The Georgian dairy market offers an extensive range of products that have become an integral part of people’s diet, of “a consumer’s basket”. Some of these products, particularly cheeses, are of a local production as they are known as Georgian specialties. Their prices are accessible for population especially during the summer season (starting from May up to September). However, the situation does not stay the same over the winter season because of the growth of prices for a dairy production.
“One of the reasons for the growing prices of a dairy production in winter is a short period of lactation”, – states Nino Zambakhidze, Projects Director in Regional Development Association (RDA).
Among other reasons for these seasonal fluctuations, she mentions poor quality of feed and the lack of farm machinery for food conservation such as milk cooling tanks. Georgian dairy farms are not big enough to take advantage of economies of scale enabling them to reduce costs and to buy new machinery. Currently, there are approximately 10 big farms which have from 100 to up to 300 cows. At the same time, the majority of dairy farms remains at the level of backyard production meaning that they do not achieve the technical excellence which is necessary for the production of some sorts of cheeses. As a result, the quality of such products is low. Could these tendencies be reversed?
Nino Zambakhidze believes strongly that agricultural cooperatives are the only solution to cope with the splitting of the industry. Despite some dissenting voices doubting over their efficiency, the figures are meaningful: since 2013, 1540 cooperatives have been operating in the agricultural industry. Their creation is highly encouraged by the state: for example, any newly created agricultural cooperative with a considerable number of livestock (100-200 cows) can submit an application before the 13th of June to receive a state grant for the purchase of milk cooling tanks or construction of laboratories. In addition, the created agricultural cooperatives are exempt of paying taxes up to 2017 according to the law about agricultural cooperatives. State programs such as “Produce in Georgia” are complemented with the initiatives of Georgian non-profitable organizations such as Regional Development Association. These actions are being inscribed in the state strategy for the improvement of agricultural output and quality.
However, the Georgian government and civil society are not the only actors who contribute to the development of agriculture in Georgia: the USA, Austria, EU and FAO are among the countries and supranational entities who deliver grants to agricultural cooperatives. In the framework of European Union Programme supporting Agriculture and Rural Development, some Georgian agricultural cooperatives have been tendered and granted money for their further development. The raising interest of EU is explicit as with the implementation of Deep and Comprehensive Free Trade Agreement, Georgia will get a duty-free access to 900 million market of European Union. To make possible the exportation of dairy goods, Georgia needs to increase its milk production and to upgrade the quality of production to the European standards.
“I think, Georgia has not taken the advantage of its potential yet, – admits Raul Babunashvili, director of Georgian Farmer Association – We have good climate conditions, mild winters. There are many ecologically clean zones adopted for pasturing. And how many abandoned and uninhabited villages do we have where the cooperatives can be created and developed?! But a simple act of creation of cooperation is not self-sufficient. Our agricultural cooperatives are in need of investments.”
The investments are indispensable for the dairy cooperatives to become more productive. The farmers think over different solutions to improve the milk output: it can be a purchase of milking cows of higher productivity, an acquisition of necessary upgraded equipment, and any other initiatives assuring an annual supply of good quality feed that has eventually a direct impact on a milk quality, etc. Georgian dairy farms crave for new technologies as there are currently few Georgian dairy farms that meet the requirements of hazard analysis and critical control points (HACCP) laid down by the legislation of European Union. Moreover, the investments could contribute significantly to the improvement of services for a dairy sector: for example, there are about 50-100 veterinarians for 10 60 000 beeves. Thus, the investments could be targeted at any aforementioned sectors as they are interconnected and impact the quantity and quality of milk. The technical assistance and experience transfer are also fruitful forms of cooperation.
Raul Babunashvili suggests that a joint ownership would be a good perspective for potential foreign investors. Taking into consideration that the acquisition of land or its leasing is still a complicated issue because of the lack of legislative regulations, a joint ownership of a cooperative would be a possibility to overcome this barrier and to profit further from all the opportunities the investment climate in Georgia is offering. These days, Georgian farmers lobby actively the government to give a right of a land lending to foreign investors with duration over 45 years as it has been done in Ukraine.
“First of all, we should apprehend ourselves that we have a big potential in a dairy industry. There are approximately 3900 villages in Georgia and 47 percent of Georgian population is peasants who, in contrast to our Ukrainian colleagues, have not realized yet that their agricultural activities can surpass the level of a simple subsistence. It can turn out to be a profitable business”.
The reconstruction of a dairy sector could transfer to the villages a role of active economic players and, at the same time, contribute to the solutions of the problems of a social order and accelerate the development of rural zones.
This report is exclusively provided to The FINANCIAL.
About Experto: French-Georgian consulting company EXPERTO provides market entry services for foreign companies interested in the Caucasus markets.