35 BFC Georgia Agriculture Finance Bulletin

07/2015

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35 Ge o r g i a Agriculture Finance Bulletin Ministry of Agriculture Developing Tea Industry Support Program China to Help Georgia Develop Tea Sector Georgian Wine Promotion Office Opened in Beijing Agriculture Sector Faces Numerous Challenges, Says Chair of Farmers’ Association

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Georgian Agriculture Finance Bulletin Edition #35, July 2015

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

Genetically Modified Food Labelling to Be Introduced ................................................................... 2 130 Enterprises Funded, 600 Revamped and 90 New Projects Launched through Produce in Georgia Program.............................................................................................................................. 2 Ministry of Agriculture Developing Tea Industry Support Program ................................................ 2 International Standard Phytosanitary Laboratory Opened ............................................................. 3 Georgian Wine Promotion Office Opened in Beijing....................................................................... 3 Ministry of Agriculture Launches Hazelnut Sector Development Program .................................... 3 Rainfall Afflicted Agro-Insurance Program Beneficiaries to Be Reimbursed ................................... 3 Wine Export Markets Double in 2014; Export Volumes Decrease in 2015 ..................................... 3 National Wine Agency Focuses on Diversification Strategy ............................................................ 4

Foreign Aid ................................................................................................................. 4 10) China to Help Georgia Develop Tea Sector ..................................................................................... 4 11) ENPARD and Mercy Corp Continue to Assist Cooperatives ............................................................ 5 12) State Agro-Insurance Program Presented to Agriculture Sector Stakeholders .............................. 5

Private Sector.............................................................................................................. 5 13) 14) 15) 16) 17) 18) 19) 20) 21) 22)

BdF: Industrial Demand for Milk Satisfied Almost Entirely by Milk Powder Imports...................... 5 Hazelnut Producer Purchases Land through Produce in Georgia Program..................................... 6 Peach Harvest Estimated at 23,000 Tons in 2015, with 10,000 Tons Destined for Export ............. 6 Bay Leaf Export Revenues Increase by 30% .................................................................................... 6 Potato Exports Decreased by 74% in 2014 ...................................................................................... 6 Tomato Producer to Begin Exporting to EU in 2016 ....................................................................... 7 Agriculture Sector Faces Numerous Challenges, Says Chair of Farmers’ Association ..................... 7 Hazelnut Exports Increase 163% ..................................................................................................... 7 Crops in Kakheti Destroyed by Storms ............................................................................................ 8 Low Demand for Grape Harvest Expected ...................................................................................... 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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BFC. Georgian Agriculture Finance Bulletin. Edition #35, July 2015

State Initiatives 1)

Genetically Modified Food Labelling to Be Introduced

July 3rd, 2015, http://agenda.ge/news/38403/eng ; http://agenda.ge/news/39496/eng

As of July 1, 2015, products containing genetically modified (GM) ingredients of more than 0.9% of total weight must be labelled “GM”, announced the Ministry of Finance.

The indication must be easily perceptible on the top left corner of the product label. If the product does not support labelling, GM status must be indicated on accompanying documentation.

Companies in breach will have 30 days to comply or face a 5000 GEL fine – mounting to 10,000 GEL for repeat offences – and destruction of the offending products.

Imported goods will be subjected to the same rules, undergoing inspection at customs, announced the Ministry. Read More »

2)

130 Enterprises Funded, 600 Revamped and 90 New Projects Launched through Produce in Georgia Program

July 9th, 2015, http://georgiatoday.ge/news/576/Produce-in-Georgia-Assists-Hundreds-of-Enterprises-in-First-Year-

In the year since the launch of the Produce in Georgia Program, 130 enterprises were funded, 600 revamped and 90 new projects undertaken, creating 5000 new jobs, said Prime Minister Irakli Garibashvili. The new projects received USD 252 million in funding.

The program provides consulting services, as well as subsidized loans and real-estate and aims to increase the domestic supply of goods, reducing reliance on imports and creating jobs, said the Prime Minister. The program will receive supplementary components in the near future, added Garibashvili.

Beneficiaries pay a subsidized 1-2% interest on loans ranging from USD 150,000 to USD 2 million. Eligible enterprises are sold real-estate at discounted or token rates.

The Ministry of Agriculture has invested GEL 900 million in the agriculture sector over the past two years, according to the Prime Minister.

3)

Ministry of Agriculture Developing Tea Industry Support Program

July 9th, 2015, http://agenda.ge/news/38753/eng

The Ministry of Agriculture will conduct an in-depth analysis of the tea industry in view of creating an optimized state support program, said Deputy Minister of Agriculture Gocha Tsopurashvili. The program will aim to transform Georgian tea into a global brand.

In July, a stakeholders’ forum was organized by the European Neighbourhood Programme for Agriculture and Rural Development (ENPARD) in cooperation with CARE International and think-tank ISET Policy Institute.

Rehabilitating 1 hectare of tea plantation costs GEL 30,000-32,000, said Tsopurashvili, adding that most tea plantations are located in the Guria, Samegrelo and Adjara regions.

In 2014, black tea exports totaled USD 1,377,000, with imports totaling USD 8,008,000.

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BFC. Georgian Agriculture Finance Bulletin. Edition #35, July 2015

4)

International Standard Phytosanitary Laboratory Opened

July 10th, 2015, http://www.sarke.com/cgi/search/news.asp?Code=10045112

An international-standard phytosanitary laboratory worth GEL 2.4 million was opened in Georgia, according to the Ministry of Agriculture.

The joint Georgia-EU project took 5 months to complete.

5)

Georgian Wine Promotion Office Opened in Beijing

July 15th, 2015, http://www.sarke.com/cgi/search/news.asp?Code=10045149

The Center for Georgian Wine Promotion has been opened in Beijing, announced the Ministry of Agriculture.

The office is located in the Chinese National Research Institute of Food and Fermentation Industries.

According to Georgia’s National Wine Agency, 759,969 bottles were exported to China in the first 6 months of 2015 (5.5% of total exports) – a 23% increase year-on-year.

6)

Ministry of Agriculture Launches Hazelnut Sector Development Program

July 16th, 2015, http://www.interpressnews.ge/en/economics/70672-ministry-of-agriculture-launches-hazelnut-sectordevelopment-program.html?ar=A

The Ministry of Agriculture launched a hazelnut sector development program, announced the European Neighborhood Programme for Agriculture and Rural Development (ENPARD). The project is part-funded

by ENPARD. Drying and storage facilities – with capacities of 24 tons and 500 tons, respectively – have been built in Darcheli, Zugdidi, with funds from the program. Upon completion of the Darcheli development – scheduled for August – it will be handed over to a 500 member cooperative. Prospective members may apply online.

The development must comply with Global GAP and Hazard Analysis and Critical Control Points (HACCP) standards by September 2018 and June 2019, respectively.

7)

Rainfall Afflicted Agro-Insurance Program Beneficiaries to Be Reimbursed

July 21st, 2015, http://www.sarke.com/cgi/search/news.asp?Code=10045204

Losses totaling GEL 4.5 million due to excessive rainfall, sustained by 3000 Agro-Insurance program beneficiaries, will be reimbursed, announced the Ministry of Agriculture.

Through the program, 22,817 policies worth GEL 12.3 million were issued, covering 20,281 hectares of crops worth GEL 164.09 million, said the Ministry.

8)

Wine Export Markets Double in 2014; Export Volumes Decrease in 2015

July 27th, 2015, http://www.finchannel.com/index.php/world/georgian-news/item/47336-otar-danelia-on-wine-export

According to the National Wine Agency, 59,067,335 bottles of wine worth USD 184,927,801 were exported in 2014 – a respective 26% and 30% increase year-on-year. In contrast, 5,100,184 bottles were exported in Q1, 2015, compared to 15,455,103 bottles during the same period in 2014 – a 67% Page 3

BFC. Georgian Agriculture Finance Bulletin. Edition #35, July 2015

decrease. This is mainly due to a reduction in exports to Russia and Ukraine: by 83% and 63%, respectively, year-on-year, according to the Agency.

Market diversification increased with exports reaching 46 countries by the end of 2014, compared with 23 at the beginning.

The total volume of processed grapes increased from 23,000 tons in 2009, to 54,000 tons in 2012, and 124,606 tons in 2014 – a twofold and fivefold increase since 2012 and 2009 respectively, according to the Ministry of Agriculture. However, volumes decreased in 2015.

Grape subsidies in 2014 totaled GEL 0.35 per kilogram of Rkatsiteli and Kakhuri Mtsvane white grapes and GEL 0.15 per kilogram of the red Saperavi, representing a GEL 0.05 decrease for the white grapes, while Saperavi remained stable. Due to high market prices, Racha grapes “Aleksandrouli” and “Mujuretuli” received no subsidy. Read More »

9)

National Wine Agency Focuses on Diversification Strategy

July 30th, 2015, http://commersant.ge/index.php?m=5&news_id=25407&cat_id=6

The National Wine Agency’s diversification strategy aims to decrease reliance on limited markets, according to Chairman George Samanishvili.

While the traditional markets of Russia, Ukraine, Kazakhstan and Belarus are still important, local political and economic considerations render them unpredictable, said the Chairman.

The Agency is focusing on the USA, UK, China and Japan specifically, with Poland and the Baltic countries also showing potential, said Samanishvili.

While this year’s exports exceed figures seen in 2012 and 2013, they are down 49% compared with 2014, added the Chairman.

Foreign Aid 10) China to Help Georgia Develop Tea Sector July 15th, 2015, http://moa.gov.ge/index.php?menuid=17&lang=2&id=528#.Vbcta7OqpBc

The Georgian Ministry of Agriculture and the Tea Research Institute (TRI) – affiliated to the Chinese Academy of Agriculture Sciences (CAAS) – will cooperate on developing the Georgian tea sector, according to the Ministry.

The TRI will share its expertise on the tea value chain, organic production, equipment, genetics, and nurseries, as well as providing high-yielding tea varieties, said Levan Ujmajuridze, Director of the Ministry’s Scientific Research Center.

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11) ENPARD and Mercy Corp Continue to Assist Cooperatives July 16th, 2015, http://www.sarke.com/cgi/search/news.asp?Code=10045167

The European Neighborhood Program for Agriculture and Rural Development (ENPARD) and Mercy Corps are launching an agricultural cooperative development program consisting of trainings, seminars and financial support.

Eligible cooperatives must fund 15% of proposed project costs and have until the September 1 to apply.

The program targets cooperatives in several municipalities: Sachkhere, Chiatura, Vani, and Samtredia in Imereti; Kareli, Khashuri, Kaspi and Gori in Shida Kartli; Sagarejo, Gurjaani, Kvareli, and Marneuli in Kakheti; and Tetritskaro, Akhalkalaki and Ninotsminda in Samtskhe-Javakheti.

12) State Agro-Insurance Program Presented to Agriculture Sector Stakeholders July 16th, 2015, http://moa.gov.ge/index.php?menuid=17&lang=2&id=530#.VbctYrOqpBc

A National Agricultural Insurance Program was presented to representatives of the agriculture sector, financial institutions and state agencies.

Work on the program was jointly developed by the Ministry of Agriculture, the German development bank, KfW, and Swiss-based Business & Finance Consulting (BFC). The latter conducted feasibility studies and developed the program concept, according to co-founder and Managing Director Michael Kortenbusch.

After analysis of the pilot program and feasibility study, the final proposals should be acceptable to farmers, entrepreneurs, insurance companies and financial institutions alike, said First Deputy Minister of Agriculture Nodar Kereselidze.

An effective agro-insurance program is key to sustainable agricultural and rural development, added Acting Director of the Agricultural Projects Management Agency, Mariana Morgoshia.

Private Sector 13) BdF: Industrial Demand for Milk Satisfied Almost Entirely by Milk Powder Imports July 2nd, 2015, http://www.sarke.com/cgi/search/news.asp?Code=10045025

Dairy product enterprises’ daily demand for milk (with the exception of cheese producers) amounts to 100,000-150,000 liters – almost all of which is met by imported milk powder, according to newspaper Bankebi da Finansebi (BdF).

BdF goes on to recommend that comprehensive agrarian reforms be introduced – notably on land use and registration. The state should assist development of the agriculture sector through training courses and bolster credit and insurance programs in conjunction with international partners, added the newspaper. Finally, the government must persuade international agriculture machinery manufacturers to build assembly and spare-part plants in Georgia, according to BdF.

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14) Hazelnut Producer Purchases Land through Produce in Georgia Program July 3rd, 2015, http://www.sarke.com/cgi/search/news.asp?Code=10045048

Hazelnut producer Global Trade purchased non-agricultural land in Kobuleti worth GEL 207,918 for a token 1 lari through the Produce in Georgia program, according to the Ministry of Economy.

The company must begin production within two years and invest a minimum GEL 831,627.

The project will create about 60 jobs and produce 5000 tons of hazelnuts per annum, according to Global Trade. The company was created on June 9 and is owned by Tamaz Zlatkovsky.

15) Peach Harvest Estimated at 23,000 Tons in 2015, with 10,000 Tons Destined for Export July 8th, 2015, http://www.sarke.com/cgi/search/news.asp?Code=10045085

The peach harvest is set to reach 23,000 tons this year – a slight decrease year-on-year, according to the Ministry of Agriculture.

The harvest is estimated to be sold in its entirety, with 10,000 tons being exported to Azerbaijan, Armenia and Ukraine, compared to 4,000 tons in 2014.

16) Bay Leaf Export Revenues Increase by 30% July 8th, 2015, http://commersant.ge/index.php?m=5&news_id=24545&cat_id=6

In 2014, bay leaf export revenue totaled USD 6.61 million, compared to USD 5.06 million in 2013 – a 30% increase, according to the National Statistics Office.

The opening of the Russian market is the main contributing factor, with exports increasing from USD 180,000 (111 tons) to USD 2.56 million (1523 tons) over the same period, according to the figures.

Russia is the top export market. Turkey is second, with USD 1.5 million (948 tons) sold in 2014 – compared to USD 1.8 million (1175 tons) in 2013 – and Ukraine in third with USD 1.27 million (837 tons) sold in 2014 – compared to USD 1.01 million (729 tons) in 2013.

17) Potato Exports Decreased by 74% in 2014 July 15th, 2015, http://commersant.ge/index.php?m=5&news_id=24816&cat_id=5

According to the National Statistics Office, 2500 tons of potatoes worth USD 894,000 were exported in 2014, compared to 9980 tons worth USD 3.45 million in 2013 – a 74% decrease. By comparison, potato exports totaled USD 96,000 in 2012.

The top export market is Azerbaijan with 58% of total exports. Kazakhstan, Armenia, Belarus and Russia are also important markets.

In 2014, Georgia imported 30,478 tons of potatoes worth USD 7.03 million, compared to 10,165 tons worth USD 1.87 million in 2013 – mainly from Armenia, Ukraine and the Netherlands.

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BFC. Georgian Agriculture Finance Bulletin. Edition #35, July 2015

18) Tomato Producer to Begin Exporting to EU in 2016 July 17th, 2015, http://commersant.ge/index.php?m=5&news_id=24883&cat_id=6

Stimor, a tomato producer, is to begin exporting to the EU once it obtains the required certification – expected in 2016, according to company representative Avrum Gagulashvili.

The company, which currently produces 200 tons of tomatoes, has installed thermal heating systems in its greenhouses, economizing USD 25,000 a year per every 5 hectares, said Gagulashvili, adding that 1 kg of tomatoes costs the company 80 tetri to produce and has a market value of 2 GEL. The company received USD 2 million through the Produce in Georgia program in 2014. A further USD 6.7 million obtained this year will be used to build an additional greenhouse to meet future export volumes, according to Project Manager Vakhtang Kopaleishvili. Work on the greenhouse begins in September.

After the expansion is completed, Stimor expects to employ 120-130 people – up from 50 today.

19) Agriculture Sector Faces Numerous Challenges, Says Chair of Farmers’ Association July 20th, 2015, http://commersant.ge/index.php?m=5&news_id=24986&cat_id=5

While promising, the Georgian agriculture sector has been neglected for 20 years – despite state development programs, it will take time for the sector to reach its full potential, says Nino Zambakhidze, Chairwoman of Georgian Farmers’ Association.

There are several major problems facing the sector, according to Zambakhidze. The first is a lack of expertise and technology, limiting appropriate exploitation of the land.

A second issue is a lack of raw materials for agro-processors. The value chain must be created from scratch, according to the Zambakhidze. While the state has a good program supporting the introduction of new perennial crops, this will take time to develop, she added.

Zambakhidze sees lack of appropriate infrastructure – including irrigation systems – and a cadaster and registration system as further issues that need to be addressed.

Finally, while the state has opened cheap credit lines to famers, it is important to plan for their end, which are inevitable, says Zambakhidze. Read More »

20) Hazelnut Exports Increase 163% July 21st, 2015, http://commersant.ge/index.php?m=5&news_id=25026&cat_id=5

According to the National Statistics Office, as of June 2015, hazelnuts worth USD 73.68 million were exported – a 163% increase year on year (from USD 28 million). The nut’s share of total exports increased from 2% to 6.8% during the same period, ranking 4th amongst export products.

In 2014, hazelnuts worth USD 183.4 million were exported, compared to USD 166.7 million in 2013.

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21) Crops in Kakheti Destroyed by Storms July 23rd, 2015, http://agenda.ge/news/39643/eng

Heavy wind and hail destroyed hectares of vineyards, watermelon and corn in Kakheti.

Farmers in the Kvareli region reported their crop was completely destroyed and appealed to the government for help.

The scale of the damage will be assessed and farmers compensated, assured Governor of Kakheti, Irakli Shiolashvili.

22) Low Demand for Grape Harvest Expected July 29th, 2015, http://commersant.ge/index.php?m=5&news_id=25369&cat_id=6

Due to the 49% drop in wine exports – mainly to Russia (-63%) and Ukraine (-60%) – National Wine Agency Chairman George Samanishvili expects insufficient demand for this year’s grape harvest.

While the government eschews interference in pricing, it will almost certainly respond with white grape subsidies, said Samanishvil. Time will tell whether red grape subsidization is also required, added the Chairman.

Due to the drop in exports, wineries have large stocks of unsold wine, said CEO of Schuchmann Wines Nutsa Abramishvili.

After last year’s opening of the Russian market, exports boomed, with grape prices reaching record levels – however, with nearly all wineries having their own vineyards, this year’s reduction in grape purchases will be significant, added Abramishvili.

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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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