Agriculture - Challenges and Current Policy

8/13/2019 Agriculture - Challenges and Current Policy

1/52


2/52


3/52

The project is implemented in the framework of The East-West Management Institutes (EWMI) Policy, Advocacy, and

Civil Society Development in Georgia (G-PAC) Program, funded by United States Agency for International Development

(USAID). The project is made possible by the generous support of the American people through the USAID. The content is

the responsibility of the implementing organizations and does not necessarily reflect the view of USAID, the United States

Government, or EWMI.

AGRICULTURECHALLENGES AND CURRENT POLICY

Economic Policy Research Center (EPRC). All rights reserved.

2013


4/52

CONTENT

About the project...............................................................................................................................................................................................5

Main findings .......................................................................................................................................................................................................6Methodology .......................................................................................................................................................................................................8

Introduction .........................................................................................................................................................................................................9

Resource base of agriculture ..................................................................................................................................................................... 16

Classification of farms and land fund.................................................................................................................................................... 16

Annual crops .................................................................................................................................................................................................. 18

Perennial crops ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ............. ............. ............ ............. .......... 18

Animal husbandry ....................................................................................................................................................................................... 20

Mechanization ............................................................................................................................................................................................... 21

Food security ................................................................................................................................................................................................. 22

Institutional environment .......................................................................................................................................................................... 24

Current policy ............. ............. ............. ............. ............ ............. ............. ............. ............. ............. ............. ............ ............. ............. ............ 24

Melioration ..................................................................................................................................................................................................... 24

Training and consultations ............ ............. ............ ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. . 26

Support of small-size farmers .................................................................................................................................................................. 27

Soft agricultural loans ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ............. ............ ............. .......... 29

Programs implemented in the most recent past ............................................................................................................................. 33

Program on supporting corn production of ............. ............. ............. ............. ............ ............. ............. ............. ............. ............. ..... 33 Program on intensification of wheat seeds ............. ............. ............. ............ ............. ............. ............. ............. ............. ............. ....... 36

Program on support of wine production ............. ............. ............ ............. ............. ............. ............. ............. ............ ............. ............ 41

Program on 100 new agricultural enterprises ............ ............. ............. ............. ............. ............ ............. ............. ............. ............. ... 44

Assessment and modeling ............ ............. ............ ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. . 46

Conclusions and recommendations ...................................................................................................................................................... 49


5/52

5

ABOUT THE PROJECT

The report, Agriculture: Challenges and Current Policy, has been prepared by the Economic Policy Research Center

(EPRC) within the framework of the program Policy, Advocacy, and Civil Society Development in Georgia (G-PAC) im-plemented by the East-West Management Institute (EWMI) with the financial support of the USAID.

Purpose of the project is to assess current state of agriculture in Georgia. The project aims at identifying obstacles in

the development of agriculture, evaluating the situation with agricultural land, analyzing the agriculture policy of the

country, and based on the international experience, drawing up recommendations to overcome identified problems.

This report analyzes the current policy in the agriculture sector and evaluates various agricultural programs initiated

by the government. This is the second report published within the framework of the project. The first report discussed

the situation existing in the agricultural land market of Georgia.


6/52

AGRICULTURE: CHALLENGES AND CURRENT POLICY6

MAIN FINDINGS

Small-size fragmented family farms dominate the agricultural sector of Georgia. The sector does not apply mod-

ern technologies and is characterized with low productivity;

With the 50% of the countrys labor force engaged in the agriculture, the sectors share in the Gross Domestic

Product (GDP) stands at a mere 8 or 9 percent, whilst the share of agricultural processing enterprises comprises

4 percent of the GDP;

Among the main reasons causing the current situation in agriculture are: technological underdevelopment of the

sector; shortage of qualified human resources; problems related to dilapidated infrastructure; a severe shortage

of capital; underdeveloped land market; a high degree of fragmentation of small-size farms; weakness of a rele-

vant state policy; and lack of state funding;

A downward trend is observed in plant growing and production as well as in the size of croplands;

Concentration of perennial plants is low in the country. It is precisely in this field that Georgia has a competitive

advantage and the largest potential to generate export revenues;

Animal husbandry, against the backdrop of decreasing plant growing, is also in stagnation;

Lack of access to veterinary and plant protection services poses a serious threat in terms of spread of various

diseases and pests;

A certain improvement is observed in the access to agricultural equipment, machinery and trailers, though short-

age is still apparent;

With increased engagement in international trade, the growth is observed in both exports and imports with the

latter growing at a higher speed though. The country imports an absolute majority of even such food products

which can be produced locally;

The existing situation in the sector makes Georgia vulnerable in terms of food security;

Results of programs implemented in the recent past (programs on supporting corn production; on intensifying

wheat seeds; wine production; and the program on establishing 100 new agricultural enterprises) failed to meet

expectations for various reasons;

The effect of ongoing programs (the rehabilitation of melioration infrastructure; training and consultations; sup-


7/52

7

port of small-size farmers; and soft agricultural loans) cannot be evaluated at this stage because the results of

these programs are yet unknown;

The rehabilitation of irrigation systems can be clearly evaluated as a positive development; however, it is impos-sible to tackle melioration problems in the country through one-off programs and measures. This necessarily

requires institutional development and establishment of optimal structures;

The lack of demand for obtaining information and knowledge among producers is a serious problem. Encourag-

ing producers to obtain information and acquire knowledge will be necessary for the development of the sector

(introduction of technologies, increase in productivity, etcetera);

The program on the support of small-size farmers obviously pursues social assistance goals. An especially argu-

able element is the transfer of various agricultural tools, which is clearly of social nature and its economic effect

cannot be evaluated. The implementation of such type of programs should better be stopped in the future and

the needs of beneficiaries be met within the scope of general social policy of the government;

The amount of agricultural loans issued this year will assumedly be three times higher than in the previous year.

On the one hand, this is an impressive increase but on the other hand, the share of agriculture in the total loan

portfolio is still very insignificant, comprising three percent of the entire banking sector portfolio;

Despite an increased government interest towards the sector, agriculture will still remain a sphere of social policy

in Georgia in the foreseeable future, because, considering existing problems, it will be very difficult to achieve

cardinal improvements in the short term;

An objective of the government must be creation of a favorable environment for the development of agriculture

that will encourage innovations and investments in the sector, boost interest of the private sector towards it and

intensify its competitiveness.


8/52


METHODOLOGY

To assess the existing situation and potential of the agricultural sector and to analyze separate implemented or

planned programs in the general context of the countrys agriculture, we used the results of the 2004 agriculturalcensus of Georgian, also materials of the 2011 yearbook on the Georgian agriculture and regional passports devel-

oped by the government of Georgia in 2007. Even though the 2004 agricultural census might seem outdated, we,

proceeding form the set task, deemed this material useful for the following reasons:

1) The 2004 agricultural census provides the most comprehensive and detailed information on the agriculture by

regions and key fields of the agricultural sector.

2) During the past few years, a long process of stagnation was still observed in Georgias agriculture. The information

on the dynamics of labor and capital productivity and other efficiency indicators, especially broken down by regions,

is either unavailable or requires serious additional efforts which is not always possible. Moreover, stagnation pro-

cesses in the agriculture can easily be evidenced by viewing them in combination with relevant statistical yearbooks

and other sources. Consequently, we believe that the information recorded in 2004 is satisfactory for evaluating the

agricultural sector.

3) The Georgian agriculture does not experience such significant changes by regions and fields that would, over

time, clearly indicate the prospects of this or that region or field. Therefore, considering the resource basis and de-

velopment potential in the countrys general context is methodologically justified. Moreover, the above mentioned

literature is also valuable because it clearly shows both the current situation of agriculture and general direction of its

development. The discussion of that is provided in the introductory part of this report.


9/52

9

INTRODUCTION

Agriculture is the only large sector of the Georgian economy which has been developing at a very slow speed over

the past 20 years. The lag of this sector as compared to the rest of the economy has become especially notable in thepast decade. It is true that the decrease in the share of agriculture against the GDP is characteristic for the majority

of countries and is seen as a normal trend, but at the same time, the stagnation and even decrease in the absolute

amount of production is also observed in the Georgian agriculture. This trend is quite strange because the rest of

economy shows an obvious general upward trend in productivity. At the same time, the increase in the countrys

imports makes us assume that the living standards of citizens have been gradually improving, which must create an

additional demand for locally produced and processed agricultural food products; unfortunately, however, the ma-

terials of the National Statistics Office do not prove this assumption. Even though positive tendencies are observed

in separate fields of agriculture, there is still a long way to go to reach the point where the situation will stabilize and

competitiveness of agriculture will be ensured.

For a general evaluation of tendencies existing in the Georgian agriculture and the countrys international compet-

itiveness, it is important to review the dynamics of exports and imports in the past few years. Along with the higher

engagement in the international trade, both exports and imports have increased though the latter grows at a higher

speed. In 2012, the import of food products to Georgia exceeded 1,2 billion USD whilst the export from Georgia ex-

ceeded 500 million USD.

Figure 1 Export/Import tendencies of food and agricultural produce in thousand USD

Source: Geostat


10/52


The dynamic of foreign trade in food and agricultural products mirrors the general situation with Georgias foreign

trade in a sense that the trade balance of Georgia has been negative for many years now. At the first blush, this is

an absolutely normal and acceptable tendency, especially considering that the openness to foreign trade implies

such a restructuring of the production process which implies moving towards producing more competitive goods.Nevertheless, Georgias increasing dependence on the import of even such products which, due to existing favorable

natural and climatic conditions, can be produced locally is a regrettable tendency.

The analysis of the dynamic of 10 top import and export commodity groups over the period from 2009 to 2012 pro-

vides a very good picture to assess the existing situation and it also rather accurately describes the degree of Georgias

international competitiveness.

Table 1 Import dynamics of major import products

Product import in million USD 2009 2010 2011 2012 Average

Wheat and meslin 105,506 174,156 184,232 239,953 175,962

Cigars, cheroots, cigarillos and cigarettes 57,425 78,990 86,743 90,565 78,431

Sugar 50,408 74,233 89,738 84,682 74,765

Meat and edible offal, of the poultry, fresh, chilled or

frozen37,230 47,954 66,104 69,844 55,283

Sunflower-seed, safflower or cotton-seed oil and

fractions thereof28,789 46,878 64,659 56,228 49,139

Chocolate and other food preparations containing

cocoa42,863 46,616 50,523 53,074 48,269

Frozen fish 22,505 26,881 30,894 33,638 28,479

Undenatured ethyl alcohol, spirits, liqueurs and

other spirituous beverages below 80% alcohol

content

26,662 27,435 32,867 32,847 29,953

Bread, pastry, cakes and the like 19,221 22,352 29,226 30,061 25,215

Meat of swine fresh, chilled, or frozen 12,668 13,454 18,858 28,813 18,448

Margarine 15,814 20,846 27,283 28,525 23,117

Source: Geostat

The import shows the dependence on wheat, tobacco products, meat products and vegetable oils as well as food

products manufactured as a result of grain processing. The majority of above listed products requires vast land re-

sources and a high level of mechanization. Moreover, they are the products of the type which are called commodities

and which have a relatively low possibility to create high value.

The dynamic of top 10 export commodity groups is promising though here as well one must take into account that


11/52

11

the leading product, hazelnut, which has become one of significant export products in the past few years, is also the

product which belong to the commodities, and its success will largely depend on the dynamic of prices on land and

labor force in the foreseeable future.

Table 2. Export dynamics of major export products

Product exports in million USD 2009 2010 2011 2012 Average

Other nuts, fresh or dried 69,956 75,134 130,086 83,659 89,709

Undenatured ethyl alcohol, spirits, liqueurs and other

spirituous beverages below 80% alcohol content54,019 55,705 67,852 80,027 64,401

Wine of fresh grapes 31,997 41,138 54,103 64,871 48,027

Waters, natural or artificial mineral 24,675 36,917 47,607 59,341 42,135

Wheat and meslin 3,248 7,242 6,169 52,062 17,181

Live bovine animals 16,903 19,310 28,213 39,267 25,923

Waters, mineral and aerated waters, containing

added sugar10,684 14,666 15,051 20,888 15,322

Live sheep and goats 17,054 13,427 14,944 18,162 15,897

Fruit and vegetable juices 2,883 6,201 6,312 12,537 6,983

Maize 1,097 2,650 995 7,678 3,105

Citrus fruit, fresh or dried 15,703 12,143 5,263 7,670 10,195

Source: Geostat

At the same time, the dynamic of the listed leading export products shows that the majority of these products has

a potential to create high value and requires a relatively larger amount of labor force in which Georgia definitely has

a competitive advantage. The dynamic of leading export and import products makes us think that the state policy

should be largely concentrated on supporting those fields which have competitive advantage internationally. As

regards state measures for supporting productivity of other fields, the state should aim at maintaining maximum

efficiency and interfering at a minimal level which should be expressed in facilitating the introduction of new tech-

nologies and spread of knowledge and know-how.

Given the above said, also considering the fact that the Georgian agriculture is one of the most lagging sectors in the

post-Soviet space, it is desirable and necessary to reach higher rates of growth in this sector because given a higher level

of the development of other countries, the Georgian agriculture will find it very difficult to compete with them in future.

Against the backdrop of economic achievements of the past few years, one could have expected a speedy growth

of agriculture too. However, the transition onto the market economy, the establishment of private ownership, and


12/52


the openness to foreign investments have yet failed to bring about any notable result for the agricultural sector. This

sector lags behind in use of technologies and 50 percent of the countrys labor force employed in the agriculture

creates only 8 or 9 percent of the GDP. Interestingly, the share of agricultural processing enterprises in the GDP was

approximately 4 percent, according to the official 2011 data. In the absolute majority of countries the share of foodprocessing industry in the GDP is at least twice as many as the share of primary production; hence, the share of food

processing in Georgia should at least be at 15 or 20 percent of the GDP; however, this is not the case in Georgia. As a

result, the country imports an absolute majority of even such food products which can be produced locally. Moreover,

the number of enterprises in the primary agricultural production is extremely small. In particular, according to the

National Statistics Services annual publication, Entrepreneurship in Georgia, a total of 370,900 registered enterprises

existed in Georgia in 2012, of which only 3,392 were registered in agriculture, which is less than 1 percent of the total

number of enterprises. Unfortunately, the number of agricultural enterprises did not virtually increase during the pe-

riod from 2007 to 2012. True, the turnover of these enterprises sharply increased in 2012, but the share of this turnover

comprised a mere 0.5 percent of the total turnover of all enterprises. It is also worth noting that the irrigation and

drainage infrastructure is almost totally inoperative in agriculture; the bank capital invested in the sector is very insig-

nificant; the institutional environment necessary for the development is not established yet; the sector experiences

an acute shortage of qualified personnel; and so on and so forth.

Hence, without implementing a serious rational policy geared to support agriculture, it will be almost impossible to

achieve tangible results in the short term.

The situation created in the agriculture sector is complex and diverse though it can be categorized into the following

main problems:

Technological underdevelopment of the sector and the shortage of qualified human resources;

Dilapidated and inoperative infrastructure;

Acute shortage of capital;

Undeveloped land markets;

Weak state policy and scarce public financing.

Table #3 shows the dynamic in physical volumes of agricultural produce and size of croplands over the period from

2000 to 2011. A dramatic decrease in croplands raises doubts about the reliability of data; however, although in 2005

the state statistics service switched to a new methodology, a general downward trend is till maintained. This indicates

that the agriculture as one of significant sectors of the economy, gradually loses its significance as a possibility to

make profitable investments.


13/52

13

Table #3 Main Agricultural Tendencies 2000-2011

Year Croplands ha Bovine SwineSheep and

goats

Share of agriculture in

GDP (%)

2000 610,800 1,177,400 443,400 627,600 20.20%

2005 539,600 1,190,600 455,300 815,300 16.80%

2006 330,200 1,080,300 343,500 789,200 11.20%

2007 297,200 1,048,500 109,900 797,100 10.70%

2008 329,300 1,045,500 86,400 769,400 9.40%

2009 308,300 1,014,700 135,200 673,800 9.40%

2010 275,300 1,049,400 110,100 653,900 8.40%

2011 281,000 1,087,600 105,100 630,400 8,8%

Source: Geostat

The dynamic of animal husbandry is relatively stable, but against the backdrop of observed stagnation in plant grow-

ing productivity, one may assume that the animal husbandry is also in stagnation. A dramatic decrease in the number

of pigs indicates that the African swine fever still remains a serious problem in the country and consequently, without

effective implementation of sustainable measures, the development of this field cannot be expected in the nearest

future.

Table #4 Production indices of agricultural products 2003-2011

Total Production 2003 2005 2007 2008 2009 2010 2011As compared

to 2003 %

Meat (thousand tons) 108.9 104.7 69.4 57.3 54.3 56.7 49.3 45.27%

Milk (1000 liters) 765.1 755.7 624.8 645.8 551.4 587.7 582.1 76.08%

Eggs (million) 458.1 504.6 438.1 437.5 430.6 444.5 483.1 105.46%

Wheat (thousand tons) 52 44 17 18 12 11 22 42.31%

Maize (thousand tons) 106 98 68 75 66 32 60 56.60%

Potato (thousand tons) 98 101 52 44 49 51 61 62.24%

Vegetables (thousand tons) 99 102 43 38 37 39 41 41.41%

Fruits (thousand tons) 60 62 52 36 41 28 42 70.00%

Grapes (thousand tons) 46 58 52 40 34 27 35 76.09%

Source: Geostat


14/52


The dynamic of physical production indices of main agricultural produce over the period between 2003 and 2011

clearly shows a decline of competitiveness in the majority of agricultural categories, save eggs which, as a rule, is

less involved in the international trade. With the physical indices of production showing a downward trend, Georgia

becomes increasingly dependent on imports, which, in turn, is a somewhat negative tendency against the observedstagnation in productivity. On the other hand, it must be noted that Georgia will still remain dependent on imports of

most of products listed in Table #4; however, the degree of this dependence can decrease only if the countrys produc-

ers manage to speedily master new technologies and skills. More realistic in the foreseeable future seems achieving

self-sustainability in potatoes; meeting the demand for vegetables on the local market; and increasing the production

of fruit and grapes to such an extent that enables exporting this category of products or the production received by

processing thereof.

Table #5 Financing agricultural sector by commercial banks 2003-2011

Year Agriculture Total Credit portfolio Share of agriculture in

the portfolio

2003 15,816 1,139,685 1.39%

2004 13,674 2,236,201 0.61%

2005 13,030 2,634,651 0.49%

2006 20,337 3,547,559 0.57%

2007 82,100 4,875,360 1.68%

2008 100,825 4,090,090 2.47%

2009 64,728 3,284,206 1.97%

2010 56,990 5,265,505 1.08%

2011 80,996 6,224,875 1.30%

2012 59,878 5,958,376 1.00%

Source: National Bank of Georgia

That the Georgian agriculture is losing its positions is not the result of only global trends and the shortage of

modern technologies. The sector does not virtually receive formal capital; the reasons of that must be sought

in the undeveloped land market, a small size and extremely small number of agricultural enterprises. Table #5

proves that without a radical increase in agricultural funding, one cannot expect serious improvements in the

sector in the near future.

The situation is further aggravated by the fact that in the past few years the pubic funding of agriculture was extreme-

ly small and the need for the development of the sector was virtually ignored.


15/52

15

Table #6 Public financing of agriculture

Million GEL 2005 2006 2007 2008 2009 2010 2011 2012

Budgetary

expenditures onagriculture

41.35 63.17 111.1 70.87 75.16 30.64 79.95 229,951

Total budgetary

expenditures2,618.55 3,822.51 5,237.10 6,758.83 6,754.11 6,972.34 7,569.73 8,091.50

% 1.58% 1.65% 2.12% 1.05% 1.11% 0.44% 1.06% 1.06%

Source: Ministry of Finance of Georgia

2012 saw a significant increase in public funding of agriculture, clearly indicating the increased attention towards

the sector. At present, it is difficult to assess how consistently agricultural financing will increase; however, the final

outcome will still depend on the efficiency of the government in implementing long-term infrastructure projects,

establishing a fair and equal competitive environment, supporting the spread of technologies and knowledge and

rendering such types of services to the private sector which the private sector cannot provide. This implies the pre-

vention and fight against mass plant and animal diseases; timely communication of relevant information to farmers

and speedy response to food security challenges; also facilitation of creation of alternative spheres of employment

in rural areas.

Proceeding from the above reasoning, the agriculture in Georgia, despite an increased state interest towards it, will

still remain a sphere of social policy for some time, because bearing in mind a large number of employees in the ag-

riculture sector, high degree of land fragmentation and other above listed factors, cardinal improvements cannot beexpected in the nearest future. At the same time, the objective of the government should be the creation of such a

favorable environment for the development of agriculture which will encourage innovations and investments in the

sector, increase the interest of the private sector towards it and make it possible to raise the level of competitiveness.

This must translate into the improved competitiveness of producers, increased revenues of agricultural employees, a

gradual shift of the sector towards higher technological fields creating added value and a long-term stable develop-

ment of the entire sector.

Consequently, this report basically offers the analysis of a resource base of the Georgian agriculture and the general

condition of the sector which is dominated by family farms; and also reviews implemented and ongoing state pro-

grams in the light of existing resource base, general level of development and above mentioned objectives faced by

the state.


16/52


RESOURCE BASE OF AGRICULTURE

CLASSIFICATION OF FARMS AND LAND FUND

The agricultural sector of Georgia is dominated by family farms. The number of agricultural enterprises is so small that

they cannot essentially influence the development of the sector and in the foreseeable future, the picture will proba-

bly remain the same. Such a distribution of agricultural resources means that the degree of formalization in the sector

is very low and the hired work is relatively scarce. On the one hand, such an arrangement of the sector may seem de-

sirable in terms of maintaining social stability as almost every household has a plot of land helping household to meet

their basic requirements. On the other hand, such an arrangement makes it very difficult to attract investments, to

undertake needed infrastructural measures, to carry out re-equipment and introduce new technologies. Thus, in our

opinion, the agriculture will remain on the level of family farming and continue a relatively extensive development.

Table # 7 Number of agricultural farms

Number and classification of agricultural farms

Total Family households Enterprises Other types of households

729542 728247 820 475 Georgia

Source: Agricultural census in Georgia, 2004

Georgia is a land-scare country. Figure #2 shows that the size of absolute majority of plots ranges between one and

three hectares.

Figure 2 Percentage distribution of plots by size in Georgia



17/52

17

Table #8 shows an average size of agricultural lands and the degree of their fragmentation in Georgia. The degree of

fragmentation is high and given a small size of plots, this fragmentation creates problems in the development. In par-

ticular, the arrangement of basic agricultural infrastructure such as entry roads, irrigation systems, etcetera, requires

higher costs.

Table #8. Average size of agricultural plots and the degree of fragmentation

Average farm size (ha) Number of plots Average plot size (ha)

Georgia 1.22 2.33 0.52


According to the 2004 agricultural census, approximately 840,000 hectares of agricultural land were in use of farms

in Georgia. The figure #3 below shows the distribution of land plots by intended purposes. The concentration of pe-

rennial plants is low in the country, though it is in this very sphere that Georgia has a competitive advantage and the

highest potential to generate export revenues.

Figure 3 Percentage distribution of Agricultural Land by purpose of Use



18/52


ANNUAL CROPS

Small size and fragmentation of lands most adversely affect a commercial production of annual crops. Basic annual

crops include corn and wheat accounting for more than 70 percent of annual crops production. It should be notedthat corn is cultivated in every region to larger or smaller extent, whilst wheat is mainly grown in the Kakheti region.

According to a popular opinion, the development of crops is especially important in terms of food security, however,

in our opinion, Georgia does not have a comparative advantage in this sphere and consequently, it is better for the

country to concentrate on commercially more profitable crops.

Figure 4 Share of annual crops


PERENNIAL CROPS

STRUCTURE OF ORCHARDS

As it has been noted, the concentration of perennial crops is rather low in Georgia. However, a certain growth has

been observed in recent times. Fruit processing capacities are actually unused. Apple, peach as well as hazelnut which

is a leading export product of Georgia, have a big potential to generate revenues.


19/52

19

Figure 5 Percentage distribution of fruits in orchards


VINEYARDS

Wine growing is one of traditional and at the same time, perspective fields. For the development of this field, we be-

lieve that the orientation on local demand, which shows substantial reserves for commercial wine production, is no

less important than the orientation on exports.

Table #9 Vineyards and number of roots

Size of

vineyards

(ha)

Number

of roots in

vineyards

Bearing

among them

Number of

separate rootsBearing among them

Georgia 37419 112408526 106129338 2847126 2743497



20/52


HAZELNUT

Hazelnut is grown in Georgias every region to a various extent (except for mountainous and Samtskhe-Javakheti

regions). Nevertheless, a commercial production of hazelnut is concentrated in Samegrelo region, followed by Guriaand Imereti regions. An intensive establishment of hazelnut orchards is underway in the Kakheti region; this move is

prompted by a favorable conjuncture on the world market and favorable soil and climatic conditions in Georgia. As

a profitable crop, hazelnut will probably strengthen its positions in the years to come and in combination with the

processing industry, it has serious prospects to become a leading field in agriculture.

Table #10 Size of hazelnut orchards and number of roots

Size of

orchards

(ha)

Number of

roots

Bearing

among them

Number of

separate rootsBearing among them

Georgia 15547 8583715 7279640 1586765 1452352


CITRUS

Citrus in Georgia are almost entirely concentrated in Adjara and Guria and to a lesser extent in Samegrelo. Tangerine

accounts for more than 80% of citrus plants. Citrus has always been a significant source of export revenues. If modern

technologies are introduced and standards of protection of orchards are observed, this field can develop significantly.

Regardless of current low level of technological intensification and average harvest (from seven to ten tons), citrus

and particularly tangerine growing still remains a promising field. This is proved by a rather favorable dynamics intangerine exports of the past few years.

Table #11 Citrus orchards and number of roots

Size of orchards (ha) Number of roots

Georgia 8715 5488492


ANIMAL HUSBANDRY

Animal husbandry is marked with deep structural problems. Among them an especially acute problem is the con-

centration of cattle and fowl in small family farms. The absence of selective activities, extremely low efficiency, scarce

production of fodder, makes a further commercial development of the field impossible. Lack of availability of the

veterinary services poses a serious threat in terms of spread of various diseases.


21/52

21

Table #12 Cattle livestock

Cattle, among them buffalo, sheep and goat livestock (all farms)

Cattle Cow BuffaloShe-buffalo

among them

SheepFemale

among them

goat

Georgia 1157781 670385 29541 17358 648717 377939 97824


The table below does not reflect negative changes in swine population caused by the spread of African swine fever.

Here we assumed that this problem affected every region in Georgia to a more or less extent.

Table #13 Number of swine and beehives

Total Per village resident

Swine Beehives Swine Beehives

Georgia 489936 152364 0.20 0.06


MECHANIZATION

According to the 2004 agricultural census, 15,096 tractors 20,537 hand tractors and 1,181 combine harvesters were

available for Georgian farms. Taking into account the multitude of small size plots, these indicators cannot be viewed

as catastrophic by any means. The problem lies elsewhere an absolute majority of machinery is depreciated, therebysignificantly decreasing its efficiency. An especially acute shortage is observed in equipment necessary for agricul-

tural operations (plows, cultivators, et cetera). In this regard, some progress has been seen since 2009-2010. The state

limited liability company, Mechanizatori, possesses up to 1,000 modern tractors today and a rather diverse assort-

ment of equipment and trailers. The private sector has also stepped up its activity. Dealers of almost all leading world

brands operate in Georgia. This process is indeed a welcome development, but some questions emerge regarding the

efficiency (especially with regard to the operation of the state limited liability company): how are the priorities iden-

tified with regard to what type and capacity machinery is needed? How efficient is to purchase of expensive state-

of-the-art machinery instead of second-hand ones (for example, one or two years old with 400-500 tractor service

meters)? And so on and so forth. Naturally, the process of renewal of the technological fleet must follow the logic of

market demand. In this regard, we believe that the state should assume the following function:

- Supporting retraining of technical personnel;

- Providing information and training; promoting advantages of full implementation of agricultural operations;

- Supporting the development of standards for agro-technical operations;

- Supporting smooth operation on each unit of logistics and value chain.


22/52


Table #14 Machinery in farms

Machinery per 100 hectares of arable land

All types of tractors

(wheeled, tracked, Mini)

Hand tractor Combine Truck Other types of

vehicles

Georgia 3.20 4.35 0.25 3.98 12.99


FOOD SECURITY

Fragmentation of lands, broken down infrastructure, technological lagging and other problems in the agricultural

sector condition a very unfavorable level of food security. Results of the 2004 census, if directly interpreted, provide

the ground for such a conclusion.

To a question whether there was an instance over the past 12 months when a household lacked those food products

which it normally consumes (see Table #15 below), almost 70 percent of interviewed households answered positively.

Table #15 Food Availability in households

Question: Was there an instance over the past 12 months when a household lacked food products that it normally con-

sumes?

Number of households Yes No No answer

Georgia 790552 559816 228683 2053


At the same time, to a questions whether there was an instance over the past 12 months when a household devel-

oped a fear that it would not have sufficient food products (see Table #16 below), 71 percent of interviewed house-

holds answered positively.

Table #16 Food Availability in households

Question: Was there an instance over the past 12 months when a household feared it would not have sufficient amount of

food?

Number of households Yes No No answer

Georgia 790552 563540 224910 2102



23/52

23

The provided tables allow us to conclude that Georgia is very vulnerable in terms of food security. Due to combination

of multiple social and economic factors, the countrys agriculture fails to ensure the rural population with sufficient

monetary income.

At the same time, one must also admit that Georgia does not face a threat of mass famine only because all types

of food products are produced in the country. The level of food security can be increased along with the growth of

economy, including by gradual increase in agricultural productivity. A well considered state policy can significantly

contribute to achieving this aim.


24/52


INSTITUTIONAL ENVIRONMENT

The Ministry of Agriculture implements the agriculture policy through its subdivisions which are shown in the orga-

nizational chart provided below.

This report does not discuss strengths and weaknesses of current institutional arrangement of the Agriculture Min-

istry. The need for that will arise if it transpires that the implementation of ongoing and planned measures by the

Agriculture Ministry necessarily requires institutional restructuring.

This report briefly overviews main aspects of ongoing programs. Since these programs have been recently launched,

it is impossible to properly evaluate their effect. We will evaluate ongoing projects in the light of their relevancy to the

action plan of the Ministry of Agriculture and against the world practice. At the same time, proceeding from program

goals and interim results, it is possible to compare ongoing and earlier implemented projects in terms of their general

efficiency.


25/52

25

CURRENT POLICY

Since 2013, the agricultural policy of the country experiences significant changes. Agriculture is becoming a priority.

According to an action plan published by the Agriculture Ministry, the following strategic goals have been set for thedevelopment of the sector:

- Increasing competitiveness of farmers and agricultural employees;

- Supporting the development of full cycle production that creates added value;

- Institutional development and training;

- Development of regional and agricultural infrastructure;

- Food security;

- Environment and biodiversity.

To achieve these goals, a list of concrete measures was drawn up. A number of these measures have already been

launched. We will provide a brief overview of several ongoing programs which, considering certain factors, may have

a significant impact on the sector. In describing programs and assessing the progress, we used information from the

action plan published by the ministry, available on the webpage of the ministry and disseminated by the press service

of the ministry.

MELIORATION

Irrigation of crops is one of most significant problems for farms in a number of regions in Georgia. Rehabilitation of

irrigation systems is necessary in order to improve the regulation and management of water and irrigate more agri-

cultural lands, thereby ensuring increased yields.

Rehabilitation of melioration infrastructure is being performed by the United Melioration Systems Company. Accord-

ing to the data of the Finance Ministry, the budget financing of rehabilitation and modernization works increased

almost fivefold this year and comprised 64,4 million GEL.

In 2013, the United Melioration Systems Company started repair works on 195 facilities of which works have already

been completed on 180 facilities. As of now, the following facilities have already been cleaned and repaired: a 680-km-

long main canal of irrigation systems and first grade dispenser; dispensers of various grades along up to 3,000 km line;

canals of drainage systems along up to 148 km line. All this allows to additionally irrigate 25,200 ha arable lands. It is

noteworthy that for the first time ever the state financed the cleansing of internal farm network and as of now, up to

1,000 km-long inter-farm canal has been cleaned. Last year only 20 to 25 percent of main canals were cleaned and the

state did not repair first grade dispensers at all.


26/52


At present, almost all main canals and dispensers of irrigation systems have been cleaned countrywide and upon the

completion of the irrigation season, it is planned to undertake rehabilitation works on them, something which has not

been done for the past two decades or even more.

The company purchased 3.6 million GEL worth modern land excavation mechanisms and also 4.5 million USD worth

the equipment under Chinese warranty, increasing the total number of special machinery to 100.

As regards the progress of irrigation season, water is running in all systems, save the Tbilisi-Kumisi irrigation system

(because of low level of water in Algeti reservoir), and the irrigation season is underway. Moreover, contracts have

already been signed with water consumers on irrigating 35, 000 hectares of land (last year it was up to 24,000 ha for

the entire year). In total, till the end of this year three times more land will be irrigated than in the previous year.

Rehabilitation of irrigation systems can be evaluated as a positive development; however, it is impossible to solve

melioration problems in the country through one-off programs and measures. Institutional development and estab-

lishment of optimal structures are necessary. It would be beneficial to engage private structures in this process too. It

must be defined at what stage the state operation can be maximally efficient and concentrate the efforts of the Min-

istry (subdivisions) on corresponding directions. One can evaluate the efficiency and effectiveness of the melioration

programs after the crops have increased and the spectrum of products diversified.

TRAINING AND CONSULTATIONS

To provide consultation services to farmers and agriculture employees, 12 consultation (extension) and farmer service

centers have been opened across Georgia. Service centers established in Gurjaani, Dedoplistskaro, Kareli, Kaspi, Mar-

neuli, Bolnisi, Akhaltsikhe, Zestaponi, Samtredia, Abasha, Ozurgeti and Ambrolauri provide various types of services

to local population. All centers are equipped with modern agricultural technique.

The aim of centers it to familiarize population with modern technologies and to introduce them. A target group

comprises students, farmers and people employed in agriculture. They have possibilities to consult qualified special-

ists and enhance professional skills. The key objective is to train qualified cadres, to improve agricultural system and

approximate it with European standards. The service centers house modern labs conducting analysis of soil samples,

studying plant pests and diseases, quality of seeds and fertilizers as well as animals. It is also worth noting that centers

can also forecast weather conditions.

A training center for 30 people is also arranged in service centers, offering local population short and longer courses

in various areas, envisaging both theoretical and practical training. One should note that a number of farmer training

programs were implemented in Georgia in the past but their effect was almost always less than expected. In our view,


27/52

27

the problem is not only in lack of access to information and knowledge but also in the absence of the demand for

this information and knowledge. The extension centers may prove more effective because they operate for a longer

period, but a proper planning and implementation of activities will be of decisive importance. It is yet unknown how

efficient are extension specialist in performing their jobs as against costs allocated for them. Of utmost importancefor this sphere to operate successfully will be the involvement of private extension operators in the processes, which

must translate into the increase in crops.

SUPPORT OF SMALLSIZE FARMERS

Within the framework of the project Support of small-size farmers in conducting spring works envisaged under the

Georgian governments 2013 spring program, farmers received nominal and combined agricultural cards country-

wide. Until 1 August, beneficiaries could purchase agricultural goods and tools. The program also envisaged another

assistance for small-size farmers (owner/holder of up to five ha of land) - the plowing and tilling of furrows over the

space from 0,25 to 1,2 ha.

Up to 710,000 landowners received assistance within the framework of this project. The cost of project comprised 195

million GEL. Up to 200,000 ha of land has been cultivated across Georgia (including 110,000 ha was plowed). Small-

size farmers received for free: fertilizers worth 53 million GEL, pesticides worth 24 million GEL, seeds worth 5 million

GEL and agricultural tools worth 39 million GEL.

Figure 6 Project Expenditures for supporting spring works of small land farmers.

Source: Report of the Ministry of Agriculture -2013


28/52


Thus, the highest share in the costs of the program accounts for various agricultural goods and tools which were

given to farmers for free; this underlines the social connotation of this measure. The figure below shows distribution

of granted goods and tools by types.

Figure 7 Expenditures on goods and inventory provided for free in the framework of the program.

Source: Report of the Ministry of Agriculture -2013

Especially arguable element in this project is the transfer of various agricultural tools, which, we believe, is a measureof social nature alone and its economic effect cannot be evaluated.

Overall, the mentioned program pursues clearly social aims, though one can also speak about certain economic ef-

fects too. The point is that a large part of cultivated lands belong to the category of virgin lands, consequently, one

can expect a sharp increase in agricultural production this year and with it a short-term increase in the share of agri-

culture in the GDP. It is difficult to judge a medium- and longer-term economic effect, which will depend on multiple

factors. Moreover, this program is not a part of strategy of the Agriculture Ministry and consequently, is reflected in

the state budget only partially (renewal of technological fleet).

In general, the implementation of such types of programs cannot be effective; nor do they create prerequisites for

longer-term growth of production. The reason of that, in our view, is an unconditional support to beneficiaries which

lowers competition and may undermine the motivation of successful farmers. Moreover, such type of assistance cre-

ates a probability of larger scale assistance program in the future, which sooner or later must be reflected in the

budget; however, the country lacks resources for that. We believe that the implementation of such programs must be

stopped in the future and needs of beneficiaries must be met in the context of general state social policy.


29/52


30/52


physical persons (sole entrepreneurs) and legal persons makes up 306. Of financed fields, the highest amount of loans

was issued to animal husbandry.

Table # 17 Loans issued in the second compact per sectors

Purpose/DirectionIndividual entrepreneur or legal entity

Number Amount in GEL % distribution per sectors

Fish processing 1 67,000 0.11%

Production Storage facilities 2 50,000 0.08%

Production storage refrigerators 1 17,000 0.03%

Livestock 1,749 33,345,700 52.46%

Pig breeding 19 280,000 0.44%

Fisheries 67 1,833,450 2.88%

Poultry 41 967,300 1.52%

Beekeeping 66 628,100 0.99%

Greenhouse 291 3,608,248 5.68%

Mushroom Production 2 30,000 0.05%

Gardening 61 768,700 1.21%

Viticulture 28 510,900 0.80%

Vegetable production 14 305,800 0.48%

Horticulture 182 2,950,000 4.64%

Grain Production 206 5,965,850 9.39%

Mixed 104 1,902,075 2.99%

Sheep breading 379 10,336,850 16.26%

Total 3,213 63,566,973 100.00%

Source: Project Management Agency of the Ministry of Agriculture

All the 245 beneficiaries of the third component are individual entrepreneurs (sole entrepreneurs) or legal entities,

whilst the majority of loans was issued to the fields of animal husbandry, winery and warehousing. Of total loans is-

sued under the third component, eight million USD was issued for financing start-up projects.


31/52

31

Table # 18 Loans issued in the third compact per sectors

Purpose/DirectionIndividual entrepreneur or legal entity % distribution per

sectorsNumber Amount in USD

Meat Processing 1 60,000 0.19%

Fish Processing 3 945,000 2.98%

Milk Processing 13 1,060,000 3.34%

Wine Production 29 9,523,775 30.01%

Cognac Production 1 240,000 0.76%

Tea production 1 50,000 0.16%

Fruit processing 2 925,000 2.91%

Berry processing 1 80,000 0.25%

Nut processing 7 1,116,000 3.52%

Oil production 1 31,000 0.10%

Animal feed production 3 162,000 0.51%

Mixed 1 430,000 1.35%

Product storage warehouses 14 1,909,600 6.02%

Grain dryers 3 680,236 2.14%

Product Storage Refrigerators 4 512,000 1.61%

Production of packaging material 2 330,000 1.04%

Livestock 66 4,737,861 14.93%Pig breeding 4 804,700 2.54%

Fisheries 5 403,000 1.27%

Poultry 14 1,654,500 5.21%

Beekeeping 2 80,000 0.25%

Greenhouse 26 1,719,800 5.42%

Mushroom production 2 432,700 1.36%

Gardening 2 695,000 2.19%

Viticulture 5 237,500 0.75%

Horticulture 2 477,000 1.50%

Grain Production 2 635,000 2.00%

Mixed 8 766,000 2.41%

Sheep 21 1,040,000 3.28%

Total 245 31,737,672 100%

Source: Project Management Agency of the Ministry of Agriculture


32/52


Presumably, the amount of loans issued to agriculture this year will treble as compared to the previous year. This is an

impressive increase, on the one hand, but on the other hand, the share of agriculture in the loan portfolio is still very

insignificant and does not exceed three percent of the entire banking portfolio.

We think that today, neither the banking sector nor farmers are ready to effectively use financial instruments in the

agricultural sector. In case of processing enterprises, this program can be viewed as the subsidizing of the banking

sector. We can speak about tangible results only in case funding schemes are adapted to the requirements of the

sector (for example, risk assessment of separate projects with the involvement of specialists; setting conditions for

financing start-up projects, et cetera).

As we have noted above, it is yet premature to talk about the results of ongoing projects. In general, we deem a pro-

grammatic approach to this or that problem justified, however, the concrete programs/projects must have clearly

identified goals and objectives, must be correctly prioritized and must follow from the general strategy. In this regard,

it will be extremely beneficial to take into account the past experience. Below, we will review several programs imple-

mented in Georgia in the past, which, based on the comparative analysis, will allow to better identify future prospects.


33/52


34/52


erence were drawn up by such people who did not have required and necessary professional knowledge; this affected

the quality of the terms of reference. In particular, technical/objective and quality parameters of the product to be pur-

chased are not clearly and comprehensibly described. For example, out of technical characteristics of the commodity to

be supplied the terms of reference indicates, apart from a requirement that it must not be genetically modified, only onerequirement which defines; it is well known, however, that apart from vegetation periods, hybrid corn seeds have many

other important indicators which define not only the efficiency of the process of growing corn but also the amount

of costs needed. These indicators are: maturity group (FAO), resistance against climatic conditions (frost, drought), the

steadiness of the corn at the end of vegetation period when reaching a full maturity phase, moisture content, resistance

against illnesses and pests, etcetera. Terms of reference did not indicate either a purpose of the use of the commodity

(silage or grain) which is also important because it defines a genetic inclination of hybrid corn seeds.

Informational booklets, including the agricultural calendar, were published and handed over to the Agricultural Cor-

poration for distribution in March 2011. Consequently, the agricultural calendars which described agro-technological

measures to be undertaken from October to September were distributed to farmers after March, i.e., with the delay

of six months.

RESULTS OF PROGRAM

To evaluate results of the program, we conducted a telephone survey of beneficiaries registered in the Agricultural

Corporation. By random selection, 115 physical and legal persons were interviewed. The survey covered 2,975 ha in

total, which comprises 19 percent of the total seed material (calculated over the size of land 15,460 ha) realized

within the framework of the program.

Respondents who grew corn before 2010, used to harvest 5,08 tons per hectare on average whilst program partici-pants harvested 2,94 tons. There were instances when farmers were not able to use needed machinery either because

they had to wait for their turn to use the machinery which would prevent them from timely performing agricultural

procedure, or there was not a concrete piece of equipment available in their region. Only a small segment of program

participants (about 25 percent) received profit whilst the rest either only covered the costs or incurred loss.

The above said led to the termination of the program. Considering the volume of corn production in Georgia and

harvest gathered under the program, it is clearly impossible to speak about any tangible effect of this program on the

corn production. Table #19 shows that after a sharp decrease there was a sharp increase in corn production in 2011,

but we cannot link this increase to the implementation of the program.

Table # 19 Corn production (thousand tons)

2006 2007 2008 2009 2010 2011

Corn 217.4 295.8 328.2 291 141.1 269.6

Source: Geostat


35/52

35

Figure 8 Corn production (thousand tons)

Source: Geostat

By comparing the data on corn production and export-import, it becomes clear that the corn production in Georgia

actually meets the local demand which means that there no additional state effort is needed in this area.

Table #20 Corn export/import (thousand tons)

2006 2007 2008 2009 2010 2011

Export 28075 17255 6716 5432 9641 2076

Import 41974 16400 15511 31566 14504 25555

Source: Geostat

Figure 9 Corn Export/Import (tons)

Source: Geostat


36/52


It is difficult to speak about the results of the program which lasted only one year. It is clear, however, that due to poor

preparation stage it became impossible to implement the program successfully.

It is necessary to draw up a medium- and long-term strategy for the entire sector and specifically, for the corn produc-

tion. To this end, the following must be done first:

1. Assessment of the potential of the growth in demand (for forage and food, processing);

2. Assessment of the export potential (comparative advantage);

3. Assessment of the necessity and possibility of structural reform (intensification, fragmentation of land plots,

land registration, regional concentration).

In the process of implementation of action plans in accordance with the strategy, various technical issues will become significantly

easier, such as the selection of seed species by soil and quality indicators, informational support and retraining of farmers.

Taking into account these factors, the implementation of corn program in such a manner is not justified. We think

that it would have been more profitable to limit the program to providing relevant consultations and explanations

to farmers in order to enable them to create a demand for modern seeds and in a relatively longer period, find sales

market through market mechanisms, which, in turn, would have contributed to a gradual increase of the production

base (land plots), improvement in equipment and introduction and improvement of post-harvest technologies.

PROGRAM ON INTENSIFICATION OF WHEAT SEEDS

GOALS AND OBJECTIVES OF THE PROGRAM

The program on the intensification of wheat seeds was actually planned and implemented similarly to the corn pro-

gram. The timeframe of program implementation was also somewhat similar. Declared goals of the program was the

popularization of high quality, certified seed among farmers in various regions, introduction of new technologies and

the increase in harvest per ha.

The objectives of the program were formulated as follows:

- To increase total size of cultivated lands for the production of wheat;

- To double the indicator of harvest per hectare;

- To treble the indicator of wheat supply to the country.

In assessing the program we used the presentation of the program prepared by the Agriculture Ministry, the projects

terms of reference drawn up by the Agricultural Corporation and information obtained through direct interviews with

representatives of the Agricultural Projects Management Agency.


37/52

37

PREPARATION AND IMPLEMENTATION

Within the framework of the program, the Ministry of Agriculture selected American wheat seed, Jagger. Alike in case

of corn program, the Agricultural Corporation was responsible for the implementation of the program. The program

envisaged the transfer of seed wheat to farmers the cost of which they would pay in installments during one year.

Program Implementation Scheme


38/52


39/52

39

Figure 10 Wheat production (thousand tons)

Source: Geostat

Figure 11 Wheat harvest per 1 ha

Source: Geostat

Comparison of indicators of the production and export-import of wheat makes it clear that Georgia largely depends

on wheat imports.


40/52


Table #22 Wheat export/import (thousand tons)

2008 2009 2010 2011 2012

Export 14 16 36 20 176

Import 613 624 797 677 970

Source: Geostat

Figure 12 Wheat export/import (thousand tons)

Source: Geostat

It is a widely spread opinion that the dependence of a country on the import of wheat is one of key risk factors for

food security. In our opinion, the significance of such risks is exaggerated. The point is that the country does not have

a comparative advantage in this area. A possibility of extensive development is limited whilst measures necessary for

the intensification must fit into the logic of market demand.

Considering the above described factors, the implementation of whet as well as corn programs in such a form is not

justified. We think that it would have been more advantageous to limit the program to consultative and explanatory

works for farmers. The problems of irrigation and soil erosion in the areas where wheat is grown are quite acute.


41/52


42/52


Table # 23 Amounts spent on wine promotion activities (GEL)

2007 2008 2009 2010 2011

Wine development activities (preparation of a strategy,

market research, foreign expert visits)

416.9 3,000.0

Vintage Promotion Measures 5,425.0 6,394.5 5,609.0 4,812.2 8,828.3

Financial support of the factories 1,000.0

Vineyard renewal supportive measures 69.1 729.0

Replacing the vineyards 474.8

Replacing the vineyard plantation 93.7 192.9

Measures to promote the popularization of wine products 332.4 203.9 651.8

The program of the Wine World Congress 1,406.0

Wine Laboratory Research 1,994.3 1.2 2.8

8,488.4 8,016.4 9,035.1 6,617.8 9,480.1

Source: Ministry of Finance

Table #24 Expenditure distribution per activities within the framework of wine promotion program

2007 2008 2009 2010 2011

Wine development activities (preparation of a strategy,

market research, foreign expert visits) 5% 33% 0% 0%

Vintage Promotion Measures 64% 80% 62% 73% 93%

Financial support of the factories 12%

Vineyard renewal supportive measures 1% 9%

Replacing the vineyards 6%

Replacing the vineyard plantation 1% 3%

Measures to promote the popularization of wine products 4% 3% 7%

The program of the Wine World Congress 21% 0%

Wine Laboratory Research 23% 0%

100% 100% 100% 100% 100%

Source: Ministry of Finance


43/52

43

In total, amounts spent on separate measures made up 41,6 million GEL. Almost 75 percent of this amount accounted

for support/subsidies to grape harvests/farmers. It can be said that the wine support program is the concrete-prod-

uct-oriented largest scale program implemented in the agriculture sector of the country.

RESULTS OF THE PROGRAM

One of undeniably positive results of the wine support program is a significant improvement of quality and standard-

ization indicators. In this regard, the enactment of regulations and quality control mechanisms in the field had a pos-

itive effect. Taking into account a rather fierce competition on the international market, the above noted is definitely

insufficient for increasing export potential.

Table #25 shows balance of locally produced grapes by years. Indicators of wine export/import, amount of supplies

and wine consumption are calculated over grapes.

Table # 25 Grape balance resources and usage

2008 2009 2010 2011 2012

Resources (thousand tons)

Stock at the beginning of the year 210 202 178 127 103

Production 176 150 121 160 144

Import 2 1 2 1 1

Resources total 388 353 301 288 248

Usage (thousand tons)

Grape consumption 13 7 9 8 9

Wine consumption 140 138 129 135 138

Loss 5 5 4 5 4

Export 28 25 32 37 32

Stock at the end of the year 202 178 127 103 65

Total usage 388 353 301 288 248

Self-sufficiency ratio% 117 118 133 129 127

Source: Geostat

Clearly, over the past five years, the volume of grape production has not increased consistently, although during the

same period, 31 million GEL was spent for the aim of subsidizing farmers. The picture is almost similar in terms of ex-

ports. A rather small volume of exports against the volume of grape production in the country is notable (see figure

# 13).


44/52


Figure 13 Exports as a percentage of production and supplies according to different years

Source: Geostat

The above said reveals several factors which question the expedience of the implementation of the program and its

results. Firstly, one must note a large budget of the program. Irrespective of historical importance of grapes and wine

production, it is only one field of the agricultural sector. Therefore, a priority should be given to programs designed

for the development of the entire sector in general. Under the conditions of limited resources, it is unacceptable to

concentrate on separate directions unless a field, by its importance, is a driving force of the sector or have a potentialto bring about exceptional results. In this context, especially noteworthy is a very high share of subsidies in the entire

program. In the conditions of Georgia, subsidizing may be justified within a relatively short period of time, in excep-

tional cases as it was the Russian embargo on Georgian wines, though this must not degrade into inefficient use of

resources. In our opinion, more critical for the development of wine production is the development of local market,

decrease of risks in primary production, identification of perspective species and replacement of existing one with

them.

PROGRAM ON 100 NEW AGRICULTURAL ENTERPRISESPROGRAM GOALS AND OBJECTIVES

In 2007, the Georgian government drew up a program on establishing 100 new agricultural enterprises in the regions

(the Georgian government Decree #74, dated 26 March). The declared goals of the program were: the development

of primary production, processing and agribusiness; creation of new jobs through putting into operation new agricul-

tural enterprises in regions; increase in revenues and as a result, improvement of welfare of rural population.


45/52

45

Program objectives were determined as following:

Supporting creation of agricultural enterprises;

Developing food processing industry and marketing; Increasing the share of local production in the domestic market;

Increasing agricultural production and promoting export;

Attracting investments to regions;

Creating new jobs in regions.

IMPLEMENTATION

The Ministries of Agriculture and Economy were jointly made responsible for the implementation of the program.

State owned agricultural lands were selected and grouped into more than 100 lots. Apart from these lots, investors

were allowed to choose desired land plots themselves from the agricultural land fund owned by the state (minimum

five ha), or state owned enterprises which had at least five ha of agricultural land. Investors were required to submit

projects on establishing enterprises and in the event projects were deemed satisfactory, to pay 20 percent of the price

of a lot, whilst in the event they fulfilled conditions agreed in advance, would be granted a 80 percent discount on

the lot.

Anyone who wished so could participate in the program. To this end, such persons were required to submit the fol-

lowing documents to the Ministry of Agriculture:

Filled in application form;

An excerpt from the Public Registry and a cadastre map; A business plan of the project;

A bank guarantee worth five percent of the total cost of the lot;

If the amount of investment exceeded the price of the entire lot, the size of bank guarantee would be five

percent of the investment amount.

Tree types of projects were considered under the program:

Primary production animal husbandry, cattle breeding, swine breeding, poultry breeding, bee farming, silk-

worm raising, fish breeding, et cetera. Also, plant growing: fruit, tea, vine, vegetable growing, etc.;

Processing packaging, chilling and secondary processing, freezing, canning, preserving;

Value chain the entire cycle of storing, processing, manufacturing and marketing an agricultural product.

RESULTS OF PROGRAM

Processing enterprises under the program of 100 new enterprises, launched in 2008, were established only in a few

regions. The review of various internet resources reveal that six agricultural projects with the total value of 175,000


46/52


USD were to be implemented in Samtskhe-Javakheti, Kvemo Kartli, Shida Kartli and Imereti regions as early as in 2008.

These projects envisaged the production of ecologically clean honey, cheese, meat and vegetables (potato, cabbage,

et cetera). All in all, according to the data of the Ministry of Agriculture, only seven or eight enterprises were set up.

According to the government, the project failed due to economic crisis of 2009, although in 2010 the program was tobe continued. Since 2010, the implementation of the program has been actually suspended.

The failure of the program can be explained by various reasons:

- In the conditions of the 2008 war with Russia and world financial crisis, the activity of investors in the market

slackened which, even all other things been equal, would make the implementation of the program impos-

sible;

- The program definitely accommodated market demands as it imposed fewer restrictions both on selecting

investors and purposefulness of projects to be funded. The problem, however, was whether the demand for

establishing such enterprises really existed on the market with the access to foreign markets limited and the

local market underdeveloped.

Overall, the program on 100 new enterprises can be assessed as an attempt to privatize state owned property or

redistribute state owned resources. In our opinion, the land component is less critical for foreign investors (given a

relatively lower price of land) whilst the access to capital and technologies is way more important for local investors.

ASSESSMENT AND MODELING

It is impossible to assess a separate program or project without having a strategy just like it is unacceptable to launch

any program if it does not fully fit with the strategy. Bearing in mind that a strategy for the development of agricul-

ture has not been implemented so far, it is impossible to talk about the development of the sector based on separate

implemented local programs. However, the analysis of the experience gained in the process of these programs may

prove very useful for the development of various projects in accordance with the strategy of the sector in the future.

At the given stage, our aim was to evaluate recently implemented and ongoing programs in terms of their compara-

tive significance and prioritization. In the table #26, the programs that were implemented in the agricultural sector are

rated according to four criteria. The modeling is aimed at prioritizing those programs the implementation of which

would be expedient in the conditions of limited resources. We used a 10-score scale for evaluation.


47/52

47

Table # 26 Determining priorities of the programs

Name of the Program

Expendituresize

Difficulty

of

implementation

Risks

Possiblesocialand

economicim

pact

Total

Criteria weight 1 1 2 3

Melioration 4 8 2X8=16 3X9=27 55

Support of small-size farmers 3 7 2X7=14 3X7=21 45

Extension Centers 6 4 2X7=14 3X8=24 48

Promotion of corn production 8 6 2X6=12 3X5=15 41

100 Agricultural enterprises 9 8 2X5=10 3X7=21 48

Wheat seeds 8 6 2X6=12 3X5=15 41

Wine promotion 4 5 12 18 39

It is worth to note one important difference between implemented programs. Some of the programs is of local nature

(corn, wheat) whilst others (melioration, extension, 100 enterprise) extend to the entire sector. We took this difference

into account when evaluating possible effects of programs, in particular, we rated local programs by a lower scores.General sector-wide programs may be characterized with higher risks and difficulties in the implementation, but the

minimization of these risks and difficulties is much easier in case of infrastructure projects.

Indicators of prioritization of implemented programs are divided into three groups in chart #3 and are compared with

the quality of implementation of these programs, i.e. to what extent the set goals and objectives were attained. It

must be noted that some of the programs are still underway and we consider their interim results which, after the pro-

grams have been completed, may significantly change. Nevertheless, it is absolutely possible to perform comparison

at this stage. If we abstract the absence of the strategy of the sector, the implementation of programs falling within

the green zone can be evaluated somewhat positively, whilst those falling within the red zone get clearly negative

evaluation. Naturally, this assessment is relative and consequently, if we evaluate new, ongoing programs, the picture

will significantly change.


48/52


49/52

49

CONCLUSIONS AND RECOMMENDATIONS

he analysis of programs implemented in the recent past and programs being implemented now show that the ongo-ing programs are more relevant to challenges posed to the agriculture development. Nevertheless, the final assess-

ment of the latter is impossible because final results of these programs are yet to be seen.

Increased transparency of programs is obvious, even more so against a clear increase in funding of programs. Under

the previous government, agricultural programs were mainly of inconsistent nature and therefore, it is difficult to con-

duct an objective evaluation of those programs. Moreover, programs implemented earlier did not fit into a general

context of supporting agricultural development. This means that the role and functions of the state as an institution

facilitating the development of the sector was not well understood as well as mechanisms of stimulating develop-

ment.

At present, one can say that some positive improvements in the agricultural sector have been observed, in terms of

the level of state involvement in the development of the sector. The programs are no longer of inconsistent nature,

though the relevance of some of them, for example, the program on supporting small-size farmers is rather arguable.

This is especially conspicuous if we evaluate them not only through comparing them with the programs implement-

ed in the past. In terms of ensuring sustainability of results, the government should, as soon as possible, develop and

implement measures designed to raise the level of commercialization of small farmers and integrate them into the

market. A special attention should be paid to the improvement of knowledge and skills among entrepreneurs (pro-

duction, storage, marketing); entrepreneurs should be given a possibility to see and grasp all those benefits which im-

proved knowledge and skills bring about; consequently, those measures should be necessarily implemented whichstimulate the demand for the improvement of knowledge and skills among entrepreneurs.

Considering problems discussed in this report, the government, within the next few years, should implement mea-

sures facilitating the formation of land market, also the attraction of capital in agricultural production and the reha-

bilitation of basic infrastructure. In cooperation with financial institutions and private sector, the government should

develop various financial instruments and create a favorable environment for their introduction in order to improve

the access of entrepreneurs to various inputs, working capital, et cetera.

Plans regarding the formation of land market are yet unknown, though without the effective operation of this market

it will be impossible to attract serious capital to agriculture. Consequently, a soft loan program, despite the fact that

it significantly increased the volume of means channeled towards the sector, may come to face a serious problem in

terms of sustainability, especially when a corresponding source of financing will no longer exist. The rehabilitation of

main infrastructure, especially melioration systems, is definitely a positive development though here as well sustain-

ability will be a problem without an efficient operation of land and loan markets.


50/52


We believe that in future the state should not spend means on the support of small-size farmers or similar programs

which are of social nature, because they create unneeded expectations on the market, distort competition and can by

no means ensure any essential qualitative increase. At the end of the day, the success of the countrys agricultural pol-

icy will largely depend on the ability of the government to draw up the policy and measures based on the qualitativeand quantitative analysis of a concrete issue; to introduce a budgeting process which will rest on the plan of activities

to be implemented and not vice versa; and the efficiency of the government in creating necessary institutional and

legislative as well as physical infrastructure.


51/52


52/52

Agriculture - Challenges and Current Policy

Documents

Transcript of Agriculture - Challenges and Current Policy