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2 This report has been commissioned by the Danish Refugee Council (DRC) under its project "Rebuilding Returnees' Housing and Livelihoods in Ergneti", funded by the Swiss Agency for Development and Cooperation (SDC). It has been carried out by TBSC Consulting. The contents of this report are the sole responsibility of the authors and do not necessarily reflect the views of SDC.

3 Table of Contents I. Executive Summary Recent History...4 Objectives...4 Self-Reliance...4 Agricultural Value Chains...5 Non-Agricultural Value Chains...5 Infrastructure...5 Labor Skills Assessment...6 Market Development Potential...6 Gender...6 Report Organization...6 II. Methodology 1 Background Approach...7 III. Self-Reliance 1 Definition Conclusions...9 IV. Agricultural Value Chains 1 Importance Of Agriculture Fruits And Vegetable Production Problems Facing Fruit And Vegetable Production Livestock, Poultry And Beekeeping Problems Facing Livestock, Poultry And Beekeeping Recommendations To Improve Agriculture Value Chains...18 V. Non-Agricultural Value Chains 1 Current Situation Recommendations For Non-Agriculture Value Chains...21 VI. Infrastructure 1 Current Situation Recommendations...23 VII. Labor Skills Assessment 1 Current Situation Recommendations To Improve Labor Skill Levels...26 VIII. Market Development...28 IX. Gender Issues 1 Similarity To Rest Of Georgia Observations...29 X. Appendixes...31

4 I EXECUTIVE SUMMARY This Chapter summarizes the major themes that are elaborated in the rest of the report. Recent History Ergneti Village is located in the Shida-Kartli region of Georgia. The distance from the Village to the regional center Gori is around 30 km. The population of the Village is around 220 households; only about 170 households are permanently residing in the Village. Ergneti faces the same large socio-economic problems as other villages in the region, with underdeveloped agri culture and non-agriculture sectors, which affect the villagers socio-eco nomic condition. The situation is especially difficult since the adjacent Ergneti market, which was the key source of income for most local households, was closed in The major source of income for local households is now close-to-subsistence farming. The Village is located along the Administrative Boundary Line (ABL) between Tskhinvali region/ de facto South Ossetia and the rest of Georgia. It hosts a checkpoint and is only a few kilometers from Tskhinvali (the largest city in Tskhinvali region/ South Ossetia). It has been and continues to be severely affected by the conflict which erupted in the early nineties with separatist South Ossetia, which then remained frozen for more than a decade, until armed conflict broke out again in During the 2008 August war, most of the population left the Village, but the overwhelming majority of those displaced returned to Ergneti a few weeks to months later, after the retreat of the Russian forces and South Ossetian militias. Most houses they returned to had been destroyed, and the household and economic assets other than those that they were able to carry with them while fleeing the fighting, including livestock, had often been lost, destroyed or looted. 4 The conflict situation continues to greatly influence the socioeconomic condition of the villagers. Since 2008, the ABL is closed and access to markets across the divide, which was a traditional income opportunity for Ergneti villagers, became impossible. Benefitting from agricultural income has also been increasingly difficult, notably because of the insuf ficient access to irrigation water. Objectives The goal of this socio-economic baseline study is to detect respective problems in the Village and the wider region, and provide recommendations for further improvements. For the purpose of the Project, we identified seven core focuses: self-reliance, agricultural value chains, nonagricultural value chains, infrastructure, labor skills assessment, market development and gender issues. For each of the areas research was undertaken to investigate the current situation and identify possible improvements. We used a number of data sources including existing documentation, face-to-face interviews with key stakeholders, focus groups with local citizens, informal conversations on the street with villagers, our observations when we were in the Village and our own experience with issues of this kind. Self-Reliance We found that households make just enough money to keep them fed; we did not find evidence of hunger. The main income for households comes from selling agricultural products, and from aid from the Government and international donor organizations. In a current income sense, the self-reliance of citizens in the Village is similar to the self-reliance of citizens in other Georgian villages. The situation in a household assets sense in Ergneti Village is quite different from most other

5 villages in Georgia. Households lost most of their household assets, primarily their residence, in the war. About half of the destroyed houses are still not habitable, even though this is currently being addressed through a shelter rehabilitation programme carried out by DRC under SDC funding. Households were given a financial compensation by the Government after the 2008 conflict (usually USD each). Some households used this to partly renovate their homes while others used it for other purposes. Significant economic assets were lost in the war. Most households lost livestock, and many of them have not been able to rebuild their herds yet. The most important economic asset, the irrigation system, stopped operating normally because of the conflict and has not resumed full operation. The irrigation system had long been problematic, but the 2008 conflict greatly aggravated the problem. To the end, current income, both private and from Government, is sufficient for current consumption of basic products. It is not enough to invest in housing or economic assets. This inability to invest in the future weighs heavily on citizens; they told us their despair about the future. Villagers cannot afford to purchase firewood for the winter it has been historically supplied by the Government and international stakeholders. The younger generation has little hope in the future and is reluctant to engage in self-reliance activities. Their primary objective is often to leave the Village for larger cities. Improved education of youth would better prepare them, but the education in itself would probably accelerate the migration since more young people would be better qualified for jobs outside the Village. Agricultural Value Chains In this sector, the main problems are outdated orchards and techniques, unavailability of new seeds and seedlings and the lack of a properly functioning irrigation system. Farmers also do not have access to agricultural machinery. Apart from this, the Village does not have a veterinarian or an agronomist and agriculture marketing is poorly organized and ineffective. The highest priority is to address the irrigation issue. A new irrigation system was built in 2012 to solve this problem, but it does not cover all needs in the Village. Creating a local cooperative or an affiliation with another cooperative in the area would be profitable. Access to mechanization services needs to be improved and demonstration plots created to show farmers the benefits of modern methods. Better breeds and modern feed management practices should be introduced and access to agro-consulting improved. To the end, one or more high priority agricultural value chains should be developed; there are several to choose from. Non-Agricultural Value Chains The potential for developing non-agricultural value chains in the Village is very limited. Even though the demand exists for specific types of services in the Village, there is no sign that these businesses could be developed and sustained by the private sector. The size of the market is so small that most businesses would not cover their (even low) fixed costs. The only way to support the Village in nonagricultural value chain areas at present is probably through donor-implemented projects; even then, the project sustainability will be under question. As a result, donors need to carefully assess the genuine business case for every business that they choose to assist. Donors also need to be prepared for long-term subsidies for many non-agriculture businesses. Training in business concepts should be done, but in the context of a business incubator. This situation will change once farming incomes rise after the irrigation system is rehabilitated and other agriculture-related issues addressed. Until then, non-agricultural value chains will remain undeveloped unless non-agricultural business entrepreneurs find markets outside the Village itself. Infrastructure The biggest concern is access to domestic water and irrigation water. Domestic water provided to much of the Village is not in sufficient quantity or quality. However, about 25 percent of the Village is served by an Artesian well built under a DRC project funded by the European Union (EU) a few 5

6 years back, which provides good quality water 24 hours a day. Other wells are available, but the water systems are old, and electricity costs for pumping are too expensive to allow for constant water supply. Another priority in the Village is mainstreaming the natural gas system. Village roads, while not good, are not necessarily much worse than in other rural villages in Georgia. Labor Skills Assessment In general, the labor skills level of citizens is low. Education in the past is often not relevant to current situations and demands, and skills learned in the past have sometimes become rusty. Training is difficult for most citizens to access due to cost and travel-distance, and they told us that most training is not relevant since they have no opportunity to put what they learn into practice. However, vocational training in computer skills and foreign languages is greatly needed and in demand. Farming and agronomy training curricula and materials should be created and delivered to farmers. An on-the-job training program should be developed and a computer and foreign language center should be established. Finally, short, focused small business training modules should be created and delivered. Market Development Potential Currently farmers sell fresh agricultural products mostly in the Gori market. Low quality products are sold to processing companies at low prices. Because of the limited amount of production, there is no big opportunity for local farmers to identify new markets locally. Local farmers would benefit from coordinating with each other on agricultural production, but this is not done often. To the end, cooperation with an existing Cooperative in Kvemo Nikozi could be useful. Gender Gender issues in Ergneti Village are very similar to the situation in other Orthodox rural communities in Georgia. We can say that there is nothing distinguishing about the Village in this field. However, the war in 2008 created a general malaise among men, worse than we have seen elsewhere. We were told that many men have withdrawn from community and economic life due to the stress of the war and the resulting economic dislocations. Some women told us that their husbands have had great difficulty regaining their motivation and that they, the women, have had to step in. Report Organization This Report comprises nine Chapters and one Appendix containing several Sections. The first Chapter, this Chapter, is the executive summary. Chapter Two discusses the methodology used for the Baseline Study and Focus Group meetings. Chapters Three to Eight discuss the six areas of emphasis of the report: self- reliance, agricultural value chains, non-agricultural value chains, infrastructure, labor force and skills and market development potential. Chapter Nine concludes with a gender-based analysis of the local situation. 6

7 II METHODOLOGY This Chapter briefly describes how the Project was performed. DRC retained TBSC Consulting for the Project. TBSC Consulting has been operating in Georgia since 2003 and during this time has helped more than 200 organizations, including domestic and foreign firms, local communities, prospective foreign investors, international financial institutions, Government of Georgia, international donor organizations, diplomatic missions and NGOs. The scope of services provided by TBSC Consulting is broad including rural development, water and sewer infrastructure, geothermal water, real estate, agriculture (e.g., beef farms, dairy farms, cheese production, vegetable growing and storage, pigs, wine), warehouses, fast-moving consumer goods, banking, consumer electronics, retail, tourism, forestry and other sectors of the economy. As a matter of editorial style, in this report we often use the first person; we refer to ourselves TBSC Consulting as we. 1 BACKGROUND The purpose of DRC, through this study, is to document the socio-economic opportunities and challenges in Ergneti, and support the development of further livelihood opportunities in the Village. DRC currently implements an SDCfunded project of shelter and livelihood support to returnees in Ergneti Village. In the livelihood sphere, this support notably translates into the distribution of small business grants to local entrepreneurs and small farmers. In particular, the livelihood component of the project aims to: Analyze the self-reliance level of Village households, identify their livelihood needs and the opportunities to best address them. Financially support households in their business endeavors and strengthen their financial condition. Identify opportunities to develop agricultural and non-agricultural value chains; enhance business development potential in the Village. The objective of this Project is to develop a socioeconomic baseline of Ergneti Village. This baseline (this report) describes the current socio-economic situation in the Village and recommends a number of interventions that could be undertaken by any interested stakeholders. 2 APPROACH This Section describes the participatory approach we took to the Project. There were four Steps as follows. Develop a Work Plan The research required careful planning. During this Step, we developed a work plan that we reviewed with DRC. Review Existing Documentation For most projects, our first step is to review existing documentation. We do this to develop hypotheses that we later test in fieldwork. For the Project, we reviewed about 20 reports and researches written by a variety of organizations (e.g., donor organizations, NGOs, Public Sector). We then developed initial hypotheses which were reviewed with DRC. Once proved in fieldwork, these hypotheses are shown in this report. Perform Field Work During this Step, we first spoke with stakeholders involved in relevant activities in the selected region (i.e., farmers, NGOs, donor projects, Government). We conducted about 15 meetings in Tbilisi and about ten meetings in the Shida Kartli region. The purpose of the meetings was to gain an in-depth understanding of core problematic issues in the Village. 7

8 We then visited the Ergneti Village region. We spent several days speaking with people on the street, observing local practices, meeting with local governmental officials and just becoming familiar with the Village and its citizens. We also conducted four formal focus group meetings in the Village; these are described more fully in the following paragraphs. We used a participatory approach to the focus groups to ensure that all people in the Village were given an equal chance to participate. We first met local Government Trustees and other local stakeholders to increase awareness of the Project and our planned activities. We informed them about the objectives, content and schedule of the fieldwork. We then organized an open meeting with citizens where we provided detailed information about the research objectives and the upcoming focus groups. Approximately fifty Village citizens expressed interest in participating in the focus groups. To the end, forty citizens participated. Using our desk research, hypotheses, conversations with DRC and other local stakeholders (noted above), we developed a list of questions to discuss during the focus groups. Local authorities provided the venues and necessary supplies for the focus groups including items such as chairs, tables and other materials. We provided refreshments. Each focus group comprised ten participants and lasted about two hours. Four profiles were distinguished when selecting focus group participants, to ensure an equal participation in terms of age, gender and diversity: younger population, men, women and older population. For each profile we used variations of the standard question form. The focus groups provided good qualitative support for the conclusions we discuss in this report. Synthesize Data And Recommend Interventions We applied our usual methods for reaching conclusions in analytical work of this type. We apply our broad experience to understand the implications of what others have said in written or verbal form, not what they write or say specifically. We stress what does it mean over what was said. Consequently, this report is a product of our interpretation, judgment and opinion. We synthesized information from five sources to reach the conclusions shown in this report. Information compiled in research works and reports, or related to previous projects conducted by various stakeholders in Ergneti Village and other relevant areas. Our extended observations and informal conversations with citizens on the street during our seven days in the Village, with two consultants each day. Primary data collected from 15 formal face-toface meetings with stakeholders. Primary data from four focus group meetings, with 40 participants. Our general and specialized knowledge of and experience in agriculture and rural development in Georgia and elsewhere. 8

9 III SELF-RELIANCE Chapter discusses our conclusions about the self-reliance of households in Ergneti Village. To do this, we collected information about average monthly incomes, both private and subsidies. We assessed families livestock capital, agricultural yield and distribution. We also spoke with citizens, both informally and in focus groups, to understand their perspectives on their own level of self-reliance. The Chapter has two Sections. We first define self-reliance. The second Section discusses our conclusions. 1 DEFINITION We describe what we mean by self-reliance in this Section. Webster s Dictionary defines selfreliance as: Reliance on one s own efforts and abilities. Reliance on one s own capabilities, judgment, or resources. Independence. Household self-reliance, in turn, can be divided into three components as follows: Current income ability of the household to provide itself basic consumables (e.g., food, clothing) on a day-to-day basis Household assets ability of the household to, over time, add to its wealth primarily through investment in long-lived household assets (e.g., housing, vehicles) Economic assets ability of the household to, over time, add to its economic capacity by investment in productive assets (e.g., livestock, tractors) that permit the first two components. If a household has the ability to provide each of the components through its own efforts then the household could be considered self-reliant. Conclusions about the independence of households in Ergneti in the three components are described in the next Section. 2 CONCLUSIONS In A Current Income Sense, The Self-Reliance Of Ergneti Households Is Very Similar To The Self-Reliance Of Households In Many Remote Villages In Georgia Households in Ergneti Village use a combination of private income and support from the Government and other sources to provide for current consumption. The average annual income for a household is to GEL. Half comes from various aids from the Government and half from private incomes (primarily agricultural trade). Average household size is about 4,4 (with three generations often taken into account), so per capita income is from 28 to 38 GEL per month. The main source of private income for households is their agricultural lands. They consume most of the harvest themselves; only a small portion is left to be exchanged for cash. Most families have poultry, only a few have cattle; milk and cheese quantities are low and often do not warrant being sold in markets. Approximately half of households receive Governmental support at the rate of about 30 GEL per month per household member, based on a social assessment by the Social Service Agency. IDPs can also receive a Governmental allowance of 28 GEL per month per household member. However, an individual can qualify to receive only one of the two Governmental allowances. For the physically handicapped, the Government provides wheelchairs and allocates money for medical operations. Senior Ergnetians receive pensions of around 100 GEL per month. There are around 170 pensioners in the Village. As in the rest of Georgia, the retirement age is 65 for men and 60 for women. Several international donors have been or are 9

10 working in Ergneti Village, some of them providing subsidies and grants to selected households. In a current income sense, households in Ergneti are very similar to households in other remote villages. Private incomes are insufficient for current consumption. About half of households rely on Governmental aid to provide for current consumption. While citizens cannot afford luxury products such as chocolate or candies, based on our observations and conversations with them, there appears to be little or no hunger or malnourishment in the Village. We did not visit every household in the Village so we cannot conclusively guarantee that this is an absolute truth. However, In A Household Assets Sense, The Self-Reliance Of Households In Ergneti Is Much Worse Than In Other Remote Villages In Georgia Most households lost most of their household assets in the 2008 war. Vehicles were generally an exception since people drove them out of the area. The majority of houses were destroyed and nearly all of them were looted. Consequently, most households lost most of their household wealth, built up over many years. After the war, the Government distributed monetary compensations of usually USD 15,000 to households having lost their shelter, for the purpose of shelter rehabilitation. Many citizens told us that the amount of compensation was inadequate to actually renovate their homes fully. Regardless, the majority of Ergnetians used the compensations for other purposes. According to what we were told in the village, the money was apparently used as follows: Some households used a smaller or bigger part of the amount to rehabilitate parts of their houses in Ergneti Village; this was the intended use. 20 percent of households rented apartments, mostly in Gori (i.e., they used the compensation over time). 30 percent of households purchased apartments, mostly in Gori percent of households used the funds to cover other expenses (e.g., business assets, daily expenses, healthcare expenses, university tuition fees). At this moment, the state of household assets in Ergneti village remains very poor. About two-third of the houses were totally or partly destroyed in the 2008 conflict. This is very different from most villages in Georgia where most homes are fully habitable. The prospects of rebuilding household assets from private income are poor, or even nonexistent. Citizens told us that while they are able to feed themselves and their families, and pay most current bills, it is simply not feasible for them to invest in their houses and other household (or economic) assets. Private income and Governmental assistance is simply not enough. The houses of resident households having been damaged in the 2008 conflict are currently being rehabilitated up to Durable Housing Standards, in the frame of a shelter programme carried out by DRC under SDC funding. Similarly, In An Economic Assets Sense, The Self-Reliance Of Households In Ergneti Is Much Worse Than In Other Remote Villages In Georgia During the war, what few economic assets belonging to households were largely destroyed. The answers of interviewed villagers also suggest that the Village had relatively few economic assets before the war. The decline of the local economy since the Ergneti market was closed in 2004 would be a direct cause of this. For many years, the market was the core of the local economy, not agriculture. People invested in the market. When the market closed there were only few economic assets in agriculture, like tractorsand this continued up to the 2008 war. One type of economic asset that was lost was households livestock. Most households lost most of their livestock and few households have been able to rebuild their herds. However, perhaps the most important economic asset was lost. As noted later, the agricultural irrigation system became inoperative after the war. This is the key economic asset that permitted

11 profitable farming in the Village. With its loss, households self-reliance in an economic asset sense became very poor. Ergneti Village is worse off than most villages in this sense. Economic assets, including the one the local economy was built around, were lost during the war. Most other villages have not suffered such a catastrophic economic asset loss. A Growing Outward Migration Trend Can Be Observed In Ergneti Village Not surprisingly, we were told that there is a growing tendency for citizens, particularly men, to leave the Village. Most move to Gori and Tbilisi. While income prospects in Gori or Tbilisi are better than in Ergneti Village, they are still low. We were told that the majority of those who leave have not a high level of education and qualifications, and a limited work experience. As a result, most of them find only low-wage jobs (i.e., from 250 to 400 GEL per month). Considering living costs in Gori or Tbilisi, these wages do not permit very large remittances to family members remaining in Ergneti Village. The very poor condition of household and economic assets in the Village weighs heavily on its citizens. Very few citizens that we spoke with were optimistic about the ability of the community to rebuild itself fully in the short- to mediumterm. One thing that keeps communities strong and causes citizens to remain in the community is the wealth of citizens in their homes. When that wealth is destroyed and the prospects of developing it again are poor, it becomes much easier for citizens to leave the community and seek opportunities elsewhere. This is the situation in Ergneti, particularly among youth. Prospects Are For Very Cold Winters In The Village, If New Sources Of Firewood Are Not Found While most households are able to support most current consumption through a combination of private income and Governmental assistance, the situation with winter heating is different. In this area, households are completely dependent on outside assistance. Firewood is the only source of heating in Ergneti; the Village does not have access to natural gas and electricity is expensive and unreliable. In previous winters, the Government and/or international donors and agencies have supplied firewood to households. However the needs are high, and the low income of households makes it extremely difficult for them to purchase firewood themselves. Lack of firewood is a strong concern since the risk of seeing households cutting their own fruit trees- a major source of self-consumption and incometo heat themselves during harsh winters is real. There is also a potential security concern since inaccessible woods standing on the other side of the ABL may prove too tempting. A well-functioning irrigation system would be one of the keys to increasing incomes in Ergneti and allowing households to support themselves through the winter (i.e., to purchase firewood themselves). However irrigation is still insufficient for the village despite partial works carried out by the Government in Without sufficient income to purchase firewood, some citizens told us they might have to move temporarily and spend winters at their relatives in Gori or elsewhere in Georgia. Gasification is sometimes raised as an alternative solution to firewood but it requires important funds and careful planning, as well as a comprehensive approach to make sure households can afford it. The Primary Objective Of Youth In The Village Is To Migrate To Larger Cities During the focus groups and in conversations on the street, some younger members said they wished they were of retirement age so they could receive a pension (around 100 GEL per month). The younger generation has little hope that the quality of life in Ergneti Village would return to the pre-conflict state. They expressed the opinion to us that they see no way that economic activity in the Village could ever rise to the point where all household assets could be restored. As a result, they told us that they are reluctant to engage in self-reliance activities or to build upon existing agricultural works, since such efforts would never be sufficiently remunerative. Most young people we spoke with expressed a hope that they would be able to move to other 11

12 places in Georgia, since opportunities in Ergneti Village are so poor. While Education Should Be Improved, It Cannot Be Relied Upon To Stop The Outward Migration Of Youth The quality of education in Ergneti Village is very similar to other villages in Georgia. The secondary school is in good physical condition. However, the quality of education might be perceived as lower than in larger cities. This complaint is common in Georgian villages. Unfortunately, merely improving the quality of education would not significantly improve the vitality of the Village. First, it takes several years for improvements in education to be reflected in local economies. Second, the direct beneficiaries of the improvement, the students, would merely be better qualified for jobs in places outside Ergneti Village. While improvements in education are always good, it was suggested to us by parents that an odd effect would be that it could accelerate the migration of young people from the Village. 12

13 IV AGRICULTURAL VALUE CHAINS This Chapter summarizes problems in agricultural value chains in Ergneti Village. There are six Sections. The first Section gives an overview of the importance of farming to the community. The next two Sections describe current fruit and vegetable production and problems farmers face with these products. The next two Sections discuss livestock, poultry and bee keeping. The sixth Section contains a number of recommendations to improve agricultural value chains. a. Production Of Major Agricultural Products 1 IMPORTANCE OF AGRICULTURE Historically, people in Ergneti Village were involved in agricultural activities. Farm sizes are small, about one hectare. With plots of this size, there are limited opportunities to develop commercial farming in the Village. The very fragmented ownership of agricultural land means the majority of households in the Village are involved in closeto-subsistence farming. Agricultural land totals about 300 ha in the Village. Of this, only 130 ha are cultivated annually. About 95 percent of the available agricultural land in the Village is in private ownership. Ninety percent of local citizens capable of working are employed in the agricultural sector, nearly all of whom are self-employed (approximately 90 percent). Essentially, no one works for commercial companies. A small number of citizens (approximately 20 men) work on their neighbors lands as well. They receive a daily wage of approximately 15 GEL. 2 FRUITS AND VEGETABLE PRODUCTION Primary production of fruits and vegetables are the main agricultural activities in the Village. The agricultural land soil condition is perfectly suitable for it. The following chart shows the main agricultural products harvested for the Village. Source: TBSC Analysis During the last four years, locals started primary production of wheat, barley and corn. Historically, the production of wheat and corn was not a major agricultural activity in the Village. However, because of limited access to irrigation, farmers now prefer to cultivate them because they are more resistant to water scarcity. The following chart shows production levels for different agricultural products in 2010 and The increase in cabbage production in 2011 was a reaction to low production and high prices in The information about the production capacity in the chart below is given in tons. Although there were increases in all major production categories in 2011, the amount of harvest is still very low when compared to what is likely possible as shown in chart c. 13

14 b. Total Production By Product (2010 and 2011) Source: Local Municipality c. Actual And Standard Productivity By Product N Product Harvest Per Hectare Standard for One Hectare 1 Apple 6 tons 12 tons 2 Wheat 2 tons 4 tons 3 Corn 3 tons 6 tons Source: Local Municipality, TBSC Consulting Analysis. The total area of land allocated to fruit cultivation is about 65 ha; this is 20 percent of the total agricultural land and half of cultivated land. Annual crops are cultivated on 10 ha, which is 3 percent of the total agricultural land and 8 percent of the cultivated land. Apple and peach are the most cultivated fruits, followed by pear and plum. Farmers told us that about 85 percent of the fruit crop is of sufficient quality for sale, as either fresh or for processing. The remaining 15 percent is thrown away, sometimes used to feed animals. Eighty percent of the useable fruit is sold to processing companies at very low prices, which can go as low as 0,10 GEL per kilo. The remaining 20 percent is either consumed by local households themselves or sold in markets in Gori or rarely in Tbilisi. As for the vegetables, 80 percent is sold on markets and 20 percent is kept for self-consumption by local households. In recent years, there has been an increase in the interest in annual crops of wheat, corn and tomatoes. Unlike the yield in orchards, the harvest from these annual crops is mainly used for domestic consumption; only about 40 percent is sold on the market. If there is an increase in production, the additional harvest can be sold in Gori. 3 PROBLEMS FACING FRUIT AND VEGETABLE PRODUCTION There are a number of agricultural problems that farmers face. Some are fundamental and need Government s or donor organizations intervention to be solved. Others are relatively easy to address. Insights into these problems are given in this Section. Farmers Have Limited Access To Agriculture Irrigation Timely access to irrigation water is very important for farmers to be productive. In the past, Ergneti Village was provided with sufficient irrigation water through a system going through the territory of Tskhinvali region/south Ossetia. Today, because of conflict-related issues, the supply is not stable and water shortages are extremely frequent. The lack of maintenance of the system on the other side of the ABL has a major influence on the instability and ineffectiveness of the water supply; irrigation water is also said to sometimes be cut intentionally by the South Ossetian de facto authorities. 14

15 In February 2012, the Gori Municipality launched a project of several hundreds of thousands of Georgian Laris to build an alternative irrigation system for the Village. The project was finished in mid-may However, the amount of water that this new irrigation system supplies to the Village is still very insufficient to cover all agricultural lands. The system still needs an additional pump to provide sufficient irrigation water for the whole Village. As a result, the irrigation water shortage problem remains partly unsolved. And even on those lands with regular access to irrigation water, there are still problems with water streams and channels that need cleaning or rehabilitation. The absence of access to irrigation on most agricultural land has a very detrimental effect on the agricultural sector. This problem is so severe that separately solving other agricultural value chain problems (noted below) becomes impractical; that is, solving the irrigation water problem needs to be done before significant improvements can be achieved in other areas. For example, we discussed a number of agricultural problems and solutions with farmers, both in focus groups and on the street. Nearly all said that until the irrigation problem is solved, conversations about other problems are moot. On the first hand, non-irrigation-related problems (noted later) for individual farmers that already have access to irrigation can be improved. On the other hand, it is much harder to improve the situation of the farmers who currently have irrigation-related problems. For them, sufficient irrigation water supply is the number one priority. Once access to water is guaranteed, there is room for additional improvements, be it agricultural or non-agricultural. To the end, the core cause of the Village having extremely undeveloped agricultural value chains is the poor quality of the irrigation system. All other problems, discussed below, are of secondary importance. Farmers Use Outdated Agronomy Methods One of the most important problems in the agriculture sector in Village is the low level of productivity. The major reason for low productivity is the use of outdated agronomy methods. We asked farmers in focus groups and on the street about the agronomy methods they use. Their descriptions confirmed that farmers in the Village do not use modern methods and pesticides, fertilizers, seeds (genetics) and seedlings management processes. For example, most farmers in Ergneti still use artificial methods for disseminating pesticides and fertilizers in their agricultural land. This method is very outdated; using it means only around 50 percent of the harvest can be protected from various viruses and parasites. Crops are also more susceptible to damage from weather changes. Another negative outcome of using artificial methods for pesticides dissemination is the low quality of the final product. For example, in apple orchards only around 35 percent of the harvest can be sold on the fresh market. Another 50 percent can be sold on the processing market at much lower prices. There are two main reasons why local people still use old agronomy practices. First is the lack of practical experience and knowledge about modern practices. The second reason is the absence of relevant mechanization services that are needed to implement modern agronomy techniques. Agricultural Marketing Is Very Poorly Organized And Is Ineffective The Village does not have an agricultural cooperative or a similar market-oriented structure. The absence of an agricultural cooperative and the limited capacity of local people to work in groups have a negative influence on the competitiveness level of local farmers. The 2008 conflict closed the markets to the North; this of course, has had a strong negative influence on agriculture sales. Currently, the only markets for local farmers are in Gori and Tbilisi. The majority of local farmers sell products in Gori; only ten percent of the population sells products in Tbilisi. We asked farmers in focus groups and on the street about cooperation among themselves and prospects for forming cooperatives or other agricultural marketing units. Most agreed that some type of cooperation would be very beneficial; most also said that they did not believe that such 15

16 cooperation was very practical, certainly if the farmers had to instigate it themselves. The Lack of Proper Storage Facilities Forces Fruit Farmers To Sell Their Harvest At The Peak Of The Season Fruit farmers usually store their harvest in their own cellars or other parts of their houses. In Ergneti, with such a high number of houses destroyed in the 2008 conflict, this has become difficult for many households. In any case, this method is not as effective as storing fruits in modern storage facilities. Farmers told us that since they cannot properly store their harvest they are forced to sell at the peak of the season, the time with the lowest prices. In Ergneti Village, 20 percent of annual harvest is destroyed due to lack of access to proper storage facilities. Farmers Have Limited Access To Good Quality Input Materials In conversations with farmers, it became clear that there is a very insufficient access to proper input materials in the Village. For example, only some farmers in the Village go to Gori to buy good quality seeds; the remaining farmers use locally available seeds, which are inferior in terms of quality. Pesticides and fertilizers are also problematic for the local farmers. Even if proper input materials became available, three other problems would need to be solved before first use. Such materials are expensive; however, farmers told us they would willingly spend the money to buy proper input materials if they were convinced that they would increase yields and prices commensurately. Farmers told us that even if they were convinced of efficacy, they still might well not have sufficient funds (working capital) to actually buy the materials. We asked farmers about their knowledge of how to use these materials; their comments suggested that they do not have sufficient technical skills to use the proper inputs. 16 This suggests some demonstration plots and technical training would be needed before modern input materials can be widely used in the Village. 4 LIVESTOCK, POULTRY AND BEEKEEPING The livestock sector is not a leading sector in Ergneti Village, mainly due to the lack of pastureland. For this purpose, locals use the edges of the roads and lands left after the harvest. Productivity is low in both the dairy production and meat production sectors. On average, a cow produces five to seven liters of milk a day. Even though demand for good quality fresh milk is high in the Georgian market, most people in the Village use fresh milk for self-consumption or for cheese production. This is mostly due to a supply chain issue. Farmers in the Village cannot provide enough fresh milk together to interest processing companies. Cheese production is not very developed in the Village because of the low productivity level in the milk production sector. However, unlike fresh milk, households manage to sell cheese in the market. Roughly, half of the cheese produced is traded. Meat is almost not traded still. The 2008 war with Russia caused households to lose most of their cattle, pigs, rabbits and poultry. Only 20 percent of local farmers have managed to rebuild their pre-war agricultural state. This is an example of households losing their economic assets and thus has a severe effect on their self-reliance. Currently, poultry farming in the Village is used mostly for household consumption purposes. Almost every family has poultry; households use 80 percent of the produced goods for themselves and sell the remaining 20 percent in markets. Beekeeping is not well developed in the Village; only a few households practice it and they mainly concentrate on increasing the number of their beehives. The honey is mostly sold locally. 5 PROBLEMS FACING LIVESTOCK, POULTRY AND BEEKEEPING Specific challenges are associated with these sectors. Some of them are tied to agricultural hardships. Others are connected with the lack

17 d. Livestock Distribution In Ergneti Village Source: TBSC Analysis of qualification and expertise, or lack of capital for keeping up with contemporary trends. Farmers Do Not Use Effective Breed Selection Processes The majority of cows in the Village have very low productivity. The average amount of milk per cow in per day is around five to seven liters. There is no distinction between cattle for dairy production and for meat production. Currently, there are mixed breeds, which are not optimized for either use, thus do not bring big benefit. The average weight of cows is 350 kilo compared to 450 kilo that could be expected for more optimized breeds. At the risk of mixing metaphors, this is a real chicken and egg problem. Farmers told us they do not invest in better animal genetics (and feeding plans) because there is no market for any increased milk output; processing companies are not present in the Village. On the other hand, milk processors told us that they are not present in the Village because there is not sufficient output of milk to make such presence worthwhile. Farmers Use Poor Feed Management Processes Local farmers use very outdated feed management practices. Farmers told us they use agriculture plots and primary agricultural products for livestock feeding purposes. They do not use silages or mixed type feed management practices for livestock. The use of primary agricultural products for livestock feed is a very sub-optimal practice. The main reason for this fact is the lack of sufficient working capital to buy the needed ingredients for mixed-type livestock feed, and the lack of practical skills on how to prepare the feed. On the other hand, if farmers were to use better feed management practices then the increased output would more than compensate for the increased costs. Farmers Have Limited Access To Water Access to water is very important to achieve high levels of productivity in livestock. Currently in the Village there is not enough water access for livestock; individual farmers are for most of them unable to keep (i.e., to provide water for) more than two cows. The root cause of this situation is the poor state of the irrigation system, as noted previously. Farmers Do Not Have Access To Veterinary Services It is impossible to increase the level of productivity in the livestock sector without constant access to the veterinary services. Currently farmers have to go to surroundings villages if they need to consult a veterinary specialist. The nearest veterinary centers are in Gori and Karaleti. Many farmers told us that they simply do not use veterinary services except in extreme (and likely too late) cases. As a result, animals become ill and less productive. 17

18 6 RECOMMENDATIONS TO IMPROVE AGRICULTURAL VALUE CHAINS We formulated a number of recommendations based on our analysis. These recommendations are summarized in this Section. Improvements Should Be Made On The Irrigation Water System So It Can Cover All Needs In The Village It is almost impossible to make any kind of resultoriented changes in the agriculture sector of the Village without a well-developed and effectively functioning irrigation system. Although a new irrigation system has been built in the Village, it is not operating effectively, as it can supply only part of the agriculture plots. Carrying out works on the central irrigation system to make it fully efficient is the highest A Local Agricultural Cooperative Should Be Created priority investment needed in the agriculture sector. In addition, as we observed, irrigation channels also need cleaning; this is not connected with high expenditures. Implementing this recommendation could double or triple farm productivity and income and permit all other agriculture-related recommendations to be effective. Agricultural land distribution is very fragmented in Ergneti Village. The majority of farmers in the Village own 1,2 hectare agriculture plots. The small size of plots, and commensurate small outputs, severely limit the market relevance and bargaining strength of individual farmers. Farmers are offered the (low) market price and have no bargaining strength to increase it. Establishing an agriculture cooperative in the Village would have a positive influence on the bargaining strength of Village farmers. In addition, as a group and through the cooperative, local farmers would be able to share the cost of expensive investments (e.g., mechanization service and drip irrigation systems). A cooperative could also provide storage facilities for individual farmers. A storage facility would permit them to hold a portion of their harvest for non-seasonal periods when prices are 50 percent higher or more. Building a proper storage, big enough to service the whole Village, could cost around USD with the potential of increasing annual income of households by many thousands of GEL. As noted later, a more immediate option here may be to affiliate with an existing cooperative in neighboring Kvemo Nikozi. Access To Mechanization Services Should Be Increased In Ergneti Village, the limited access to mechanization and appropriate agricultural equipment constitutes a big barrier for the development of successful agriculture. Farmers told us that yields are low due to infrequent cultivation of the lands; it is inconvenient and expensive to bring equipment from other villages so it does not happen often. The Village needs appropriate contemporary machinery; this will make the work of farmers easier and greatly increase yields. Most agricultural land is devoted to orchards or grains; planting is most often done by hand; this is not a successful practice as the process requires more time and labor. Implementing this recommendation would help increase the productivity of local farmers. People in the Village would be able to follow the agrocalendar and timely cultivate their agriculture plots. 18 Demonstrations Plots Should Be Established Fruit and vegetables have always been a big share of Ergneti Village s agriculture. Nevertheless, the current crops and the technologies used to yield the harvest are outof-date. For example, farmers use old pesticides that are not effective. As a result, operating costs for farmers are higher because the old pesticides must be used intensively. Thus, it will be preferable to rejuvenate the old crops and start using contemporary technologies for harvesting.

19 However, farmers told us that they need to be convinced on the benefits of using contemporary technologies. This requires local test plots. On the initial stage, demonstration plots of 500 to m2 can be set up. We shall note that for fruit orchards this is a multi-year effort. Demonstration plots for vegetables can be set up in a year. Demonstration plots will help farmers increase their practical skills and knowledge about modern practices used in agriculture. Demonstration plots will demonstrate new methods in the field so that local farmers can see where and how improvements can be made. Productive Breeds And Modern Feed Management Practices Should Be Introduced In The Livestock Sector Animal husbandry is not a leading sector in Ergneti, mainly a source of self-consumption; this is due to the lack of pastureland. Nevertheless, there is room for development. Free plots of land should be used to plant special grasses suitable for cattle feeding. Additional stimulus for rejuvenating animal husbandry sector include introduction of new cattle breeds through artificial insemination. Access To Agro-Consulting Should Be Improved Implementing this recommendation would help local farmers access highly productive livestock varieties. Livestock would be better fed and cared for. As a result, the disposable income of local people would increase. Highly productive livestock varieties that could be adopted in Ergneti Village include Holsteins, Swiss Brown and Caucasus Mixed. One of the problems identified in our con versa tions with farmers is the lack of information on contemporary technologies in the agricultural sector. This includes information about pesticides, fertilizers, new crops, machinery and so forth. The Village also does not have a qualified agronomist and veterinarian. Because of the lack of expertise and qualified consulting, the yield on the fields is low and many farmers have harvests that are smaller than they could be. To improve agro-consulting services, the Village should obtain a veterinarian and an agronomy specialist who would later provide appropriate services to the whole Village. In addition, a set of intensive training courses on the topic of contemporary agricultural technologies should be implemented. Implementing this recommendation would help local farmers to increase their technical skills in specific agricultural fields. As a result, local farmers would strengthen their capacity to produce agricultural products in ways that are more effective and to have higher disposable incomes. One Or More High Priority Agricultural Value Chains Should Be Developed Based on comments from farmers and our own observation of soil, weather and farming conditions, there are a number of value chains that could be developed. None of these value chains is well developed today, so this is prospective. Although no single agricultural value chain is that well developed in Ergneti Village today, there still are opportunities for local farmers in the agriculture sector. The following is a list of potential agricultural value chains that could be developed further in the Village. Primary production of tomato Primary production of cucumber Primary production of wheat Primary production of corn Primary production of peach Primary production of apple Primary production of garlic Primary production of onion Dairy sector (milk and cheese production) Beekeeping sector (honey production). 19

20 V NON-AGRICULTURAL VALUE CHAINS This Chapter looks at the non-agricultural sector in Ergneti Village. There are two Sections. The first describes the bleak picture in the Village today, and for the near future. The second Section has three recommendations that should be considered before undertaking interventions in non-agricultural areas. 1 CURRENT SITUATION Non-agricultural business is underdeveloped in Ergneti Village. Only four percent of the population works in the private sector, with another six percent being in the public sector. A few existing micro businesses such as sewing or welding workshops are currently functioning, but they are very small, family-run types of initiatives and the overwhelming majority of their production or services are sold outside of Ergneti Village. There is only one small market in the Village that serves as a grocery and convenience store. People we spoke with in focus groups and informally on the street told us that this type of business is not remunerative and they are reluctant to engage in it. Reportedly, the market is the only shop in the Village. At that, it is only open three hours per day. During the focus groups, participants named a bakery or a barbershop as businesses that could have potential to be sustainable. The very low level of activity in private nonagricultural sectors is new to Ergneti Village. Prior to 2004, when the Ergneti Market was in full swing, employment in the private sector among Village residents was very substantial. When the market closed those individuals lost their jobs be they wage earners or self-employed. Residents either left the Village or returned to close-tosubsistence farming. The 2008 conflict exacerbated matters greatly, as the previous Northern markets for both agricultural and non-agricultural products were also closed. 20 Today, With The Exception Of A Few Personal Service Businesses (e.g., barbershop) Or Businesses Trading Outside of Ergneti, There Are Probably No Opportunities For Micro Or Small Businesses Outside Of Agriculture We say probably no opportunities because we did not consider an exhaustive list of possibilities. However, based on our experience, every business requires a critical mass of business to start, and we simply do not see that being likely for any non-agricultural value chain in Ergneti Village today. Even for personal service businesses, the prognosis is not good. Our conversations with citizens in focus groups and on the street suggest that many people prefer to go to Gori for personal services because prices are lower. This perhaps counter-intuitive situation is based on solid economics. Demand for these businesses in the Village is very small compared to similar businesses in Gori. Consequently, fixed costs even if very low can be spread only among relatively few customers. This causes prices for the services to be high, reportedly even higher than in Gori. This is a common situation in small markets. To the end, it seems entirely plausible that nonagricultural micro and small businesses would develop only through grants or other investments, and would probably continue to need subsidies because of low economies of scale. Micro businesses with guaranteed markets outside of Ergneti, thanks to the recognized skills and/or business contacts of their owners, might be an exception. However, there again, transportation costs needed to access these markets and other operational costs in a village where nonagricultural value chains are not developed, may prove too high to allow these business holders to make significant profit.



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