27 BFC Georgia Agriculture Finance Bulletin

11/2014

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27 Ge o r g i a Agriculture Finance Bulletin Business Ombudsman Objects to Amendments in the Law Regarding Sale of Agricultural Land to Foreigners EU to Invest €30 million in Regional Development in Georgia UNDP Representative Discusses Continued Support for Agriculture inAdjara “Agro Expo 2014” Attracts 90 Foreign and Georgian Companies

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Georgian Agriculture Finance Bulletin Edition #27, November 2014

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

Pilot Agro-Insurance Subsidy Disbursed in its Entirety ................................................................... 3 Funds for Irrigation System Modernization to Be Diverted to Grape Purchase and Processing Subsidies .......................................................................................................................................... 3 Director of National Wine Agency Appointed Deputy Minister of Agriculture ............................... 3 Business Ombudsman Objects to Amendments in the Law Regarding Sale of Agricultural Land to Foreigners ........................................................................................................................................ 3 Industrial Seed Production Program Begins .................................................................................... 4 Khareba Winery to Invest a Minimum of GEL 1.02 Million in Kvareli ............................................. 4 Subsidy for Sub-Standard Apples in Racha Amounts to GEL 25,273 ............................................... 4 Former Chairman of National Wine Agency Introduces Successor ................................................. 5

Foreign Aid ................................................................................................................. 5 9) Dutch Issue Grant for Zemo Samgori Irrigation System Rehabilitation .......................................... 5 10) Georgian Vice-Prime Minister and Head of EU Delegation to Georgia Discuss Support Measures for Agriculture ................................................................................................................................. 5 11) EU to Invest €30 million in Regional Development in Georgia........................................................ 6 12) UNDP Representative Discusses Continued Support for Agriculture in Adjara .............................. 6 13) World Bank to Invest $50M in the Rehabilitation of Irrigation Systems and Land Registration..... 6

Private Sector.............................................................................................................. 7 14) 15) 16) 17) 18) 19) 20)

Laurel Cultivation Rises.................................................................................................................... 7 HACCP Related Hike in Meat Price Possible, says Matador CEO ..................................................... 7 Small and Household Farmers Permitted to Continue Sales without HACCP ................................. 7 Georgian Wine‘s Global Brand Strengthening, says Head of Sommelier Association .................... 7 Russia Resumes Imports of Georgian Dried Fruit ............................................................................ 8 17.5% of Teliani Veli Sold................................................................................................................. 8 2014 Citrus Harvest Produces Lower Yield but Higher Quality, says Minister of Agriculture ......... 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 »

BFC Max-Högger-Strasse 6 CH-8048 Zurich, Switzerland

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info@bfconsulting.com www.bfconsulting.com

21) “Agro Expo 2014” Attracts 90 Foreign and Georgian Companies ................................................... 9 22) Association of Grain Growers Requests VAT Payment Extension ................................................... 9 23) Poultry Association Demands Protection of Local Producers ......................................................... 9

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BFC. Georgian Agriculture Finance Bulletin. Edition #3, January 2013

State Initiatives 1) Pilot Agro-Insurance Subsidy Disbursed in its Entirety November 3rd, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10042797

The Ministry of Agriculture reported that the initial GEL 5 million subsidy allocated to the pilot agroinsurance program has been disbursed. Consequently, the subsidy will be increased.

In the meantime, insurance for autumn crops will continue, while insurance for spring crops will be issued next year. Preliminary results of the pilot program will be released at the end of 2014.

Since the launch of the pilot in September, 12000 loans worth GEL 70 million have been issued, according to the Ministry.

2)

Funds for Irrigation System Modernization to Be Diverted to Grape Purchase and Processing Subsidies

November 5th, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10042826

GEL 21 million initially earmarked for the modernization of irrigation systems will be allocated to supporting measures for the purchase and processing of grapes, announced the government.

Supporting measures will be administered through state-owned LLC Gruzvinprom.

3) Director of National Wine Agency Appointed Deputy Minister of Agriculture November 7th, 2014, http://www.commersant.ge/?menuid=11&id=16934&lang=2

Levan Davitashvili, Chairman of the National Wine Agency, has been appointed Deputy Minister of Agriculture. The incumbent, Nodar Kereselidze, has been appointed Principal Deputy Minister of Agriculture.

The Minister of Agriculture has 5 deputies in total.

4) Business Ombudsman Objects to Amendments in the Law Regarding Sale of Agricultural Land to Foreigners November 7th, 2014, http://www.commersant.ge/?menuid=11&id=16940&lang=2

Parliament is to begin discussing a proposed amendment to the law on the sale of agricultural land to foreign entities. The law bans foreign entities from owning agricultural land unless they have 5 years’ experience in the Georgian agriculture sector and a residence permit. It also bans foreign ownership of agricultural land with 5 km of the border.

The Business Ombudsman’s Office is against the proposed amendment, which stipulates that land should be sold to foreign entities via local assemblies or the Ministry of Agriculture and that total area should be between 5 and 100 hectares. The Ombudsman argues the involvement of local assemblies and the Ministry of Agriculture will increase red tape and that the 100 hectares is below the area required for successful large-scale farming.

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BFC. Georgian Agriculture Finance Bulletin. Edition #3, January 2013

The bill also bans the sale of agricultural land to legal entities registered abroad. According to the Ombudsman, this would bar organizations that undertake major agricultural and loan projects in the country, such as the International Finance Corporation, the European Bank for Reconstruction and Development, the Asian Development Bank, the German Development Bank, the World Bank, and so on.

As this could have far-reaching negative consequences, exceptions should be made for this type of organization, warned the Ombudsman.

The agency added that the law should not be retroactive and voiced its opposition to the requirement that foreign nationals have at least 5 years’ experience in the Georgian agriculture sector, arguing this complicates investment in agriculture unnecessarily. Read More »

5) Industrial Seed Production Program Begins November 11th, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10042878

The Industrial Seed Production Program, aiming to satisfy Georgia’s demand for industrial grain within 3 years, is to begin soon, said the Ministry of Agriculture. In parallel, new legislation will be drafted on the regulation of the reproductive seed supply.

The Agriculture Research Center and LLC Grain Logistics Company are currently testing various seed varieties. Krasnodarskaia-99, a variety of wheat capable of being sown in the winter, will be cultivated in Shindisi and Shiraki in the Gori and Dedoplistskaro districts. Reproductive seed will be harvested from the crop and distributed to farmers.

According to the Director of the Agriculture Research Center, Levan Ujmajuridze, there is a deficit of high quality grain-crop seed in Georgia. The Center began primary seed breeding in various regions and, by next year, will be able to make recommendations according results, he added.

Project costs have not been disclosed. Read More »

6) Khareba Winery to Invest a Minimum of GEL 1.02 Million in Kvareli November 12th, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10042894

The government has sold two plots of land – of 221,267 m²; and 117,047 m²; respectively – located in Kvareli municipality to Khareba Winery for $182,890.

Within 2 years, the company must plant Saperavi grapes on at least 70% of total area and invest a minimum of GEL 1,018,000, according to the government.

7) Subsidy for Sub-Standard Apples in Racha Amounts to GEL 25,273 November 20th, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10042981

The Ministry of Agriculture reported the sub-standard apple subsidy program in Racha has been completed. 316 tons of sub-standard apples where sold, subsidized to a total of GEL 25,273.

The program is ongoing in the Shida Kartli region. As of November 20, farmers sold 40,771 t of substandard apples, said the Ministry. The corresponding subsidy figure were not given.

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BFC. Georgian Agriculture Finance Bulletin. Edition #3, January 2013

The program has been in effect since September. Participating processors receive 8 tetri per kilo of substandard apples purchased at 10 tetri per kilo or more. Read More »

8) Former Chairman of National Wine Agency Introduces Successor November 21st, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10042992

At the meeting with representatives of the winemaking industry, Levan Davitashvili introduced Giorgi Samanishvili, his successor as Chairman of the National Wine Agency today.

Davitashvili led the Agency since December 2012, until his appointment as Deputy Agriculture Minister by order of the Prime Minister in November.

During this period, Samanishvili was Head of Strategic Development at the Agency. After graduating from the Georgian Agrarian University’s Faculty of Gardening and Viticulture, he studied at the University of Burgundy’s Winemaking Institute and obtained a Master’s degree in Wine Sector Management, Economics and Law at the University of Bordeaux. Read More »

Foreign Aid 9) Dutch Issue Grant for Zemo Samgori Irrigation System Rehabilitation November 3rd, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10042798

The Netherlands’ Facility for Infrastructure Development (ORIO) signed a grant for the rehabilitation of the Zemo Samgori irrigation system. The funds are to go towards development, implementation, operation and maintenance.

For the initial phase – including analysis of technical, social, environmental and administrative factors – ORIO will grant EUR 860,987.

Funding for the second phase will be based on the results of these analyses. Read More »

10) Georgian Vice-Prime Minister and Head of EU Delegation to Georgia Discuss Support Measures for Agriculture November 10th, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10042860

Georgia’s Vice-Prime Minister and Minister of Economy and Sustainable Development Giorgi Kvirkikashvili held talks with the EU’s newly appointed Head of the EU Delegation to Georgia, Janos Herman.

Topics included bilateral relations, ongoing reforms in Georgia pertaining to the Deep and Comprehensive Free Trade Agreement (DCFTA) and EU assistance programs – particularly those pertaining to support measures for the agriculture sector and SMEs. Herman also met with Prime Minister Irakli Garibashvili and Finance Minister Nodar Khaduri. Read More »

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BFC. Georgian Agriculture Finance Bulletin. Edition #3, January 2013

11)

EU to Invest €30 million in Regional Development in Georgia

November 19th, 2014, http://agenda.ge/news/24739/eng

The Commissioner for Enlargement and European Neighbourhood Policy, Johannes Hahn, and Georgia’s Prime Minister, Irakli Garibashvili, announced the EU is to invest €30 million (GEL 73 million) in phase ll of the Regional Development project.

The second phase will build on the achievements of first, implemented from 2011-2013, said the Commissioner, adding that the EU will support priority sectors such as agriculture, energy, transport and education. Read More »

12) UNDP Representative Discusses Continued Support for Agriculture in Adjara November 20th, 2014, http://www.georgiatoday.ge/article_details.php?id=12909

United Nations Development Programme (UNDP) representative Niels Scott met with Chairman of the Ajaran Government Archil Khabadze to discuss UNDP projects in Batumi and Kobuleti and ongoing assistance with key developmental areas, including business, agriculture, employment, and environmental sustainability.

Scott and Khabadze are to visit the Ajara Agriservice Center, where they will meet with local farmers to discuss services needed for the creation of cooperatives and partake in demonstrations of new agricultural technologies. Read More »

13) World Bank to Invest $50M in the Rehabilitation of Irrigation Systems and Land Registration November 21st, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10042990

The World Bank announced its intention to invest $50 million in land registration and irrigation system rehabilitation projects in Georgia.

According to Georgia’s Finance Ministry, the following irrigation systems are affected: the KvemoSamgori channel (Kakheti region); the Tbilisi-Kumisi channel (Kvemo Kartli region); and the Zeda-Ru channel (Shida Kartli region).

Pilot land registration schemes will take place in Dedoplistskaro, Gori, Gurjaani, Martvili, Mestia, Mtskheta, Shuakhevi, Tetritskaro, Tianeti and Vani - 31,000 village families will benefit from the program, noted the Ministry.

The Ministry of Agriculture and the National Agency of Public Registry, a department of the Ministry of Justice, will be responsible for the implementation of the projects. Read More »

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BFC. Georgian Agriculture Finance Bulletin. Edition #3, January 2013

Private Sector 14)

Laurel Cultivation Rises

November 4th, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10042807

Due to an increase in price and demand for laurel leaves (or bay leaves), mainly from Russia and Turkey, Georgia has seen a rise in cultivation of the plant in Imereti, Guria and Samegrelo, according to Rezonansi newspaper.

In Europe, bay leaves cost $5 per kilogram, while in Georgia, a kilo costs just GEL 3-3.5.

As of yet, laurel is not commonly cultivated in Imereti, while in Samegrelo it is mainly grown in Khobi.

During the Soviet era, bay leaf cultivation was common in Abkhazia. Read More »

15)

HACCP Related Hike in Meat Price Possible, says Matador CEO

November 4th, 2014, http://www.commersant.ge/?menuid=11&id=16815&lang=2

According to the CEO of Matador, Ioseb Kokhtashvili, the Hazard Analysis and Critical Control Point (HACCP) system may negatively impact meat prices if implementation costs are high.

Designed to increase food hygiene, HACCP will be introduced in all slaughterhouses and milk processing plants on the 1st of January 2015.

However, Quality Manager at Milko Food, Tamaz Makharashvili, said the introduction of the system will not affect the company’s price structure. While implementation of the system represents certain costs, these are too low to have an impact on a company that produces 30 tons of milk – though very small enterprises may be affected, he added.

According to Makharashvili, implementation of the system took one year and cost GEL 1,500 in consultations and 2,500 in internal audits. Read More »

16)

Small and Household Farmers Permitted to Continue Sales without HACCP

November 4th, 2014, http://commersant.ge/?menuid=11&id=16784&lang=2

The National Food Agency said that, while slaughterhouses and dairy processing enterprises will be prohibited from selling products on local markets if they fail to introduce the Hazard Analysis and Critical Control Point (HACCP) system by January 1st, small and household farmers will be able to continue selling their products without HACCP until 2020. Read More »

17) Georgian Wine‘s Global Brand Strengthening, says Head of Sommelier Association November 7th, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10042846

According to the Head of the Sommelier Association, Shalva Khetsuriani , recognition of Georgian wine has significantly increased worldwide. However, substantial effort is still needed to firmly establish it amongst the global community of wines, he said.

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BFC. Georgian Agriculture Finance Bulletin. Edition #3, January 2013

Riedel, an Austrian wine glass manufacturer with 200 years of history, has created a glass especially for Saperavi, testimony to the rising recognition of Georgian wine, said Khetsuriani. Further glasses designed for white Kvevri wines and Chacha (Georgian Grappa) are being developed, he added.

The sommelier profession is still undervalued in Georgia, said Khetsuriani, adding that, together with Germany and Serbia, Georgia is a candidate to host the next general assembly of the International Sommelier Association in 2016. Read More »

18)

Russia Resumes Imports of Georgian Dried Fruit

November 10th, 2014, http://commersant.ge/?menuid=11&id=16970&lang=2

On November 10th, Rosselkhoznadzor, Russia’s Federal Service for Veterinary and Phytosanitary Surveillance, removed restrictions on the import of dried fruits from Georgia.

Affected products include dried apples, pears, kiwi, buckthorn, blueberry, blackberry, peaches, apricots, plums, cherries, raspberries, rose, black currant, barberry and dogwood.

In addition, the Service authorized the delivery of dried black currant leaves, grapes, mint, chamomile and rosemary. Read More »

19)

17.5% of Teliani Veli Sold

November 12th, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10042895

The Georgian Stock Exchange reported 13.52 million shares (or 17.5%) of Teliani Veli winery were sold through a single OTC deal yesterday at a total value of GEL 3.52 million. The share price was fixed at GEL 0.26.

Teliani Veli has been trading since 2007. The last major OTC transaction occurred in 2010, when 13.43 million shares were sold for GEL 2.59 million.

Galt & Taggart (formerly BG Capital), the investment arm of Sakartvelos Banki (Bank of Georgia), purchased the shares.

According to Teliani, Q2 profit amounted to GEL 1.2 million (in 2013, the company reported profits of GEL 2.52 million). In the same period, total assets made up GEL 35.618 million, a 4% decline; long term assets totaled GEL 11.36 million (a 1% increase); while long-term liabilities totaled GEL 10.559 million (a 8.7% increase). Read More »

20) 2014 Citrus Harvest Produces Lower Yield but Higher Quality, says Minister of Agriculture November 18th, 2014, http://agenda.ge/news/24683/eng

This year’s citrus harvest is expected at 80,000 tons compared to 110,000 tons in 2013 (a 20 year high).

Minister of Agriculture Otar Danelia said that, while the yield is expected to be lower, quality will be higher. Due to severe weather, 25% of last year’s crop was damaged.

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BFC. Georgian Agriculture Finance Bulletin. Edition #3, January 2013

Meanwhile the government continued its mandarin subsidization program. Mandarin processors will receive 0.10 GEL for every kilogram of sub-standard mandarins they purchase at 0.20 GEL per kilo or more.

The Adjara region is expected to produce 80% of Georgia’s citrus harvest. Other citrus producing regions include Guria, Imereti and Samegrelo. The main citrus fruits produced in Georgia are pomegranates, lemons and oranges.

Citrus plantations in Georgia span 3,000 hectares in total, said the Ministry. Citrus fruits are also in abundance in residential areas and on private properties. Read More »

21)

“Agro Expo 2014” Attracts 90 Foreign and Georgian Companies

November 19th, 2014, http://www.sarke.com/cgi/search/news.asp?Code=10042960

The 14th edition of Agro Expo 2014, an international exhibition of agriculture, food industry, processing and packing technologies, took place at Tbilisi’s exhibition center, ExpoGeorgia, from the 19th until the 21st of November.

The Ministry of Agriculture, 2000 Georgian farmers and 90 companies from Georgia, Bulgaria, China, Germany, Israel, Latvia, Lithuania, Poland, Russia, Turkey, and Ukraine partook in the exhibition. Read More »

22)

Association of Grain Growers Requests VAT Payment Extension

November 20th, 2014, http://commersant.ge/?menuid=87&id=17369&lang=3

A provision allowing companies with revenues of at least GEL 200,000 to postpone VAT payments expired on July the 1st, 2014. Subsequently, VAT must be paid within 30 days.

The Association of Grain Growers requested the exemption be reintroduced for the sector. Preferential taxation allows grain importers to increase stock levels, permitting price stability regardless of potential increases on the international market, said Head of the Association Levan Silagava, adding that the new VAT regime has led to a 20% decrease in reserves. Deadline extension is even more important considering expected price hikes, said Silagava. Read More »

23)

Poultry Association Demands Protection of Local Producers

November 24th, 2014, http://commersant.ge/?menuid=87&id=17473&lang=2

A draft law on the protection of local poultry and egg production has not been discussed in parliament despite being scheduled for more than 4 months, said the Chairman of the Association of Poultry Development, Zurab Uchumbegashvili. The draft law stipulates the limitation of imports in case of excess domestic production.

Uchumbegashvili decried a lack of communication with the Ministries of Agriculture and Economy, adding that an appeal was lodged with the parliamentary Economy and Finance Committees. While the Committees agreed to address the issue within a week, nothing has been done, said the Chairman. If the draft law isn’t implemented soon, local entrepreneurs will be forced to cease production and begin selling imported goods, said Uchumbegashvili.

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BFC. Georgian Agriculture Finance Bulletin. Edition #3, January 2013

The Ministry of Agriculture blamed delays on the recent hospitalization of its Deputy Minister David Galegashvili.

Should the law is adopted, the Competition Agency will assess whether Georgian poultry producers can fully satisfy local demand. If so, depending on the type of product, either import quotas, customs taxes or total import bans will be introduced. Read More Âť

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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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