Overview of the Agricultural Sector in Georgia

 

 

 

By Kartlos Gviniashvili, BISNIS Georgia                                                         May  2007

 

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INTERNATIONAL COPYRIGHT U.S. DEPARTMENT OF COMMERCE, 2006. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES

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Introduction

 

Georgia (Sakartvelo in Georgian) has long tradition of agricultural production. Name itself – Georgia – is of Greek origin and means “to till the land” and signifies a farmer. The tradition continued during Soviet period (1921-1989). At the end of the communist regime agriculture made up 27% of the country’s GDP. Georgia used to be major supplier of such products as tea, citrus, grape/wine, early potatoes to the Soviet republics. Its fertile soil and favorable climatic conditions contributed to the development of agriculture. Almost all types of agricultural products perhaps except tropical products can be grown in Georgia as the country has nine climatic zones.

 

Agricultural and other sectors’ output of Georgian economy significantly declined after the Soviet Union colapsed. The difficult period of transition from centrally planned economy to market driven economy was even further aggravated by civil war (1991-1992) and wars in two separatist regions of Georgia (1991-1993) – Abkhazia and Samachablo (South Osetia).

 

Several problems have hampered development of agriculture. The most important issues are financing, small plots, obsolete equipment and lack of fertilizers which are briefly reviewed below:

 

Financing

Until recently Georgian banks were reluctant to issue loans to farmers because of the risks associated with farming. Insurance companies still do not insure crop. International financing organizations such as World Bank tries to fill in the gap and lend money to the Government of Georgia to lend it to farmers through Georgian banking sector. International Financial Corporation (IFC) also opened credit lines for local banks for financing agriculture. Last year Agribusiness Development Project of Millennium Challenge Georgia Fund (MCG) started issuance of grants for farmers and processors.

 

Small plots

There are 656,000 farms with an average size of 1.48 hectares in Georgia and about 16,000 farms with 4 hectares or bigger agricultural land plots. About 40% of private agricultural land falls in the latter category. Subsistence agriculture is widespread. Next stage of privatization of agricultural land will contribute to development of agricultural land market and increase size of agricultural land plots. Foreign individuals, unlike Georgian individuals, are not allowed to buy agricultural land but private companies established in Georgia even with 100% foreign capital can purchase farmland.

 

As per the Statistical Data on agricultural land privatization progress in Georgia as of May 1, 2007, Privatized agricultural land is 67 thousand ha, including the land privatized via direct sale  (53 thousand ha) and the land  privatized via auctions    (13 ha). It is expected that about 150.5 thousand ha leased land will be privatized via direct sale and about 72 thousand ha unused agricultural land will be privatized via auctions.

 

Obsolete equipment

Farmers are unable to purchase agricultural machinery as credits are not easily accessible.  Renting service is not developed. This is one of the reasons for employment of such a high proportion of workforce in agriculture – about 53% now versus only 25% at the end of the communist period in 1990.

 

Lack of fertilizers

This problem is also closely related to the financing issue and the issue is more pressing for farmers with small land plots. Because of this issue quite a share of Georgian agricultural products can be considered as bio products.

 

Plant growing and animal husbandry account for almost equal share in total agricultural output. Data about agricultural production in Georgia during 2004-2006 is given in the table below:

 

Table 1

Agricultural output

(at current prices; mln. lari)

 

 

1998

1999

2000

2001

2002

2003

2004

Agricultural  output– total

1898,5

2070,2

1815,9

2062,5

2160,5

2484,3

2388,3

Including:

 

 

 

 

 

 

 

Plant growing

896,0

1055,8

744,8

912,6

952,0

1131,6

1037,1

Animal husbandry

775,9

795,2

792,8

889,7

975,6

1023,1

1057,1

 

Source: Department of Statistics, Ministry of Economic Development of Georgia

 

More detailed information about plant (broken down by annual crops and perennial crops) and animal husbandry production in Georgia is given in tables 2-5 below:

 

 

Table 2

Annual Crops – Sown Area, Harvested Area, Harvest, Yield

 

 

Sown Area, thousand ha

Harvested Area, thousand ha

harvest, thaousand ha

Average Yild, Mt/ha

 

2005

2006

2005

2006

2005

2006

2005

2006

Wheat

97.4

58.8

95.6

55.9

190.1

69.7

2.0

1.2

Barley

50.0

29.8

47.0

26.5

65.4

30.7

1.4

1.2

Oats

3.6

2.1

2.5

1.9

2.7

1.3

1.1

0.7

Maize

194.2

127.4

192.8

117.4

421.3

216.7

1.9

1.8

Beans

9.6

7.3

9.3

6.3

23.0

7.6

1.0

0.5

Sunflower

37.2

26.5

37.1

22.1

22.3

12.1

0.6

0.5

Tobacco

0.5

0.2

0.5

0.2

1.1

0.3

2.1

1.9

Soybeans

1.5

1.9

1.5

1.8

10.7

3.6

0.7

0.3

Potatoes

40.4

22.9

39.8

22.3

432.2

164.1

10.9

7.4

Vegetables

44.3

29.8

44.0

27.6

436.7

178.0

9.9

6.5

Melons

9.7

3.3

9.6

3.2

119.6

38.0

12.5

11.9

 

 

Source: Department of Statistics, Ministry of Economic Development of Georgia

 

 

Table 3

Perennial Crops – Output

 

 

2005

2006

 

Thousand ton

Thousand ton

Total

264.9

153.3

 Including

 

 

   Apple

104.3

32.9

   Pear

35.7

22.4

   Quince

6.2

1.1

   Plum

19.0

12.7

   Cherry,

10.9

5.0

   Aorucit

1.5

0.5

   Peach

10.2

5.2

   Wild Pulm

26.7

24.0

   Comel

...

0.5

   Wall-Nut

13.3

3.9

   Nut

16.4

23.3

   Subtropical fruits

20.0

21.2

   Berries

0.9

0.6

Grape

250.3

162.4

Citrus

122.4

52.2

Tea leaves

22.8

6.6

 

Source: Department of Statistics, Ministry of Economic Development of Georgia

 

Table 4

 

Number of Livestock and Poultry

(thousand heads)

 

 

Cattle and Buffaloes, total

of which cows

Pigs

Sheep and goats

Poultry

2005

1260

740

455

815

7482

2006

1164

725

340

789

5304

 

Source: Department of Statistics, Ministry of Economic Development of Georgia

 

 

Table 5

Animal Husbandry Output

(in thousand tons)

 

 

2005

2006

Cattle and Buffaloes

49.2

44

Pigs

33.3

35.5

Sheep and Goats

9.6

9.5

Poultry

16.9

10.5

Other meat

0.5

0.6

Total meat

109.5

100.1

Milk

787.7

715.5

Eggs, mln units

504.6

360.3

 

Source: Department of Statistics, Ministry of Economic Development of Georgia

 

 

 

 

Economic Background

After the abovementioned wars Georgian economy started to recover and reached highest growth rates (10-11% GDP growth rate) in 1996-1997. But in 1998 GDP growth rate sharply declined to only 2.8% due to financial crises in Russia and Asia. The growth rate accelerated again and reached 7.3% on average during 2002-2005. GDP growth rate in 2006 was 8.5%. Real GDP increased approximately by 1.6 times during 2000-2006. The table below gives information about structure of GDP and GDP per capita.

 

Table 6

GDP of Georgia (in GEL mln)

 

 

2002

2003

2004

2005

2006

Agriculture (including hunting, forestry and

                   fishing)

1,434.6

1,653.0

1,610.7

1,716.4

1,561.1

Mining Industry

49.5

75.3

77.0

91.3

143.6

Processing

625.2

746.1

803.9

998.7

1,184.6

Electricity, Natural Gas and Water Supply

 and Distribution

311.6

323.9

304.2

326.2

375.2

Processing of Goods by Households

329.5

370.0

396.8

406.8

350.2

Construction

379.5

547.4

793.2

937.9

944.2

Trade; Reparation Works of Cars and

Consumer Goods

956.2

1,137.6

1,247.2

1,388.8

1,875.3

Hotels and Restaurants

218.6

244.9

266.2

330.3

302.9

Transport

838.7

880.6

931.8

974.6

1,104.0

Communication and Post

218.7

306.9

381.3

468.4

479.5

Financial Sector

108.5

126.0

130.3

231.7

312.0

Operations with Real Estate, Rent and

Commercial Services

139.0

209.5

262.4

305.3

442.6

Services of owner-occupied dwellings

306.6

307.7

307.7

315.3

332.7

Government Sector

295.4

307.6

573.8

750.5

1,183.8

Education

273.3

278.0

344.1

385.2

492.7

Health Care and Social Services

347.9

346.2

345.8

404.0

598.2

Other Social and Personal Services

191.6

249.8

279.0

373.3

475.3

Hired Services in Households

9.0

9.4

8.9

9.6

9.0

Indirect Estimation of Usage of Financial

  Services

-72.7

-77.8

-74.8

-129.7

-126.1

Total in Base Prices, Ml. Lari

6,960.7

8,041.9

8,989.6

10,284.5

12,040.9

(+) Taxes

550.4

578.3

892.1

1,397.3

1,800.6

(-) Subsidies

-55.0

-56.1

-57.3

-60.8

-57.6

Total in Market Price, Ml. Lari

7,456.0

8,564.1

9,824.3

11,621.0

13,783.9

GDP per ca., GEL

1,711.2

1,977.9

2,275.5

2,679.8

3,124.5

GDP per ca., USD

780.3

922.6

1,196.6

1,479.4

1,740.4

GDP,  ml. USD

3,399.9

3,994.7

5,166.3

6,415.8

7,778.2

 

Source: Department of Statistics, Ministry of Economic Development of Georgia

 

Share of agriculture in GDP declined from 21% in 2002 to 13% in 2006.  Output of agriculture increased from GEL 1.4 billion in 2002 to GEL 1.7 billion in 2005 but it decreased to GEL 1.6 billion in 2006 mainly due to unfavorable weather conditions.

 

Main Export Products

 

Main export products of Georgian agriculture and food processing industry are tropical fruit, citrus, and several types of nuts, vegetables, early potatoes, wine, and mineral waters.

 

Main export market for Georgian agricultural products was Russia. Russia banned import of Georgian wine, mineral products and fruits in the fall of 2006. This development had a negative impact on local exporters, because it takes time to access and establish positions in new markets. 80% of Georgian wine was sold on Russian market. Now Georgian wine producers are intensively trying to enter new markets – mainly East and West Europe, CIS, USA, and China. Similar situation is with regard to vegetables and fruits.

 

One of the best opportunities is nut production. Nut production in Georgia is significantly increasing. Georgia has about 5% of the world market. Recently an Italian company bought 1,200 ha agricultural land for planting nuts mainly for export production.

 

 

Business Opportunities For U.S. Companies

 

Georgian agriculture has long way to go on its development path. This creates opportunity for export of US technologies and machinery as well as extension services and investments. About half of the population is employed in the sector (there is only 6% of population engaged in agriculture in the US). Another argument for substantiation of the idea is that Georgia is a mountainous country and lowland suitable for agriculture is scarce making intensive agricultural production the only reasonable way for increasing output and meeting the country’s food security requirements as well as for utilization of its export potential. Crop yields are as low as one third of the potential yields.  Besides, land market development will contribute to creation of bigger farms, which will enable farmers to upgrade their equipment and technologies. According to the USAID financed agricultural project (implemented by Agvantage) calculations current capital utilization in agricultural sector of Georgia is about USD 360 million and it is estimated that the capital requirement for reaching full capacity is about USD 1,200 million.

 

There is also potential in development of food processing industry in Georgia. Only few agro processing plants are modern most of them are obsolete and majority of them stand idle.

 

 

 

 

Kartlos Gviniashvili
BISNIS Representative, Tbilisi, Georgia
Tel: (995 32) 277 000 ext. 7132
e-mail: gviniashvilik2@state.gov

 

For more information on Georgia, visit BISNIS online at http://www.bisnis.doc.gov/bisnis/country/Georgia.cfm.

 

 

BISNIS (www.bisnis.doc.gov) is part of the U.S. Commercial Service (www.export.gov).