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.