36 BFC Georgia Agriculture Finance Bulletin

08/2015

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36 Ge o r g i a Agriculture Finance Bulletin Investment in Agriculture Totals USD 1.81 Million in Q1, 2015 ENPARD Reaches Agricultural Product Promotion Agreement with Kar.ge and Geocell Georgian Sheep Exports Suffer Wheat and Flour Import Rise Unabated, According to Revenue Service

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Georgian Agriculture Finance Bulletin Edition #36, August 2015

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

Russia Considers Imposing New Wine Embargo ............................................................................. 2 Ministry of Agriculture to Prevent Bread Price Hikes...................................................................... 2 Investment in Agriculture Totals USD 1.81 Million in Q1, 2015 ...................................................... 2 Subsidies Reintroduced for Rkatsiteli and Saperavi Grapes ............................................................ 3 Georgia and Turkey to Hold Agribusiness Forum in Istanbul .......................................................... 3 Armenia Bans the Import of Georgian Meat for Personal Use After Anthrax Outbreak ................ 3 Armenian Minister of Agriculture Visits Georgian Agribusinesses .................................................. 3 Hail Affected Kakheti Farmers to Receive Copper Fertilizers .......................................................... 4

Foreign Aid ................................................................................................................. 4 9)

ENPARD Reaches Agricultural Product Promotion Agreement with Kar.ge and Geocell ............... 4

Private Sector.............................................................................................................. 5 10) 11) 12) 13) 14) 15) 16) 17) 18)

Georgian Sheep Exports Suffer ........................................................................................................ 5 Five Georgian Wine Promotion Centers Opened in China .............................................................. 5 Disagreement on the Likelihood of Bread Price Hikes .................................................................... 6 Mills Forced to Halt Operations Due to Lari Devaluation and Dumping ......................................... 6 Hazelnut Price to Fall ....................................................................................................................... 6 Juice Producer to Export to Russia and Estonia – EU Markets to Follow ........................................ 7 Renewed Russian Wine Embargo May Have Little Effect ............................................................... 7 Wheat and Flour Import Rise Unabated, According to Revenue Service ........................................ 7 International Standard Hazelnut Drying and Storage Facility Opened in Zugdidi ........................... 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 »

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BFC. Georgian Agriculture Finance Bulletin. Edition #36, August 2015

State Initiatives 1)

Russia Considers Imposing New Wine Embargo

August 5th, 2015, http://agenda.ge/news/40206/eng

A Georgian wine import ban is being considered, according to Russia’s Ministry of Agriculture. Russia recently announced it would take action against all countries that backed European Union (EU) trade sanctions, imposed in response to Russia’s involvement in the Ukraine crisis.

Rospotrebnadzor, Russia’s Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing, said Georgian wine and cognac imports systematically breached safety regulations, while Georgian monitoring agencies failed to impose controls.

Georgia’s Ministry of Agriculture said it will examine the accusations, while stressing the stringency of its quality controls.

In the first half of 2015, exports to Russia decreased by 63%. Despite this, Russia mains the top export market, with about 6.5 million bottles delivered, followed by 2.2 million to Kazakhstan; 1.2 million to Ukraine; 80,000 to Poland; and 76,000 to China.

Georgia has made significant efforts to diversify wine export markets, in part due to the Russian 20062012 embargo. This is evident in National Wine Agency figures, with significant growth in new markets: 230% in Hong Kong; 159% in Canada; 61% in the U.S.; 33% in the UK; 23% in China; 21% in Japan; 20% in Latvia; 15% in Estonia; 6% in Kazakhstan; and 5% in Germany.

2)

Ministry of Agriculture to Prevent Bread Price Hikes

August 10th, 2015, http://commersant.ge/index.php?m=5&news_id=25761&cat_id=5

Bread prices are expected to rise, according to Malkhaz Dolidze, Chairman of the Georgian Bakery Products Association.

However, Minister of Agriculture Otar Danelia retorted that wheat and bread price increases would “not be logical”. The state has wheat reserves and market prices have decreased, he added. Nonetheless, the Ministry will do everything in its power to prevent price rises and will assist the industry wherever it can, said Danelia. Several meetings have already been held on the matter, while more are scheduled.

3)

Investment in Agriculture Totals USD 1.81 Million in Q1, 2015

August 12th, 2015, http://www.finchannel.com/index.php/world/georgian-news/item/47892-georgia-increased-investmentinflow-to-the-agricultural-sector

According to the National Statistics Office, in Q1, 2015, USD 1.81 million was invested in agriculture and fisheries, up from USD 1.3 million in Q1, 2014. Total investment in 2014 was USD 19.09 million.

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BFC. Georgian Agriculture Finance Bulletin. Edition #36, August 2015

4)

Subsidies Reintroduced for Rkatsiteli and Saperavi Grapes

August 12th, 2015, http://www.georgianjournal.ge/business/31227-035-gelkg-for-rkatsiteli-and-015-gelkg-for-saperavi-grapesto-be-issued-as-subsidies.html

Considering the current geopolitical situation, Rkatsiteli and Saperavi grape subsidies will be reintroduced at GEL 0.35 and GEL 0.15 per kilogram, respectively, said Minister of Agriculture Otar Danelia. While the government will not set prices, it may purchase grapes if demand is low, added the Minister. The subsidies are intended for growers, not wineries, said Danelia.

Other state measures are in place to help growers, including agricultural insurance, preferential agroloans and anti-hail systems, noted the Minister.

National Wine Agency Director Giorgi Samanishvili said coordination teams will be located in Telavi and Gurjaani, while a website will be created for interested parties.

5)

Georgia and Turkey to Hold Agribusiness Forum in Istanbul

August 13th, 2015, http://moa.gov.ge/index.php?menuid=17&lang=2&id=552#.VeLP5Pntmko

Minister of Agriculture Otar Danelia met with Cihad Vardan, the Chairman of Turkey’s Economic Relations Supervisory Board “DEIK”, to discuss strengthening trade and economic cooperation between the two countries. The parties announced government and business representatives will attend a business forum held in Istanbul in the near future.

Georgian agriculture is an attractive investment sector, said Vardan. Both parties aim to increase trade relations between the countries’ businesses.

If market diversification is to be achieved, attaining international quality and safety standards is paramount, stressed Danelia, adding that significant progress has been made in this area.

6)

Armenia Bans the Import of Georgian Meat for Personal Use After Anthrax Outbreak

August 14th, 2015, http://georgiatoday.ge/news/947/Armenia-Tightens-Control-on-Beef-Import-from-Georgia

Following an outbreak of anthrax in Georgia, Armenia has banned beef imports for personal consumption from the Bagratashen, Bavra and Gogovani border crossings. The ban is in effect from the 5th-19th of August.

Last week, two persons in Armenia were diagnosed with Anthrax. Testing in Yerevan concluded the Anthrax was contracted through beef purchased in Ninotsminda, Samtskhe-Javakheti, Georgia.

The Food Safety Service warned against purchasing meat from dubious sources.

7)

Armenian Minister of Agriculture Visits Georgian Agribusinesses

August 17th, 2015, http://moa.gov.ge/index.php?menuid=17&lang=2&id=555#.VeLP6_ntmko

Armenia’s Minister of Agriculture Sergo Karapetyan met with Georgian counterpart Otar Danelia to discuss extending cooperation in the agriculture sector.

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BFC. Georgian Agriculture Finance Bulletin. Edition #36, August 2015

In Adjara, the pair visited tea producer Agrofirm Kobuleti which, to date, has produced 90 tons of green tea and 45 tons of black Baiakhai tea from 370 tons of raw leaves. They also visited 3000 m² fish farm “Ikhtiosi” in Khelvachauri, where 20,000 sturgeon are housed in 24 tanks, producing 42 tons of fish a year.

The Ministers also toured an experimental farm, various state-of-the-art strawberry and tomato greenhouses, a fruit tree and grape vine nursery, and agro-consulting institution “Agro Service Center”, after which they will travel to Kahketi to visit Kvareli Baga cattle farm and Kindzmarauli Marani winery.

8)

Hail Affected Kakheti Farmers to Receive Copper Fertilizers

August 23rd, 2015, http://moa.gov.ge/index.php?menuid=17&lang=2&id=559#.VeLO-Pntmko

The Ministry of Agriculture announced special relief measures for Kakheti grape and perennial farms damaged by hail.

Affected farms of 5 hectares or more will receive rehabilitating copper fertilizers worth GEL 65, distributed by local government. Information about local stores can be obtained via hotline: 247 01 01.

The emergency once again emphasizes the importance of acquiring agricultural insurance, said the Ministry, adding that, to further encourage its adoption, co-financing of insurance premiums will be increased from 60% to 70%.

Foreign Aid 9)

ENPARD Reaches Agricultural Product Promotion Agreement with Kar.ge and Geocell

August 5th, 2015, http://commersant.ge/index.php?m=5&news_id=25630&cat_id=6

The European Neighborhood Program for Agriculture and Rural Development (ENPARD) has reached an agreement with Kar.ge – an online Georgian product promotion platform – to raise awareness of cooperative agricultural products. As part of the agreement, the products will be promoted online every Tuesday and Friday. The partnership will also aim to improve farmers’ relationships with businesses, supermarket chains, hotels and restaurants.

The agreement was inspired by Kar.ge’s recent successes in promoting cooperative products online, including trout produced by "Samegobro 2014" and cheese produced by "Lelo 2014". Launched in 2014, the site receives 210,000 unique visitors a month. The company also attracts international investors and has recently facilitated negotiations between dried fruit producers and Dutch importers, according to Managing Director Tariel Zivzivadze.

Recently, ENPARD also facilitated an agreement between mobile operator Geocell and producers of “Chirkoladi” – a chocolate-covered dried fruit – which will see the confectionary offered to Geocell’s high-value customers. Read More »

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BFC. Georgian Agriculture Finance Bulletin. Edition #36, August 2015

Private Sector 10) Georgian Sheep Exports Suffer August 1st, 2015, http://www.georgianjournal.ge/business/31144-georgian-sheep-failing-to-compete-due-to-high-prices.html

Due to a mixture of high taxes, pasture fees, lack of state support, and a strong dollar, the price of Georgian sheep exports have suffered, according to Beka Gonashvili, Chairman of the Sheep Farmers’ Association.

According to the Association, one sheep now costs GEL 150-180 on the domestic market, increasing by GEL 30-40 if exported. To combat rising costs, farmers are squeezing more sheep than permitted onto pastures, causing degradation and the eventual destruction of pastureland.

As recently as 2009, due to low production and transportation costs, and Georgian Tushetian lamb’s recognized flavor, sheep exports were increasing - with markets including Azerbaijan, Iran, Turkey, Lebanon, Qatar and United Arab Emirates. Today, the sheep are exported only to Azerbaijan and Iran, which are also seeing dwindling sales, said Ganashvili.

To compound the problems, cheaper, lower quality Armenian sheep are being imported and then exported as Georgian sheep, with enforcement agencies doing little to tackle the problem, added the Chairman. The National Food Agency will introduce a compulsory registration and identification system next year, on the basis of which export certificates will be issued.

About 300,000 tons of wool are collected each year. Due to low quality and high transportation costs, most of the wool is destroyed, with only 1,000 tons being used, mainly on the domestic market.

11) Five Georgian Wine Promotion Centers Opened in China August 6th, 2015, http://www.messenger.com.ge/issues/3429_august_6_2015/3429_econ_one.html

Five centers promoting Georgian wine opened in China. The Georgian Wine Promotional Center opened in Beijing’s Nutrition and Alcohol Research Institute. In Xinjiang, the Georgian Wine Culture Exhibition Hall, the Georgian Wine Saloon and the Georgian Wine Club were opened by Xinjiang Beifangjianda Trade Co. The 400 m² Georgian Wine Culture Exhibition Hall is located in the Khorgos free-trade center on the Chinese-Kazakh border. From January to March 2015, the center received 600,000 visitors, entailing the Hall may have up to 5000 visitors a day.

The Georgian Wine Saloon is also based in Khorgos. Alongside wine, visitors can sample other Georgian products, such as honey, tea, mineral water, jam and churchkhela – a traditional Georgian snack made from nuts and grape juice.

By the end of the year, another Georgian wine center is set to open in Urumqi – Xinjiang’s capital.

Georgia wineries have been diversifying export markets, with exports to China and Japan increasing 87% and 9%, respectively, from January to April 2015. During the same period, 7,978,749 bottles worth USD 23 million were exported to 26 countries.

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BFC. Georgian Agriculture Finance Bulletin. Edition #36, August 2015

12) Disagreement on the Likelihood of Bread Price Hikes August 7th, 2015, http://commersant.ge/index.php?m=5&news_id=25690&cat_id=6

Bakery Products Association Chairman Malkhaz Dolidze said bread prices are expected to rise due to a hike in the cost of flour – from GEL 37 to GEL 44 per sack.

Not all bakeries agreed, with Puri not envisaging price hikes and Lithuanian Bakery not expecting an increase in the price of their imported Lithuanian and Belarussian flour.

However, according to Bakar Bakuradze, Deputy Director of Ipkli, if the price of flour continues to rise, to avoid loses, the company will increase prices by 10 tetri next month. The increases are due to a hike in electricity costs, according to Bakuradze.

13) Mills Forced to Halt Operations Due to Lari Devaluation and Dumping August 10th, 2015, http://commersant.ge/index.php?m=5&news_id=25731&cat_id=6

Due to devaluation of the lari and the “dumping” of cheap Russian flour on the domestic market, a number of mills – including the Tbilisi, Barzo and Tibiti Group facilities – were forced to close, while others are operating at a loss to retain clients, according to Chairman of Grain Growers Association Levan Silagava.

At the end of 2014, a sack of flour cost GEL 37, with prices now attaining GEL 43-44. Mills have sought to stabilise costs through supply diversification. Not all mills were able to do this, with some running at reduced capacity and others closing, said the Chairman. Without supply diversification measures, the price would be GEL 49, he added.

Anti-dumping legislation has been submitted to parliament, but is yet to be addressed, said Silagava.

14) Hazelnut Price to Fall August 11th, 2015, http://commersant.ge/index.php?m=5&news_id=25775&cat_id=6

The price of hazelnuts – one of Georgia’s top 5 exports – is expected to fall this year, according to Chairman of the Hazelnut Producers and Exporters Association Aleksandre Motserelia. Last year’s record price of GEL 12 per kilogram – compared to an average GEL 4-5 per kilogram – was due mainly to a poor harvest in Turkey, the world’s largest hazelnut producer, according to the Chairman.

This year, while a higher yield is estimated in Georgia, Turkey’s output is expected to almost double, from 400,000 tons to 733,000 tons – of which 90% will be exported, according to the Turkish Hazelnut Promotion Group (FTG). This year, Georgia’s hazelnut crop is estimated at 60,000 tons, according to Motserelia.

Georgia lacks modern driers, affecting quality and price, said Motserelia. A state-of-the-art drying facility will be opened shortly in Darcheli, while others are planned, he added.

In the meantime, the government is preparing a hazelnut development program and technical regulations, according to Motserelia.

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BFC. Georgian Agriculture Finance Bulletin. Edition #36, August 2015

15) Juice Producer to Export to Russia and Estonia – EU Markets to Follow August 13th, 2015, http://commersant.ge/index.php?m=5&news_id=25871&cat_id=6

Livo – a juice company – will begin exporting four of its nine products to Russian and Estonia, according to Director Goga Samushia. The juices will be distributed by food services and retail networks.

The company hopes to begin exporting to the EU, with products currently undergoing certification, said Samushia, with deliveries to the Czech Republic and Poland expected as early as September.

Established through the Millennium program, Livo’s factory in Adjara is the only modern citrus processing facility in Georgia.

16) Renewed Russian Wine Embargo May Have Little Effect August 13th, 2015, http://www.georgianjournal.ge/business/31233-is-russia-making-georgian-wine-embargo-proof.html

With Russia threatening a renewed wine embargo, some experts think that, unlike the 2006 embargo, it will have little effect on the Georgian wine industry and the economy as a whole.

According to economic analyst Demur Giorkhelidze, with the Georgian economy already in crisis and the scale of exports to Russia now relatively small, only a few companies heavily dependent on the market would be affected. Moreover, while the sector is important, it is no longer vital to the Georgian economy. However, the loss of the Russian market means producers must focus on high quality products, said Giorkhelidze. His view is shared by Chairman of the National Wine Agency Giorgi Tevzadze.

Levan Davitashvili, Deputy Minister of Agriculture, said wine sales depend on strong brands and, whatever the alternative, Georgian wine’s 200-year reputation in Russia will not easily be reproduced.

Progress in strategic markets – such as the Baltic states, Europe, Kazakhstan and China – has been made, however, with over 1,000,000 bottles having been sold in China. Read More »

17) Wheat and Flour Import Rise Unabated, According to Revenue Service August 18th, 2015, http://commersant.ge/index.php?m=5&news_id=25961&cat_id=6

In response to reports of an increase in the price of flour, the Revenue Service declared that flour and wheat imports continue to grow unabated. To date in 2015, wheat imports totaled 240,000 tons, up from 209,000 tons in 2014 and 2013 – flour imports are also on the rise, according to the Service.

Bakar Bakuradze, Director of Ipkli bakery warned that, if alternative sources of flour are not secured, the price of bread will rise by 10 tetris at least. A single company monopolizes imports, said Bakuradze, adding that, when the Ipkli tried to begin importing flour itself, the cargo was stopped at customs.

18) International Standard Hazelnut Drying and Storage Facility Opened in Zugdidi August 31st, 2015, http://agenda.ge/news/41473/eng

A hazelnut drying and storage facility has opened in Darcherli, Zugdidi, announced the Ministry of Agriculture. The facility – which meets international food safety standards – has drying and storage capacities of 24 tons and 500 tons respectively, added the Ministry.

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BFC. Georgian Agriculture Finance Bulletin. Edition #36, August 2015

Upon completion, the facility was transferred to Darchelii Tkhili – a 500 member cooperative – which must implement Good Agriculture Practices (GAP) standards and Hazard Analysis and Control Points methods by September 2018 and June 2019 respectively.

The facility comes as part of the Ministry of Agriculture’s hazelnut production development program, which aims to increase volumes while reducing prices, improving rural socio-economic conditions in the process.

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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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