One year on from Georgia’s EU integration: Positive expectations are met

One year on from Georgia’s EU integration the country is already showing immense progress, particularly in the agriculture sector where growth is evident in a range of directions.

The sum of agricultural exports last year increased to reach 29 percent of Georgia’s total exports and for the first time agriculture products ranked third in Georgia’s export trade list. The volume of agricultural products increased by seven percent last year and brought the country $826 million USD in income.

Last year the export volume of nuts exceeded the export volume of wine for the first time, meaning nuts become Georgia’s main agricultural export product, according to data from Georgia’s Agricultural Ministry.

The new perspectives of Georgia’s agriculture sector have heavily influenced the country’s investment climate. This sector of the economy enjoyed direct investments worth $19 million USD in 2014, which was 61 percent more than the previous year, said the Ministry.

Agriculture was also largely funded by the Georgian Government – more than 27,000 farmers and farms utilised cheap agricultural loans worth 772 million GEL during the 2013-2014 years. The Agricultural Projects Management State Agency financed 105 new plants and an additional five were opened with the support of the Economy Ministry’s ‘Produce in Georgia’ program.

New manufacturing enterprises in the agricultural sector meant creation of additional value and this can be seen in numbers. Final products, worth 4.1 billion GEL, were created in the country as a direct result of processing initial products in 2014. This number was almost a 10 percent growth compared with the previous year.

The share of agricultural products in the country’s total GDP also rose in 2014 and was now 16.5 percent, latest figures showed. In previous years this figure peaked at 12 percent.

Exports to the EU increased by 109 percent in the past two years, compared to a growth rate of 46 percent for CIS countries, noted Geostat, Georgia’s National Statistics Office. Meanwhile imports from Europe increased by 23 percent in the past two years, while there was a five percent drop in imports from CIS countries in the same time period. As a result, a negative trade balance reduced by $260 million USD, which meant that less foreign currency went out of Georgia.

While the expectation of the Deep and Comprehensive Free Trade Area (DCFTA) was to fulfill the Georgian market with EU products, the opposite happened; 12 months on from when the DCFTA was signed Georgia’s imports from the EU grew five times less than Georgia’s exports to EU countries.

Internally, there were 1.3 million cattle last year in Georgia. This was an increase of six percent year-on-year. The number of pigs (units of pork) reached 210,000, which was an increase of 9.5 percent. A nine percent growth was also seen in poultry numbers, which reached 7.4 million.

The number of sheep and goats also increased last year by 1.2 percent and reached 867,000 units. The volume of meat production grew by one percent, reaching 49,000 tones, and milk production was 633 million litres in 2014, which was five percent higher than the previous year. As for egg production, this grew by five percent and reached 522 million in 2014.

Georgia signed the Association Agreement (AA) which includes DCFTA, on June 27, 2014.

Cooperatives’ role in implementing DCFTA’s regulations

One of the challenges that faced Georgia’s agriculture sector was that 90 percent of Georgian farmers owned only one hectare of land so production costs were high. ENPARD (European Neighborhood Program for Agriculture and Rural Development) called on farmers to develop cooperatives in order to decrease production costs and the final price as the result.

Two years ago, when ENPARD stated to promote this approach, the word ‘cooperative’ frightened farmers as it reminded them of the Soviet time Kolkhozs (collective farms). In the past the word ‘cooperation’ meant confiscation of land owners’ right and becoming part of a collective farm.

A group organised by ENPARD spent much time and effort explaining all the benefits of modern European agricultural cooperatives to local farmers who had grown up during the hard Soviet Kolkhoz times.

This process started with the approval of the new law on cooperatives. The Government’s support of programs that were tailored exclusively to support agriculture cooperatives also influenced the process positively.

Cooperative "Kvitiri" in Western Georgia is involved in greens' producing and employs 20 women. Photo by Agenda.ge/Nino Alavidze

Now farmers have an opportunity to use preferential agro-credits or utilise low costs of agricultural machinery use through these programs. A new Governmental organisation was established – Cooperation Development State Agency – which worked to improve conditions for cooperatives and support their progress. The result in numbers: more than 1,000 farming cooperatives were established while the most optimistic plans of ENPARD saw 100 such cooperatives establish in the past two years alone.

After successful implementation of the first stage, the second stage of cooperation has started in Georgia. Now there are more than 20 agricultural cooperatives involved in the second stage.

Nuts

Georgia’s Minister of Agriculture Otar Danelia believed hazelnuts had created a new perspective for Georgia’s agriculture sector.

Nut producing has been supported by the Government, especially with VAT free taxation. This has allowed the price of Georgian nuts in the global market to become more competitive.

The cost of nuts is increasing worldwide because of higher demand. In recent years the average price per kilogram of shelled nuts was four GEL while in 2014 this price had increased to eight-nine GEL as a result of international market trends. Last year Turkeythe world leading nut exporter, lost half of its harvest due to freezing weather so the global price of nuts increased and turned into a beneficial situation for Georgian entrepreneurs.

In 2014, for the first time nuts replaced wine as Georgia’s main agricultural export product. Photo by N. Alavidze/Agenda.ge

Farmers also clearly see a bright future for nut exports. The first farming cooperative of 500 members will soon be established in Samegrelo and the Government promised to co-fund construction of a nut drying plant. An agricultural cooperative has also started in Kakheti region where farmers are uniting to become more influential nut suppliers in the local and international market. This gives farmers more opportunity to sell their products for a higher price.

The first nut plantations appeared in Kakheti only seven years ago when Russia enforced an embargo on Georgian wine and the Kakheti population had to find an alternative product to export.

Kiwifruit

Kiwifruit plantation owner Giga Japava, 38, started his business in 2010 after buying 24ha of abandoned and wild tea plantations in Zugdidi. He managed to clean the area and grow kiwifruit trees. He was oriented towards exporting his produce to the EU from the very beginning and was fully prepared for the process. Last year he enjoyed his first harvest and by that time he already had a Global Gap certificate and partners in Germany through the Libly supermarket network.

The first harvest’s yield was 5.5 tonnes but this year he is ready to send 100 tonnes to his clients abroad. Libly requested 6,000 tones this year while Japava’s expectations are around 500 tonnes. Japava said Germany only wanted the first sort products while the second sort also showed good sales in the local market.

There are only 21 kiwifruit plantations in Georgia now and five refrigeration enterprises are serving this harvest. If you unite the harvest from all of them it can be enough volume only for the one German supermarket’s network. While today we already have requests for more than 1,000 tonnes from the UK, so we have to start new a cooperation to sell the product under one brand name. We think this would work better. Let’s see,” said Japava. He planned to add a packaging workshop to his business with funding from a Governmental agricultural loan of 300,000 GEL.

Herbs

Imereti-based company named Herbia, which has grown herbs in greenhouses for the past 10 years, has more experience exporting its products to the EU. At the beginning the main target market for the company was Russia and Ukraine but the Russian embargo forced the company to search for an alternative market.

The company started exporting its products to Europe – a small amount was transported by plane but the DCFTA has make export procedures easier. Last year Herbia sold 24 tonnes in Bulgaria alone; this was transported on land by vehicle. The company also has clients in Germany, the Netherlands and Baltic countries. The company also earned a Global GAP license, which gave the producer the right to export to the EU years before the DCFTA was signed.

Last year Herbia sold 24 tonnes in Bulgaria alone; this was transported on land by vehicle. Photo from ENPAR/Facebook

Zurab Janelidze, 55 is the head of Herbia. He said: "Business is improving step by step. Now we sell fully packed and branded products which increase our income by 50 percent. We are supplying all local supermarkets and we are controlling almost the whole segment of the local market. The next step will be restaurants and hotels.”

We plan to sell the fully packed products in the EU. This is why we are going to build a package workshop in Bulgaria. The transfer of fully packed product increases transport costs as the packages took a big space in the refrigerated trailer car,” explained Janelidze.

Now Herbia must look to diversify for the European market. Local demand is so high that the company has a lot of business to do in Georgia.

Exports to Bulgaria make up only five percent of all of Herbia’s sales, and this was the real picture. The main goal of EU integration for Georgia was not growth in export but harmonisation of the country’s laws with Europe, which was the base for progress and further development.