37 BFC Georgia Agriculture Finance Bulletin

09/2015

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37 Ge o r g i a Agriculture Finance Bulletin Georgia to Export 100,000 Bottles of Wine to China by the End of 2015 Two Cooperatives Begin Producing Wine with ENPARD Assistance Georgia is 2nd Largest Hazelnut Exporter, Projected to Be 3rd Largest Producer Interim Grape Harvest Worth GEL 51.7 Million

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Georgian Agriculture Finance Bulletin Edition #37, September 2015

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

Honey to Be Exported to EU by February, 2016 .............................................................................. 2 "Plant the Future” Project Continues .............................................................................................. 2 New Bread Regulations to Be Enacted in 2016 ............................................................................... 2 Georgian Wine to Be Exported through Major Chinese Port .......................................................... 3 Produce in Georgia Program to Channel GEL 267 Million and Create 5,000 Jobs .......................... 3 White and Red Grapes Receive Subsidies of GEL 0.35 and GEL 0.15 .............................................. 3 24,449 Credits Issued within the Framework of Cheap Agro-Credit Program ................................ 3 Grapes Cheaper in France than in Georgia, Says Minister .............................................................. 4 Georgia to Export 100,000 Bottles of Wine to China by the End of 2015 ....................................... 4

Foreign Aid ................................................................................................................. 4 10) EU Allocates a Further EUR 3 Million to Rural Development .......................................................... 4 11) Two Cooperatives Begin Producing Wine with ENPARD Assistance ............................................... 5

Private Sector.............................................................................................................. 5 12) 13) 14) 15) 16) 17) 18) 19)

Georgia is 2nd Largest Hazelnut Exporter, Projected to Be 3rd Largest Producer.......................... 5 Exports to EU and US Increase by 84% and 21% ............................................................................. 6 Hipp Undecided over Georgian Fruit Procurement......................................................................... 6 Wine Industry in Disarray Due to Misguided Policies, Says Former Director of National Bank ...... 6 The European Market still Closed for the Georgian Dairy and Meat Products ............................... 7 USD 2 Million Tea Sorting and Packaging Plant Opened in Ozurgeti .............................................. 7 Kakheti to Grow Pistachio Nuts ....................................................................................................... 7 Interim Grape Harvest Worth GEL 51.7 Million .............................................................................. 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 #37, September 2015

State Initiatives 1)

Honey to Be Exported to EU by February, 2016

September 4th, 2015, http://agenda.ge/news/41837/eng

Honey will be exported to European Union (EU) countries by February, 2016, according to Minister of Agriculture Otar Danelia. All honey exports will carry an easily recognizable certificate of origin, he added. The Deep and Comprehensive Free Trade Agreement (DCFTA) allows Georgia to export up to 1,500 tons of honey to the EU. The state Beekeeping and Agricultural Cooperatives Support Program aims to revive beekeeping among 164 cooperatives – of which 80 are in mountainous regions. Qualifying cooperatives receive beehives and equipment, as well as free veterinary inspections until the end of the year.

EU demand for honey has been growing by 6% a year, with 55% of the 150,000 tons consumed last year consisting of imports. Georgia produced 4,000 tons in 2015, of which 5.4 tons, worth USD 54,000, was exported – mainly to the UAE, Saudi Arabia, Iraq and Lebanon, with new markets opened in China and South Korea in 2014. Putkara LLC is Georgia’s largest exporter.

2)

"Plant the Future” Project Continues

September 4th, 2015, http://sputnik-georgia.ru/economy/20150904/228457751.html#ixzz3kl1bSyBi

The press service of the Georgian Prime Minister has reported that the second stage of the “Plant the Future” project has begun.

The Agricultural Projects Management Agency launched the 2-year, GEL 15 million, "Plant the Future" project aimed at supporting aspiring farmers and agro-entrepreneurs through the establishment of plant nurseries or gardens. Successful applicants will receive funds totaling 50% of the cost of nurseries and, in the case of gardens, 70% of plant costs and 50% of irrigation system costs.

Beneficiaries may also receive funds through the preferential agro-lending program, through free soil testing and technical training. Cooperatives will also be given pesticide sprayers. The project aims to create 1,000-1,200 hectares of modern gardens and 30-40 new plant nurseries.

3)

New Bread Regulations to Be Enacted in 2016

September 7th, 2015, http://agenda.ge/news/41928/eng

As of January 1, 2016, new regulations affecting bread production, labeling, packaging, import and export will come into force, ensuring compliance with European Union (EU) standards, announced Minister of Agriculture Otar Danelia.

Domestic testing concluded production volumes were prioritized at the expense of quality, with some producers furtively introducing unhealthy additives not included on the ingredients list, said the Minister. In some cases, bread was sold without any labelling whatsoever. Those in violation of the protocols will be banned from selling their products.

The Minister reassured consumers bread prices would not rise, with good domestic and international wheat harvests keeping prices stable. Previous poor domestic harvests can be explained by the use of low quality seeds, said Danelia, adding a state seed distribution program has already shown results.

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BFC. Georgian Agriculture Finance Bulletin. Edition #37, September 2015

4)

Georgian Wine to Be Exported through Major Chinese Port

September 10th, 2015, http://agenda.ge/news/42110/eng

The Georgian Wine Company (GWC) is to begin exporting wine through Dalian, one of China’s major ports. The region of Adjara will also export through the port. Volumes have not been specified.

Prime Minister Irakli Garibashvili said that, while relations with China were already positive, Georgia will continue to strengthen them where possible.

5)

Produce in Georgia Program to Channel GEL 267 Million and Create 5,000 Jobs

September 11th, 2015, http://www.sarke.com/cgi/search/news.asp?Code=10045426

The Produce in Georgia program has 106 beneficiaries – 84 in the industrial sector and 22 in the agricultural sector – and will create 5,000 jobs over 3 years, with total investment reaching GEL 267 million, according to government figures.

Commercial banks loaned GEL 133 million through the project, while 42 state-owned entities were transferred to the private sector, according to the report.

6)

White and Red Grapes Receive Subsidies of GEL 0.35 and GEL 0.15

September 12th, 2015, http://www.georgianjournal.ge/business/31424-price-of-the-grape-harvest.html http://www.sarke.com/cgi/search/news.asp?Code=10045374

With demand in Georgia’s main export markets – Russia and Ukraine – expected to drop by 50% and wineries yet to sell last year’s stock, white Mtsvane and Rkatsiteli grapes will receive subsidies of GEL 0.35 per kilogram, while the red Saperavi grape will receive GEL 0.15 per kg, according to Minister of Agriculture Otar Danelia, adding that grape prices will not be manipulated. The subsidies will also help maintain competitive pricing in Georgia’s non-traditional export markets, said the Minister.

Unlike previous subsidies, the funds will go directly to farmers – two weeks after sale – instead of processors. The current price of the Mtsvane and Rkatsiteli is GEL 0.70 per kg, while the Saperavi costs GEL 0.85 per kg, said Danelia. This year’s harvest is projected at 200,000 tons, of which an estimated 120,000–130,000 tons will be sold.

Danelia believes the top 5 Georgian products with the most potential on the European Union (EU) market are hazelnuts, wine, honey, tea and berries. With honey having obtaining EU-standard certification, exports will begin next year, said the Minister, adding that a state tea production development program is underway.

7)

24,449 Credits Issued within the Framework of Cheap Agro-Credit Program

September 12th, 2015, http://www.apsny.ge/2015/eco/1442116130.php

Government reports on projects carried out in the agricultural field show that through the cheap agrocredit program 24,449 credits have been issued with a total amount of 613,448,515 GEL (153,160,086 USD).

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BFC. Georgian Agriculture Finance Bulletin. Edition #37, September 2015

The processing enterprises co-financing project has recently approved the financing of 26 new projects with a value of 17,272,903 USD, 6,362,670 USD of which is coming from state funds. A total of 132 enterprises have now been financed.

The agricultural insurance program issued 25,626 insurance policies with subsidies’ amounting to 13,181,035 GEL. The farmers’ promotion project has provided up to 800,000 beneficiaries with 70-GEL benefits in 2014.

8)

Grapes Cheaper in France than in Georgia, Says Minister

September 14th, 2015, http://commersant.ge/index.php?m=5&news_id=26704&cat_id=5

Grapes are cheaper in France than in Georgia, putting perspective on negative price perceptions, according to Sozar Subari, Georgia’s Minister of Internally Displaced Persons from the Occupied Territories, Accommodation and Refugees.

Growers held protests, with some claiming that, to cover costs, the price of Rkatsiteli grapes – which are currently at GEL 0.70 – should reach at least GEL 1, including subsidies.

However, while the government will subsidize growers, they will not intervene in pricing, leaving farmers to negotiate with processors, according to Director of the National Wine Agency, George Samanishvili. If agreement is not reached, the state will purchase the crop, but at a lower price than that offered by processors.

9)

Georgia to Export 100,000 Bottles of Wine to China by the End of 2015

September 24th, 2015, http://commersant.ge/index.php?m=5&news_id=27169&cat_id=5

Wine exports to China are expected to reach 100,000 bottles by the end of 2015, said Minister of Agriculture Otar Danelia during discussions with representatives of China’s Suolun Group.

The parties also discussed the marketing potential of Georgian agricultural products in China, including wine and mineral water. The Managing Director of Suolun pointed to the success of the House of Georgian Wine, a promotion center operated by the group.

Foreign Aid 10) EU Allocates a Further EUR 3 Million to Rural Development September 15th, 2015, http://agenda.ge/news/42425/eng

Through the European Neighbourhood Progamme for Agricultural and Rural Development (ENPARD), the European Union (EU) will provide EUR 3 million towards three 28-month pilot projects in Lagodekhi, Kazbegi and Borjomi. As part of a wider project to emulate EU best practice in rural development, the pilots aim to diversify agricultural production and increase local participation in decision making, as well as providing resources for general development purposes.

Local Action Groups (LAG) – comprising representatives of local authorities, private enterprise and civil groups – will work together to implement development strategies. Three NGOs with development Page 4

BFC. Georgian Agriculture Finance Bulletin. Edition #37, September 2015

experience in the respective regions will participate in the program: CARE-Austria in Lagodekhi, People in Need-Czech Republic in Kazbegi and Mercy Corps-Scotland in Borjomi. Upon completion of the pilots, the program will focus on other regions.

Each territory is unique and communities and local authorities need the capacity to identify and implement their own development strategies, said Deputy Head of the EU Delegation to Georgia Carlo Natale. Deputy Minister of Agriculture Nodar Kereselidze added the government is working with the EU develop a general agriculture strategy, which should be ready in 2016.

Through ENPARD, the EU has channeled EUR 52 million to Georgia for rural and agricultural development.

11) Two Cooperatives Begin Producing Wine with ENPARD Assistance September 25th, 2015, http://news.hvino.com/2015/09/agricultural-cooperatives-launch-wine.html

Terjola Wine and Sazano winery – both cooperatives – are to begin production after receiving funds and technical assistance from the EU-funded European Neighbourhood Programme for Agriculture and Rural Development (ENPARD). The projects were implemented with the cooperation of People in Need-Czech Republic.

With GEL 76,642 of EU co-financing, Sazano Winery will produce an estimated 600 liters of EU-standard wine. Terjola Wine received an estimated GEL 74,367 worth of production, bottling and labelling equipment through the scheme and will produce three types of wine totaling a projected 2,850 liters worth GEL 72,456.

The ENPARD grant scheme aims to increase the efficiency and revenues of agricultural cooperatives by financing sustainable business projects. Of the 700 applicants, successful candidates were provided with technical expertise, as well as training in business strategy, organization and execution.

Private Sector 12) Georgia is 2nd Largest Hazelnut Exporter, Projected to Be 3rd Largest Producer September 1st, 2015, http://www.sarke.com/cgi/search/news.asp?Code=10045319

Georgia is projected to become the 3rd largest producer of hazelnuts in 2014-2015, with Turkey the largest followed by Italy, according to a World Nuts and Dried Fruit Congress (WNDFC) report. Georgia ranked 4th in 2013 and 5th in 2012 (after Turkey, Italy, the USA and Azerbaijan). In terms of exports, in 2013, Georgia ranked 2nd with an 11% share, behind Turkey (66%) and in front of Italy (7%).

As of 2014, production totaled 40,000 tons against an average yearly production of 25,000 tons, comprising 6.4% of Georgia’s total exports.

Most of the nuts head for Germany and Italy, requiring them to meet the EU’s stringent food safety standards, noted the WNDFC, adding that Georgia has little exposure to other markets. According to Forbes Georgia, the state should provide assistance in promoting Georgian hazelnuts worldwide.

The WNDFC is organized by the International Nut & Dried Fruit Council (INC).

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BFC. Georgian Agriculture Finance Bulletin. Edition #37, September 2015

13) Exports to EU and US Increase by 84% and 21% September 6th, 2015, http://www.apsny.ge/2015/eco/1441570103.php http://www.blackseanews.net/read/104612

From January to July, 2015, agricultural exports to the European Union (EU) and the United States (US) totaled USD 100.5 million and USD 3.48 million, respectively – an increase of 84% and 21% year-on-year, according to Minister of Agriculture Otar Danelia. Of total exports, 33% went to the EU. Over the same period, exports to the EU were 149% higher than in 2013, while those to the US were 43% higher than in 2013 and 96% higher than in 2012. The top exports to the EU were hazelnuts, mineral water, wine and spirits, while the top exports to the US were vegetable juice, mineral water, wine and spirits.

14) Hipp Undecided over Georgian Fruit Procurement September 11th, 2015, http://www.commersant.ge/?m=5&news_id=26640&cat_id=6

Hipp – a German baby food manufacturer – is yet to decide whether to purchase Georgian fruit this year, with Deputy Director Vasil Akhvlediani citing a poor harvest and a shortage of apples. The company will assess prices on alternative markets and gauge demand, reaching a decision within two weeks, said the Deputy. Hipp is considering investing in a new project in Georgia and is in negotiations with the Ministry of Economy, according to Akhvlediani.

However, other processors have begun procurement, including Kula cannery, with Director Vano Goglidze suggesting the harvest is good, though prices are high.

15) Wine Industry in Disarray Due to Misguided Policies, Says Former Director of National Bank September 11th, 2015, http://www.sarke.com/cgi/search/news.asp?Code=10045423

The wine industry is in disarray, according to the Head of the Economic Development Center and former president of the National Bank of Georgia (NBG), Roman Gotsiridze.

As a result of misguided policies, billions were spent on subsidies– starting from plowing and sowing to direct financing of wineries – without considering return on investment, producing wines destined for the warehouse, Gotsiridze wrote on his Facebook page.

Taking into account GEL 0.35 of subsidies and the GEL 0.5-0.10 increase in price due to state procurement, the real price of white grapes drops from GEL 0.60 to GEL 0.15-0.20, while red grapes drop to GEL 0.60-65, said Gotsiridze.

Due to the government concentrating all its efforts on battling the NBG and its failure to deal with the lari’s depreciation, discontent will soon spread to gas, citrus and apple subsidization, as well as water fees, according to Gotsiridze.

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BFC. Georgian Agriculture Finance Bulletin. Edition #37, September 2015

16) The European Market still Closed for the Georgian Dairy and Meat Products September 13th, 2015, http://www.apsny.ge/2015/eco/1442173162.php

"Georgian Business Zone Ltd" planned to export dairy and meat to the European market this year but, the company was forced to abandon its plans.

According to the company's founder, Nino Zambakhidze, the reason for this is the regulation and the reforms that Georgia must fulfill as part of the Georgia-EU Association Agreement. Despite the fact that "Georgian Business Zone Ltd" received the ISO certificate for the EU market a few years ago, the company will still not be able to export cheese to Europe within the next few years.

According to Maka Shubladze, the head of the legal division at the National Food Agency of Georgia, the top priority is a rapprochement of Georgian and European legislation.

Once the state and businesses are ready to fulfill the necessary conditions, Georgia will join a special list of countries, which will allow them to start exporting livestock products to the European market.

17) USD 2 Million Tea Sorting and Packaging Plant Opened in Ozurgeti September 15th, 2015, http://bizzone.info/agriculture/2015/1442622058.php

A 1,300 square meter, USD 2 million, tea sorting and packaging plant – owned by Geoplant and funded by the Produce in Georgia program – was opened in western Ozurgeti.

While praising the Produce in Georgia program, Geoplant Director Mikheil Chkuaseli said the company plans to create 20 new varieties – with 45 currently in production – and increase exports though the introduction of tea bags and other packaging varieties.

The company produces the popular “Gurieli” tea an exports its products to the Ukraine, Russia, the Baltic States and several other European countries.

18) Kakheti to Grow Pistachio Nuts September 17th, 2015, http://georgiatoday.ge/news/1255/Kakheti-to-Grow-Pistachio-Nuts

Iormuganlo village in Kakheti has begun planting pistachio saplings. With the relatively stable price of pistachios exceeding that of walnuts and hazelnuts, amongst others, pistachio production could bring considerable profits, according to BPI.ge, an online news and analysis platform.

The tree could also provide protection against erosion in Georgia’s arid regions, while the pistachio nut purportedly has health benefits and is used in pharmaceutical and homeopathic products, continues the report.

19) Interim Grape Harvest Worth GEL 51.7 Million September 29th, 2015, http://agenda.ge/news/43363/eng

Minister of Agriculture Otar Danelia announced and interim grape harvest of 84,000 tons worth GEL 51,669,513.

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BFC. Georgian Agriculture Finance Bulletin. Edition #37, September 2015

So far, 39,470 tons of Rkatsiteli worth GEL 26 million, 33,592 tons of Saperavi worth GEL 22 million, and 2,016 tons of Kakhuri Mtsvane worth GEL 825,181 have been collected. The remaining 9,004 tons – worth GEL 2 million – was made up of other varieties, according to Danelia. Harvesting of the Aleksandroul-Mujuretuli grape has not yet begun.

Most of the grapes were processed in Gurjaani (29,000 tons), followed by Telavi (17,500 tons), Kvareli (15,500 tons), Signagi (7,300 tons), Lagodekhi (6,700 tons), Sagarejo (3,500 tons), Akhmeta (2,200 tons) and Dedoplistskaro (2,100 tons).

The harvest saw 11,000 farmers and 67 wineries – including 18 commissioned by the government – participate, said the Minister.

From January to September, 23.3 million bottles were exported, said Danelia. During the same period, year-on-year export volumes tripled. The top 5 export markets were Russia (12.1 million bottles), Kazakhstan (3.4 million bottles), Ukraine (1.9 million bottles), China (1.4 million bottles) and Poland (1.1 million bottles), according to the Minster.

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