#48 Georgia Agriculture Bulletin, BFC

08/2016

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48 Geo r g i a Agriculture Bulletin Georgia and Turkey Agree to Expand Trade Relations Two-Year Rural Development Program to Begin Georgia Expanding Almond Production for European Markets Problems with Exporting Georgian Fruits and Vegetables into Russia

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

Regulations on Labeling Milk Substitute Products Being Enforced ................................................. 2 Free, One-Year Land Registration Program Launches in Georgia ................................................... 2 Georgia and Turkey Agree to Expand Trade Relations .................................................................... 2 Vintage Subsidy Program Continues for 2016 Harvest ................................................................... 3

Foreign Aid ................................................................................................................. 3 5) 6) 7) 8)

Two-Year Rural Development Program to Begin ............................................................................ 3 Ministry of Agriculture Meets with Donor’s Coordination Council ................................................. 3 Ministry of Agriculture and USAID to Further Cooperate ............................................................... 4 New Manual Gives Boost Agricultural Innovation in Georgia ......................................................... 4

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

Georgia Expanding Almond Production for European Markets ...................................................... 4 Small Poultry Companies Succeeding at the Expense of Larger Ones ............................................ 5 Problems with Exporting Georgian Fruits and Vegetables into Russia ........................................... 5 Small Farm Problems in the Emerging Georgian Agricultural Sector .............................................. 5 Georgian Honey Gaining International Exposure in Korea and the EU ........................................... 6 Coffee and Tea Processing Plants Aided by Produce in Georgia Program ...................................... 6 Iranian Business Plans to Open Pistachio Processing Factory ......................................................... 6 New Dairy Factory Opens in Tolo .................................................................................................... 6 Wheat and Flour Prices Decline....................................................................................................... 7

Note: The Georgia Agriculture Bulletin presents a monthly roundup of headlines and news stories related 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. Read more »

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BFC Agriculture Bulletin

State Initiatives 1)

Regulations on Labeling Milk Substitute Products Being Enforced

August 1st, 2016, http://www.commersant.ge/?m=5&news_id=40040&cat_id=5

Strict labeling rules are being enforced in the Georgian dairy market regarding the labeling of products which contain vegetable fat. Previously, dairy producers were allowed to use such labels as “with fats similar to sour cream,” etc. for their products contain milk substitutions. New regulations came into force on August 1, 2015; however, a one-year period was given to allow producers to adjust product labeling. So far in 2016, more than 1,700 businesses have been checked, with 11 businesses receiving labeling fines.

Previous labeling rules were not well-regulated in Georgia, meaning that dairy products with and without additional vegetable fats added were often labeled similarly.

2)

Free, One-Year Land Registration Program Launches in Georgia

August 1st, 2016, http://georgiatoday.ge/news/4354/Free-One-Year-Land-Registration-Program-Launches-in-Georgia

The Georgian Land Registration Law came into full effect from August 1, 2016. According to the law, mediation, obtaining certificates and other notary services will be completely free of charge for citizens for one year. To date, only 25% of land is registered – a huge problem for the private sector in trying to fully capitalize on utilizing available land for economic activities. Prime Minister Kvirikashvili noted that program will help give the state a much better and completed picture of land usage in the country and help strengthen the rural population, most of whom are involved in agriculture.

The Prime Minister has also asked the Minister of Justice to take all measures to eliminate potential abuse of the law and to ensure land registration under the program is completed in a correct and transparent manner.

3)

Georgia and Turkey Agree to Expand Trade Relations

August 20th, 2016, http://moa.gov.ge/En/News/1165 http://georgiatoday.ge/news/4494/Georgia-and-Turkey-to-Deepen-Trade%2C-Economic-Relations

Georgia and Turkey have agreed to expand trade relations. In a meeting between Georgian Agricultural Minister Otar Danelia and his Turkish counterpart, Faruk Celik, both sides agreed to boost the export of Georgian agricultural products to Turkey, especially that of live animals, meat, honey and tea. The two sides also discussed important measures in ensuring international food safety standards are met in Georgia.

Shortly after the Ministers’ meeting, Tbilisi also played host to the Georgia-Turkey Agricultural Business Forum where businesses from the two countries further expanded trade relations with agreements in meat, hazelnut, honey and grape exports from Georgia to Turkey as well as increasing the sharing of experiences between the two countries.

Following both of these events, Georgian First Deputy Minister of Agriculture Nodar Kereselidze and Deputy Minister of Food, Agriculture and Livestock of Turkey, Nusret Yazic, signed an official agreement on cooperation in the fields of plant production and protection, animal health and welfare, and scientific and trade relations between the two countries.

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BFC Agriculture Bulletin

4)

Vintage Subsidy Program Continues for 2016 Harvest

August 30th, 2016, http://georgiatoday.ge/news/4544/Government-Subsidizes-Vintage-2016-Harvest

Agriculture Minister Otar Danelia announced that the government will continue subsidies under the Vintage Program into 2016. The government will issue subsidies of GEL 0.45 per kilogram for Rkatsiteli grapes, GEL 0.20 per kilogram for Saperavi grapes, and GEL 0.45 per kilogram for Kakhetian Green grapes. Danelia spoke to the importance of the state subsidies, adding that the decision was made to extend the program into 2016 in the interest of viticulturists and winemakers alike.

Approximately 100 factories will receive grapes from village farmers and each farmer’s harvest will be purchased; moreover, the preferential agro-credit project will continue for those wine and alcoholic beverage companies which promote a production increase with a maximum amount of agro-credit set at GEL 10 million for a term not to exceed 15 months.

Coordination of the Vintage Program is being led by the head of the National Wine Agency, Giorgi Samanishvili, who noted that subsidies will be given directly to the viticulturists and not to winemakers, just as it was last year. After delivering grapes to the factories, farmers will receive their money within 15 working days by presenting their ID cards to officials.

Foreign Aid 5)

Two-Year Rural Development Program to Begin

August 2nd, 2016, http://moa.gov.ge/En/News/1158

Agriculture Minister Danelia and United Nations Development Program Resident Representative in Georgia, Shombi Sharp, signed an agreement on a two-year project for rural development in Georgia.

The GEL 6.8 million project is aimed at assisting the development of a national rural development strategy and supporting its practical implementation. The project is seen as an important step forward regarding rural development and will define a vision for the future Georgian village. The project will play an important role in the agricultural and economic development of the country and will include the introduction of new technologies as well as measures aimed at reducing poverty and increasing the overall income in the rural and mountainous areas of Georgia.

The two-year program will be implemented within the frame of the EU-funded European Neighborhood Program for Agriculture and Rural Development (ENPARD).

6)

Ministry of Agriculture Meets with Donor’s Coordination Council

August 5th, 2016, http://www.sarke.com/cgi/search/news.asp?Code=10048318

The Ministry of Agriculture met with a working group of the Donor’s Coordination Council to discuss efforts on the development of agricultural value chains. The meeting was attended by representatives of European Union, the Swiss Agency for Development and Cooperation (SDC), the United States Agency for International Development (USAID/REAP, USAID/ZRDA), the Austrian Development Agency (ADA), the United Nations Food and Agriculture Organization (FAO), the International Fund for Agricultural Development (IFAD), and the Czech and Dutch Embassies.

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BFC Agriculture Bulletin

7)

Ministry of Agriculture and USAID to Further Cooperate

August 8th, 2016, http://cbw.ge/economy/government-usaid-cover-50-costs-establishing-global-gap-services/

The Project Management Agency of the Ministry of Agriculture and the REAP project of US Agency for International Development (USAID) have concluded a memorandum of cooperation on technical assistance as part of the Plant the Future and Georgian Tea programs. The memorandum calls for group and individual trainings to program beneficiaries that will promote primary production, boost crop capacities, and increase raw material quality. Cooperation will also include the creation of the Global Gap certification program.

234 beneficiaries involved in the Plant the Future program and 7 beneficiaries involved in the Georgian Tea program will receive further assistance because of the memorandum. The Ministry of Agriculture will cover 100% of costs for the trainings and 50% of the costs for establishing the Global GAP certification program.

8)

New Manual Gives Boost Agricultural Innovation in Georgia

August 15th, 2016, http://georgiatoday.ge/news/4465/New-Manual-for-Melioration

As part of the Cochran Fellowship Program’s objective to develop farm management and promote the raising of the agricultural education level of young specialists, a delegation from Georgia traveled to California and North Carolina in the United States to gather information regarding how to improve the rational use of water resources as well as protect against soil erosion.

As a result of the experience, a new manual for agricultural melioration “Irrigation, Drainage, Erosion” has been published in Georgia, the first of its kind in the last 50 years. The manual provides various innovative engineering and biological solutions for improving soil properties, protecting against erosion, and for the new construction of combined three-floor drainage systems as well as solutions to challenges that have already been designed and put into effect.

The new manual was prepared under the direct instruction of Archil Prangishvili, Rector of the Georgian Technical University, and is intended to serve agro-engineering bachelors in the faculties of HydroEngineering and Agricultural Sciences and Bio-System Engineering of the Engineering Faculty of the Georgian Technical University as well as Masters, PhD candidates, and young research scientists working in the fields of agro-ecology, engineering ecology, and hydro-melioration. The manual can also be used by the faculties of Agriculture and Natural Sciences, including specialists of Environment Protection.

Private Sector 9)

Georgia Expanding Almond Production for European Markets

August 2nd, 2016, http://www.sarke.com/cgi/search/news.asp?Code=10048274

The popularity of almonds in European markets coupled with the fact that almonds can only be grown in seven European countries has many local farmers actively planting almond orchards. Almonds are the most profitable nut crop that can be grown in Georgia and are native to the country. In addition, almond prices on the global market are constantly growing and currently bring a price of USD 11.80 per kilogram.

Large-scale Georgian almond harvests are expected to be ready for European export in two years, with Poland already making offers for the product.

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BFC Agriculture Bulletin

10) Small Poultry Companies Succeeding at the Expense of Larger Ones August 2nd, 2016, http://cbw.ge/business/success-small-poultry-companies-beat-bigger-ones/

Over the past few years, the number of small poultry enterprises has steadily risen while major companies in the industry have closed their doors or slowed production. Zurab Uchumbegashvili, head of the Georgian Poultry Development Association (GPDA), says that this situation has come about due to the efforts of state-run programs which promote small enterprises to the detriment of larger ones. Mr. Uchumbegashvili points to significantly lower interest rates for small enterprises (3% versus 12%) and regulatory norms for major companies that smaller enterprises are exempt from. For example, smaller enterprises are not subject to the same phyto-sanitation and veterinary safety norms as larger companies, and smaller companies can use secondhand packaging at roughly 15% the cost of what major enterprises have to pay.

The existing situation has led to the closure of several major companies, including Algeti Poultry plant, and Sachkhere plant. Several others, including Noste company and Kumisi company, have had to reduce production in an effort to compete with the smaller enterprises.

Mr. Uchumbegashvili believes that the only solution is for the Ministry of Agriculture to be advised by a specialist who will balance the regulatory and financial environment in a way that will equally benefit both small and large enterprises.

11) Problems with Exporting Georgian Fruits and Vegetables into Russia August 8th, 2016, http://cbw.ge/business/georgian-greens-fail-succeed-russian-market/

Following the 2006 embargo, the Russian market for Georgian fruit and vegetable products was reopened in May 2014. Since that time, however, Georgian fruits and vegetables have failed to successfully penetrate the Russian market. Most Georgian companies involved in exporting fruits and vegetables that have tried to reenter the Russian market point to a set of conditions that have not allowed them to succeed. Overly elaborate negotiations with importers, corruption in the import process into Russia, cheaper alternatives from Iranian products, and the failure of Georgian suppliers to find the proper niches for Georgian fruits and vegetables have all led companies to sell their products elsewhere. In particular, Georgian products face easier export into European markets. Despite the difficulties, the Russian market represents a large opportunity for Georgian producers, and some are slowly finding success in penetrating the market.

12) Small Farm Problems in the Emerging Georgian Agricultural Sector August 8th, 2016, http://www.sarke.com/cgi/search/news.asp?Code=10048343

Two months ago, the 2nd Congress of Georgian Farmers identified the major problems facing farmers in Georgia. Deputy Agriculture Minister, Gocha Tsopurashvili, assured that these issues have all been addressed in the national strategy of agriculture development while also acknowledging that there remain challenges. In particular, he mentioned that the state cannot artificially remove agricultural resellers from the product chain and that the small size of more than 70% of farms (1 hectare or less) means that providing meaningful access to investment opportunities to all 700,000 household farms is not feasible. Farmers also face the problem of being very poorly informed about amendments to agricultural rules and regulations that are being applied to bring Georgian agriculture into harmony with EU requirements. For their part, farmers have begun asking for state subsidies for the certification of enterprises.

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BFC Agriculture Bulletin

13) Georgian Honey Gaining International Exposure in Korea and the EU August 15th, 2016, http://www.messenger.com.ge/issues/3693_august_15_2016/3693_econ_one.html

Georgian honey has made a promising entry into Korea and is becoming very popular with Koreans due to its unique flavor and increased health benefits, even if it is slightly more expensive than other honey products. Most honey in the Korean market comes from bees which are fed sugar instead of nectar from flowers. Honey produced in this way is not natural and tastes different. In fact, Georgian honey has nearly twice the minerals of other honey products in the Korean market.

Georgia is also working to increase honey exports to the European Union (EU). In May, EU Ambassador to Georgia, Janos Herman, announced that the improved beekeeping industry and Georgia bringing in strict rules and regulations regarding the quality of honey has made Georgian honey of the highest quality. Georgia is expected to begin honey exports to the EU later this year.

14) Coffee and Tea Processing Plants Aided by Produce in Georgia Program August 16th, 2016, http://cbw.ge/economy/coffee-processing-plant-open-tbilisi/

The state-run Produce in Georgia program has been active in helping two new enterprises get off the ground. It was announced that state-owned lands would be given in Tbilisi for the construction of a coffee processing plant that will employ 30 people and bring an investment value of GEL 11.28 million.

In addition, the program is helping entrepreneurs in the Ozurgeti district in receiving 25-year leasing rights on a 57,000 plot of land for the full realization of a tea processing plant.

15) Iranian Business Plans to Open Pistachio Processing Factory August 22nd, 2016, http://cbw.ge/economy/iranian-businessmen-plan-to-open-pistachio-and-nut-processing-factory/

The Aric Group of Iran is working with the Ministry of Agriculture’s TR Georgia Project 2 in the village of Iormuganlo (Kkaheti region) to establish a pistachio processing factory. Products from the factory will be sold on domestic and international markets, and production is expected to reach full capacity by the year 2020.

Revitalization of the pistachio industry is an important move as its price in international markets exceeds that of most other nuts and is very stable. Moreover, pistachios have health, pharmaceutical and homeopathic benefits.

16) New Dairy Factory Opens in Tolo August 23rd, 2016, http://cbw.ge/economy/new-dairy-factory-opens-in-georgia-2/

New Meskheti, a cheese processing factory, has opened its doors in the Tolo village (Aspindza Municipality). The factory was established using financing from the Affordable Agro Credit program and meets all modern European standards for cheese processing. The factory employs dozens of people but also receives local milk productions, indirectly providing benefits to hundreds in the area. Currently, the factory sells its products across Georgia; however, it is planning to explore exporting its products in the near future.

Primary investment in the factory amounted to USD 120,000, half of which was obtained as part of the Affordable Agro Credit program. In 2015, an additional USD 140,000 in financing was obtained under the program to enable the factory to increase its production capacities.

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17) Wheat and Flour Prices Decline August 26th, 2016, http://cbw.ge/economy/flour-prices-down-in-georgia-will-bread-and-bread-products-experience-samedecline/

The price of wheat in international markets is falling and expected to fall even further due to an abundant world grain harvest this year. In July, Russia alone exported 2.5 million tons of wheat into world markets, and projections for August indicated another 3 to 3.2 million tons coming just from Russia into world markets. Further driving down the price of wheat is an expected move from Moscow to abolish the export fee on grains.

As a result of the falling wheat price, the price of flour has also fallen and now costs GEL 34 per bag, compared to GEL 46 at this time last year. It remains to be seen if bread and other wheat- and grainbased products will face a similar decline in price.

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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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