Agriculture

Main Indicators of Agriculture Development

1.Executive Summery

Georgia has a rich tradition in agriculture. Its fertile soil and favorable climatic conditions contributed to the development of agriculture. Almost all types of agricultural products can be grown in Georgia as the country has nine climatic zones.

Arable lands and woods occupy 85% of the country's total land area. Vertical zones with almost all types of soil and climate characterize the country. Due to such diversity, the country is divided into 13 zones and 6 sub-zones of agricultural specializing. Annual climatic conditions are favorable for the production of a variety of agricultural products including grain-crops, melons and gourds, fruit, tea and citrus fruits.

With substantial investment in technological and infrastructure capacity, Georgia’s agricultural sector has the potential to export different agricultural products ranging from wheat, cereal, soy, cooking oil and corn to nuts, tea, citrus, and herbs. Particularly remarkable is Georgia’s viticulture sector, which with substantial foreign investment, has significantly increased exports in the last year. Current structural reforms in the sector will go a long way towards increasing future output and investment possibilities in the Georgian Agriculture Sector.

Industry Overview (By Sector)

1. Animal Farming

Animal farms with different species of cattle, sheep and buffalo can be seen in many regions of Georgia. The Caucasus mountain cow species is widely spread in north-east Georgia. These cows are black and brown and weigh about 275 kg. These species are mainly used in the meat production and very insignificantly in the milk production. The Mengrelian reddish brown cow species, weighing about 300 kg, is mainly spread in western Georgia. The milk yield of this species ranges from 500 to 15000 liters per lactation and is used for the production of Imeretian and sulguni types of cheese. Each small farm possesses 1-3 cattle head, which graze in free pasture fields.

2. Fishery

Georgia has favorable conditions for the development of aquaculture – it has lots of rivers and pools with high-quality water. In 2003 the catch volumes of anchovies in Georgia comprised 12,200 tons of 14,450 tons of sea catches in total. The domestic fishing industry is undeveloped in the country. Georgia’s fishing fleet is small and includes 36 medium-size fishing boats of the Soviet vintage. There are also small 735 vessels engaged in catching fish along the coastline. Poor material and technical basis does not allow the renewal of these vessels and some of them are totally depreciated. There are several primitive processing enterprises operating in the country. Most of fish products are imported in Georgia. The research of the market has revealed that the demand exceeds the supply.

3. Plant Farming

Wheat, maize, sunflower, potato, vegetable, fruit, citrus, grapes, tea are cultivated in Georgia. Crops produced in Georgia mainly meet the demand of domestic market. However, the large amount of wheat is imported.

Source: Department of Statistics

At present, the annual wheat production is small. In 2006 it comprised about 70 thousand tons. The major part of the demand on wheat is met by imports with 798 thousand tons imported in 2006. The outdated material and technical basis, lack of resources to fund farmers and renew the equipment do not allow large-scale wheat production and produced wheat, consequently, ends up soon. The production also depends on weather conditions. Produced crops are also used as food for cattle and poultry.

4. Wine Industry

A matter of national pride for Georgians, wine is worthy of special emphasis. Viticulture and winemaking are the most important traditional fields of Georgia’s agriculture. The history of vine culture is inseparable from the history of the Georgian people. The country is considered as one of the oldest places of producing the top-quality wines in the world. There are over 4000 vine varieties in the world. Over 450 species of local vine are bred in Georgia, from which 62 sorts are put in the standard assortment including 29 wine species and 9 table ones. The most famous high standard sorts of Georgian vines are: Rkatsiteli, Saperavi, Mtsvane, Khikhvi, Kisi, Chinuri, Tsolikauri, Tsitska, Krakhuna, Aleksandrouli, Ojaleshi, Chkhaveri, Aladasturi and others. Not only the local species of vine are cultivated in Georgia, but also the foreign sorts such as Aligote, Pino, Shardone, Cabernet Sauvignon, Shasla and Khalili.

Significant investments have been made to expand the sector and to implement further development. At present most of the companies are equipped with up-to-date production facilities; however, the modernization process is still underway. The modernization process will allow companies to increase production capacities and improve the whole winemaking process.

In January-August 2008, the volume of wine exports made 65,924 liters or USD 22,205,900. In 2007 Ukraine represented the largest alcoholic beverage export destination country for Georgia. Kazakhstan takes second place, followed by Azerbaijan, Belarus, Latvia, and the United States.

The Impact of the Government Reforms

Due to implementation of integrated reform policies significant progress has been achieved in the agricultural sector. As a result, Georgia offers expanding opportunities and a highly favorable environment for foreign direct investments in the agricultural sector. We provide below a brief description of the reforms having a significant impact on the sector's development.

- Land reform is of paramount importance for the development of this sector. A new stage in the privatization of agricultural lands is under way including the plots which remain state property.

- Development of the land market - A smoothly functioning land market is a necessary precondition for the effective use of the land resources available in the country. Land reform allows farmlands to be sold in order to ensure that agricultural lands are transferred from less efficient to more efficient owners. The development of the land market is designed to stimulate foreign investment inflow into the agricultural sector.

- Taxation, as one of the main determining factors of the quality of the business environment, has a significant influence on the performance of agribusiness. To this end, important steps have been made to liberalize the taxation system. Property taxes on plots of land less than 5ha have been abolished. The new Tax Code provides also for the abolition of tax on transactions in property, zero percent profit tax and VAT, zero percent VAT on primary supply of agricultural products, and zero percent import duty on agricultural and other equipment.

- Agricultural infrastructure, systems of supply and services - Agriculture in Georgia is growing steadily. Recent reforms in land privatization, registration, development of infrastructure, and the program on leasing of agricultural technology, among other reforms, have already yielded positive results. Agricultural goods take an increasing share in GDP and export growth

International Trade

Georgian agricultural products have their traditional market - former soviet countries, where Georgian brands are broadly recognizable and consumer preferences in favor of Georgian products remain steady and strong. At the same time, despite the difficulties associated with access to the western markets, some types of products have established themselves on the markets of the United States, and Western and Eastern Europe.

Hazelnuts moved up to the first place by volume. Its export in the accounting period increased over three times. The main consumers of this product were Italy (32.6 percent), Germany (23.9 percent), the Czech Republic (9 percent), Greece and other countries.

Georgia's accession to the WTO in 2000 has been greatly beneficial, ensuring better access for its exports to international markets, the elimination or softening of discriminatory trade with Georgia, the protection of the domestic market against dumping and falsification, and fair and objective settlement of disputes. Altogether, these changes, innovations and development trends in the sector create a favorable environment for the attraction of foreign investments to Georgia.

Agriculture in Georgia is growing steadily. Recent reforms in land privatization, registration, development of infrastructure, accession of the country to the WTO, favorable trade and tax regimes and investment projects have already yielded positive results, such as growing export tends of agricultural products.

A favorable basis for the full realization of the potential of this sector and the attraction of both internal and external investments has been formed. This in turn is facilitating the process of reclaiming traditional niches in foreign markets and developing new markets. The potential efficiency and the needs of this growing sector, especially at the current formative stage of modern agro business in Georgia, offer many opportunities for foreign investors

Foreign Investors may enjoy:

0% of property tax on small plots of land (less than 5 ha)
0% of property tax on property transaction
0% VAT on primary supply of agricultural products
0% of import duty on agricultural and other equipment
GSP with United States, GSP+ with EU, FTA with Turkey and CIS countries.
Good climatic conditions for growing a variety of products
Rich tradition of winery, citrus, cattle breeding and others
Opportunity to privatize agricultural land
Cheap and skilled human resource base
Liberal labor code
Strategic link from East to high value Western markets
Well developed transport sector including railway and sea ports essential for effective exports of agricultural goods
Wide-range of climatic zones year around and off-season crops
Pure, rich and pesticide free soils - Ideal place for production of organic food

9. Investment Opportunities: 100 New Enterprises in Rural Areas

Project Overview

In recent years the application of economic and consumer demands have greatly influenced the development of the agriculture and food industries in Georgia. As result Georgian agro-food production has grown at a rapid paste. In turn, to facilitate establishment of agricultural enterprises in rural areas the Georgian government have adopted the investor friendly project of “100 New Enterprises of Rural Areas.”

In case of need, state will undertake obligation to develop road and amelioration infrastructure aiming at creation of enterprises and employing of rural population by investors
On preliminary stage collection of 100 lots of land and competitive selection of investors will be launched
At the same time upon specific request of investor selection of land necessary for creation of such enterprise will take place
Size of one land lot exceeds or matches 200 ha and lot could consist of different partials

Criteria’s for Winner’s Selection

Payment of maximal prize for land partial
Much significant investment conditions

Winning Conditions

Payment of maximal prize and implementation of investment project
In standard case enterprise shall be created during 1 year
Investor pays 20% of Prize
In case if during 1 year investor makes enterprise to work, rest 80% shall not be paid.