Bio farming opportunities in Georgia

This article provides a general overview of agricultural industry in Georgia, as well as the specific information about the challenges and opportunities that the country offers in terms of bio farming.

Preamble

The agriculture industry is a key element part of the daunting challenge facing mankind over the next 50 years. Figures show that humans need to produce over the next 25 years 70% more food resources than ever produced in the entire history of mankind.

An early perspective on the looming food shortage was presented more than a decade ago by Norman Borlaug, father of the Green Revolution and 1970 Nobel Laureate for Peace (Borlaug, 2000). In an article on world hunger, he wrote that “it took some 10,000 years to expand food production to the current level of about 5 billion tons per year,” and that to meet the needs of the planet’s growing population by 2025, “we will have to nearly double current production again.”
(Above paragraph from:  http://www.co2science.org/education/reports/foodsecurity/GlobalFoodProductionEstimates2050.pdf)

As part of this challenge water and food are going to be essential commodities to sustain our development. It is because of this challenge that few strategic areas in the world are becoming the destination of investment in agriculture.
One of such global areas is the Caspian Sea and the countries in its region. The environment, the latitude and water access makes it a perfect candidate for the agriculture revival currently underway. Georgia especially given its very welcoming business environment and unique geography is becoming one of the preferred destinations for agriculture investment.
Below we take a closer look at bio farming, a sector that we expect to present great opportunities for investors.

Agriculture in Georgia

The fact that Georgia is one of the oldest agricultural countries is already proven by the archaeological findings. Such status is first of all determined by the diverse climate, which creates the possibility to grow and later harvest different crops any time of the year. Georgia shares the same latitude with Italy for example.
However, despite the farming is one of the oldest professions for Georgians and nowadays more than the half of the population (54%-58%) is involved in agricultural business this sector of the economy is  contributing only 11% of the national GDP. The fractioning of the land in small family plots and the lack of an effective pro-agricultural policy post Soviet union break up have both contributed to chronic lack of resources to invest in the industry.
Investment in up-to-date technologies is necessary to reap the benefits of a rich soil and that is in fact where many opportunities for investors lie.

Bio farming in Georgia

During the recent years, the world trend, namely the organic farming also entered the Georgian agriculture business. However this field is nowadays in the initial stage and still the importance of bio farming isn’t well understood in the local market both from the point of healthy nutrition as well as from its economics point of view.

We interviewed Georgian bio technologist David Chachanidze who is actively involved in organic farming in Georgia and who tries to develop the bio agriculture sector in the country. He explains how so far the overall lack of information has been the main culprit of the low interest of Georgian farmers towards bio agriculture.
“Unfortunately most of the domestic farmers do not have any information and even minimum education about the bio methodology and its advantages and still use chemical fertilizers in agriculture”, explains Chachanidze.

During our conversation he also emphasized that based upon soil resources that Georgia has the country could satisfy the existing agriculture demand of its own citizens, and also it could export its products and successfully enter international markets, where the importance of ecologically clean products is already mature and where the demand for such products increases from year to year.

bio method: putting hay for ground fertilization

Why to invest in Georgian emerging organic farming

There are several uniquely favorable parameters critical for bio farming development Georgia:

1. Lands giving plentiful harvest
2. Diverse climate zones
3. Labor force
4. Bio technologies

These four major parameters are already accessible in Georgia and that’s very important from business point of view, they are available for significantly lower prices than in countries where organic agriculture is already embraced and developed. 

Currently, two companies already operate in this field in Georgia; the first one is “Bio Organic Georgia”, producing organic fertilizers and the second one, its affiliated company- “Organica”, producing bio pesticides. 

Both companies’ products ingredients are taken entirely from nature, multiplied in the laboratory and later the concentrate output is used in the fields.

Mr. Chachanidze declares that these organic products are cheaper than the similar products produced in foreign countries and are competitive as with the price, also from the quality point of view. 

It’s noteworthy that these companies have all the necessary documentations and international certificates for all the fertilizers and pesticides, that means that if the farmer/company will use these products in the process of farming, it will be easier to export the final goods to international markets and be able to mark the product as “organic”. These documentation is essential to help exporters to spend less time at each border crossing and therefore reduce costs. 

At this moment in time only few farmers are involved in bio farming in Georgia and are exporting to international markets. Most of them became interested in this niche of the agricultural industry after visiting foreign countries where they gathered basic information and witnessed first hand the benefits of an increasing demand for organic products. 

As of today though the Georgian government hasn’t yet created essential policy necessary to support and develop organic farming, it is therefore auspicable that renewed attention will be given to this matter soon since all developed countries have already assessed the importance of ecologically clean products and have established the appropriate policies and legislation necessary to ensure the differentiation process between organic and non organic products. 

Such policies have increased the motivation and investment behind bio farming by creating rules and traceability processes protecting producers and consumers alike against fraud and falsification of products.

Appropriate legislation favoring organic products helps developing the necessary niche for them, ensures premium pricing against conventional products (premium currently stands at 40-50 percent), and therefore Georgian bio farmers could became increasingly stimulated to export their products to foreign markets. 

Below is given comparison between the prices for organic and conventional fresh products in USA market according to www.abcnews.go.com. 

Food	Organic Price	Conventional
Asparagus	$4.99	$2.99
Avocado	$2.99	$1.99
Sweet Peas	$1.59	$1.59
Grapefruit	$2.49	$0.89
Onions (Y)	$1.29	$0.99
Sweet Corn	$2.89	$1.69
Pineapple	$5.99	$3.99
Fuji Apple x4	$4.89	$3.89
Bell Pepper	$4.99/lb.	$1.99
Carrots	$1.99/bag	$0.89
Celery	$3.99	$3.49
Lettuce	$2.99	$1.99
Potato	$1.49/lb.	0.99
Strawberries	5.99	4.99

In case of exporting organic products out of Georgia, it will be more profitable in case of such products as: Georgian Bio wheat, potato, carrot, cabbage, herbs, spices, wine, dried fruit and other goods, which are easy to keep and transport.

However another way also exists, which is linked with secondary production, like: canning or drying the products.

Also the way to freeze the fresh products exists. The 21st century offers technologies makes available to use shock-freezing method. Fresh foods frozen in such way maintain the initial visual appeal, as well as the original taste after defrost and it’s almost impossible to feel the difference between the real fresh food and the defrosted one.

The potential markets where Georgia based organic products can be exported

Demand for bio products increase almost on everyday basis, as developed countries’ population have already realized the importance of healthy food and understood that despite the relatively high price, in the long term they save money, that could be spent in the future due of health or weight related problems.

For example the table below displays the yearly sales figures in the USA, prepared according to the Industry Snapshot performed by the Center for Economic Vitality, Western Washington University.

These data clearly shows how in the USA that total organic food sales increased about 307% (during 2000-2009 year), while during the same period of time the “traditional” food industry as a whole experienced only 34% growth. 

Almost the relatively same situation is present in Europe and also in other developed countries. There are also the numbers of agricultural countries such as: Romania, Poland, Turkey and etc. which proclaimed organic farming as a national priority and there also exists the other countries, which have poor amount of land, from which absolute majority is already used and where the labor force is very expensive and so the prime cost for organic products are high.

Bio peach plant

Georgia’s competitive advantages

On the other hand such country as Georgia exists, where labor force is much cheaper, as for example the salary for a person to hire varies from 500-700 Gels, It’s also very important that  bio farming business is on its initial stage and so there’re still lots of opportunities. 

Climate zones are also very diverse, and more than half of the agricultural lands (52%) remains still raw and unprocessed. And according to the general parameters if the soil is unprocessed for several years, it’s richer than already used one. 

Bio technologies are also much more cheaper in Georgia, than in countries with developed organic production. We can say that in case of general, farming one hectar of land using the traditional method requires at least 500 GEL ($302 USD) pesticides and necessary inputs for initial stage, while in case of bio farming it varies from 200-250 GEL ($120 USD). 

In many cases in Georgia agricultural soil hasn’t been harvested for many years in Georgia due to political and social reasons. Agriculture related investors are bound to invest in soil which is rich in minerals and can yield, with proper preparation and know-how, above average crops.

Water availability factor also turns out to be very important factor in farming process; According to Georgian National Investment Agency, the Georgia ranks as a “Top Country” globally in Water Resources per Capital. There are 26,000 rivers on the territory of the country, and their total length is approximately 60, 000 km. 

Cucumber greenhouse

Fresh water supply of Georgia, which is made up of ice, lakes and water reservoirs and so that is very crucial for farming, Georgian water turns out to be rich with different minerals. 

Last but not least: logistics favor Georgia as it represents the natural gateway of goods into Europe and Central Asia alike. Georgia’s location combined with its simplified custom procedures makes this country a future player both in terms of export and re-export.

Due to the above reasons many businessmen have already realized Georgia’s potential and foreign direct investment in agriculture has started to rise. Given Georgia’s overall size and relative land availability we expect bio farming to be a significant part of the Georgian agricultural mix. 

“We know already that foreign investors have bought large amounts of land in Georgia, in order to start bio farming business”, declared David Chachanidze, who due to his business is greatly involved in almost every project linked with organic farming, since his companies (“Bio Organic Georgia” and “Bio Agro”) turns out to be one of the very few service providers so far in this field.

Since the cost of bio production in Georgia is lower than in countries where this direction of agriculture is already developed, the companies and farmers operating in Georgia have possibility to carry out the production of competitive organic products.

Georgia is at this point in time just an emerging market in the bio farming industry although if foreign direct investment in this area will persist at this rate we expect Georgia to be an important player in the region in just a few years; a player able to produce high quality appealing products that will find their lucrative niches in Europe and the Middle East and neighboring developing countries where a more affluent segment of the population demands for organic products.

Organic mushroom

Bio technologies, already well developed in Georgia and the climate conditions ensuring the quality (delicious, flavored, full of vitamins) of the products, together with lower costs, will guarantee that Georgia based organic products will honorably compete with its rivals on the international market in just a few years. 

Organic mushroom green house

We at Affinitas remain available to provide additional details with regards to bio-farming in the Caucasus and in Georgia especially. Please direct any further query to info@affinitasconsulting.ae or join our Facebook page to keep updated on the latest news: www.facebook.com/Affinitas 

bio salad in greenhouse

Article by: Kate Lekishvili & Luca Gorlero. All rights are reserved. Total reproduction or partial reproduction of the information above is forbidden unless authorized in writing by Affinitas Consulting.

Emerging markets, by choice or mandatory evolution?

As I am immersed in my daily work at the Free Zone I come face to face with more and more European entrepreneurs that are relocating their business in the United Arab Emirates as a vehicle to take advantage of the emerging markets promise.

Over the last couple of years, and especially after the latest financial turmoil, the motivation behind their desire to relocate have changed considerably. While originally the motivation was a desire to explore and diversify their investment portfolios it has now become a matter of survival.

European business owners have to face two serious questions to which they need to find suitable solutions:

1. How do I protect the assets that I have acquired during these years? In some cases the assets have been accumulated in a matter of generations as is the case with many family owned businesses in Italy, the country where I am originally from.
2. How do I position my business in such way that it can thrive in the future? and therefore: how do I take advantage of the growth in the emerging markets?
   

Question (1) is purely a matter of asset protection dictated by the fact that all G7++ governments are to collect as much taxes as possible to sustain the spending spree that governments have been undertaking recently to face the economic downturn. The trend is to be sustained long term as the same governments are facing mounting costs from the welfare systems in place all the while the population grows on average older an older. Nevertheless answers to question (1) vary in the level of sophistication and opportunities, new tax free jurisdiction become more appetizing versus others are under pressure from the OECD. I will leave analysis of this matter to another posting as the topic deserves additional exemplifications.

Question (2) is more business driven and that is where I am going to spend a little bit more time.
As the world becomes more and more connected it has become easier for individuals and small organizations to pack their bags and relocate. The new generation is better equipped with language skills and therefore when opportunities arise elsewhere the barriers preventing shifting have become lower and lower.
This substitution effect seems to be ignored completely by the European press, and much of the academic world, which instead tends to build long term development projections banking on a "closed" system. A system whereby businesses and individuals are static.

I recently came across notes from a convention held in Bucharest last Oct 2007: Work Session on demographic projections. Some papers were really interesting and fundamentally pointed out what was obvious already 30 years ago: Europe (& the world in general) was going to enter a period leading to a DECREASING population, starting with the Western countries and then reaching the entire world.

The element that I propose is that most of the assumptions are too optimistic because they don't take in consideration the substitution effect, therefore the ability of many Europeans to transfer their activities elsewhere, or the ability for many immigrants to go back "home" in fact accelerating the decline of relevance of European countries to the global GDP.

Following are some relevant observations from the paper of David S. Reher, Universidad Complutense de Madrid, “Towards long-term population decline: a discussion of relevant issues,” European Journal of Population 23 (2007): 189-207

"Not only is this period of growth ending, there are also real perspectives for prolonged population decline in many of the world’s regions during the twenty-first century. There can be little doubt that this process has started in Europe and in other developed nations. It may just be getting under way in many of the lesser developed countries of the world as well."

"Extremely low fertility has been around for too long for it to portend anything other than major long-term social change. It gives every indication of having become a structural aspect of the developed world."

"The trend towards population decline has been building for many years now. In some areas where this process is further advanced population will decline by as much as 20 percent in the next 50 years. Should present trends in fertility continue, decline by the end of the century will be much greater. Since this upcoming period of decline will hinge on low fertility, populations will tend to be loaded with elderly persons, and children and working age populations will be shrinking."

"As for the society of the future, expectations are not nearly so optimistic. Severely skewed age structures, an unavoidable by-product of the process underway, will have important consequences for all aspects of social welfare that depend on the redistribution of resources."

"Economists are well-acquainted with the issue of aging and grapple with potential solutions ranging from later retirement to increasing women’s labor force participation, large-scale immigration, or reducing pensions and dismantling what is left of the welfare state. While certain doubts exist as to the economic expediency of many of these mechanisms or whether or not they will bring with them unwanted side effects, especially in the case of international migration, it is unquestionable that they represent a safety valve for rapidly aging societies. If current trends persist, however, over the long run none of them may prove to be more than partial remedies. (emphasis added by the author of this blog)
International migration itself, the focus of much current attention and concern, is unlikely to represent more than a temporary and rather inadequate solution for skewed age structures and population decline." (emphasis added by the author of this blog)


In the face of these irreversible trends I consider the choice of few SMEs to explore emerging markets more of a matter of survival than anything else. The next challenge for emerging markets economies is to create the appropriate environment to facilitate this transition and create the necessary framework to welcome foreign direct investment from the old Europe.

Full notes from the Eurostat Work Session available at:
http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-RA-07-021/EN/KS-RA-07-021-EN.PDF