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Home Georgia

FAO: “Milk Production in Georgia is an Attractive Niche for Investing In” 

Madona Gasanova by Madona Gasanova
March 13, 2016
in Georgia
Reading Time: 6 mins read
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FAO: “Milk Production in Georgia is an Attractive Niche for Investing In” 
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The productivity of an average Georgian cow is only one fifth of an average Ukrainian cow and one tenth of a US cow. The quality of Georgian milk is also very low, which limits possibilities for making high quality dairy products. In order to boost the Georgian dairy market, the Government has been suggested to create transparent market conditions and legislative framework to allow equal conditions for all market players and assure safe food for consumers. Around 145,000 tonnes of milk are already imported into Georgia to satisfy local demand. There is room for investment in replacing import. 

Improving food safety and competitiveness in Georgia’s commercial dairy sector was the focus of the country’s first National Dairy Congress, held in Tbilisi last week. 

Organized by the Food and Agriculture Organization of the United Nations (FAO) and the European Bank for Reconstruction and Development (EBRD), the event brought together commercial dairy farmers, processors, input and equipment suppliers, industry experts and the Government to promote investment in Georgia’s commercial dairy industry, discuss changing food safety standards and share knowledge on state-of-the-art technologies.

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Georgia has a favourable investment climate, ideal agro-climatic conditions for dairy farming, strong demand for dairy products – making targeted investment along the entire value chain attractive, believe organizers.

The Congress focused on constraints that Georgian dairy farmers face in the sector, including the lack of modern farms, processing companies and technical capacity, as well as opportunities to modernize. Discussions also explored modern technologies and farm management practices that commercial dairy farmers can adopt to boost productivity and improve milk quality – from better feeding, animal health and welfare practices, to hygienic milk handling and processing.

The FINANCIAL interviewed Andriy Yarmak, Project Manager and Economist of the Investment Centre of FAO, and asked him to provide his outlook regarding the main challenges and opportunities of the Georgian dairy market.

“There are a lot of opportunities for sustainable development in the Georgian dairy sector. The industry has to start accumulating knowledge to modernize and become self-sufficient in all aspects of the business,” said Yarmak.

Q. Georgians have a proud tradition of dairy products but in recent years the country’s dairy farmers have struggled to meet production and quality demands. What are the main reasons for it?

A. Markets are changing and consequently consumers are changing more and more dynamically. They demand greater variety and require more information about the products. The dairy industry has to understand these changes and not just follow them but try to predict or lead them. However, in Georgia production and processing of milk has remained very traditional. While globally productivity of dairy has been growing very rapidly, in Georgia it has not changed much. Presently productivity of the average Georgian cow is only one fifth of an average Ukrainian cow and one tenth of a US cow. Quality of milk is also very low, which limits possibilities for making high quality dairy products. Moreover, while globally prices for raw milk and dairy products have been declining for around two years now, in Georgia they have not changed at all making local products too expensive and attracting a lot of imports of inexpensive dried milk and various other dairy products.

Q. How would you evaluate the investment climate of the Georgian dairy market?

A. It is probably one of the best in the world, assuming you can get access to land. Investments into dairy farms in Georgia due to high prices of milk pay back in only 4-5 years, while in Ukraine or Serbia e.g. the payback period is at least 10 years. Moreover, the climate for dairy in Georgia is better than in Ukraine thanks to a longer growing season and lack of critical temperatures. Also, Georgia is a net importer of milk and there is a lot of room for replacing imports, which means that there is room for growth. Even more importantly, Georgia enjoys a very good overall investment climate and on top of that – the local market of dairy brands is not saturated at all – making it a very attractive business.

Q. What are the main steps that need to be done in order to attract investments in the dairy sector?

A. In primary production local investors could be more successful as they understand local conditions and specifics better and there are a lot of people in Georgia who are looking for good ways to invest their money. Milk production and processing is certainly among these attractive niches at the moment.

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Q. How optimistic are you regarding the Georgian dairy market, in which terms and by how many percent should we expect a boost in the sector?

A. Even if the market does not grow, there is still around 145,000 tonnes of milk already imported into the country to satisfy local demand. Just to replace imports there is room for investments into 35 modern, large (by Georgian standard) dairy farms with 500 cows at each farm! So, there is a lot of room for investments. The situation is similar in the processing industry.

Q. Which countries can Georgian dairy goods producers target once meeting international quality standards?

A. It is too premature to talk about exports as it is presently much more profitable to sell products domestically. However, in the distant future, it would be easiest to target markets in the Caucasus and, possibly, Russia. Georgian products could also be sold in the EU as a specialty but this could take a relatively long time before the country and its producers would be able to comply with EU requirements for dairy product safety.

Q. While talking about the success of Georgian wine we can remember the huge support of the Georgian Government for the sector. Meanwhile we can recall Georgian nuts which are the top exported product but have never been a target for state support. What are the main problems related to stagnation of the Georgian dairy market? (Is it all down to the Government?)

A. Lack of knowledge is the only real problem in the Georgian dairy sector. Agricultural education of livestock technologists does not exist as well as education of dairy processing technologists. This results in low productivity, efficiency, quality and, consequently, lack of competitiveness.

Q. In July 2015, FAO and EBRD conducted a full review of commercial dairy farms and an overview of the national milk market. As a result, FAO developed recommendations that would help support dairy producers, processors and traders while protecting consumers. Have you seen any progress in this regard since July of the previous year?

A. We are just starting the programme and have not reviewed the situation since conducting the audit. However, we do see some improvement in legislation and compliance with regard to food safety but these are just first steps. Farmers and processors have not improved much since although there are a few farms that have actually introduced modern technologies or are in the process of introducing these.

Q. During the conference there was an open dialogue between organizers and sector representatives. What were the main concerns of Georgian dairy industry representatives?

A. Farmers usually complained about lack of financing and low milk prices while processors usually complained about the lack of milk and high prices of milk. This is very typical everywhere. However, the good thing was that I saw a lot of interest from the farmers to learn.

Q. How would you divide the responsibility of each side (government; farmers; industry reps; investors etc) to get the final result – a boosted dairy industry in Georgia?

A. The Government should create transparent market conditions and legislative framework to allow equal conditions for all market players and assure safe food for consumers. Everything else is the responsibility of the business.

Q. What is the second step of FAO since the conference is over?

A. This Sunday the first group of commercial dairy farmers from Georgia is going to Ukraine for two weeks of intense practical modular trainings, which will be held on various dairy farms in five different regions of Ukraine. After that we will do several more training modules in Georgia. We shall also publish a very practical manual for dairy farmers and all other industry players, which could also be used for educating students in the local universities. We are hoping that commercial farms will form an association, which will become a knowledge centre and will start accumulating information about modern production, management and handling technologies.

Also, we have just launched the website www.georgiandairy.org where a lot of information about modern technologies will be placed all the time. Farmers will also be able to get their questions about technological issues answered by key industry experts online.

We are also going to support the industry with market information (we’ll be developing a market monitoring system within a month) and holding another congress in about a year. This should give the industry a lot of tools to cope with the momentum and get the modernization process going without major support from donors.

 

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