The FINANCIAL -- GEL
166 million of preferential agro credit line has been issued to 5, 800
beneficiaries from April 2013.
As a result, 51 new enterprises have
been opened in Georgia and their locally produced foodstuffs have
already started competing with importers. Georgian agriculture is moving
to co-operation from 2014, in order not to remain comprised of just
small natural farming.
“According to the National Bank of Georgia , as of 1 January the total credit portfolio issued by commercial banks for agriculture amounted to around GEL 59 million. It is a very small share when almost half of the population is employed in the agricultural sector or should be because they live in rural areas. In this regard the Ministry of Agriculture together with the Government initiated a project that would make financial resources available to farmers,” Giorgi Chkheidze, Director at the Agriculture Projects Management Agency, told The FINANCIAL.
Agriculture Projects Management Agency at the Ministry of Agriculture is the body responsible for planning and carrying out government projects in the agriculture sector.
According to Chkheidze, the spring works project budget was GEL 197 million. An additional GEL 60 million will be issued for the end of the year. “However, this is not enough, and we now have to increase the budget,” he said.
In his interview Chkheidze summarized the work of the Agency and underlined the factors that will aid the further development of agriculture in Georgia.
“Besides financial resources the biggest obstacle facing this field is a lack of knowledge. The acquisition of knowledge cannot be achieved in any short period of time though. The Ministry of Agriculture has done a lot of work in this regard,” said Chkheidze.
“Georgia has undergone many changes in recent decades. This was accompanied by policy changes, including a drastic change in agricultural policy or the lack of it. At various times, a lot of steps were undertaken, which moved the country in one direction or another, or even helped it stagnate. Many mistakes were made. All of this is what gradually created the undeveloped agricultural sector that we have today.
A land reform was carried out in the ‘90s. All rural, agricultural lands were divided into small fragments, and were privatized. This is a serious obstacle for the development of agriculture in the present day. During the last ten years, under the previous government’s rule, agriculture was not considered a priority. Therefore, neither was any attention paid to it, nor any development policy undertaken for it. All of this contributed to the situation which we presently find ourselves in. The development of agriculture is one of the top priorities of the new government, and we are implementing projects which are derived from this new policy.
Q. How would you estimate the results of the projects initiated by your agency?
A. The first large-scale project that we embarked on was the small farmers support programme. It involved assisting 720,000 citizens in mechanization works, as well as delivering rural, agricultural raw materials. This project was fully funded and is today in the final stage of its completion. As a result of it, 710,000 farmers received GEL 197 million. 195,000 hectares have been ploughed within the frames of this project. Farmers were supplied with raw materials, fertilizers, pesticides, chemicals and seeds. The cost of the agricultural equipment took up over 3% of the total budget. It was the largest and most comprehensive project implemented during the last few decades. This was a pre-election promise which we carried out. Its main advantage was that the project encouraged people to be engaged in agricultural activity. A similar project will be launched next year but re-branded. This project was very successful. We organized everything in order to supply a huge number of farmers with assistances in a short time. The second project was a logical continuation of the first.
Lack of access to financial resources has been a very significant problem that hindered the development of the agro sector. The farmers do not have sufficient funds to carry out their activities. On the other hand, there was no relationship between the financial institutions and the farmers. Banks were evaluating the agro sector as very risky and regardless of their intention, did not have the opportunity to finance it.
Q. Commercial banks have never been active in financing agriculture. How did you involve them in the privileged agro credit project?
A. We had to deal with several problems. The first was that interest rates were very high. It was impossible for anyone to successfully carry out their activities given the background of such high interest rates.
The second was that banks assessed risks at a very high level and consequently did not issue such loans; only in exceptional cases, if the creditor presented some liquid assets. Through active communication with representatives of the banking sector we have formulated the concept of preferential agro credits. It is divided in to several components. The issuing of loans started in April. It incorporates a small micro credit, installment of a commodity, financing annual and perennial crops and long-term credits for enterprises. We wanted to create a relationship between the bank and the farmers. After accepting the money creditors take on the responsibility to return it. On our side we tried to make credit available to them. We agreed with the banks that they would issue the loans and we would partly insure their risks. If a creditor does not manage to cover their financial obligations we pay 30% of the loan in the second component. We also finance the interest rates. We pay 9% of the rate in the second component and 12% in the third component. It makes it possible to offer short-term loans with annual rate at 6-8% and long-term credits - at 0-3%.
This scheme has proved to be very successful. On the one hand, banks have shown great initiative in engaging in this process and particularly all the banks involved. On the other hand, it has proved to be very attractive to lender farmers.
The three components have been financed with GEL 116 million as of today. GEL 62 million is the share of the second component and USD 32 million - the third component.
The project is in the process of development. We have added the fourth and fifth components. The fourth component includes lenders’ cooperation with leasing companies. The fifth component has contributed to the success of the country’s vintage. It was a loan with low interest rates for the grape processing companies. In terms of this we issued over GEL 43 million. We expect the figure to reach GEL 50 million as long as it continues for. Companies received credits with a 1% interest rate. The large crop of grapes and its full accommodation means that the project was a success.
We plan to offer a financing scheme for companies that are purchasing mandarins. It will make the export of mandarins easier.
All the projects started this year will continue next year with the extended budget.
Q. How were the preferential agro credits divided by region?
A. The agro credits are currently unevenly distributed among the regions. It is not ideal but it was definitely expected as economic activity in general varies so much by region. Kakheti, Kvemo Kartli and Shida Kartli are the regions with the highest economic activity. Accordingly the largest share of credits has been issued to them. Traditionally, eastern Georgia has always been more active in this regard than western Georgia. We hope that the situation will change soon.
To restore the regional misbalance and stimulate activity we will offer grants for people who want to set up enterprises. The same entrepreneur can use the preferential agro credit. The project will be launched in a month. We have chosen the processing enterprise because we want to recycle local production and encourage farmers to find their niche easily.
Q. Which agro cultures are the most developed in Georgia?
A. The tendency that Georgia remains dependent on imported grocery products started to change recently. We are optimistic that import will be largely replaced by local production soon. If the local production satisfies the food safety and quality standards it will easily compete with imported goods. It is necessary that the cost of local production should be low because they are still in competition with imported products. Efficient production and lower domestic production will increase the competition.
Today, high-quality greenhouse tomatoes have already appeared on the market and are successfully competing with the imported tomatoes from Turkey. The pace of development that exists in this field will totally, or for the most part, replace imported grocery products. After replacing imported goods, we should move to exporting. Georgia has great potential, however it will take years and a great deal of hard work.
Q. How do you monitor the purpose of the credit expenditure by lenders?
A. The purpose of the credit expenditure is one of our concerns. If a farmer fails to pay back the loan we stop co-financing. We never interfere in the crediting process. However, we set strict criteria to prevent the credit being spent on another direction. After the issuing of the loan we regularly monitor for which purpose sums are getting spent. If we find some aberration, we fine the beneficiary.
Q. What will be the main challenges for the agency in 2014?
A. Moving to co-operation from 2014 will be one of our main challenges. Otherwise we will remain comprised of just small natural farming. Currently most farmers and smallholders in the country have farm land of very small scales. Accordingly to conduct their own processing separately is expensive and less effective. Any agro process for just one hectare is essentially ineffective. The future of the development of agriculture lies in the development of a joint production process. This means that some kind of co-operation should take place. One of the main directions of the Ministry of Agriculture is to promote co-operation. A new legislative framework has been created and adopted therefore.