#82 Georgia Agriculture Bulletin, BFC

06/2019

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82 Geo r g i a Agriculture Bulletin Changes related to foreign ownership of agricultural land GEL 21 million in revenue from land sales

96% of farmers aware of NAITS program

Wine exports exceed 33 million bottles

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Contents State Initiatives ........................................................................................................... 2 1) 2)

Changes related to foreign ownership of agricultural land............................................................. 2 GEL 21 million in revenue from land sales ...................................................................................... 2

Foreign Aid ................................................................................................................. 3 3) 4) 5) 6) 7)

USAID to provide USD 1 million to hail-affected farmers ............................................................... 3 96% of farmers aware of NAITS program ........................................................................................ 3 EU launches rural development project in Tskaltubo municipality ................................................ 3 ENPARD meeting highlights proposal for demonstration plots ...................................................... 4 EUR 2 million rural and agricultural development project announced........................................... 4

Private Sector.............................................................................................................. 4 8) 9) 10) 11) 12)

Wine exports exceed 33 million bottles .......................................................................................... 4 Agricultural review .......................................................................................................................... 5 Fruit and vegetable processors frustrated by lack of support ........................................................ 5 Boosting agricultural insurance in Georgia ..................................................................................... 6 Russia bars 8 Georgian alcoholic beverage companies ................................................................... 7

Note: The Georgia Agriculture Bulletin presents a monthly roundup of headlines and news stories related 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. Read more »

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BFC Agriculture Bulletin

State Initiatives 1)

Changes related to foreign ownership of agricultural land

June 6th, 2019, http://georgiatoday.ge/news/15903/Proposed-Changes-Related-to-Ownership-of-Agricultural-Lands

A new draft law (The Draft Law on Agricultural Lands) has been approved by Parliament and will set out specific exceptions to the prohibition on foreigners owning agricultural land. Specifically, the draft law sets out exclusions for four main groups:

2)

•

Foreign natural persons– the draft law allows foreigners to own agricultural land if it is part of an inheritance.

•

Foreign legal entities – a foreign legal entity may own agricultural land if he/she is part of a partnership registered in Georgia and a foreigner is not the dominant partner of the partnership.

•

Foreign investor – the government of Georgia may allow (on a case-by-case basis) legal entities with a foreign dominant partner to own agricultural land if an investment plan is submitted that outlines relevant investments for making agricultural products, implementing innovative activities, arranging touristic infrastructure and/or implementing international projects and/or projects of state or local importance that promote the protection of national security and the creation of new jobs. Failure to comply with investment obligations will require such legal entities to alienate the land within one year or have the land revert to ownership by the state of Georgia.

•

Financial institutions – the restrictions outlined above will not apply to international financial institutions (as defined by the government of Georgia) or financial institutions (as defined by Georgian legislation) whose dominant partner is a foreigner and/or a legal entity registered abroad or whose dominant partner cannot be established if the agricultural land is to be used as collateral.

GEL 21 million in revenue from land sales

June 13th, 2019, https://commersant.ge/en/post/georgias-budget-received-gel-2-0-962-596-from-the-sale-of-land

Between January 2019 and April 2019, revenues to Georgia's compound budget (the total of national and administrative territorial unit budgets) totaled GEL 5.38 billion. This amount includes GEL 27.01 million from the sale of non-derivative assets and GEL 20.96 million from the sale of land. Of the nearly GEL 21 million from the sale of land, GEL 1.68 million will be included in the national budget, and GEL 19.28 million will be included in administrative territorial unit budgets.

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BFC Agriculture Bulletin

Foreign Aid 3)

USAID to provide USD 1 million to hail-affected farmers

June 6th, 2019, http://agenda.ge/en/news/2019/1470

The United States Agency for International Development (USAID) has announced that it will provide USD 1 million in assistance to Georgian farmers living near Shida Kartli who were affected by recent hail storms. The funds are expected to also be used to help these farmers purchase equipment that will make future production easier.

Strong hail storms in May 2019 affected more than 7,000 people living in Shida Kartli villages and damaged an estimated 10,000 hectares of agricultural land.

4)

96% of farmers aware of NAITS program

June 6th, 2019, http://www.fao.org/georgia/news/detail-events/en/c/1199046/

According to a survey conducted by the Food and Agricultural Organization of the United Nations (FAO), 96% of Georgian farmers are aware of Georgia’s Animal Identification and Traceability System (NAITS) program, which is being implemented with financial support from the Swiss Agency for Development and Cooperation (SDC) and the Austrian Development Cooperation (ADC). This is a marked increase from the 52% of farmers who were aware of the program just two years ago. The survey also revealed that, in addition to being aware of the program, most farmers were also aware of that the purpose of the program is to ensure the health of livestock and humans as well as to improve the quality of livestock products. The survey highlighted that a majority (71%) of farmers are aware that animal identification is obligatory and that 64% of farmers understand that they must keep records of animal health and treatments.

The survey also included a question on the number of animals at each farm. On average, Georgian farms have eleven sheep, six goats, two cows/bulls, two buffalo and two pigs. 37% of respondents indicated that they sold animals (live or as meat products) during the last year, while 5% indicated either slaughtering animals for personal consumption or having had animals die due to natural causes. 49% reported losing animals to unknown reasons (theft, the animal running away, etc.).

5)

EU launches rural development project in Tskaltubo municipality

June 10th, 2019, http://bizzone.info/agriculture/2019/1560297298.php

The European Union (EU), in in partnership with People in Need (PIN), has launched a new rural development project in Tskaltubo. The Local Action Group Tskaltubo project introduces a bottom-up, inclusive rural development approach that engages with all communities in the municipality. The project follows earlier EU-supported rural development actions in the municipalities of Akhalkalaki, Borjomi, Dedoplistskaro, Kazbegi, Keda, Khulo, Lagodekhi and Tetritskaro.

The project is being co-funded by the Czech Development Agency and the European Neighborhood Program for Agriculture and Rural Development (ENPARD).

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BFC Agriculture Bulletin

6)

ENPARD meeting highlights proposal for demonstration plots

June 10th, 2019, http://www.fao.org/georgia/news/detail-events/en/c/1198038/

The Food and Agriculture Organization of the United Nations (FAO) organized a meeting with stakeholders and implementing partners of the European Neighborhood Program for Agriculture and Rural Development (ENPARD) in order to share updates on European Union (EU)-supported agricultural and rural development projects. Participants were also informed about the establishment of the Agricultural and Rural Development Agency (ARDA), which will serve as the managing body for agriculture and rural development projects.

The meeting included a proposal to create a network of demonstration plots as a way of intensifying extension services in Georgia. Within the scope of this network of demonstration plots, various actors (both public and private) would cooperate and coordinate their actions to showcase the best agricultural practices to Georgian farmers. Participants also discussed the need to intensify the work on climate-smart agriculture in order to reduce the impact of climate change. To this end, a working group on climate-smart agriculture will be created to coordinate the efforts of implementing partners.

7)

EUR 2 million rural and agricultural development project announced

June 18th, 2019, http://www.fao.org/georgia/news/detail-events/en/c/1198610/

The Food and Agriculture Organization of the United Nations (FAO) and the Ministry of Agriculture have announced a new rural and agricultural development project in Georgia. The four-year project, which is being funded by the Austrian Development Cooperation (ADC), will enhance the capacities of famer information and consultation as well as provide farmers in selected municipalities (Gori, Khashuri, Oni and Tsageri) with agricultural grants.

The project’s activities are expected to help Georgia’s agricultural producers become more competitive while at the same time reduce Georgian agriculture’s contribution to climate change. The project will also support the implementation of the Strategy for Agricultural Development in Georgia 2015-2020 and the Strategy for Rural Development 2017-2022 via policy support and small-scale investment measures.

Private Sector 8)

Wine exports exceed 33 million bottles

June 3rd, 2019, http://georgianwine.gov.ge/En/News/28639

Georgia exported approximately 33.6 million bottles of wine to 39 countries in January-May 2019, a year-on-year increase of 6%. This represents USD 87 million in value, a year-on-year increase of 16%.

The top five importing countries of Georgian wine were: Russia (21.37 million bottles), Ukraine (3.08 million bottles), China (2.97 million bottles), Poland (1.54 million bottles) and Kazakhstan (1.22 million bottles). Wine exports to strategic market also demonstrated strong growth: United States (126% increase), France (91% increase), Israel (72% increase), China (27% increase) and Poland (18% increase).

In addition to wine, Georgia exported 10.7 million bottles of brandy (a year-on-year increase of 60%) and 216,500 bottles of Chacha (a year-on-year increase of 61%).

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BFC Agriculture Bulletin

9)

Agricultural review

June 3rd, 2019, http://georgiatoday.ge/news/15866/Agri-Review-May-2019%3A-The-Sector-at-a-Glance

Georgia’s agricultural insurance program that began in September 2014 has helped more than 49,000 farmers procure agricultural insurance. Throughout the years, the specific conditions for participation in the program have varied; however, interest in the program has remained strong, with Adjara farmers being the most active in the program since its inception.

The Consumer Price Index (CPI) for April 2019 showed a slight increase of 0.2% over the March 2019 CPI and a 4.1% increase over the April 2018 CPI. The main month-to-month drivers in price fluctuations were: vegetables (5.6%), fruits (5.0%) and milk, cheese and eggs (-3.8%). The main year-to- year drivers in price fluctuations were: vegetables (25.8%), fish (13.9%) and fruits (-22.3%). The decrease in fruit prices is likely due to increased production this past year, with preliminary 2018 data showing a 42% year-on-year increase in fruit production. This increase in production has also resulted in a 21% decrease in the volume of imported fruits.

In April 2019, Georgia’s agricultural exports equaled approximately USD 50 million, nearly 22% of Georgia’s total export value. This repents no change year-on-year in absolute terms. Georgia’s agricultural imports in April 2019 equaled USD 90 million, more than 15% of Georgia’s total imports. In terms of value, agricultural imports decreased USD 10 million year-on-year.

On May 28, 2019, the government of Georgia launched the Safety and Quality Investment in Livestock project. The project is being implemented in partnership with the United States Department of Agriculture, the Georgian Farmers' Association, Land O'Lakes International Development and Michigan State University as part of an effort to improve food safety and quality standards in the cattle milk and meat industries in Georgia. The project is expected to last five years and has a total budget of USD 14.5 million.

10) Fruit and vegetable processors frustrated by lack of support June 19th, 2019, https://commersant.ge/en/post/it-is-not-worth-investing-in-the-fruit-and-vegetable-processing-industry

Some Georgian fruit and vegetable processing companies are becoming frustrated with the lack of quality domestically-produced raw products. The quality of raw products is important for processors trying to meet the safety and quality standards of export markets. For example, processing company Glenberries was forced to discard 5-18 tons of domestically-produced strawberries last year due to them not meeting the necessary standards for export to client countries (specifically Israel, Romania, Switzerland and the United States). Processing companies are also frustrated by the lack of proper testing in Georgia, with Glenberries stating that they have to have testing completed in Israel in order to obtain the necessary documentation for export.In short, Georgian fruit and vegetable processing companies believes a lot more work needs to be done to support the growth of the agricultural processing industry in the country.

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BFC Agriculture Bulletin

11) Boosting agricultural insurance in Georgia June 24th, 2019, http://georgiatoday.ge/news/16191/How-Can-You-Be-Sure%3F-On-Georgian-Agricultural-Insurance-

The government of Georgia initiated its current agricultural insurance program in 2014 as a way to support the development of the agricultural insurance market and, ultimately, help stabilize and grow Georgia’s agricultural sector. The program works with eight insurance companies and subsidizes the premiums of qualifying farmers (50% subsidies for vineyards and 70% subsidies for all other crops).

Since its inception, more than 49,000 farmers have used it to purchase insurance.

As with any new program, there have been some challenges hindering the development of an agricultural insurance market in Georgia, especially:

•

Low willingness to subscribe – Georgian farmers generally lack awareness of and experience with agricultural insurance, making them reluctant to insure their production. Specifically, they do not like the idea of paying “when nothing happens”. In addition, farmers do not trust insurance companies as they do not fully understand how insurance companies will behave in case of a negative event.

•

Lack of qualified insurance agents – there is a lack of qualified insurance sales agents and offices in the country, especially in rural and agricultural areas. There is also a lack of informational sources about what agricultural insurance is and how it works.

•

Lack of agrometeorological data – there is an almost complete lack of accurate historical data upon which insurance companies can forecast expected losses, forcing them to use a so-called “ambiguity load” in their premium calculations and forecasting.

While agricultural insurance development in Georgia faces challenges, it is important to note that proper government intervention (beyond subsidies) will help the sector develop. Specially, the government can assist by:

•

Promoting the development of dedicated data collection and management systems

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Supporting the design and development of appropriate insurance solutions

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Reaching out to farmers and other stakeholders to increase awareness

•

Building the capacity of those who specialize in agricultural insurance

•

Supporting research on and development of innovative agricultural insurance products and services (especially those that aim to reach small farmers)

•

Supporting the establishment of appropriate public and private structures

•

Exploring the usefulness of other types of subsidies for insurance products (e.g. tax exemptions)

•

Creating a reinsurance mechanism

•

Introducing livestock insurance

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BFC Agriculture Bulletin

12) Russia bars 8 Georgian alcoholic beverage companies June 25th, 2019, http://www.messenger.com.ge/issues/4424_june_25_2019/4424_econ_one.html

Russia’s Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing (Rospotrebnadzor) has announced a strengthening of control over alcoholic drinks imported from Georgia, stating that the number of Georgian alcohol products which do not meet Russian standards has increased 2.9 times between 2014 and 2018. The announcement specifically named eight Georgian companies that would be prohibited from entering Russian markets: Badagoni, Bagrationi 1882, Baller and Company, Batono, Georgian Wine, Georgian Wine and Alcoholic Beverage, Georgian Wine House and Kakhetian Traditional Wine Making.

The move is thought to be a response to political tensions following protests in Georgia that Russian authorities called “Russophobic”. Although the move could be damaging to Georgia’s alcoholic beverages industry, the government of Georgia has begun looking for alternative markets and could serve as an impetus for Georgia to further continue its re-orientation away from Russian economic dependency.

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