fruit, grapes, wine and brandy. Shvaika also discussed the possibility of facilitating citrus imports from Georgia, which were previously subject to high customs duties.

He added that, considering wine and cheese products in Georgia and Ukraine differ, they can be mutually traded.

Ukraine is ready share its expertise in livestock and poultry farming, grain cultivation, and veterinary education programs with Georgia, said Shvaika. Read More »

19) Decrease in Grape Yield - Price Hike of GEL 0.7 per kilo for Saperavi September 23rd, 2014, http://commersant.ge/?menuid=11&id=15668&lang=2

According to official statistics, 80,201 tons of grapes worth GEL 115,271,799 were produced across Georgia in 2014. This represents a decrease of 13.2% compared to 2013.

Of the total volume, the Kvareli region produced 26.7%; Gurjaani 25.5%; Telavi 23%; Signaki 9.7%; Lagodekhi 6.2%; Akhmeta 3.7%; Sagarejo 2.5%; and Dedoplistskaro 2.8%.

In terms of grape variety, 53.9% of the total yield was Rkatsiteli; 42.3% Saperavi, 2.2% Kakhuri Green; and 1.6% other varieties.

Average prices amounted to GEL 1.02 per kg for Rkatsiteli; GEL 2.01 for Saperavi; GEL 1.21 for Kakhuri Green and to GEL 0.78 for other varieties. For Saperavi grapes, this amounts to a stark increase by GEL 0.7 per kg compared to other grape varieties that slightly decreased in price. 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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