41 BFC Georgia Agriculture Finance Bulletin

01/2016

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41 Ge o r g i a Agriculture Finance Bulletin Georgia Participates in International Green Week Berlin 2016 State Tea Plantation Rehabilitation Program Approved Wine Exports Drop by 47% in 2015 – Pickup Expected in 2016 6th Georgian Wine Center Opened in China

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Georgian Agriculture Finance Bulletin Edition #41, January 2016

Contents State Initiatives ........................................................................................................... 2 1) 2) 3)

Georgia Participates in International Green Week Berlin 2016 ...................................................... 2 State Tea Plantation Rehabilitation Program Approved ................................................................. 2 Georgian Honey on Track to Meet EU Standards ............................................................................ 2

Private Sector.............................................................................................................. 3 4) 5) 6) 7) 8) 9) 10) 11) 12)

Wine Exports Drop by 47% in 2015 – Pickup Expected in 2016 ...................................................... 3 Dried Fruit Manufacturer “Skigi” Launches Products...................................................................... 3 Georgian Orange Wine to be Served at London’s Ritz Hotel .......................................................... 3 Producers Claim Poultry VAT Harming Domestic Business ............................................................. 4 6th Georgian Wine Center Opened in China ................................................................................... 4 Strawberry Greenhouse to be Built with State Funding in Gurjaani ............................................... 4 Lidl Begins Selling Georgian Kiwi in Germany ................................................................................. 5 Citrus Exports Up 4,000 tons in 2015 .............................................................................................. 5 Wheat Association Chairman: Bread Prices May Rise ..................................................................... 5

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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State Initiatives 1)

Georgia Participates in International Green Week Berlin 2016

January 16th, 2016, http://agenda.ge/news/50517/eng

Georgia participated in this year’s International Green Week Berlin – one of the world’s largest agriculture, food and horticulture fairs. Georgian products exhibited at the event include wine, chacha (a local spirit), beer, lemonade, juice, tea, churchkhela (traditional snack made from nuts and grape juice), gozinaki (traditional Christmas and New Year’s caramelized nut and honey treat), tklapi (tradition fruit roll-up), tkemali (sour plum sauce), jams and nuts. Georgian folk music was also performed. The fair – first held in 1926 – attracted 1,600 producers from 56 countries, as well as 400,000 visitors.

Minister of Agriculture Otar Danelia attended the fair, as well as Georgia’s Ambassador to Germany Lado Chanturia. Danelia went on to attend the Berlin Agriculture Ministers’ Summit, where he met with his German, Austrian, Latvian, Estonian and Moldovan counterparts.

2)

State Tea Plantation Rehabilitation Program Approved

January 22nd, 2016, http://georgien.ahk.de/georgien/newsletter/agro-food-news-georgia/agro-sv/artikel/state-programgeorgian-tea-approved/?cHash=4823d78fb6ae47c7258f2514b1597eb4

The state tea planation rehabilitation program – “Georgian Tea” – has been approved. The program will have a budget of GEL 3.5 million in 2016, while next year’s budget will be determined according to the number of applicants that receive funding this year.

Single applicants and cooperatives will receive 60% and 80% in co-financing, respectively. Beneficiaries will be leased state-owned tea plantation at GEL 50 per hectare over a period of 25 years.

3)

Georgian Honey on Track to Meet EU Standards

January 25th, 2016, http://georgiatoday.ge/news/2768/Meeting-the-Standards%3A-Establishing-Georgian-Honey-on-theEuropean-Market

In an effort to export honey to the European Union (EU), legislation has been harmonized with EU regulations. The new laws lay out veterinary drug, pollutant and waste substance standards, according to the Georgian National Food Agency (GNFA). Technical regulations that govern production were put into effect in July, 2015. While facilitating exports, the regulations will also improve conditions on the domestic market and help prevent fraud, said the GNFA. To promote Georgian honey’s export credentials, samples were sent to the “BIOR” Food Safety, Animal Health and Environment Institute in Riga, Latvia for testing. So far, violations have been found in 20 of the 104 samples sent in 2015, according to the GNFA. That amounts to 19% of the samples, an improvement on the 37% found in violation in 2013, said GNFA. The Ministry of Agriculture’s own testing laboratory has now received ISO 17025 international accreditation, while also holding the 2008, ISO 9001 Quality Management Certificate, allowing farmers to send their samples in for testing, according to the GNFA. The Ministry of Agriculture and the GNFA meet with beekeepers regularly to keep them up to date on EU regulations and legislative changes.

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Private Sector 4)

Wine Exports Drop by 47% in 2015 – Pickup Expected in 2016

January 6th, 2016, http://cbw.ge/business/wine-export-declined-by-47-percent/

In 2015, sales of Georgian wine decreased 39%, with leading companies dropping 20%. Last year, 36.07 million bottles of wine worth USD 98.1 million were exported to 46 countries, compared to USD 185 million in 2014 – a 47% decrease. The drop was due to political and economic instability in traditional markets. Further currency devaluations are expected in Russia, Ukraine, Kazakhstan, Azerbaijan and Belarus - which make up 80% of total sales, says President of Tbilvino, Giorgi Margvelashvili. Producers expect 10% growth in 2016, however.

Leading winemakers have decreased exposure to traditional markets, reducing the adverse impact on sales. In 2015, Tbilvino, Georgia’s leading producer, exported 3.5 million bottles to 30 countries – a 25% decrease year-on-year. Russia’s share of sales was only 20%, said Margvelashvili, adding that the company expects sales growth of 15% in 2016. Teliani Valley exported 2 million bottles, a 15% decrease year-on-year. The company expects growth of 7-10% in 2016. Schuchmann Wines exported 1 million, a 20% decrease year-on-year. Russia no longer features in the latter’s top 4 export markets, according to Director Nutsa Abramishvili.

With its large population and location, China can be seen as the replacement for the Russian market, according to Abramishvili. At 2.7 million bottles, exports to China grew by 122%, and it now represents the fourth largest export market behind Russia, with 18.3 million bottles, Kazakhstan, with 5.2 million, and Ukraine, with 3.4 million. Export figures for new markets are as follows: Poland +3% (1,600,302 bottles); Lithuania +4% (658,666 bottles); Estonia +54% (506,124); US +31% (248,075); Canada +48% (157,836); Japan +5% (138,290); Kyrgyzstan +79% (185,514); the Netherlands +58% (51,432); France +190% (37,956); Israel +48% (35,820); Denmark +100% (34,840); and Korea +37% (24,054 bottles).

5)

Dried Fruit Manufacturer “Skigi” Launches Products

January 8th, 2016, http://georgiatoday.ge/news/2601/Georgian-Domestic-Dried-Fruit-Appears-on-the-Market

Skigi – a dried fruit manufacturer established with a Produce in Georgia grant worth GEL 5000 – launched its products on the domestic market. These include dried kiwi, apple, tangerine, and traditional Georgian snacks churchkhelas (made from nuts and grape juice) and tklapis (a dried fruit rollup).

The fruits undergo a complex process in the company’s special drying machine, safe from insects and other environmental impacts, thus retaining their nutritional value, according to Director Darejan Berdzenishvili. The company currently employs 3 people.

6)

Georgian Orange Wine to be Served at London’s Ritz Hotel

January 13th, 2016, http://www.georgianjournal.ge/business/32085-georgian-orange-wine-added-to-the-new-wine-list-of-theritz-hotel.html

Iconic London hotel The Ritz has added 150 new wines to its list – including the 2007 Lago Bitarishvili Chinuri, an orange wine from Georgia. The wine will be made available by the glass.

In Georgia, some producers use international grape varieties, but Chinuri is only used in Georgia, said head sommelier Giovanni Ferlito. Asked whether the English will be receptive to a Georgian orange Page 3

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wine, Ferlito said he was very surprised by local open-mindedness. Compared to the Italian and French, who will only drink wines from their region, the English have greater general knowledge of wines, according Ferlito.

7)

Producers Claim Poultry VAT Harming Domestic Business

January 13th, 2016, http://www.sarke.com/cgi/search/news.asp?Code=10046457

Poultry producers claim VAT is harming the industry. Zurab Uchumbegshvili, founder of Kumisi, says he could no longer compete with imports once VAT was introduced in 2012, and had to cease production of poultry products altogether. He continues to produce eggs and though VAT for the product was introduced in August 2008 his protests fell on deaf ears due to the war with Russia, claims Uchumbegshvili. Rostom Papidze, owner of Rosteri, says that Georgian poultry holds 15%-20% of the domestic market, with the share likely to increase to 100% should VAT be removed. Papidze questions whether the government is more interested in filling its coffers with GEL 40 million or promoting local businesses.

According to Sakstat data, Georgian poultry has 25% domestic market share, far less than eggs (96%), mutton (79%), beef (70%) and pork (42%). The removal of VAT for poultry and eggs would result in relatively cheap prices for consumers, while reducing state revenues, particularly from eggs, according to Rati Kochlamazishvili, an expert at the Policy Department of the International School of Economics (ISET) at Tbilisi State University. The parliamentary Agrarian Committee said it was unlikely that poultry products and eggs will be exempt from VAT.

8)

6th Georgian Wine Center Opened in China

January 19th, 2016, http://agenda.ge/news/50686/eng

A sixth promotional Georgian Wine Center will be opened in China. The 4000 m2 center will be located in Jiangzi province – which has a population of 30 million – and will feature tasting and exhibition halls, a museum, and a Georgian restaurant.

In July 2015, a Wine Center was opened in Beijing, adding to the existing Wine Center in Zhagang province and the further three in Xinjiang. China is a strategic market for Georgian wine and has seen explosive growth. Exports grew by 122% in 2015 to 2,672,154 bottles, according to the National Wine Agency, making China the 4th largest export market.

9)

Strawberry Greenhouse to be Built with State Funding in Gurjaani

January 20th, 2016, http://georgiatoday.ge/news/2711/Strawberry-Greenhouse-to-be-Built-in-Gurjaani%2C-Georgia

Greenhouse farmer Izolda Kitesashvili has received GEL 15,000 through the Micro and Small Enterprise Promotion Program towards the establishment of a San Andreas strawberry greenhouse in Gurjaani.

The variety is resistant to changes in weather, diseases and pests, and can be kept for 2-3 days. The San Andreas strawberry can also be grown throughout the year, and is therefore very profitable, according to Kitesashvili.

The variety is not currently available in Georgia, and requires specialized drip irrigation systems and other technologies to grow. Kitesashvili says the strawberries are in high demand and hopes to satisfy EU standards. The greenhouse will initially employ a few people, but further expansion is planned. The strawberries will fetch GEL 7 per kilogram, according to Kitesashvili.

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10) Lidl Begins Selling Georgian Kiwi in Germany January 21st, 2016, http://georgiatoday.ge/news/2718/Georgian-Kiwi-Sells-in-Germany

Lidl, a supermarket chain, has begun selling Georgian kiwi fruit in Germany. The fruit will be sold in Bavaria, Swabia and the Ruhr region, which include cities such as Munich, Stuttgart, Dusseldorf and Dortmund. The fruit are of the Hayward variety and are produced by Nergeta in the Samegrelo region of western Georgia. The variety is exceptional in terms of sweetness, dry matter, flesh color and taste. The tropical climate of the Samegrelo region is ideal for growing kiwi. Nergeta recently received GLOBAL GAP (Good Agricultural Practice) certification, which is necessary to export to the EU. Lidl was founded in 1930 and has 10,000 supermarkets across the EU.

11) Citrus Exports Up 4,000 tons in 2015 January 22nd, 2016, http://commersant.ge/index.php?m=5&news_id=31782&cat_id=5

In 2015, citrus exports totaled 26,061 tons – a 4,000 ton increase compared to 2014 – while a further 9,000 tons were processed, said Minister of Agriculture Otar Danelia, adding that it was one of the best harvests to date. Exports have not been affected by adverse economic conditions in neighboring countries, according to the Minister.

The main exports markets were as follows: Russia with 20,389 tons (78.23%); Ukraine with 3878 tons (14.88%); Armenia with 785 tons (3.01%); Azerbaijan with 247 tons (0.95%); Kazakhstan with 447 tons (1.72%); Belarus with 242 tons (0.93%); and other countries with 74 tons (0.28%).

12) Wheat Association Chairman: Bread Prices May Rise January 26th, 2016, http://www.sarke.com/cgi/search/news.asp?Code=10046548

The price of a sack of flour (50kg) is currently at GEL 41, according to Rezonansi newspaper. A hike in prices is currently being avoided only due to the use of reserves – if the lari doesn’t stabilize soon, there will be an increase in the price of flour and subsequently also bread, according to Levan Silagava, Chairman of the Wheat Growers Association.

Avchala Mill, Tbilisi Mill and Iberia Mill have all had to close, with further closures possible should prices increase, concluded Silagava.

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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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