Georgia will have to improve food safety and hygiene standards to maximize advantages offered in a free trade agreement Georgia is expected to sign with the EU in August, and come into effect from 2015.
By signing the Deep and Comprehensive Free Trade Area (DCFTA) Agreement, food producers will be forced to invest in their businesses and many could find it costly to strengthen food safety regulations with only basic understanding of food safety management systems.
Seeking a balance
Strengthening the food safety managing systems could potentially result in an increase of Georgian exports to EU countries after the DCFTA Agreement is signed.
However to do this, businesses will have to spend money to upgrade their premises and services. Businesses do not know the exact cost of this process but anticipate it will be expensive.
Georgia’s Deputy Agriculture Minister Davit Natroshvili said "transition” was not only money.
"Companies that would like to pass the transition period to ensure compliance with EU standards, the entrepreneur will be reached. It is costly but the knowledge of management processes is much more important,” he said.
"EU has not set the timeframe for Georgian companies to implement proposed food safety standards and we have to take this advantage.”
A man is baking Tone Bread, a type of Georgian bread at traditional bakery oven. Photo by N. Alavidze.He recalled the example of Baltic States when the number of businesses declined by 50% between 1999 and 2006, due to transition period of becoming the member European Union.
Eugenia Serova, director of Rural Infrastructure and Agro-Industries Division at the Food and Agriculture Organisation (FAO) of the United Nations agreed food safety was very costly for companies and ‘some will comply it and some not.’
"In a country like Georgia where half of the consumers’ income is spent on food they don’t care of the quality of the product. But this means they have to find a solution how to balance it. In particularly, neither consumer nor entrepreneurs have to be negatively affected due to the transitional period,” Serova said at a Food Safety forum in Tbilisi on January 23.
Food Safety Forum in Tbilisi on January 23, 2014. Photo by the Agriculture Ministry of Georgia.
The Georgian Government has already taken steps to bring its Code of Food Safety, Veterinary and Plant Protection into compliance with EU requirements. More changes are also planned.
Food safety: short-term costs but long-term benefits
Demand to buy ‘safe’ products has to come from consumers and only then businesses will attempt to adjust their products and services to satisfy market demands, food market industry insiders believe.
"In a short term period, if we start improving food safety by implementing food safety regulation standards, companies will [be] required to invest substantially and this will have an effect on the price of the final product,” said Besik Togonidze, managing director of Unigrain Georgian Group, a Georgian-based oilseeds production company.
"The consumer will complain and never have an idea what is the reason of the price increase,” he said.
As well as improving food safety standards, he believed there needed to be increased awareness and consumers needed to have more knowledge on food safety issues.
Fresh vegetables being purchased at market. Photo by N. Alavidze
He noted that implementing food safety standards "will imply short-term costs for companies but it will bring long-term benefits.”
Togonidze, who has more than 15 years’ experience working in agriculture business and export management, said there was no need to meet all the proposed standards immediately.
Meanwhile the European Bank for Reconstruction and Development (EBRD), the key investor in Georgia’s agribusiness sector, plans to continue investing in the industry in order to modernise it.
"We would like to bring food safety regulations of Georgia closer to best international policies and standards. In the past 24 years we have committed 1.8 billion EURO in Georgia’s agribusiness and [we] expect to increase the investment up to two billion EURO this year,” Jonathan Charles, EBRD executive committee member and Communications department spokesperson, said.
Charles believed improving food safety and hygiene standards in Georgia would be positive step in aligning Georgia with EU standards, in line with the DCFTA Agreement.
Advantage of food safety for DCFTA
Currently, Georgia exports 20-25% of its overall food exports, mainly nuts, wine and fruits, to the EU.
In addition, less than half of Georgian exports to the EU were regarded as preferential trade conditions (i.e. no tariffs or reduced duty fees). Similarly, exports to EU member countries increased by 65% year-to-year in the first eleven months of 2013.
Natroshvili believed there was potential to further increase exports of Georgian products to the EU after the DCFTA Agreement comes into effect, as it would significantly reduce tariffs for Georgian food products.
"Improved standards will help not only trade with the EU but with other significant partners of Georgia," he said.
While the agreement falls short of completely opening the EU's agricultural market to Georgian exports, analysts anticipated the DCFTA Agreement could increase trade between the EU and Georgia by 13.5% over the next five years.
But at the same time, there are fears sustainable increased export could be hampered by various issues, including a poorly developed food safety monitoring system, EU citizens unfamiliar with Georgian products and a short supply chain in Georgia.
Official statistics confirmed Georgia’s food inspection capacities by public authorities were very low.
The label of the product at one of the supermarket in Tbilisi does not read the date of the issue. Photo by the National Food Agency of Georgia
In 2013, planned and unplanned inspections were performed at only 1.3% of food business operations, which was only 659 out of more than 50000 registered.
The latest draft code to amend food/Animals, food safety, veterinary and plant protection laws are currently being prepared. However it is anticipated these amendments will be presented to Parliament in February this year.