The FINANCIAL — Interview with Bakur Kvezereli, the Minister of Agriculture of Georgia.
Q. What was the total volume of investments this year? And from which countries mainly did they come?
A. The volume has slightly fallen compared to 2009 just in agriculture though the total investments in the country have increased drastically. In the first and the second quarter of 2010 there were 2,552.1 and 2,379.8 million respectively invested in the agricultural sector.
The majority of investors which are most interested (or have already acquired) land are first of all from Turkey, then Ukraine and Kazakhstan.
The largest share of investments in the country in general comes from Luxemburg, then the UK, and lastly from Armenia. (2009/10 data, latest available)
Q. It is well known that agriculture and tourism are the top two priorities of the Georgian Government this year. Will the increased size of budget be enough for your plans this year?
A. As opposed to the 2010 budget, next year’s budget will be extended from 40,287.0 million GEL to 69,154.1. And we’ll be utilizing it in the best manner to raise the productivity of Georgian land and agriculture in general.
The main challenge is the reforms that we’re implementing right now in different sub-sectors of agriculture. And one of the main challenges for the coming year will be issues related with non-cultivated land.
So we are looking to increase land taxes in different regions, in order to develop and increase the cultivated land/yield.
Q. Why do you think investors should be attracted to investing in Georgian agro business? And could you tell us generally about those lands or types of agro products they are most interested in in Georgia?
A. First of all we’ve a very good business environment in the country, and in particular in agriculture. Investors, in this regard, have no problems with purchasing land here.
We have lots of opportunities in primary production as we have good trading relations with different countries. (Like the perpetual trade agreement with the EU, free trade with Turkey, etc.)
85% of the land is privatized in Georgia, and the process will be completed soon. Hence there’s no problem of purchasing land.
There were around 100 investors this year who purchased land. Some of them were small and medium sized businesses, the others large ones also.
Q. Where do investments first go in order to raise the share of exports from Georgia, and what are you going to do in this regard? What sorts of agricultural goods have such potential to be exported and make huge progress with regards to the existing proportion of exports and imports?
A. First of all, the main direct investment in the agriculture sector is on export commodities. For instance Turkish investments go in to olive oil production, (primary olive production), also going in to hazelnut and almond production. So all of these commodities are very attractive for investors and are export oriented.
Exports this year (January-October) amounted to 233,734 whilst imports were 732,390 thousands of USD.
Q. As the central bank chief says, the Georgian economy (GDP) may far outgrow the projected level of 6% to 6.3%, and as Mr. Kadagidze says agriculture will have the largest part in this growth. How viable is it, and what estimates do you have on your behalf?
A. Mainly the export of agriculture goods will contribute to increasing the share of economic performance. Exports have increased 25% this year whilst last year we had 26 percent growth.
Mineral water, wine, hazelnuts, fruit, and sheep are the top five export commodities and will be for 2011. In addition we’re going to increase the share of corn exports in the coming year. Although we have 25% import of it, we have increased the size of the yields.
This year we’ve imported seed from the U.S. which will be very productive in the coming years.
Q. What about the inflation on agricultural products, like dairy? Why have prices increased, and are they going to increase further in the long term? Which types of agricultural products has inflation hit the most? Is it likely that prices will come down?
A. The main reason for the price increase was due to rising prices on wheat and grain, which is in turn key input of dairy. This was actually due to Russia closing its export of wheat and grains this summer. Hence the regional situation changed, as we were importing it from Ukraine and Kazakhstan. 85% of wheat is imported in Georgia. We implemented one project for wheat production increase. And we expect the production to increase up to 35% for 2012.
Overall, everything depends on animal feeding thereby it’s the main reason for price increase on dairy products.
Price stability depends on the regional circumstances and overall import charges (prices) in the country. I think that the prices should follow the trends. It also depends on producers’ decisions.
Now we’re working on import diversification and consulting importers to purchase products with the least possible prices.
Our involvement is only in import and export market diversification.
Q. What about wine export? Are there any new destinations where Georgian wine could be exported to?
A. In 2005 (when the majority of Georgian wine was exported to Russia) it was only exported to 12 countries whereas now, since the embargo on wine, we’re exporting to 48 countries. So Georgian producers have passed the test and never increased dependence on one market.
A very interesting market we found for export of wine recently was Canada. We have exported wine to Canada since 2007 (several thousand bottles) but this year we’re increasing export by 1 million bottles.
We increased our export to Ukraine and Poland this year. Overall there has been 35% increase of bottled wine this year. And we plan to increase the export of wine to about 22 million bottles.
Actually only 15% of the total wine production is consumed locally in Georgia (bottled) whilst the rest is exported from Georgia.
Wine is the second largest export commodity after mineral water followed by hazelnuts.
Q. Sheep exports from Georgia are booming but at the same time there are a lot of critics saying that the Georgian economy cannot only depend on that. What would you say to them, and are there any special areas that Georgia has an absolute/comparative advantage in?
A. Actually we’ve developed our trade relations with gulf countries which is why sheep have become a very interesting export commodity, so interest to invest in this business will increase next year, because of the quality of sheep and land.
There are 1.5 million sheep in Georgia out of which half a million is exported. So it could be the case that sheep will become the third largest export commodity in the coming years, regardless of what critics say.
Q. How can it be that a domestic apple costs twice as much as an imported apple? (and if we compare the prices in Spain/Germany or other EU countries, in most of them the price of apples range from 0.8-1 EUR, Whilst in Georgia it’s no less than 3 GEL)
A. The main reason is production per hectare of apple. And in addition this year has seen very bad weather conditions. Also our yield is not as productive as it is in some European countries.
For the current moment we’re working on bringing new variations of apple trees, more fruitful ones.
The problem is also connected with the Russian occupation, as half of Georgia’s apple production is in the Shida Kartli region, that’s why we’ve problems with access to producers, people owned these fields in territories which are now occupied by Russian forces.
It’s also up to producers who decide why the prices of apples are high. The state doesn’t regulate prices on the market, including apples.
In addition we’re going to invest a few million GEL in 2011 to develop apple primary production.
Q. What about dairy production in Georgia, why aren’t there many farms involved – which may be the reason for the high prices of dairy?
A. Milk collection is very complicated. Farms are fragmented and there are no big farms involved. There are small family farms – the majority of them owning 2-3 cows which is ineffective when talking about the market. Hence there are different prices.
There are around ten farms (relatively large) that are producing those dairy products in Georgia and there are also 10 importers of such goods. So there’s quite high competition.
Q. Some cucumber and other vegetables flow in from Turkey to Georgia, which people regard to be low quality and yet expensive. What can be done to restrict such imports although we’ve a free trade agreement with Turkey, and in return to the original question why don’t we have more production of such products so as to minimize their import?
A. The number of imports of such products – potatoes, cucumber is about10%. Hence the vast majority – 90% of tomato and potato is produced locally. It also depends on the season for instance from May to November there’s mainly Georgian production whilst in winter time it’s substituted from Turkey.
Imports substitution is very good, but taking into account the industries we import, for 10% it’s very unreasonable to increase restrictions on it.
To export those goods, it’s not a very unique export commodity as there are lots of countries producing similar products. In addition they already have green houses built thus they are highly productive compared to Georgia although we’ve some green houses.
Culinary herbs (mtsvanili), which is a very profitable export commodity, is increasing from year to year.
Discussion about this post