30 BFC Georgia Agriculture Finance Bulletin

02/2015

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30 Ge o r g i a Agriculture Finance Bulletin BFC to Present Preliminary Results of Georgian Agro-Insurance Study Agricultural Insurance Program Budget Doubled to GEL 10 Million World Bank to Launch USD 50 Million Irrigation and Land Market Project Telavi Wine Cellar Exports to 22 Countries, Including Cuba and Panama

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Georgian Agriculture Finance Bulletin Edition #30, February 2015

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

Belorussia Opens Trade Office – Agrees Cooperation in Agriculture .............................................. 2 Government Plans Increase in Potato Exports ................................................................................ 2 Ministry of Agriculture Identifies 7 Agricultural Development Channels ....................................... 2 Russian Wheat Imports Cease ......................................................................................................... 3 Ministry of Agriculture Sets Schedule for Harmonization of Food Safety Regulations with EU ..... 3 Ministry of Agriculture Introduces Mandatory Wine Lot Number .................................................. 3 BFC to Present Preliminary Results of Georgian Agro-Insurance Study .......................................... 3 Rehabilitation of Imirasani Irrigation System to Be Completed by Late 2015 ................................ 4 Agricultural Insurance Program Budget Doubled to GEL 10 Million ............................................... 4

Foreign Aid ................................................................................................................. 4 10) IFAD Launches USD 18 Million Climate-Smart Project in Georgia................................................... 4 11) World Bank to Launch USD 50 Million Irrigation and Land Market Project .................................... 5

Private Sector.............................................................................................................. 5 12) 13) 14) 15) 16) 17) 18) 19) 20) 21) 22) 23) 24) 25)

Delays in Certification Facility Completion Prevent Georgian Honey Exports ................................ 5 Laurel to Be Cultivated on 208 ha in Khobi ..................................................................................... 5 Georgian Wine Exhibited in the USA and across Europe ................................................................ 6 Georgia Suffers Shortage in Domestic Milk Production .................................................................. 6 Marshe Preparing to Enter the European Market........................................................................... 6 Georgian Goods Exhibited at Gulfood 2015, Dubai......................................................................... 7 Georgian Wool Faces Export Difficulties ......................................................................................... 7 Year-on-Year Decrease in Wine Exports to Top Traditional Markets .............................................. 7 Two Georgian Wines Win Awards at Sakura 2015, Japan ............................................................... 7 Fish Farm to Be Established in Kobuleti .......................................................................................... 8 Telavi Wine Cellar Exports to 22 Countries, Including Cuba and Panama ...................................... 8 Construction of First Olive Processing Plant in Georgia Underway ................................................ 8 Georgian Wine Exports to China up 30% in 2015............................................................................ 9 Cattle Export to Azerbaijan Halted .................................................................................................. 9

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 #30, February 2015

State Initiatives 1)

Belorussia Opens Trade Office – Agrees Cooperation in Agriculture

February 3rd, 2015, http://sarke.com/cgi/search/news.asp?Code=10043560

Belorussia is to open a trade office in Georgia. The decision was reached in Minsk during the first Georgian-Belorussian Intergovernmental Commission on Economic Development held in 4 years.

The parties signed a protocol envisaging cooperation in the fishing industry, cattle breeding, and meat, dairy and fodder production.

The Georgian delegation was headed by Minister of Agriculture Otar Danelia. Belorussian President Alexander Lukashenko will visit Georgia in April.

In 2014, Georgian exports to Belorussia amounted to USD 34.79 million (0.1% of total), while USD 21.16 million of goods flowed the other way (0.02% of Belorussian total exports), according to Sakstat.

2)

Government Plans Increase in Potato Exports

February 5th, 2015, http://commersant.ge/index.php?m=5&news_id=18395&cat_id=5

Despite last year’s harvest only meeting domestic demand, the government plans to boost potato exports through an increase in cultivation and yields.

According to the Parliamentary Agriculture Committee, there are 26,000 hectares of potato plantation, almost 2 times less than 20 years ago.

Potato export development will counterbalance capital outflows and promote the development of breeds adapted to the local environment.

The Ministry of Agriculture supports plant breeding, but believes primary and secondary seeding should develop in parallel.

3)

Ministry of Agriculture Identifies 7 Agricultural Development Channels

February 6th, 2015, http://sarke.com/cgi/search/news.asp?Code=10043608

The Ministry of Agriculture announced it will focus on 7 development areas: competitiveness; institutional competence; land reclamation and soil fertility; value chain development; food security; food, animal and plant safety; climate change, and environment and biodiversity preservation.

The Ministry’s strategy compromises fulfilment of its obligations under the Deep and Comprehensive Free Trade Agreement with EU.

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4)

Russian Wheat Imports Cease

February 6th, 2015, http://sarke.com/cgi/search/news.asp?Code=10043600

Chairman of the Wheat Producers Association Levan Silagava said that imports of wheat from Russia were halted in February. Russia increased customs duties, saying that total wheat exports expected for 2014-2015 were delivered in the first 6 months, according to Silagava.

A search for alternatives is underway. Ukraine has delivered some wheat, while imports from Kazakhstan are planned. Offers have been received from Hungary. However, the price of imports remains high due to the lari’s weakness, said Silagava, adding that fluctuations have increased the price of wheat by USD 35 per ton.

In the meantime, wheat reserves are sufficient to meet local demand, said Silagava, while warning of further price increases.

5)

Ministry of Agriculture Sets Schedule for Harmonization of Food Safety Regulations with EU

February 11th, 2015, http://sarke.com/cgi/search/news.asp?Code=10043648

Laws harmonizing Georgian legislation with EU food safety regulations have been drafted and listed according to priority, said the Ministry of Agriculture.

Regulatory harmonization will be gradually implemented from 2015-2030 according to the terms set by the Deep and Comprehensive Free Trade Agreement (DCFTA). Before enactment, the draft laws will be presented to the EU for approval.

6)

Ministry of Agriculture Introduces Mandatory Wine Lot Number

February 12th, 2015, http://sarke.com/cgi/search/news.asp?Code=10043660

The Ministry of Agriculture announced the mandatory introduction of lot numbers on wine intended for export, allowing end-to-end traceability and facilitating controls. The new regulation simplifies the alcoholic beverage certification system, reducing costs for exporters, said Minister of Agriculture Otar Danelia. Each lot will be subjected to a one-time inspection – no further certification and testing is required.

7)

BFC to Present Preliminary Results of Georgian Agro-Insurance Study

February 13th, 2015, http://moa.gov.ge/index.php?lang=2&menuid=17&id=416#.VPB7FXyUf7l

On March 13, Zurich-based Business and Finance Consulting (BFC) will present preliminary results of its research on the potential of agricultural insurance in Georgia, announced the Ministry of Agriculture.

Priorities for the second research phase will subsequently be determined. The study will be completed in May. Minister of Agriculture Otar Danelia met with BFC’s Managing Director Michael Kortenbusch to discuss the study.

BFC was appointed through the Ministry’s collaboration with the German Development Bank (KfW).

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8)

Rehabilitation of Imirasani Irrigation System to Be Completed by Late 2015

February 17th, 2015, http://sarke.com/cgi/search/news.asp?Code=10043712

The Ministry of Agriculture and the United Irrigation System Company of Georgia announced the rehabilitation of the Imirasani irrigation system (in the Bolnisi municipality of the Kvemo Karli region).

The project was launched in 2014 and will be completed by December 2015, costing GEL 3.3 million.

The system will irrigate over 3,000 ha of land belonging to 1,735 families across 7 villages.

In Kvemo Kartli, the company is currently undertaking 10 irrigation system modernization projects.

9)

Agricultural Insurance Program Budget Doubled to GEL 10 Million

February 19th, 2015, http://moa.gov.ge/index.php?lang=2&menuid=17&id=420#.VPB7HXyUf7l

Due to the pilot program’s success since its launch in September, the budget for the Agricultural Insurance Program was increased from GEL 5 to 10 million, said Minister of Agriculture Otar Danelia.

The Ministry works in partnership with the German Development Bank (KfW) and, through the latter, commissioned Swiss-based Business and Finance Consulting (BFC) to research the implementation of agricultural finance in Georgia. The first phase of the study has been completed, and recommendations taken on board, said Danelia.

The pilot subsidizes part of the insurance premium of a selection of farmers representing a cross-section of the agriculture industry – the remaining is covered by the farmers. The subsidy was recently reduced from 70% to 60% of the premium. Georgia’s top 6 agro-insurers are participating in the project, added the Minister. Since 2014, 21,000 policies worth GEL 150 million have been issued, covering 19,000 hectares of land.

During the 1990s, agriculture made up 45% of Georgia’s GDP. By 2013, it amounted to 9.3%. Agriculture ranks 5th in terms of government resource allocation – behind trade, industry, public administration, and transport and communication. Almost 50% of the population is employed in the sector. Read More

Foreign Aid 10) IFAD Launches USD 18 Million Climate-Smart Project in Georgia February 17th, 2015, www.ifad.org/media/press/2015/12.htm

The International Fund for Agricultural Development (IFAD) announced the “Agricultural Modernization, Market Access and Resilience” (AMMAR) project – worth more than USD 30 million – designed to help small scale famers increase incomes and resilience to climate change. The project will be implemented from 2015 to 2019.

Georgia’s agriculture sector is highly vulnerable to climate change, leading to serious production losses and threats to food security. Increasing aridity is threatening to devastate already semi-arid eastern Georgia by the end of the century, according to IFAD. The program aims to mainstream climate-smart agricultural value chains driven by the needs of small-scale farmers, while simultaneously supporting other elements of the value-chain – such as agro-business, cooperatives, and extension and input

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service providers. The objective is to increase small-scale famers’ income by 20% in more than 10,000 households.

Since 1997, IFAD has invested a total of USD 52 million in Georgia, leveraging an additional USD 72 million in co-financing for five programmes and projects benefitting approximately 93,000 rural families.

11) World Bank to Launch USD 50 Million Irrigation and Land Market Project February 20th, 2015, http://agenda.ge/news/30143/eng

The World Bank is to launch the USD 50 million “Irrigation and Land Market Development Project” in Georgia.

Minister of Agriculture Otar Danelia said that, within two years, the irrigation systems in Lower Samgori, Upper Rusi and Tbisi Kumisi will be almost completely rehabilitated at a cost of USD 31 million. The rest of the funds will be used for other elements of the project.

Private Sector 12) Delays in Certification Facility Completion Prevent Georgian Honey Exports February 3rd, 2015, http://commersant.ge/index.php?m=5&news_id=18239&cat_id=6

According to George Kepashvili, Deputy Chairman of the Georgian Beekeepers’ Guild, despite the likely competitiveness of Georgian honey in EU markets, it will not be exported in the near future due to ongoing delays in the completion of a state-of-the-art testing facility. The laboratory would allow producers to obtain EU recognized certification. However, notes Kepashvili, it has experienced numerous delays, and in that regard, further delays cannot be ruled out.

Kepashvili added that beekeepers do not currently possess the know-how to process honey in accordance with EU regulations. Training centres should be set up with aid from the state, argues Kepashvili.

Of 50,000 beekeepers, 96.6% are amateur.

13) Laurel to Be Cultivated on 208 ha in Khobi February 3rd, 2015, http://sarke.com/cgi/search/news.asp?Code=10043568

Kateve Khobi LLC is to pay GEL 200,000 for 208 ha of state-owned arable land located in the Khobi municipality of Samegrelo.

According to the terms, laurel trees (bay leaf) must be cultivated on 90% of the land within 2 years.

Within the same period, the remaining area must be fitted with windbreaks and fences. In addition, Kateve Khobi must report soil conditions to the Ministry of Agriculture every 5 years. The company must invest no less than GEL 1.1 million.

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14) Georgian Wine Exhibited in the USA and across Europe February 4th, 2015, http://en.bpi.ge/index.php?option=com_content&view=article&id=19478:georgian-wine-promoted-ineurope&catid=49:2011-11-06-16-56-03

Georgian wines were recently exhibited at in the USA and across Europe: at Angers and Saumur in France; at Vini Naturali natural wine exhibition in Rome; in Boston, USA; and in Gothenburg, Sweden.

Vini Naturali is an exhibit for “natural” wine, taking place from February 14-15, with over 2000 wines from 200 producers based in 82 countries. The traditional Georgian “Kvevri” clay urn method will be discussed at the exhibit, with 12 Georgian wineries presenting their Kvevri wines, including: Archil Guniava’s Cellar, Gotsadze Family Cellar, Iago’s Cellar, Jakhelebi, and Our Wine.

Master of Wine Lisa Granick will hold a seminar at the Boston Wine Expo entitled “Republic of Georgia: Wines from the Oldest Vineyards”. Attendees will be invited to taste eight wines from Badagoni, Khareba Winery and Kindzmarauli Marani.

In Gothenburg, the event was organized by the Georgian diaspora and Marani Wine Club. Participants will be treated to Kvevri wine and Georgian music and cuisine.

Meanwhile, the Georgian traditional “Kvevri” method was added to the UNESCO Intangible Cultural Heritage List.

15) Georgia Suffers Shortage in Domestic Milk Production February 9th, 2015, http://commersant.ge/index.php?m=5&news_id=18421&cat_id=6

Founder of “Georgian Business Zone” Nino Zambakhidze argues that Georgia’s milk production is undermined by local cattle breeds, lack of know-how and lack of artificial insemination. The international standard for milk production is 20-35 litres a day while, in Georgia, the figure stands at 8-9 litres, she notes.

Dairy product company “Sante” agrees there is a shortage in local production, adding that most of their products are made from milk powder imported from Germany.

Lasha Papashvili, owner of a dairy farm, blames lack of regulations, adding people need guarantees regarding what they consume. According to Papashvili, there are over 80 varieties of milk made from low-quality milk-powder on the market today. And introduction of regulations similar to those of the EU would increase local production, he added.

According the Agriculture Projects Management Agency, the milk processing industry received GEL 6.2 million in preferential agricultural loans.

16) Marshe Preparing to Enter the European Market February 9th, 2015, http://commersant.ge/index.php?m=5&news_id=18463&cat_id=6

Food producer “Marshe” is planning to enter the European market in the near future, said Director Ekaterine Chkhaberidze, adding the necessary investment in production and distribution will cost EUR 30 million. The company produces prepared and semi-prepared goods including sausages, confectionary, dairy and fish products.

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17) Georgian Goods Exhibited at Gulfood 2015, Dubai February 10th, 2015, http://sarke.com/cgi/search/news.asp?Code=10043638

Georgian companies presented their products at Gulfood 2015, an international food and beverage exhibition held in Dubai on February 12, according to the Entrepreneurship Development Agency (EDA).

Participants included 4,200 companies from 152 countries – the number of visitors exceeded 77,000.

Georgian companies included: Aroma Products (fruits and vegetable processing); Kula (fruits and vegetable processing); Kampa (fruit juices); Sairme (mineral water); Georgian Product Renaissance (nuts); Aer Company (nuts); Anka Fair Trade (nuts); and Barambo (chocolate and sweets).

According to the EDA, this year, Georgian produce will be on display at the following exhibits: Sial China 2015 (Shanghai, China, May 6-8); NYC Summer Fancy Food Show (New York, USA, June 28); Riga Food 2015 (Riga, Latvia, September 2-5); Anuga 2015 (Cologne, Germany, October 10-14); and CPhI Worldwide 2015 (Madrid, Spain, October 13-15).

18) Georgian Wool Faces Export Difficulties February 11th, 2015, http://commersant.ge/index.php?m=5&news_id=18387&cat_id=6

Though interest in Georgian wool is high, it faces export difficulties, according to exporter Zaur Kuliev, adding wool has not been sold to British clients for two months. Though not specifying the exact reasons, Kuliev believes the halt is due to contract disputes.

Kuliev’s main export destination is Turkey. The wool is used for making carpets, with total exports reaching 210 tons last year, according to Kuliev. The average price of 1 kg of wool is 75-80 cents.

19) Year-on-Year Decrease in Wine Exports to Top Traditional Markets February 17th, 2015, http://sarke.com/cgi/search/news.asp?Code=10043707

The Georgian Wine Club announced that year-on-year export revenues fell 65% to USD 3.93 million in January. This is mainly due to the Russian economic crisis, said the Club.

Country figures showed exports fell across traditional markets: by 87% to Russia; 70% to Azerbaijan; 52% to Ukraine; 49% to Estonia; and 17% to Kazakhstan. Exports to Ukraine and Kazakhstan - which together with Russia, Poland and Latvia are Georgia’s top five export markets – fell by 6% and 8% respectively.

However, exports to Japan, China and Canada ballooned by a factor of 3.7, 30.3 and 2.8 respectively.

While export decreases in traditional markets are due to the ruble crisis, increases in new markets are due to the government’s diversification strategy, according to the club.

20) Two Georgian Wines Win Awards at Sakura 2015, Japan February 17th, 2015, http://www.commersant.ge/?m=5&news_id=18690&cat_id=7

With 2904 wines entered in the competition, two Georgian wines won prizes at Sakura 2015 – Japan Women's Wine Awards. The Double Gold Award was given to Lukasi’s Chkhaveri Rosé 2012 and the Silver Award to Marani Kondoli Vineyards’ Mtsvane-Kisi 2013. The results were announced on

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February 14th. The panel consists of 340 female wine specialists – participation is not restricted by gender, however.

Keti Gersamia of Lukasi wine company said the award brings new challenges to the company, with several large retailers and restaurants from Germany, Belgium, Austria and Russia expressing interest in the wine. The Lukasi winery was founded by Gersamia and her husband Mamuka Dolidze.

21) Fish Farm to Be Established in Kobuleti February 18th, 2015, http://sarke.com/cgi/search/news.asp?Code=10043729

JSC Eco Fish Georgia leased 30,429 m² of state-owned non-agricultural land in Kobuleti (Ajara).

Under the terms, the company must set up a fish farm within 18 months, investing no less than GEL 1.2 million. In addition, the company must provide unconditional and irrevocable bank guarantee of 10% of the total investment.

22) Telavi Wine Cellar Exports to 22 Countries, Including Cuba and Panama February 18th, 2015, http://sarke.com/cgi/search/news.asp?Code=10043716

Chairman of Telavi Wine Cellar, Zurab Ramazashvili, said the company exports wines to 22 countries in the former Soviet Union, Europe, Asia and the Americas – including Cuba and Panama.

The Russian an ex-Soviet market are particularly important for Georgian wine, said Ramzashvili, adding that Telavi wine is highly recognizable in these countries. Outside of these markets, Georgian wine is not well known – however, with the right level of investment and an appropriate marketing strategy, it has great potential, said Ramzashvili.

Telavi Wine Cellar produces over 70 wines.

23) Construction of First Olive Processing Plant in Georgia Underway February 19th, 2015, http://www.commersant.ge/?m=5&news_id=18742&cat_id=6

According to George Svanidze, founder of Geolive, the company is to spend GEL 1 million on the first olive processing plant in Georgia. All the necessary equipment has been ordered from Europe and construction has begun. The plant will employ 20-25 people. Construction – to be completed by the end of 2015 – will benefit from the assistance of Italian experts in its initial phase.

Georgia is ideal for olive cultivation, said Svanidze. With state-of-the-art equipment from Europe, the plant will produce high quality products, he added. With increased import costs due to the strong dollar, locally produced products should be at an advantage in the domestic market. With last year’s 30% increase in global olive prices, business interest in local production is likely to increase, added Svanidze.

Last year, despite poor weather, Geolive produced 10 tons of olives on 300 ha of plantation. After initially selling produce on the local market, Geolive plans to export to Ukraine, Spain, Russia and Armenia, according to Svanidze.

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24) Georgian Wine Exports to China up 30% in 2015 February 19th, 2015, http://www.commersant.ge/?m=5&news_id=18754&cat_id=6

According to Georgia’s ambassador to China, Georgian wine exports to the country have noticeably increased. With exports to the former Soviet bloc – Georgia’s main export market – falling sharply due to economic crisis, cracking the Chinese market has become a priority for Georgian wineries.

In 2014, exports to China increased 34% year-on-year, primarily due to marketing activities – amounting to 1.2 million bottles.

Winemakers believe Georgian wine will never become truly competitive without cracking the Chinese market. To this end, the National Wine Agency intends to increase promotion activities in the country.

25) Cattle Export to Azerbaijan Halted February 20th, 2015, http://www.commersant.ge/?m=5&news_id=18778&cat_id=6

Export of cattle to Azerbaijan has all but ceased due to reduced demand and a lower offering, said Nino Zambakhidze, Chairwoman of the Georgian Farmers’ Association. According to the Statistics Service, last year, exports fell from USD 9 million in Q3 to USD 4.9 million in Q4.

Rusudan Gikashvili, Chairwoman of NGO "Farmers of the Future", said the cost of rearing cannot be recouped with the current Azeri market offering, adding many farmers are likely to cease production.

While Georgia must develop exports to the EU, current markets should not be forsaken, she argued.

Sales at the Marneuli cattle market fell 35%. According to Tariel Gajiyev, director of the market, Azeri importers have found cheaper alternatives in Russia and Kazakhstan.

Deputy Head of the National Food Agency, Tengiz Kalandze, insists the state doesn’t create unnecessary export obstacles – arguing, instead, that Azeri importers have probably found cheaper alternatives.

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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.