IS AGRICULTURE RIPE FOR BUSINESS?<
"No efforts spared" said Bidzina Ivanishvili during a meeting with farmers in Marneuli on March 21st. Reviving Georgia's agriculture was one of the Prime Minister's key pre-election promises, and the new government seems determined to stick to that promise. Highly fragmented land, unproductive farms, run-down infrastructure and an over-dependence on imports will soon be a memory of the past, according to the new minister of agriculture, Davit Kirvalidze.
Agriculture was not always the country's black sheep. Georgia was a leading agricultural region of the USSR: output grew by 10 percent a year as recently as the 1980s. But the break-up of the Soviet Union sent the sector into freefall. In the early 1990s, agriculture made up 45 percent of Georgia's GDP; in 2011 it was 8.8 percent (FAO data). Between 1997 and 2007, real agriculture GDP registered negative growth, -9 percent between 2003 and 2007.
"This drop is a result of the mistakes that were in the policy, not really the fault of the producers and businesses," Agriculture Minister Davit Kirvalidze explains. "We need to get the sector back on track, but we cannot simply wave a magic wand. We need to create a system touching everyone that does business in this field. The resources we need are enormous, both human and financial."
The government is beefing up those financial resources. The 2013 state budget gave the Minister of Agriculture 241 million lari to spend, 61 percent higher than the 2012 funding. The government is also setting up an additional Agriculture and Rural Development Fund.
Everything is a Priority
The whole sector sorely needs reform: "Everything is a priority," Kirvalidze underlined. The goal, he said, is to make agriculture not only productive, but also competitive.
Georgia imports almost 70 percent of the food it needs, a paradox considering that "Georgia has all kinds of necessary preconditions in terms of soil, weather, and topography," he noted. Still, since 2003 production has fallen dramatically, scoring just 29 points on the FAO (the UN Food and Agriculture agency) index, one of the worst out of the 199 countries surveyed, Kirvalidze said.
The minister thinks that creating efficient value chains from farmers to consumers requires action in three key areas: infrastructure, access to credit, and land registration and consolidation.
Infrastructural needs vary region to region: while Kakheti needs a modern irrigation system, Western Georgia has serious issues with drainage.
"Conditions are desperate. The existing irrigation network across the country is designed to bring water up to 280,000 hectares; last year only 24,000 hectares got it through that system, less than one tenth. In west Georgia more than 150,000 hectares used to be drained; now we are down to 6-8,000. The rest is going back to the swamps," Kirvalidze said.
"We will need three to four years to fix it all, but it is essential because you, as a farmer, may do everything right, but if your plot does not get water, your harvest is gone."
About 64 million lari of the 2013 state budget is being allocated to the rehabilitation of the irrigation and drainage system, with additional funds coming from IFAD and World Bank.
Access to loans is also crucial, as "without money, farms cannot operate. We are finalizing a credit program supported by the fund, and implemented by Georgian banks and international financial institutions," explains the minster.
The project specifically subsidizes interest rates for agricultural loans. The Agriculture and Rural Development Fund foresees three levels of lending: basic farming loans up to 5,000 lari will have zero percent interest rate; working capital loans up to 100,000 lari will be subsidized up to eight percent, and assets loans (mainly for agri assets acquisitions, i.e. dairy plants) for three percent interest rate.
Too many (small) plots
Low yields and a general risk-adverse attitude are two of the reasons that have so far limited credit to farmers. Small farms is another: Georgia's average farm is less than one hectare.
"The first step of the privatization process was that everyone living in rural areas received a maximum of 1.25 hectares, based on availability," recalls the two-time minister, who served in the same position under President Eduard Shevardnadze. "In many districts, due to population or land scarcity, some farmers got significantly less. While that process had positive results, like private ownership and individual entrepreneurship, it also led to high land parcelation."
The best way to tackle that, he says, is by encouraging agricultural cooperatives- something which the Soviet Union made deeply unpopular. But giving farmers incentives to consolidate land plots would make their farming more commercially viable.
The government is looking into a consolidated land code and has started a thorough census of the country's agricultural land. A census is essential also in order to design a strategy for foreign investment. FDI in agriculture has been very low: according to Geostat, in 2007, 2008, and 2009 it approximated 0.8, 0.5, and 1.2 percent, respectively, of the total FDI in Georgia's economy. Investors are slowing coming back, and are, amongst other things, looking at the land potential.
"But you cannot sell anything if you don't know what you are selling," noted Kirvalidze. "To date, only 30 percent of farmers have proof of ownership. We inherited a vague situation; we simply don't know who owns what and how much of it, including the state. Once we have the numbers, we can work on the policy side, but without even knowing how much land per category we have - arable, perennial, mowing or pastures - there is no way for us to proceed."
The ministry set up an inter-ministerial working group involving the economy, justice and environment ministries, as well, while a new department is being set up to gather information and process statistics. Russia's 2006 trade embargo is a factor that contributed to negative growth in real agriculture GDP, so the ministry is also involved in negotiations with Rospotrebnadzor, Russia's state consumer protection agency.
"We are in the product registration phase. 36 wine and spirits companies and four mineral waters got approval from the first round of inspections, and they are now eligible to go further," Kirvalidze said.
Ultimately, the goal is to make all these measures sustainable. And after years of neglect, Kirvalidze admits he is "in a rush" to fix the agriculture sector.
"Donor assistance has been crucial in years of governmental neglect; help from USAID, the Millennium Challenge Corporation, and the European Union have allowed the sector to keep the pace," he said.
"The European Commission has just allocated EUR40 million ($51 million) to support the sector. Now we need policies and a long term-strategy that will stay no matter which government or minister is in power."
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