#83 Georgia Agriculture Bulletin, BFC

07/2019

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83 Geo r g i a Agriculture Bulletin Georgia joins treaty on plant genetic resources New USAID agricultural development program announced What a Russian embargo could mean for Georgia’s wine industry Discussions to increase fruit and vegetable exports to Kazakhstan

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

Georgia joins treaty on plant genetic resources ............................................................................. 2 Animal vaccinations ongoing throughout the country .................................................................... 2

Foreign Aid ................................................................................................................. 2 3) 4) 5) 6)

New USAID agricultural development program announced ........................................................... 2 United States to allocate additional USD 3 million in agricultural funding ..................................... 3 USDA announces USD 200,000 grant competition ......................................................................... 3 Grant competition within Tetritskaro rural development project .................................................. 3

Private Sector.............................................................................................................. 3 7) 8) 9) 10) 11) 12) 13) 14) 15) 16) 17)

Georgia’s dependence on Russian wheat concerning..................................................................... 3 Agricultural review .......................................................................................................................... 4 What a Russian embargo could mean for Georgia’s wine industry ................................................ 4 Wine exports up in first half of 2019 ............................................................................................... 5 Georgian wine still entering Russia despite tighter controls .......................................................... 5 Discussions to increase fruit and vegetable exports to Kazakhstan................................................ 5 Grain imports from Kazakhstan could help reduce dependency on Russia .................................... 5 Georgia could reduce dependency on grain imports by 80% ......................................................... 6 Fruit and nut exports down in 2019 ................................................................................................ 6 Georgian olives and olive oil to reach new markets this autumn ................................................... 6 Georgian hazelnuts making a big rebound in 2019 ......................................................................... 6

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)

Georgia joins treaty on plant genetic resources

July 8th, 2019, http://www.fao.org/georgia/news/detail-events/en/c/1201193/

Georgia has become the 146th member of the International Treaty on Plant Genetic Resources for Food and Agriculture. Joining provides Georgia with a number of advantages, including access to the world’s largest genepool of plant genetic material and eligibility to apply for project support through the Benefit-Sharing Fund (which supports developing countries conserve and manage their plant genetic resources for food and agriculture).

Georgia is also a member of the European Cooperative Program for Plant Genetic Resources and a number of other international groups, including the Convention on Biological Diversity, the International Plant Protection Convention, the International Convention for the Protection of New Varieties of Plants, the Kyoto Protocol to the United Nations Framework Convention on Climate Change and the United Nations Convention to Combat Desertification.

2)

Animal vaccinations ongoing throughout the country

July 24th, 2019, https://kalo.ge/news/view?id=7468

The National Food Agency is carrying out the free vaccination of animals against various infectious diseases. The vaccination activities are being carried out to: facilitate the protection of animal health, prevent economic damage caused by illnesses and preserve epizootic goodwill in the country. In parallel to the vaccinations, the National Food Agency is also conducting blood tests for brucellosis and tuberculosis.

Foreign Aid 3)

New USAID agricultural development program announced

July 1st, 2019, https://kalo.ge/news/view?id=7078

The United States Agency for International Development (USAID) presented a five-year agricultural program to Georgia’s Ministry of Agriculture. The goal of the five-year program is to develop sustainable market systems by helping the development of small- and medium-sized enterprises that are active in agriculture and have a clear potential for job creation and income growth. The program provides for the promotion of a certification system and select value chains as well as the introduction of digital technologies.

The new USAID program is expected to benefit 150,000 farmers in the acquisition and enhancement of technical knowledge. USAID believes that agriculture has a great potential for development in Georgia.

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BFC Agriculture Bulletin

4)

United States to allocate additional USD 3 million in agricultural funding

July 1st, 2019, https://kalo.ge/news/view?id=7074

The United States is expected to allocate an additional USD 3 million in funding for agriculture in Georgia by increasing its overall funding for the ‘Inclusive and Sustainable Economic Growth’ program from USD 62 million to USD 90 million. In addition to agriculture, additional funding will be made available for conflict resolution, education and private sector competitiveness.

5)

USDA announces USD 200,000 grant competition

July 11th, 2019, http://agenda.ge/en/news/2019/1882

The United States Department of Agriculture (USDA) has announced a USD 200,000 grant competition for non-governmental organizations and entities operating in Georgia’s agricultural sector. The grant funding is intended to help Georgia increase its competitiveness in new export markets by adopting European Union (EU) standards.

6)

Grant competition within Tetritskaro rural development project

July 24th, 2019, https://kalo.ge/news/view?id=7470

The third grant competition of the ‘Sustainable Rural Development in the Tetritskaro Municipality’ project has been announced. Grants of between EUR 1,000 and EUR 60,000 are available for social, entrepreneurial and public sector projects that will improve the living standards in the Tetritskaro municipality. Priority will be given to projects focusing on improving education, promoting better environmental protection, supporting competitiveness and modernization efforts, promoting tourism and developing/rehabilitating infrastructure.

The ‘Sustainable Rural Development in the Tetritskaro Municipality’ project is being implemented by Regional Development for the Future of Georgia (RDFG), with financial support from the European Union (EU). The project is also supported the Agro Technologies Association (ATA) and the Lieutenant Local Development Groups Network (VVTG).

Private Sector 7)

Georgia’s dependence on Russian wheat concerning

July 1st, 2019, http://georgiatoday.ge/news/16313/On-Georgia%E2%80%99s-Dependence-on-Wheat-Import-from-Russia

Georgian imports of wheat through the first five months of this year have amounted 171,000 tons.

117,000 tons of this were imported from Russia, and 54,000 tons were imported from Kazakhstan. Given Georgia’s heavy dependence on Russian wheat, many are concerned over the possibility of a Russian embargo Relations between Russia and Georgia have become tense following large-scale anti-Russian rallies in Georgia. In response to the rallies, Russia banned flights between the two countries, and Russia’s Federal Service for Surveillance on Consumer Rights Protection and Human Well-Being released a negative statement against Georgian wine quality and safety.

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BFC Agriculture Bulletin

8)

Agricultural review

July 1st, 2019, http://georgiatoday.ge/news/16306/June-2019-Agri-Review

Although the rural population is slowly declining (from 42.6% in 2015 to 41.35 at the beginning of this year) and the share of agriculture in total GDP has shown a steady decline (from 9.1% in 2015 to 7.7%), there has been a 6.4% increase in agricultural production. This includes a 10.9% increase in plant production and a 2.1% increase in animal production. Moreover, revenue from the sale of agricultural products has shown an upward trend both in terms of percentage and absolute value.

The Consumer Price Index (CPI) for May 2019 showed a slight increase of 0.5% over the April 2019 CPI and a 4.7% increase over the May 2018 CPI. The main month-to-month drivers in price fluctuations were: vegetables (8.1%), fruits (7.1%) and milk, cheese and eggs (-5.7%). The main year-to- year drivers in price fluctuations were: vegetables (33.7%), fish (13.5%) and fruits (-19.9%).

Georgia’s agricultural exports have been fairly diversified in terms of destination markets in recent years, although Russia markets still account for slightly less than one third of Georgia’s annual agriculture exports. Georgian exports have shown a decline in hazelnut and citrus exports, which have been negatively affected by a stink bug invasion. At the same time, Georgian wine has enjoyed record exports and looks poised to continue growing well into the future.

A new EUR 2 million project aiming to support Georgia’s rural and agricultural development was launched by the Ministry of Agriculture, the Food and Agriculture Organization of the United Nations (FAO) and the Austrian Development Cooperation (ADC). Specifically, the project will work to improve value chains, promote the sustainable use of natural resources and support environmentally-friendly agricultural activities.

9)

What a Russian embargo could mean for Georgia’s wine industry

July 1st, 2019, http://georgiatoday.ge/news/16302/Georgian-Wine-Industry%3A-Implications-of-a-Russian-Embargo

Last year, wine exports to Russia accounted for around 60% of Georgia’s total wine exports. With threats of a Russian trade embargo looming, those involved in Georgia’s wine industry are concerned about the future. Particularly concerned are those producing lower quality wines as these lower quality wines are likely to have trouble finding a home in other markets. At the same time, there is some room for cautious optimism. The East Asia market for Georgian wine has quadrupled in only five years and could quadruple again in the next five years with proper promotion and distribution. Furthermore, recent attempts to reduce dependency on the Russian market have also helped begin slowly growing markets in the European Union (EU), especially the Baltic States, Poland and Germany. This trend is also expected to continue. The United States market is also opening up, a process that will be assisted with an expected free trade agreement.

Should a Russian embargo happen, there will no doubt be a substantial disruption of the industry; however, more prudent operators with existing diversified markets will be positioned to capitalize from this to expand their businesses and improve their economies of scale. In the end, a Russian trade embargo will hurt in the short term but could be the impetus for a brighter, more diversified Georgian wine industry that is characterized by higher qualities products in the future.

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BFC Agriculture Bulletin

10) Wine exports up in first half of 2019 July 3rd, 2019, http://georgianwine.gov.ge/En/News/28654

Georgia exported nearly 40 million bottles of wine to 44 countries in the first half of 2019, a 6% year-onyear increase. This amounted to USD 98 million in value, a 9% year-on-year increase. The top five importers of Georgian wine were: Russia (25.6 million bottles), Ukraine (3.8 million bottles), China (3.6 million bottles), Poland (1.8 million bottles) and Kazakhstan (1.7 million bottles).

In total, 229 Georgian companies were engaged in wine exports in the first half of 2019.

11) Georgian wine still entering Russia despite tighter controls July 4th, 2019, https://commersant.ge/en/post/national-wine-agency-georgian-wine-is-still-exported-to-russia

Russia has recently tightened its control over Georgian wine imported into the country; however, the National Wine Agency of Georgia has announced that, despite tightened controls, wine exports to Russia have continued as Georgian wine is easily-tested and (with rare exceptions) is still allowed into Russian markets. The National Wine Agency hopes that Russia will relax these heightened controls in the near future.

Russia is currently the main importer of Georgian wine. During the first half of 2019, Russia imported 25.5 million of Georgia’s 40.5 million total exported bottles.

12) Discussions to increase fruit and vegetable exports to Kazakhstan July 10th, 2019, https://commersant.ge/en/post/georgia-is-set-to-increase-fruit-and-vegetables-exports-to-kazakhstan

Georgia’s Minister of Agriculture met with representatives of the Kazakh Food Contract Corporation to focus on deepening trade relations. The two sides discussed increasing Georgian fruit and vegetables exports to Kazakhstan as well as the storage, drying and processing of grain cultures.

13) Grain imports from Kazakhstan could help reduce dependency on Russia July 15th, 2019, https://commersant.ge/en/post/grain-imports-from-kazakhstan-not-carry-political-risks

With concerns over a possible trade embargo from Russia, Georgian wheat importers are being encouraged to look into other potential sources of wheat. Kazakhstan seems to be the best possible source to replace any lost import quantities if a Russian embargo occurs as it currently exports wheat to Georgia and, despite its membership in the Eurasian Economic Union (EEU), has proven to pursue its own economic policies independent from Russia.

With many concerns over a possible Russian embargo, some experts are calling for subsidies to promote the import of Kazakh wheat. Even if a Russian embargo never happens, they hold that Georgia needs to reduce its dependency on Russian wheat. It should be noted that Georgia also exploring other options for wheat, including Bulgaria, Romania and Ukraine. Ultimately, experts believe that Georgia should pursue a policy to produce more domestic wheat and reduce its overall dependency on wheat imports; however, this could take several years as it would require a switch in production for many farmers.

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BFC Agriculture Bulletin

14) Georgia could reduce dependency on grain imports by 80% July 15th, 2019, https://cbw.ge/economy/the-right-strategy-will-enable-georgia-to-satisfy-at-least-80-of-grain-demand

Recent research suggests that the right grain production strategy will lead to Georgia being able to reduce its dependency on imported grain by at least 80% in just 2-3 years. This is thanks to tireless efforts that have increased the potential per hectare yield of wheat to 11 tons. There are even hopes that this can eventually be increased to 28 tons per hectare in the coming years as testing is conducted on three different high-yielding varieties.

15) Fruit and nut exports down in 2019 July 17th, 2019, https://www.georgianjournal.ge/business/35997-the-most-wanted-fruits-from-georgia.html

From January through May of this year, Georgia exported USD 25.9 million worth of fruit and nuts, USD 6.8 million less than during the same period in 2018. Hazelnuts and walnuts accounted for USD 14.8 million of that amount, followed by apples, pears and quinces (USD 4.2 million), bananas (USD 3.0 million), citrus (USD 2.7 million) and dried fruit (USD 0.6 million).

16) Georgian olives and olive oil to reach new markets this autumn July 17th, 2019, https://commersant.ge/en/post/georgia-to-start-exporting-olives-and-olive-oil-in-autumn

Geoliva, a Georgian olive and olive oil producer, has announced that expects to begin exports of olives and olive oil to China, Russia and the United Arab Emirates this autumn. This marks the first time the company has actively pursued export opportunities; however, the company has stated that it is still somewhat limited in it export capacity due to limited resources. The company is investing in expanding its capacity, having attracted GEL 5 million in business development funds for expansion activities.

17) Georgian hazelnuts making a big rebound in 2019 July 22nd, 2019, http://georgiatoday.ge/news/16623/Good-Signs-for-Georgia%E2%80%99s-2019-Hazelnut-Harvest

Over the past few years, Georgia’s once promising hazelnut industry has been severely impacted by the invasion of the brown marmorated stinkbug, which destroyed a large amount of Georgia’s hazelnut harvest in 2016 and 2017. In 2018, the government of Georgia and various international organizations began an intensive effort to fight the pest. These efforts have resulted in stopping the spread of the pest in Eastern Georgia and greatly reducing its numbers in Western Georgia. As a result, hazelnut farmers are anticipating a strong hazelnut harvest for the first time in years, with more than 40,000 tons of hazelnuts expected to be harvested (compared to just 17,000 tons last year). Moreover, the fight against the brown marmorated stinkbug has also helped Georgian hazelnut farmers improve their overall production and handling techniques, increasing hazelnut quality and putting them in a strong position to find long-term success.

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