23 BFC Georgia Agriculture Finance Bulletin

07/2014

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23 Ge o r g i a Agriculture Finance Bulletin Minister of Economy Against the Full Liberalizationof the Land Market 70M GEL Allocated to Modernization of Melioration Systems in 2015 The US National Agricultural Statistics Service Studies Georgia’s Agricultural Potential “High Risk” Georgian Fruit Approved for Export to Russia

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Georgian Agriculture Finance Bulletin Edition #23, July 2014

Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5) 6) 7) 8) 9) 10)

Minister of Economy Against the Full Liberalization of the Land Market ....................................... 2 Agricultural-Cooperative Status Accorded To 100 Entities Nationwide ......................................... 2 Government Ceases Red Grape Subsidization - White Grapes to Follow ....................................... 2 70M GEL Allocated to Modernization of Melioration Systems in 2015 .......................................... 3 Greenhouse Farm to Be Built In Rustavi.......................................................................................... 3 Poultry and Fodder Farm to Be Built In Gori Municipality .............................................................. 3 Restoration Program for Rare Vine Varieties Launched.................................................................. 4 Farm Registry to Be Created ............................................................................................................ 4 Government to Support Private Sector in Adjusting to EU Requirements ..................................... 4 GMOs to be Banned from 2015....................................................................................................... 4

Foreign Aid ................................................................................................................. 5 11) 12) 13) 14)

EU Grants 4.5 Million EUR to National Food Agency ...................................................................... 5 Georgian Sommelier Association Becomes a Full Member of the World Sommelier Association . 5 EU to Allot 335-410M EUR to Georgia for 2014-2017 ..................................................................... 5 The US National Agricultural Statistics Service Studies Georgia's Agricultural Potential................ 6

Private Sector.............................................................................................................. 6 15) 16) 17) 18)

“High Risk” Georgian Fruit Approved for Export to Russia.............................................................. 6 Grain Growers Waiting for Incentives from Government ............................................................... 6 Director of “Tbilvino" Predicts Decrease in Export of Georgian Wine To Russia ............................ 7 Wheat Harvest Ruined By Drought ................................................................................................. 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 #23, July 2014

State Initiatives 1)

Minister of Economy Against the Full Liberalization of the Land Market

July 7th, 2014, http://commersant.ge/?menuid=11&id=13176&lang=2

Minister of Economy George Kvirikashvili spoke against the full liberalization of the agricultural land market for foreigners. He cited the Polish, Czech, Baltic, Austrian and Canadian systems - where foreigners can buy farm land within specific limitations requiring, for instance, a certain level of investment, job creation or the introduction of new technologies – as preferable models. He added that, as Georgia has little arable land, priority should be given to Georgian citizens.

Acknowledging that economic growth could be boosted by liberalization, he said that, despite the moratorium on land sales to foreigners in place since 2013, foreign investment in the agricultural sector has increased by 100% compared to 2012 - amounting to 32 million USD - while turnover of the agricultural sector grew by 13.3% in the same period, and by 52% in the first quarter of 2014 compared to the previous year.

Currently a special commission - including representatives of the government, parliament and NGOs - is working on the regulations for agricultural land sale. Read More »

2)

Agricultural-Cooperative Status Accorded To 100 Entities Nationwide

July 7th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041700

Agriculture Ministry reported that status of agricultural cooperative was applied to 100 entities countrywide.

The Ministry of Agriculture reported that 100 entities have received agricultural cooperative status. The Agricultural Cooperatives Development Agency started receiving applications on January 27. As Agriculture Minister Shalva Pipia explained, cooperatives benefit from simplified access to finance in order to strengthen their competitiveness in both local and international markets.

Additionally, the Ministry announced the signing of an agreement between the Agricultural Cooperatives Development Agency and LLC Mekanizatori - stipulating preferential conditions for cooperatives concerning the provision of farming machinery.

3)

Government Ceases Red Grape Subsidization - White Grapes to Follow

July 10th, 2014, http://commersant.ge/?menuid=11&id=13332&lang=2

Grape subsidies are no longer needed, says Levan Davitashvili, Director of the National Wine Agency. He noted that, last year, market prices for red grapes where high enough for farmers to make a profit and this year’s demand is almost 1.5 times higher due to increases in wine export. He expects subsidies for white grapes to be gradually reduced until cessation in the near future.

Davitashvili forecasts an increase of 20-30% in both the grape harvest and grape processing this year.

Grape factories are processing about 100.000 t of raw fruit yearly. Concerning the Russian response to Georgia’s Association Agreement with the EU, he does not expect a serious degradation in trade relations but adds that, nonetheless, efforts have been undertaken to diversify the export market to countries such as China, Poland, Kazakhstan, the Baltic countries and the United States. Read More » Page 2

BFC. Georgian Agriculture Finance Bulletin. Edition #23, July 2014

4)

70M GEL Allocated to Modernization of Melioration Systems in 2015

July 17th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041819

On July 9 the government approved a program on regional development, allotting 70 million lari for the modernization of melioration systems in 2015 and further envisages 80 million and 100 million lari for 2016 and 2017 respectively.

The preferential agrolending program in 2015-2017 has been allocated 30 million lari and another 50 million lari are to be spent on various agricultural development programs. The Ministry of Agriculture will be responsible for program implementation with the participation of the Ministry of Justice, which will receive 1.6 million lari annually for 2015-2016 from the World Bank for land market development.

5)

Greenhouse Farm to Be Built In Rustavi

July 18th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041844

The Prime Minister ordered the sale of a state-owned land alongside the Tbilisi-Rustavi highway to LLC Rustavfarm for 300,000 lari. The area represents 135,782 m² of non-agricultural land.

The privatization terms include the obligation to build a greenhouse complex on site within 24 months of the sale, with an investment of at least 8.2 million lari.

Until the investment obligation is met, Rustavfarm will be required to deposit an unconditional and irrevocable banking guaranty of 10% of the minimum investment amount.

6)

Poultry and Fodder Farm to Be Built In Gori Municipality

July 21st, 2014, http://sarke.com/cgi/search/news.asp?Code=10041859

In the frame of the state program “Produce in Georgiaâ€?, the Prime Minister ordered the sale of 5,000 m² of non-agricultural state-owned land in the Gori municipality to Temur Gigashvili for 1 lari.

Under the terms of sale, Gigashvili is required to build a poultry and fodder farm that begins production within 24 months of the signing of the privatization agreement. The new owner is liable to invest a minimum of 144,000 lari, of which 25% should be disbursed in the first year. The new enterprise is required to maintain activity during at least 2 years and produce at least 900 t of poultry as well as fodder for fish and chicken (at least 25% of this volume should be produced in the first year).

Like other beneficiaries of the state program, Gigashvili must present an unconditional and irrevocable banking guaranty of at least 10% of the required investment.

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BFC. Georgian Agriculture Finance Bulletin. Edition #23, July 2014

7)

Restoration Program for Rare Vine Varieties Launched

July 22nd, 2014, http://commersant.ge/?menuid=11&id=13742&lang=2

The Georgian National Wine Agency launched a restoration program for rare species of vine - such as Aladasturi, Mekrenchkhi, Butko, Satsuri, Chkhaveri, Jani and others. According to the Agency, the program is designed to protect species of vine which were historically grown in Georgia but are cultivated in small quantities or are no longer grown at all.

In the frame of the program, seedling nurseries were established and the wine company "Kakhetian Traditional Winemaking" will distribute rare vine seedlings to farmers free of charge and guarantee to buy the resulting harvest. 7000 seedlings have been distributed to date and a further 70,000 are to be distributed this autumn. Read More »

8)

Farm Registry to Be Created

July 23rd, 2014, http://sarke.com/cgi/search/news.asp?Code=10041884

Within the frame of Georgia’s Strategy of Agricultural Development (2014-2020), the Ministry of Agriculture presented plans to create a farm registry, gathering data on land location, area and usage.

Bespoke software will be used to ensure effective data collection and analysis, while Ministry staff will be required to undertake specialized training. Read More »

9)

Government to Support Private Sector in Adjusting to EU Requirements

July 28th, 2014, http://commersant.ge/?menuid=11&id=13677&lang=2

Minister of Economy George Kvirikashvili reported that the government, with the support of the European Commission, is currently working on a program to support the private sector in meeting the requirements of the Deep and Comprehensive Free Trade Agreement (DCFTA). The program will be implemented within three years with the involvement of the recently created Enterprise Development Agency, said Kvirikashvili. Read More »

10) GMOs to be Banned from 2015 July 28th, 2014, http://commersant.ge/?menuid=11&id=13584&lang=2

Genetically modified organisms will be banned throughout Georgia from January 1, 2015.

Gia Tsagareishvili, chairman of the Parliamentary Environmental Protection Committee, announced that the third reading of the draft law banning genetically modified organisms will be held in the beginning of August. He added that the enactment of the law will necessitate the adoption of bylaws by the Ministry of Agriculture and the Customs Department. Read More »

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BFC. Georgian Agriculture Finance Bulletin. Edition #23, July 2014

Foreign Aid 11) EU Grants 4.5 Million EUR to National Food Agency July 2nd, 2014, http://sarke.com/cgi/search/news.asp?Code=10041712

The EU granted 4.5 Million EUR to Georgia’s National Food Agency. The agreement was signed on the 2nd of July. The grant is to be allocated to a veterinary and phytosanitary management system which will ensure compliance with EU food safety standards and regulations. By April this year, the EU had allotted 2.7 million EUR in support of the modernization of the food and agriculture sectors.

Through the ENPARD program, the EU has already contributed more than 52 million EUR towards food safety in the form of grants and other support measures.

12) Georgian Sommelier Association Becomes a Full Member of the World Sommelier Association July 11th, 2014, http://commersant.ge/?menuid=11&id=13382&lang=2

France hosted the General Assembly of the World Sommelier Association in Reims, France. At the meeting, Georgia was admitted as full member of the World Association.

Shalva Khetsuriani, President of the Georgian Sommelier Association and Honorary Ambassador of Georgian Wine, participated in the assembly. His inaugural speech touched on the ongoing programs in Georgia to popularize Georgian wine and the profession of sommelier. In order to promote awareness and sales of Georgian wine, Khetsuriani held talks with the presidents of the Sommelier Associations of China, Japan, Sweden, Norway, Denmark, Canada, Finland, England and Poland. Read More »

13) EU to Allot 335-410M EUR to Georgia for 2014-2017 July 18th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041834

The European Neighborhood Initiative Information Center reported that a “Single Support Framework” (SSF) for EU support to Georgia was adopted on the 11th of June 2014. From 2014 to 2017, the program will have a budget between 335 and 410 million EUR and will prioritize three areas: public service reform, rural and agricultural development and judicial system strengthening.

In the frame of the program, Georgia will receive 101 million EUR in 2014, of which 51 million EUR will be allocated to the implementation of liabilities under the Deep and Comprehensive Free Trade Agreement (DCFTA) and the development of small businesses, while the remaining 50 million EUR will be allocated to judicial system reform.

While attending the parliamentary ratification of the Association Agreement in Georgia, EU Commissioner Stefan Fule met with Prime Minister Irakli Garibashvili. They discussed the reforms laid out by the Association Agreement as well as eventual visa liberalization.

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BFC. Georgian Agriculture Finance Bulletin. Edition #23, July 2014

14) The US National Agricultural Statistics Service Studies Georgia's Agricultural Potential July 24th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041900

Michael Steiner, an expert at the National Agricultural Statistics Service (NASS) – a division of the US Agriculture Department - met with the Minister of Agriculture, Otar Danelia.

According to the Ministry of Agriculture, they discussed the Service’s statistical data on Georgian agriculture - collected since 2013.

As there is a real danger of a global food crisis, the US pays special attention to agricultural statistics worldwide, said Steiner. This year, he added, a pilot study on food production will be conducted, analyzing corn and wheat output.

Private Sector 15) “High Risk” Georgian Fruit Approved for Export to Russia July 2nd, 2014, http://commersant.ge/?menuid=11&id=13039&lang=2

In late June, the Russian Federal Service for Veterinary and Phytosanitary Surveillance "Rosselkhoznadzor" visited Georgia. Russian and Georgian experts carried out phytosanitary inspection on a range of high-risk products destined for the Russian market. These include new potatoes, tomatoes, cucumbers, cabbage, eggplant, cherries, apricots, peaches, plums, persimmons, kiwi, berries, onions, carrots, peppers, beet, watermelons and other crops. The products were approved for export by both Georgian and Russian experts.

In future, Russia will allow joint phytosanitary inspection and approval for export to the Russian market.

Last year, low-risk products such as tea, laurel, dried fruit, nuts, citrus, grapes, apples, pears and quinces were already allowed into Russia.

During the visit of the Russian delegation, 134 tons of Georgian fruit have been exported to Russia, reported the National Food Agency – the majority of the fruit comprising 82 tons of peaches and nectarines from the Kakheti region and 35 tons of cherry from Shida Kartli. Read More »

16) Grain Growers Waiting for Incentives from Government July 3rd, 2014, http://commersant.ge/?menuid=11&id=13069&lang=2

Tax privileges for grain imports were abolished on the 1st of June. Until then, companies with a turnover of at least 200,000 GEL were allowed to postpone VAT payments. As of yet, it is unclear how the abolition will affect grain prices.

Levan Silagava, chairman of the Grain Growers’ Association, said that grain prices are currently stable.

However, he noted that the tax exemptions allowed grain to be imported at a low price, building a reserve that can be used to keep grain prices stable during shortages. With the abolition of the tax exemption, this may reduce grain reserves by 18-20%, affecting leverage on grain price during shortages. He added that, since Georgia imports 90% of its grain, price hikes are likely during future shortages if the tax exemption is discontinued. Read More »

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BFC. Georgian Agriculture Finance Bulletin. Edition #23, July 2014

17) Director of “Tbilvino" Predicts Decrease in Export of Georgian Wine To Russia July 9th, 2014, http://commersant.ge/?menuid=11&id=13253&lang=2

Russian Prime Minister Dmitry Medvedev’s comments regarding Ukraine and Georgia’s ratification of the EU Asso-ciation Agreement raised concerns among Georgian politicians and businessmen.

Medvedev said that, in order to protect its own market, Russia would take measures similar to those that were taken with regard to Moldova. Two days after the latter’s ratification of the EU Association Agreement Moldovan meat exports to Russia were heavily restricted. Further sanctions against Moldova are to be discussed by the Council of the Eurasian Economic Commission on the 16th of July.

While Georgia’s parliamentary majority recognizes the threat of trade deterioration with Russia, they do not con-sider the risk significant.

Zurab Tkemaladze, Chairman of the Committee on Sector Economy and Economic Policy, does not expect sanctions from Russia, despite previous embargos and Georgia not having a trade agreement with Russia.

Zurab Margvelashvili, General Director of the wine producing company "Tbilvino”, does not exclude the possibility of a new embargo on Georgian products – as seen in 2006. However, he believes a wine embargo is unlikely. He notes that Tbilvino is less dependent on the Russian market than in 2006 – at the time, 50% of production was ex-ported to Russia, as opposed to 30% today. Currently, the company sells to 30 different countries and the share of exports to Russia continues to decrease.

In the first half of 2014, Georgia exported 26.9 million bottles of wine to 34 countries. Russian remains the leading export market with 66% of total exports. Read More »

18) Wheat Harvest Ruined By Drought July 18th, 2014, http://sarke.com/cgi/search/news.asp?Code=10041848

Omar Kacharava, a counselor at the Ministry of Agriculture, declared that that 85,000-90,000 ha of wheat were sown this year, compared to 43.000 ha the previous year. Kacharava added that drought has endangered the harvest in the whole Kakheti region, in Dedoplistskaro, as well as in the Shida Kartli and Samtskhe-Javakheti regions. He added that representatives of the Ministry are currently conducting field visits in order to assess the degree of the damage in the affected areas.

In order to provide food security, Georgia requires 700,000-800,000 t of wheat annually, of which local production accounts for only 12-13%.

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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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