How preparations for vintage hinder development of agrarian sector

Maka Ghaniashvili

Potatoes with the value of $22 million, $12 million value haricots, $18 million tomatoes and $17 million onions have been imported in Georgia in 2008.

Only these four crops made up $70 million, while aggregate imported agricultural products made up $500 million that is equivalent to 100 000 employed people in case if this product would have been produced in Georgia.
Recent harvest was the worst one over the years. According to the head of wheat producers association, Arkadi Meqerishvili, wheat harvest was very poor in Kakheti. Such a bad harvest hasn’t been seen for a long time. Minister of Agriculture, Mr. Bakur Kvezereli declared that it might be necessary to increase imports of wheat due to current situation. According to present data, Georgian wheat makes up only 20% of overall wheat consumption. Meanwhile, even 40% of arable lands are not used and thousands of families are unemployed and left without any income. Everything seems to be simple – let unemployed people work the land and produce local products replacing imported ones; thus both these people and whole country will benefit from this. However, this doesn’t happen so and it takes a long time for invisible hand of free market economy to fill these irrational, obscure hollow spaces and to direct unused resources for prosperity and welfare of the people and the country.
Since the liberalization of customs duties, agriculture has become even less beneficial field and competitiveness of local production is reduced day by day. Russian blockade did serious damage to this sector: entrepreneurs in agricultural sector did not manage to adapt to the new situation and the volume of local production decreased even more.
Main reasons of this deplorable situation might be seen in the following factors – not evaluated land resources and low level of utilization, imperfections existing in entrepreneurial relations, absence of material and technical basis for agriculture and ignorance of achievements in agrarian science.
There are quite a number of obstacles impeding people to become occupied with agriculture. These are connected both with mental and rational barriers. Due to various reasons able-bodied, unemployed people cannot make a decision to step forward in this direction. Meanwhile, it is essential to involve as many people as possible in agriculture, who will produce goods that replace major part of imported goods and leave billion Georgian Laris in the country.
According to statistical data, 55% of all the people employed in agriculture are self-employed. GDP created in this sector amounts 12%. Country’s GDP is mainly formed of agriculture, forestry, industry, trade, transportation and communication sectors. However, in recent years, share of agriculture in aggregate GDP is considerably decreased, but at the same time trading, industry, transportation and communication sectors’ shares are increasing. Percentage ratio of agriculture in GDP was 46% in 1994, in 1998 the ration reduced to 26.2%, while in 2007 it made up 12% only. As experts are claiming, decrease in share of agriculture in GDP is a worldwide tendency. Productivity of cattle in Georgia is quite low either. Average milk-producing of a cow and buffalo in 1998-2006 was between 9040-9356 liters. If we compare these showings with the data of former soviet, eastern European countries, or Baltic Sea countries productivity of two-three cows in Georgia is not even equal to the productivity of one cow. The result is following: Due to low productivity of agricultural crops and cattle self-sufficiency with foodstuffs of Georgian population is very low.
According to statistical data, incomes of rural population are not characterized by growth; at the same time, other types of income considerably exceed incomes from agricultural products. Meanwhile, the prices on agricultural products are almost doubled; decrease in production of foodstuffs and growth in volume of imports indicates inadequacy of agricultural enterprises.
Considering all the above-mentioned, we can identify several directions that enable to encourage agriculture in Georgia.

Assistance in selling produced goods
Most effective mean of encouraging sales might be organizing of periodical fairs. If government arranges even one fair market in every big city and advertises it as fair of local production, this considerably encourages development of agriculture in the country. There is a formed demand in the population in this direction. However, market is so unorganized and production is so scarce that Georgian foodstuffs are hard to find and quite expensive. There are frequent cases when imported production are made to resemble Georgian one and is sold at more expensive prices. Increase of local production should regulate the prices either.
Many fruits are not sold out and tainted especially after Russian embargo. When receiving points for agricultural products will be well organized so that it will be possible to sort, preserve and make final products, businessman interested in buying some product will try to purchase desired product from receiving point of given region. This helps peasant to sell own production and gain some means of living and opportunity to continue activity.
Of course this is just a drop in the ocean, but some steps are already made in this direction. In the beginning of July, Minister of Agriculture inaugurated fruits and vegetables processing enterprise in village Katchreti of Kakheti region. Mr. Kvezereli declared that enterprise will help farmers of Kakheti in processing, packing and selling own production. Enterprise is equipped with modern installations. Equipment includes washing machine for fruits and vegetables, vacuum unit for boiling, autoclave for sterilization, measuring apparatus, jar washing tank and caning machinery. In case of full load, enterprise can process 250 kg products in 24 hours. It enables to process products in compliance with food safety standards. Enterprise has been established with the support of UNDP and Rumanian government.
Hazard insurance
Hazard insurance of harvest is actual necessity for many peasants and farmers. However, the main problem in this case is skeptic attitude of insurance companies toward the product. On the one hand the reason of this might be scarcity of market and absence of experience in this direction.
We can draw some parallels and note that hazard insurance of harvest is as important for the development of agriculture in the country as medical insurance for development of healthcare system. Government’s measures taken for encouragement of health insurance in the course of last two years gave considerable impetus to the development of healthcare system. When government purchased basic medical insurance for the population, this gave additional stimulus to insurance companies to develop this segment and to broaden sales. Similar program in agriculture would encourage sharp development of the field.
More than 400 thousand families are employed in husbandry. Just assisting them in sales is not enough. These families are afraid of instable volumes of harvest (production) that are mainly caused by natural phenomenon. People are afraid of investing, to work the land, and to broaden scales of production as the events irrespective of them might cause to incur huge debts. Hazard insurance of agricultural products, together with aid in sales can increase interest in this field and encourage peasants and small farms to broaden production, take more liabilities and create more production.
In quite a number of eastern European countries, state is financing 50% of insurance premium. These expenses might amount GEL 40-50 million a year, but as a result 60-70% of production will be insured for basic risks.
Georgia is not an exception and natural phenomenon might take place everywhere, but farmers are not bankrupted there, as the financial institution of insurance is well developed in most countries.
As agriculture is quite specific field, there are major difficulties in assessing risks and calculating losses. Therefore insurance premium makes up solid figures.
Let’s take a look at the situation of other developed, developing and neighboring countries and try to understand how the states are managing to solve this most significant problem.
European Union – According to the data of 2004, EU produced agricultural goods with the value of ????162 billion, ????37 billion harvest was insured or 23% of whole production. Average insurance premium rate made up 4%, 23% of which was subsidized by the state.
Poland – Two directions of agro insurance are developed in Poland: harvest and cattle insurance. Statistics show that only 3% of farmers insure their harvest. However, from 2009, government takes major co-participation and subsidizes 40% of harvest insurance and 50% of cattle insurance.
Austria – 50% of insurance premium is paid by farmer, while state subsidizes the rest 50%. 75% of fields, 60% of vineyards, 90% of vegetables and 80% melons and 30% of cattle are insured.
Kazakhstan – As one of the most developed agrarian countries of former Soviet Union, the country is paying special attention to agro insurance and development of its normative basis and state regulation. Agro insurance is obligatory in Kazakhstan and the rates are the following:
1. Crops – 5.8% – average
2. Oil-bearing plants- 3.4%
3. Sugar beet – 8.3%
4. Cotton wool – 1.3%
Government’s involvement in insurance of agricultural activities is well developed in the countries such as USA, Germany, Great Britain, Spain, and Canada.
It is essential to establish informative-consulting centers for farmers and peasants that advice them how to manage their husbandries, which technologies to use, how to sell products etc. Lands and all the other resources should be managed more effectively by means of these centers that encourage development of rural husbandry. Awareness and knowledge among farmers will be encouraged by such centers. It will be easier to manage and develop an economy that becomes significant lever for implementing scientific-technical achievements and rising qualification of farmers.
Export potential
When taking a look at the research conducted by Ministry of Economic Development of Georgia concerning the foreign trade situation of the country in January-May 2009, one might see that Georgian agricultural production might not only supply local market, but also export in foreign countries.
According to the research, foreign trade turnover of January-May of 2009 made up $2009.1 million that is 37.3% less than previous year’s showings. Commodity turnover growth pace reduction is mainly connected with August events and world economic crisis. However, despite decrease of export volume, Georgian export production has entered new markets during recent years. Main exported agricultural products are:
Georgian verdure – mentioned product was exported in Russia, Ukraine and Azerbaijan up to 2006, but in 2007 it entered Latvian, Moldavian and Belarusian markets and Estonian and German ones in 2008. Rumanian market was entered in 2009. Not only new markets were searched, but also volume of exportable verdures doubled within 5 months of 2009. 1 817 tones were exported in 2009 – $0.9 million value verdure, while in first five months of 2009 3 037 tones were exported that amounts $1.8 million.
Georgian tea – Despite the fact that growth in export volume of tea is minor, product has entered new markets such as Finland, Germany, Canada, Holland and Serbia-Montenegro. In 2009 Iraq, Moldova and Poland joined the list of these countries.
Georgian condiments – within the recent period, some new markets have been opened for Georgian spices, these are: Poland, USA, Bulgaria, Japan, France. The volume of export of this product has increased also; average monthly volume of export is 222 tones, while average monthly export of previous year was 167 tones.
Georgian wines – After Russian embargo on import of Georgian wines, some new markets were found such as Finland, Ireland, Spain, Italy, Bulgaria, Rumania, Liberia, Panama, Mongolia, Korea, Cambodia, Singapore, Ivory Coast and India. At the end of last year average price of this product slightly decreased. However, volume of exported wines increased by 26% compared with 2008. Considering the fact that wine export mainly is done in October-December, showings of first five months of this year are quite considerable and they made up $9.9 million. Indonesian, Barbadian and Luxembourgian markets were opened in 2009. Wine export is made in more than 55 countries in the world.
Mineral waters – Product is exported in 54 countries in the world. After Russian embargo, Georgian mineral waters entered market of the countries such as Austria, Rumania, Bulgaria, and Belgium. In 2008, export has increased by 23% compared with previous year. Unfortunately, there are no changes noticed within first five months of 2009 in the export of Georgian mineral waters.
Fruit juices – This category is important exportable for Georgia. The product is in good favor in various countries in the world. Fruit juices are exported in 30 countries of the world. Major countries are Germany, Czech Republic, Ukraine, Russia and France. Some new markets appeared in 2008. These are Hong Kong, Cyprus, Liberia, Poland, Greece and France.
Canned foods – Canned vegetables are important strategic product for Georgia. Export volume increased by 30% in 2008. Product is exported about in 25 countries. Canned vegetables and fruits entered seven new markets in last year; these are Poland, Israel, Hong Kong, USA, Belgium and Ukraine.
Agriculture of Georgia in figures
Animal Production. According to preliminary data, as of 1 April 2009, the numbers of cattle and sheep and goats have decreased as compared to previous year, while the numbers of pigs and poultry have increased. The 26 percent increase of the pigs number should be especially noted, which indicates that after pig diseases spread in 2007 in the country this branch of animal husbandry started to recover. After the stress caused by avian flu, in the last years the number of poultry steadily increases. In I quarter 2009, as compared with I quarter 2008, the increase amounted to 17 percent.
In 1 Quarter 2009, as compared with the corresponding period of the previous year, meat and milk production have decreased and egg production has increased. The bulk of meat production decreases falls on pork which is explained by a considerable decrease of the pigs number after pig diseases in 2007. The increase of eggs production is a natural consequence of the increase of the poultry number while the decrease of milk production is explained by the decrease of the number of dairy cows and milk yield.
Food Imports and Exports. In I quarter 2009, as compared to I quarter of the previous year, food exports of the country in nominal value terms decreased by 17 percent, while the nominal value of the total export decreased almost twice as much, by 33 percent. Accordingly, the share of food exports in the total exports increased by 24 percent and in I quarter 2008 equaled 12.0 percent. Of the main export items, the volume decrease was the sharpest for fruit, 71 percent, and the weakest for soft drinks, 6 percent. The export volume of spirits increased 2.5 times.
As to imports, in I quarter 2009, as compared to the corresponding period of 2008, the nominal value of the total import fell by 30 percent, while the fall of the nominal value of food imports was only 20 percent.
Accordingly, in I quarter 2009 as compared to I quarter 2008, the share of food imports in the total imports increased by 14 percent and in I quarter 2009 equaled 14.3 percent.
Net import of wheat increased by 15 percent while net import of wheat flour decreased by 24 percent. If one transforms the imported wheat flour into wheat equivalent, one will obtain that wheat import in I quarter 2009 as compared to the analogous period of 2008 increased by 1.2 percent.
Food Prices
Prices of many staple food items decreased in I quarter 2009 as compared to I quarter 2008. The decrease of bread price should be especially mentioned, not only as compared to I quarter 2008 (by 5 percent) but also as compared to the previous quarter (IV quarter 2008). Although the wheat flour price increased by 7 percent as compared to I quarter 2009, as compared to the previous quarter it decreased by 6 percent.
All this is connected with the decreasing trend of wheat price at international markets after an abrupt increase. After a long increasing trend, the price of maize flour started to decrease. Of meat products, the sharp 40 percent increase of the pork price should be mentioned. I should be noted, however, that this increase rate is still below that of II, II and IV quarters of 2008 as compared to the corresponding quarters of the previous year (43, 71 and 59 percents, respectively). All this is due to pig diseases spread in Georgia in 2007 leading to a sharp decrease of pigs’ number in 2008 and the corresponding lack of pork. In I quarter 2009 as compared to the same period of 2008, the beef price increased by 5 percent and the chicken price decreased by 7 percent. After an increase, the price of sunflower oil fell down (by 18 percent) while the sugar price, on the contrary, increased after a decrease (by 4 percent). The price decrease of potato and haricot beans, as compared to I quarter 2008, is significant (10 and 13 percent, respectively), while the price decline of eggs is insignificant, 3 percent. The milk price increased by 4 percent while cheese price increase by 10 percent.
We talked a lot about the problems existing in Georgian agriculture. We inquired what state is doing or what it has done for the development of agrarian sector, what are its strategy and plans. In order to find out everything, we contacted Ministry of Agriculture of Georgia, but unfortunately they vouchsafed us no answer, claiming that they are busy and noted that due to preparation for vintage unfortunately they have no time for us (We contacted ministry’s press centre in the middle July).