#45 BFC Georgia Agriculture Finance Bulletin

05/2016

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45 Geo r g i a Agriculture Finance Bulletin New Hazelnut Regulations Ensure Quality Standards for Export Georgia and China Partnering to Revive Georgian Tea Industry Georgia Receives EUR 50 Million for Agriculture Development Georgian Wool to be Exported to Italy and Sweden

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Georgian Agriculture Finance Bulletin Edition #45, May 2016

Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4)

Ministry of Agriculture Outlines Priorities for Agricultural Development ...................................... 2 Georgia Considering Two Subsidy Options within the Vintage 2016 Program ............................... 2 New Hazelnut Regulations Ensure Quality Standards for Export .................................................... 2 State Laboratories Necessary to Ensure EU Quality and Safety Standards..................................... 3

Foreign Aid ................................................................................................................. 3 5) 6) 7)

Georgia and China Partnering to Revive Georgian Tea Industry ..................................................... 3 Minister Danelia Meets with FAO Representatives ........................................................................ 3 Georgia Receives EUR 50 Million for Agriculture Development ..................................................... 3

Private Sector.............................................................................................................. 4 8) 9) 10) 11) 12) 13) 14) 15) 16) 17) 18)

Geostat Releases Vineyard Space Data ........................................................................................... 4 Carrot Seed Oil Potentially in Georgia’s Future ............................................................................... 4 Kareli Invests GEL 2 Million for Dried Fruit Processing Plant .......................................................... 4 Georgian Olive Entering the World Market..................................................................................... 4 Georgian-Dutch Cooperation for Local Greenhouse Expansion ..................................................... 5 Georgian Wine Exports Growing in All Markets .............................................................................. 5 Georgian Honey Expected to be Allowed into EU Markets ............................................................. 5 Bahrain to Import Georgian Sheep.................................................................................................. 5 Georgian Wool to be Exported to Italy and Sweden ....................................................................... 6 Agricultural Land Prices on the Rise ................................................................................................ 6 New Financial Tool for Farmers: Warehouse Check........................................................................ 6

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

State Initiatives 1)

Ministry of Agriculture Outlines Priorities for Agricultural Development

May 5th, 2016, http://www.commersant.ge/?m=5&news_id=36442&cat_id=5

Agriculture is a priority for the government of Georgia, and the Ministry of Agriculture’s budget has grown by 10 times in the last three years. One of the biggest problems facing the country is a dependence on food imports (80% of the food in Georgia is imported), especially that of fruits and vegetables. To combat this, investments in agriculture over the last five years have resulted in 148 new enterprises and 700 existing enterprises being modernized and expanded.

Diversification of markets is another important priority for the Ministry of Agriculture. Currently, Georgia is exploring options for processing fresh water for export to water-hungry countries like Qatar and Saudi Arabia. Wine also represents a huge opportunity for the country as Georgian wines continue to gain popularity around the world and wine sales in new markets like China and Japan are growing.

The Ministry has in place a 5-year strategy that will guide policy and decision-making until 2020 when the results of works and projects being carried out today will have their full effects realized. The goal set out in the strategy is to equalize living standards between urban and rural areas. To that end, a guide for each region of the country has been created that details all necessary information from the state of infrastructure to investment opportunities in each region of the country.

2)

Georgia Considering Two Subsidy Options within the Vintage 2016 Program

May 13th, 2016, http://www.commersant.ge/?m=5&news_id=36691&cat_id=5

According to the Director of the National Wine Agency, George Samanishvili, the government of Georgia is considering two options for subsidies within the Vintage 2016 program. Although the details remain unknown at this point, policy has not changed, and subsidies are planned for this year. According to Samanishvili, the government believes that subsidies are not ideal but also understands that the industry is not yet ready to carry on without state support.

3)

New Hazelnut Regulations Ensure Quality Standards for Export

May 19th, 2016, http://www.sarke.com/cgi/search/news.asp?Code=10047579

The Ministry of Agriculture has initiated improved regulations governing the production, processing and storage of hazelnuts which are scheduled to take effect June 1, 2016. Hazelnuts are of strategic importance for Georgia, and improved regulations will help the product meet quality and safety standards that will allow it to reach more markets. In 2014, USD 183 million worth of hazelnuts was exported, and USD 176 million in 2015. The decline last year was largely due to insufficient quality.

Georgia has received GEL 130 million in grants for financing agricultural development projects. The funds are expected to largely be used this year to assist small farmers ensure quality hazelnut production.

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BFC Georgian Agriculture Finance Bulletin

4)

State Laboratories Necessary to Ensure EU Quality and Safety Standards

May 24th, 2016, http://cbw.ge/economy/leading-georgian-laboratories-can-partly-satisfy-eu-standards/

Filbert is a leading product for Georgia, one that is exportable to European Union (EU) markets, and Georgia is the third-ranked country in terms of filbert exports. Speaking on the subject, Deputy Agriculture Minister, David Galegashvili, said that the government supports all components for creating value chains in relation to filbert production and that the government’s recent decision about filbert technical regulations are designed to promote the development of the sector in a responsible way.

The Deputy Minister also noted that even the leading Georgian laboratories can only partially meet EU standards at the moment and that, because of this, selective control from state laboratories is still vital to ensuring the filbert products meet EU quality and safety standards. The objective of the state-run laboratories is to inspect the products of companies already examined by private laboratories so as to ensure that exported filbert products do not damage the interests of the country.

Foreign Aid 5)

Georgia and China Partnering to Revive Georgian Tea Industry

May 16th, 2016, http://georgiatoday.ge/news/3792/Chinese-Companies-to-Support-Tea-Industry-in-Georgia

The Georgian Ministry of Agriculture is partnering with the Partnership Fund and two Chinese companies to revive the tea industry in Georgia, including tea plantation restorations, the creation of new tea processing points, and the development of conditions for eco-tourism in Georgia. The sides have signed a memorandum of understanding this month which provides for the development of tea production, improving the quality of tea produced in Georgia, employing more people in the regions and raising the skillset and experience of people who work in the industry.

6)

Minister Danelia Meets with FAO Representatives

May 19th, 2016, http://moa.gov.ge/En/News/1114

Agriculture Minister Otar Danelia met with a representative of the United Nations Food and Agriculture Organization (FAO) to Georgia to discuss continuing cooperation and set the framework for an agreement to be signed in the near future. At the meeting, Minister Danelia made specific note of the good progress already made in country with their efforts in such fields as bringing Georgian honey to European Union (EU) markets and bringing control systems for products of animal origin in line with EU standards. The Minister also highlighted the importance of continued development of beekeeping and the revival of tea plantations as important steps for the future of Georgian agriculture.

7)

Georgia Receives EUR 50 Million for Agriculture Development

May 27th, 2016, http://cbw.ge/economy/georgia-received-50-million-eur-eu-develop-agricultural-field/

Georgia has received EUR 50 million within the framework of the second phase of ENPARD from the European Union (EU) in order to develop agriculture. ENPARD saw nearly 1,000 new cooperatives established as the first part of the program. The funds for this second part will be used primarily to create a scale of production in the agricultural sector and unite small farmers in cooperatives.

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BFC Georgian Agriculture Finance Bulletin

Private Sector 8)

Geostat Releases Vineyard Space Data

May 3rd, 2016, http://cbw.ge/business/72-vineyards-georgia-grow-kakheti-region/

According to a report by Geostat, the national statistics service of Georgia, the average space for a vineyard on a farm is 0.3 hectares nationally, and 95.4% of vineyards grow on less than 1 hectare.

Vineyards also occupy 1,000 hectares in the Shida Kartli Region, 700 hectares in the Racha-Lechkhumi and Kvemo Svaneti Region, and 500 hectares in the Imereti Region; however the bulk, 72% (23,900 hectares), of all registered vineyards in Georgia are found in the Kakheti Region.

9)

Carrot Seed Oil Potentially in Georgia’s Future

May 4th, 2016, http://www.sarke.com/cgi/search/news.asp?Code=10047454

A study conducted by the Netherlands Research Institute CBI showed that there is shortage of ecologically pure carrot seed oil on the global market and the price of one kilogram is currently EUR 1,000. Georgia has the potential to export carrot seed oil to Europe; however, carrot production in Georgia does not meet even local demand at the moment.

Organic agriculture consultant Nukri Memarnishvili noted that, although Georgian farmers are familiar with growing carrots, they would need further education and trainings on carrot seed oil production.

Chief expert of Bio-Agricultural Farming Service at Georgia’s Agriculture Ministry, Rusudan Barkalaia, also noted that the current focus in Georgia is on essential oils as there is a large demand for nut oil and any interest in carrot seed oil would necessarily come later. In addition, the costs for certification mean it is difficult for small- and medium-sized enterprises to get their foot in the carrot seed oil door.

10) Kareli Invests GEL 2 Million for Dried Fruit Processing Plant May 6th, 2016, http://cbw.ge/business/kareli-2-mln-investment-funded-dried-fruit-processing-plant/

Kareli Agro-industrial Company has invested GEL 2 million in a dried fruit processing factory in order to continue the expansion of their business. The company began operations last year and already has 30 hectares with a variety of fruit trees. Currently, Kareli fruit products are widely available in the Tbilisi area, and the company’s objective is to concentrate on expanding its production in order to gain reliability. Once that has been completed, the company will then begin exporting into foreign markets.

11) Georgian Olive Entering the World Market May 10th, 2016, http://cbw.ge/business/georgian-olive-entering-world-market/

Georgian Olive will be making an entrance into world markets this October. A modern olive processing plant is already working in Sakobo in the Signagi Municipality, and the company plans to make additional investments of GEL 5 million in the next few years to increase their olive plantation size from 300 hectares to 1,000 hectares.

The company plans on selling products under the name “Georgian Olive” to start and then expanding with other brands later. The company believes it will have a competitive edge on the world markets given the lower cost of labor, low energy rates and a liberal tax policy.

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BFC Georgian Agriculture Finance Bulletin

12) Georgian-Dutch Cooperation for Local Greenhouse Expansion May 16th, 2016, http://georgiatoday.ge/news/3793/Georgia-Dutch-Cooperation-for-Local-Greenhouse-Expansion-

Georgia’s State Partnership Fund and Dutch firm Georgian Fresh Holding B.V. have invested EUR 4.2 million in the expansion of the Imereti Greenery greenhouse in the Imereti region. The project aims to add an additional 1.6 hectares of space to the greenhouse and increase the quantity and quality of vegetables available on the Georgian market.

The greenhouse was built in 2014 on 10,000 square meters and produces up to 160 tons of lettuce and herbs per year. Expansion began earlier in 2016 and will be completed in early summer, enabling the greenhouse to increase production to 1,000 tons per year and add new products like tomatoes and eggplant. The expansion is also expected to increase the number of greenhouse employees from 23 to 40.

13) Georgian Wine Exports Growing in All Markets May 17th, 2016, http://cbw.ge/business/giorgi-samanishvili-georgian-wine-exports-grow-directions/ http://www.commersant.ge/?m=5&news_id=36816&cat_id=6

The National Wine Agency has published statistics on wine exports from the period of January through April, and Georgian wine sales are growing in all export markets. According to the statistics, wine exports have grown by 84% compared to 2015.

Traditional markets for Georgian wine suffered in the beginning of 2015 due to inflation; however, the situation has stabilized and terms between exporters and partner companies have been revised to be friendlier in the current environment. This means that, although export volume has increased, it has only done so at a reduced price. However, total revenues have increased and all markets record positive tendencies, including newer markets like the United States and China.

There has been a push in recent years to have a greater market diversification and that push has come to fruition as Russia’s share of Georgian wine exports in 2000 was 95% and is now 51%. The trend of growth, in terms of export volumes, is expected to continue for the rest of 2016.

14) Georgian Honey Expected to be Allowed into EU Markets May 19th, 2016, http://www.sarke.com/cgi/search/news.asp?Code=10047578

The head of Georgia’s National Food Agency, Kakha Sokhadze, believes that Georgia will be added to the list of countries allowed to import honey into the European Union (EU) in the autumn. In preparation, he notes that entrepreneurs should begin to think about packaging and labeling for EU markets.

Quality monitoring for the honey is necessary as part of entrance into the EU market, and it remains to be seen if the Ministry of Agriculture’s laboratory will be ready for this task in time or if another country’s services will need to be obtained until the domestic lab is ready.

15) Bahrain to Import Georgian Sheep May 20th, 2016, http://geotimes.ge/index.php?m=5&news_id=23629&cat_id=5

Mikheil Sokhadze, Deputy Head of the National Food Agency, has met with representatives of the business community and the Ministry of Agriculture of Bahrain to discuss the export of sheep from Page 5

BFC Georgian Agriculture Finance Bulletin

Georgia to the Kingdom of Bahrain and hopes that export will begin as soon as details regarding technical issues and veterinary certificates have been finalized. Bahrain's delegation also expressed an interest in future export opportunities with regard to other agricultural products.

16) Georgian Wool to be Exported to Italy and Sweden May 20th, 2016, http://cbw.ge/business/georgian-wool-exported-italy-sweden/

The first animal product that will be exported from Georgia to EU markets will be wool. After wool samples were sent to select European countries, interest in the product rose, and Georgia is set to be added to the list of countries which can import raw wool into the EU. The demand for Georgian wool from Italy and Sweden is expected to be 10 tons per month.

Currently, the EU has recognized two wool producing companies from Georgia which can import into the Union.

17) Agricultural Land Prices on the Rise May 24th, 2016, http://www.sarke.com/cgi/search/news.asp?Code=10047605

The cost of 1 hectare of agricultural land has risen from between USD 500 and USD 4,000 to between USD 1,000 and USD 8,000 in just a few years. The rise in price is due to a suspension of the selling of state lands and owners of private land not registering their plots in the public registry. Interest in acquiring agricultural land has also grown as the price of hazelnuts and citrus has increased.

18) New Financial Tool for Farmers: Warehouse Check May 30th, 2016, http://www.sarke.com/cgi/search/news.asp?Code=10047648

The Ministry of Agriculture is working together with the project Promoting Access to Finance and AgriInsurance (PAFAI) and the United Nations Food and Agriculture Organization (FAO) to institute a new financial tool for farmers called Warehouse Check. Warehouse Check is being designed to help farmers who are otherwise unable to take a loan by issuing a special check (receipt) to a farmer proving his/her storage of product(s) in a warehouse. The farmer can then go to a micro-finance organization and take a loan on the basis of this check.

A pilot project of Warehouse Check is being planned for launch by the end of the year. Deputy Agriculture Minister, David Galegashvili, noted that hazelnuts have been selected for the pilot project as they are easy to store and in demand globally. Micro-finance Organization Crystal was approached and gave its consent to be the micro-finance organization for the pilot.

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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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