Georgia agriculture: herbs culture, existing investment opportunities

One more article about the investment opportunities currently existing in Georgia’s agricultural sector.

Preamble    

Affinitas has already provided an article about Bio Farming investment opportunities in Georgia, giving general, comparative and precise information about the economics of the segment.

Given the interest received and the numerous requests for additional information, we decided to offer a series of articles about the Georgian agricultural sub-sectors.

Since herbs production turns out to be one of the leading and growing segments of Georgian agricultural industry, we decided to devote the first article exactly to this topic.

The article will allow you:

• To obtain general information about the current environment;
• Make you familiar to the production process;
• Give you information about the existing export markets;
• Show you the prospects.

Production process 

Western Georgia’s humid, subtropical climate offers ideal climatic conditions for the herbs cultivation. Therefore, most of the Western regions residents are actively involved in farming herbs, which is one of the major sources of their income.

Dill, Coriander, Parsley, Green Onion, and Watercress are the goods produced in the region and throughout the year they supply both the local markets and a thriving export market.

Herbs cultivation takes advantage of quite a simple process, and when herbs are grown using greenhouses technology farmers can enjoy a yield of as many as 10 crops a year.

About 500-600 kilograms of crop can be taken from one hectare of green houses. Farmers sell the harvest to the special regional aggregation centers, or to private companies directly.

The prices for the peasants for the concrete season are known in advance. As for example the wholesale price per a kilo of Dill, which is the most actively cultivated herb in the region varies between 3 and 4 Gels, ($2-$3 per Kg).

However, the supply chain required to deliver the goods from the farmer to the market is still in need of development and requires investment. We see this as an opportunity for some specialized operators to enter the market. Therefore since the supply chain remains underdeveloped so far only a handful of local companies and processors organize the collection of raw material for the export market.

Value Chain Actors

1. Collectors   -- 2. Village Collection Centers -- 3. Small processors -- 4. Large processors

1. Collectors most often are the residents of the villages, having small land where they grow up the herbs and later deliver it to the local processors.
2. Village Collection Centers are the middlemen between the collectors and the large processors. Collection centers buy the products from the residents and re-sell to large processors.
3. Small processors do almost the same as collection centers and distribute the products in domestic market.
4. Large processors collect herbs from almost every actor in the sector, make the packaging and export them. 

Existing market

In 2011, the Customs Department of the Georgia’s Revenue Service has registered 5,349 tons of herbs exported. The most traded product is the Dill, which is mainly exported in the countries like Ukraine, Belarus, Azerbaijan, Lithuania, Latvia and Estonia. Given the current trade restrictions between Russia and Georgia, some of the Georgian entrepreneurs no longer export directly to Russia but rather set up the trade via a third country

Ukraine turns out to be the major importer of Georgia produced herbs, as its companies have the necessary certificates and trade relations to access markets not available to Georgian processors.

Ukrainian processors purchases product from Georgia, complete the processing of the herbs, package, and label the product for sale in the retail market in Russia and EU countries.

However, there are some precedents whereby Georgian herbs farmers made use of a special standard for primary products (Global GAP – Good Agricultural Practice) and received the related international certification, simplifying goods access to EU markets directly. 

Market Opportunities

In order to export just raw material to processors, the exporters need to have a special lab to test the goods, before the export can take place.

Usually the importers conduct this process in the country they work, but since European countries require higher quality standards and traceability of organically produced products, Georgian exporters/processors will need to go through GLOBAL GAP process.

However the effort and investment is worth the investment, just because the wholesale prices are as much as about 50% higher and demand is substantial higher.

According to Georgian National Investment Agency (GNIA), there are 5 basic rules and regulations governing access to the EU markets:

1. Hygiene Regulations- possibly the most difficult requirement for processors to satisfy at this point in time, since current operators typically do not have adequate facilities, equipment or systems to ensure proper hygiene standards.
2. Labeling Rules- to ensure that the product label meets all the specific requirements (product treatment, perishable dates, place of origin, etc.), is accurate and does not mislead the consumer.
3. Marketing Standards- a certificate of conformity to various EU market standards governing: quality (moisture, free from pests, cleanliness and classification), sizing, presentation and marketing.
4.  Plant Health Control- this regulation protects against the spread of plant pests. A certificate must accompany imports of plants and plant products.
5. Import License- a license allowing the import agricultural products into the EU markets.

Government Incentives

On the other hand, Georgia has already implemented following incentives in order to stimulate growth and investments in agricultural sector:

• 0% of property tax on small plots of land (less than 5 hectares);
• 0% of property tax on property transaction;
• 0% of VAT on primary supply of agricultural products;
• 0% of import duty on agricultural and other equipment;
• Opportunity to privatize agricultural land.

Conclusions

The study of the herbs sector showed that entrepreneurs do not encounter any problems linked with natural resources or with the quality of the product. Since Ukrainian companies importing Georgian herbs managed to pass all the necessary examinations and obtain the certificates, this means that products cultivated in Georgia meet ALL the required quality standards.

Considering Georgian economy, local farmers and foreign investors require a relatively low investment in the certification process to get access to EU markets. Further, we see good investment opportunities in the logistics portion of the supply chain whereby a reduction of small inefficient steps could maximize profits for all parties.

Given the steps taken by the Georgian government to attract foreign investment we expect the interest in herbs crop to dramatically increase over the next year. Since about 75% of agricultural land is now state owned we see great opportunities deriving from the process of privatization currently underway.

At Affinitas we remain available to help any investor interested in the acquisition of land or in setting up a business activitiy in Georgia. For further information please visit our web site at: www.affinitasconsulting.ae. Please direct any query to info@affinitasconsulting.ae or join our Facebook page to keep updated on the latest news: www.facebook.com/Affinitas 

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.

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.

Update: sanctions to Iran, EU Council Regulation 267/2012 and varies

I take the long overdue oppounity to post again on this blog after new EU regulations have amended existing sanctions against the Islamic Republic of Iran.

This post may be of interest for the business people that follow this matter or businesses that used to have trade with Iran.

On March 23, new regulations have been enacted to close off existing loopholes in previous regulations and therefore additional verbiage has been included to define:

• transfer of funds;
• brokerage services;
• new rules to authorize payments to and from an Iranian entity or individual.

As of the new regulations (EU 267/2012):

1. Transfer of funds: the definition now includes "non-electronic transfers" to avoid any attempt of circumvention by using cash based systems. The definition stands as follows: "any transaction carried out on behalf of a payer through a payment service provider by electronic means, with the view to making funds available to a payee at a payment service provider, irrespective of whether the payer and the payee are the same person. The term payer, payee and payment service provider have the same meaning as in Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market; any transaction by non-electronic means such as in cash, cheques or accountancy orders, with the view of making funds available to a payee irrespective of whether the payer and the payee are the same person.

2. Brokerage services: the definition stands as, "the negotiation or arrangement of transactions for the purchase, sale or supply of goods and technology or of financial and technical services including from a third country to any other third country. The selling or buying of goods and technology or of financial and technical services, including where they are located in third countries for their transfer to another third country".

3. Payment authorizations: payments involving foodstuff, medical equipment or for humanitarian purposes don't require previous authorization if below 40,000 euros in value, although transfers above or equivalent to 10,000 euros require written previous notification to the competent authorities. Transfers above 40,000 euros require previous authorization from competent authorities. Transfers related to all other types of goods require previous authorization from competent authorities. Please note that multiple transfers by similar parties linked to the same legal contract are bound to be cumulative in value and therefore subject to previously outlined parameters.

Additional pertinent information about these amendments:

• oil contracts: any permitted dealings in crude oil contracts prior of July 2, 2012 must be notified in writing to the authorities of the competent Member state 20 working days in advance;
• additional restrictions have been imposed with regards to: gold, diamonds, precious metals and specific petrochemical equipment and materials;
• some derogations included in the amendments: freezing of the assets of the Central Bank of Iran, some adjustments on insurance provisions and derogations concerning transfers to diplomatic, consular and international organizations.

Further information related to the Iran sanctions but unrelated to the EU provisions:

• SWIFT: the Society for World Interbank Financial Transaction has disconnected last week 30 Iranian banks, including the Iranian Central Bank, from the system making it de facto almost impossible to carry out large financial transactions. We are bound to see a large increase in barter transactions or compensation based transactions.
• The USA has exempted the EU and Japan from sanctions since both parties have substantially reduced their dependence on Iranian oil. Although pressure is mounting on India and China to follow suit or face issues.
• Oil revenue for Iran: sources estimates that Iran is currently selling its oil at a 10-15% discount. If targeted countries are going to follow up with their purchases reduction of Iranian oil the economy is currently facing approximately $24B in lost revenue.
• Oil repercussions: any further tension in the Gulf is bound to raise crude prices to above $150USD per barrel. Such increases for prolonged periods is bound to create a recession worth 1% in the EU this year; further IATA warned that high cost of fuel can send few airline operators into bankruptcy if sustained over a few months.
• Trading: in the face of mounting sanctions the Iran government is trying to accumulate as much food commodities as possible. Sources have mentioned that Iran have bought 2M tons of wheat from Geermany, Canada and Russia over the last few months and paid in currencies other than Euros and USD.