Georgian Agriculture Finance Bulletin

Transcription

1 Georgian Agriculture Finance Bulletin Edition #26, October 2014 Contents State Initiatives... 2 Note: 1) Law Restricting Foreign Land Ownership May Limit Development of Agriculture ) Crop Damage to be Compensated through Agro-Insurance Scheme ) Subsidies for Modern Agricultural Technologies to be Introduced ) Purchase of Sub-Standard Apples in Racha to be Subsidized ) EIB Opens Regional Office In Georgia ) Georgian-Uzbek Economic Commission Discussed Agro Joint Ventures ) Israeli Consulting Firm Analyses Georgia s Agriculture Sector ) Law on Agro-Insurance Awaits Results of Pilot Subsidy Program ) First Processing Enterprises Funded within Agricultural Co-Funding Project ) Georgia Bans Sale of Grape Pomace to Help Eliminate Low Quality Wines... 4 Foreign Aid ) ENPARD Commissions Agri-Business Research Study ) IFAD to Invest $5Million through Agriculture Modernization Program ) EU to Invest 4.5 million in Food Safety Standards and Controls in Georgia ) IFC to Support Introduction of Certified Global Farming Standards ) Japanese Companies Express Interest in Investing in Georgia ) Dutch and Turkish Ambassadors Encourage Foreign Investment in Georgia... 6 Private Sector ) Russian Demand for Georgian Wine Stabilizes ) Kakhetian Traditional Winemaking to Focus on China rather than EU ) Agricultural Products Suffer from High Inflation in ) 264 Agricultural Cooperatives Registered ) Georgian Business Zone Ltd Begins Cheese Exports to Europe ) Feedback on Agro-Insurance Program Mixed ) Oak Barrel Production to Start in Gurjaani in November ) Updated Wine Marketing Strategies in New and Traditional Markets ) 2014 Grape Harvest Earns Farmers 170 Million GEL... 8 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» BFC Max-Högger-Strasse 6 Phone: info@bfconsulting.com CH-8048 Zurich, Switzerland Fax:

2 State Initiatives 1) Law Restricting Foreign Land Ownership May Limit Development of Agriculture October 6th, 2014, In September, a new law limiting land acquisition by foreigners came into force. The law stipulates that only foreigners with a residential permit and at least 5 years experience in agricultural activities within Georgia may purchase agricultural land forcing many foreign investors to reexamine their positions. The Georgian-Polish joint venture Jiveli, for example, purchased 5,336 square meters of land in May intended for viniculture. With regards to the new law, the Public Registry failed to issue the necessary permits, as 50% of the company is held by a foreign investor that does not meet the stipulated criteria, said the co-owner Avtandil Tcharbadze. Faced with the loss of the 30 million EUR his Polish business partner was to invest, Tcharbadze with the help of Transparency International Georgia (TIG) is appealing to the Constitutional Court to have the company recognized as a Georgian legal entity. Ted Jonas, Partner at the law firm DLA Piper Georgia, sees hindrances in agricultural development lying with the failure to support farmers in cooperating on processing, transportation, marketing and agricultural extension, rather than foreign ownership of land. According to TIG, currently 18,500 hectares of agricultural land is foreign owned representing only 0.7% of the total. Amy Denman, Executive Director at the American Chamber of Commerce in Georgia, added that countries with similar laws typically have highly competitive, high-tech agricultural sectors producing and exporting large quantities of goods. In contrast, Georgia needs foreign investment in agriculture to reduce unemployment, poverty and to stimulate economic growth. Consequently, legislation should encourage, not limit, foreign investors in the acquisition of agricultural land, said Denman. Read More» 2) Crop Damage to be Compensated through Agro-Insurance Scheme October 9th, 2014, In the frame of the agro-insurance program compensation will be paid for crops damaged in the drought, announced the Government noting that the scheme will be fully enacted next year. In addition, irrigation canals will be rehabilitated. The amount of the public funds to be allocated therefore has not yet specified, said the Governor of Kakheti, Irakli Shiolashvili. Read More» 3) Subsidies for Modern Agricultural Technologies to be Introduced October 10th, 2014, The Chairman of parliament s Agriculture Committee, Gigla Agulashvili, announced plans to introduce a subsidy program to help farmers introduce modern technologies, including state-of-the-art irrigation systems. The structure and duration of the program is yet to be determined, said Agulashvili. Page 2

3 4) Purchase of Sub-Standard Apples in Racha to be Subsidized October 13th, 2014, Following the Shida Kartli region, substandard apple purchases in Racha will be subsidized, said the Ministry of Agriculture. Geoflowers, a fruit processing company, has collected 30 tons of substandard apples from the local population in Ambrolauri. The company, which employs 50 people, produces dry fruit for export to Germany. GeoFlowers plans to expand its production through the preferential agro-lending program, purchasing 500 t of substandard apples per season. According to the Ministry, 15,000 tons of substandard apples have been gathered, with 1.5 million GEL to be allocated to subsidization. Fruit processing companies receive 0.08 GEL per kg of substandard apple they purchase from individual fruit-growers for no less than 0.10 GEL per kg. 5) EIB Opens Regional Office In Georgia October 15th, 2014, In a meeting with Finance Minister Nodar Khaduri, the Vice President of the European Investment Bank (EIB), Wilhelm Molterer, confirmed that a regional office will be opened in Tbilisi. This will allow EIB to intensify its funding and investment projects in the private and public sectors, said Khaduri. EIB invests in water and road infrastructure, energy, agriculture, healthcare and education. As of September 30th, Georgia owed EIB $ million. EIB loans issued to Georgia from totaled million EUR. 6) Georgian-Uzbek Economic Commission Discussed Agro Joint Ventures October 22nd, 2014, At a meeting in Tashkent the Georgian-Uzbek Intergovernmental Commission on Economic Cooperation (ICEC) discussed cooperation in trade, transport, agriculture, tourism, culture and sport. Free movement of goods traded between the territories and bilateral contract standardization were key topics, said the Ministry of Economy. Increasing the volume of Uzbek goods transited via Georgia and joint ventures in agriculture and the textile industry were also discussed, said Georgia s Deputy Prime Minister Mikheil Janelidze. The ICEC was established in According to Sakstat, trade turnover between Uzbekistan and Georgia totaled $38.2 million in 2013 (a 34% increase year-on-year) and amounted to $40 million in the first 8 months of 2014 (61% increase). In the 2nd quarter, Uzbek direct investment in Georgia amounted to $139,500. 7) Israeli Consulting Firm Analyses Georgia s Agriculture Sector October 26th, 2014, Prime Minister Irakli Garibashvili met representatives of Israeli consulting and investment company Demeter-AWE Holdings to discuss research conducted by the company on Georgia s agriculture sector and potential avenues of cooperation. The study only being in its initial phase, a comprehensive agricultural and rural development plan based on the findings has yet to be developed, said Demeter-AWE. Page 3

4 8) Law on Agro-Insurance Awaits Results of Pilot Subsidy Program October 26th, 2014, Participating insurance companies have received subsidies covering 70-95% of insurance costs through the pilot agro-insurance program conducted jointly with KfW - which is to last 1 year. The pilot has a budget of 5 million GEL and involves five insurance companies: GPIH, Aldagi, IC Group, Irao and Cartu. To date, the subsidies have mainly been used in Adjara to cover insurance costs for citrus plantations. Though local farmers said they have heard little about the project. Last year, before the subsidy came into effect, Aldagi insured Adjaran citrus crops at a loss, it said, citing frost damage as the main culprit. The company plans to contract European reinsurers as, even with subsidies, risks remain high. The draft law on agro-insurance has not yet been enacted, as the parliamentary Agriculture Committee is awaiting the results of the pilot, explained Chairman Gigla Agulashvili. 9) First Processing Enterprises Funded within Agricultural Co-Funding Project October 26th, 2014, The Agricultural Project Management Agency reported that an initial 5 enterprises were funded through the Co-funding Project for Agricultural Processing. Launched in February, the project aims to fund new agricultural processing enterprises and rehabilitate idle enterprises in areas of low economic activity. In the frame of the project, three $1 million fruit processing plants are planed built in Keda (Ajara), Chokhatauri (Guria) and Ozurgeti municipality (Guria). Also two nut processing factories - worth $557,412 and $430,000 respectively will be created in Zugdidi (Samegrelo). Investment projects worth $200,000 to $1 million are eligible for co-funding. Beneficiaries must contribute at least 10% of total costs in cash, while state funding is limited to 40% - the remaining 50% may be borrowed in the form of a preferential loan from financial institutions. 10) Georgia Bans Sale of Grape Pomace to Help Eliminate Low Quality Wines October 28th, 2014, To prevent it being used for the production of low quality wine, the Georgian Government has banned the sale of grape pomace (the remaining grape residue left after the first pressing of grapes). While ensuring the quality of Georgian wine, the move should encourage the production of oil and biofertilizer from pomace, said the government. The National Wine Agency will enforce the ban. Foreign Aid 11) ENPARD Commissions Agri-Business Research Study October 1st, 2014, The European Neighbourhood Program for Agriculture and Rural Development (ENPARD) has commissioned a research study to determine challenges faced by the Georgian agri-business sector in target regions Guria, Samegrelo and Racha-Lechkhumi. Research will include interviews of suppliers and consumers of agricultural products. Full results are expected in mid-october. Page 4

5 12) IFAD to Invest $5Million through Agriculture Modernization Program October 9th, 2014, In a meeting with Agriculture Minister Otar Danelia, the International Fund for Agricultural Development (IFAD) said it will invest $5 million in Georgia through its Agriculture Modernization and Market Access program. The Georgian government will contribute $1.8 million to the project. 13) EU to Invest 4.5 million in Food Safety Standards and Controls in Georgia October 13th, 2014, Over the next two years, the EU will invest 4.5 million to the development of food safety standards in Georgia, said the EU s Food Safety and Rural Development Attaché, Juan-Jose Echanove. During the last few years the EU has offered assistance on food safety issues by training inspectors, equipping laboratories and running a vaccination campaign, he added. The grant will be used to establish food safety and veterinary standards and to align Georgia s sanitary and phyto-sanitary management system with EU standards and legislation. Tighter controls will provide not only benefits to domestic consumers but also give Georgia the opportunity to develop trade with the EU and the United States. 14) IFC to Support Introduction of Certified Global Farming Standards October 16th, 2014, The International Finance Corporation (IFC) - a member of the World Bank Group - and the Georgian Farmers Association are to cooperate in helping farmers introduce GLOBALG.A.P standards the world s most widely implemented farm certification scheme. GLOBALG.A.P. certification is necessary in order to export to the EU and will help increase productivity, food safety, workplace health and safety and consumer confidence, said Chair of the Georgian Farmers Association, Nino Zambakhidze. The IFC supports growth in agriculture in Europe and Central Asia through its Agribusiness Standards Advisory Program an investment and advisory service - supported with funds from the Austrian Federal Ministry of Finance. Read More» 15) Japanese Companies Express Interest in Investing in Georgia October 23rd, 2014, During a visit to Japan, Georgian President Giorgi Margvelashvili met with Japanese businessmen from Marubeni Corporation and Keizai Doyukai to discuss investment opportunities in Georgia. Marubeni expressed interest in investing in agriculture, energy and tourism, while Keizai Doyukai is looking for opportunities in energy, tourism, sports and infrastructure. In addition, concrete business negotiations between representatives of Georgian and Japanese companies were held during the visit. Page 5

6 16) Dutch and Turkish Ambassadors Encourage Foreign Investment in Georgia October 24th, 2014, In an interview with The Financial, the Ambassadors of Turkey and the Netherlands commented on the positive business climate in Georgia and on opportunities and challenges for further investment from their respective countries. The Netherlands is the greatest contributor of foreign direct investment (FDI) in Georgia, spending $174,774,700 in the first half of 2014, compared to $66,930,100 in the same period in Turkey is Georgia s largest trading partner and the 4th largest contributor of FDI - following Luxemburg, Azerbaijan and the Netherlands. Turkish investments amounted to $54,736,600 in the first half of 2014, an increase of about 50% year-on-year. Agriculture is the 3rd largest target sector for Turkish investment, behind energy and tourism. Georgia s attractiveness was attributed to its political stability, an increasingly transparent business climate, cheap labor and having signed the Deep and Comprehensive Free Trade Agreement with the EU its potential to function as a hub between Europe and Asia. Challenges faced by Georgia include reduction of unemployment, fairer distribution of wealth and clearer visa regulations for foreigners, said the Ambassadors. Read More» Private Sector 17) Russian Demand for Georgian Wine Stabilizes October 3rd, 2014, After Russia lifted the embargo on Georgian products in 2013, both Tbilvino and Kakhetian Traditional Winemaking reported performing well in the market. President of Tbilvino George Margvelashvili reported sales of 1.5 million bottles of wine, yet expects demand to stabilize - adding that the market remains unreliable as political surprises can always be expected. The Director of Kakhetian Traditional Winemaking, Zurab Chkhaidze, reported equally strong sales of 1.5 million bottles, yet agrees that demand has stabilized. Read More» 18) Kakhetian Traditional Winemaking to Focus on China rather than EU October 3rd, 2014, According to Zurab Chkhaidze, Director of Kakhetian Traditional Winemaking, the Chinese market has a higher export potential than its European counterpart. In the last 4 years, the company increased its sales in China by 30% yearly, currently exporting 200, ,000 bottles per year, said Chkhaidze. He expects growth to continue. Read More» 19) Agricultural Products Suffer from High Inflation in 2014 October 16th, 2014, The National Statistics Service estimates year-on-year inflation hit 4.8% in September 2014, the highest figure since Agricultural products were particularly affected: year-on-year, the price of greens increased by 40-50% (to 12 GEL per kg); beans by 60-65% (to GEL per kg); and cabbage by 70-75% (now 0.7 GEL per kg). Potato and garlic prices have double, reaching GEL and 3-4 GEL per kg respectively. Prices have Page 6

7 also increased for tomatoes (2-2.5 GEL per kg); walnuts (16-18 GEL per kg); peaches (1 GEL per kg); and water melons (0.70 GEL per kg), while the price of pork meat increased by 30%. Traders think a further price increase during the winter is possible. While the price of home produced milk remained stable (2 GEL per liter), the price of factory produced milk hiked from 2 GEL to 2.8 GEL. Also other industrial dairy products increased such as Imereti cheese from 7 to 9 GEL or yoghurt, cottage cheese and sour cream which now cost GEL more per kilo. According to Nodar Kapanadze, an expert on social and economic issues at EBRD, the price hike is due to poor harvests caused by unfavorable climatic conditions. As wages remained stable, real prices have increased, creating a threat to sales and food security, said Kapanadze. Read More» 20) 264 Agricultural Cooperatives Registered October 16th, 2014, Since its creation one year ago, the Agricultural Cooperative Development Agency has registered 264 Agricultural Cooperatives throughout Georgia, declared Chairman Giorgi Misheladze. The cooperatives unite 2014 shareholders, with total output exceeding 5 million GEL, he added. Activities include vegetable, fruit and wine production, grain growing, beekeeping, cattle breeding and trout farming. Kvemo Kartli and Shida Kartli have the highest number of cooperatives with 41 and 32 respectively. Besides reduced tax, agricultural cooperatives benefit from several technical and financial support programs, including an EU grant scheme and a subsidy program for tractors and hand seeders manufactured in Italy, which are sold at 23% of the primary cost. 21) Georgian Business Zone Ltd Begins Cheese Exports to Europe October 17th, 2014, Cheese producer "Georgian Business Zone Ltd" will begin exports to the EU next year, starting with Italy and France. While the company received the necessary ISO certification for export to the EU several years ago, exports could only begin once all its production facilities had been successfully inspected. Located in the village of Tsnisi in Akhaltsikhe, the company started production in 2008, investing $500,000 with the support of international organizations. Today, it processes 5000 liters of milk per day. Its products are in high demand on the domestic market and are distributed by supermarket chains "Goodwill", "Smart" and "Nikora", with a wholesale price of 10 GEL per kg. Read More» 22) Feedback on Agro-Insurance Program Mixed October 21st, 2014, Within the first 2 months of the launch of the agro-insurance program, 6000 insurance policies were issued, said the Ministry of Agriculture s Project Management Agency. The Ministry is confident of continued growth once additional insurers are informed. Initial feedback was mixed. Cartu-Insurance has withdrawn from the program without giving an explanation. GPI-Holding and Aldagi, within the framework of agricultural insurance, will have to offset losses incurred during storms and flooding in the Black Sea regions. IC Group and Irao have said they are satisfied with the program so far. Page 7

8 George Gigolashvili, President at the Georgian Insurance Institute, estimates that it is too early to draw conclusions regarding the success of the project as Georgia does not yet have an insurance culture, adding that farmers have no experience in this field whatsoever. He recommends two strategies: an extensive information campaign and obligatory admission to the program for all farmers receiving soft loans. He stresses, that in any case it will take time until farmers will use insurance as a standard tool of risk mitigation. Read More» 23) Oak Barrel Production to Start in Gurjaani in November October 23rd, 2014, In November, oak barrel production will begin in Gurjaani (Kakheti region) with funds from the preferential agro-lending program, the Ministry of Agriculture s Project Management Agency reported. Professional Wine-Making Products LLC has invested $630,000 in the enterprise, of which $550,000 was raised through the preferential agro-lending program. An additional $1.2 million was injected by Spanish investors. After initial tests, Director Vasiko Kalandadze estimates yearly output at 10,000 barrels, which are intended for the domestic market. The preferential agro-lending program was launched in April ) Updated Wine Marketing Strategies in New and Traditional Markets October 24th, 2014, In an interview with Commersant, the Director of the National Wine Agency, Levan Davitashvili, presented the agency s three-year strategy for the promotion of wine exports. The agency s approach is twofold: in post-soviet countries, where Georgian wine is already well-known, its image has to be modernized to make it attractive for the generation that grew up after the Soviet era. On the other hand, in countries like the USA or China, where Georgian wine is almost unheard of, awareness will be increased through exhibitions and presentations, allowing the wine to be tested and discussed by sommeliers and the specialized press. PR firms from the target countries will assist with the dissemination of information and advertisement. The marketing budget in 2015 will total 5 million GEL, up from 4 million GEL this year. In 2014, sales are up by an average of 20% in target markets. However, in the traditional export markets such as Russia and Ukraine, only slight increases can be achieved, said Davitashvili. Read More» 25) 2014 Grape Harvest Earns Farmers 170 Million GEL October 27th, 2014, This season, growers are celebrating a bumper harvest of 120,000 tons of grapes, earning them 170 million GEL. To facilitate sales, the government set up a 24/7 trade coordination center in each grape producing region. Additionally, 10 private wine processing plants in Racha and 30 in Kakheti purchased grapes directly from the farmers. Predicting high demand for grapes in 2014, the government reduced subsidies to winemakers from 25 million GEL to 12 million GEL. Read More» Page 8