1. Comparative Analysis of Agriculture in the South Caucasus
4th July 2013
Dr. George Welton

2. The importance of agriculture in the Caucasus
employment
poverty
growth
security
The World Bank, which conducted a large analysis of poverty in Georgia in 2007 (that was released in 2009). The World Bank assessment looked at both income and consumption per adult equivalent (PAE) and concludes that, looking at consumption poverty, the poverty ‘headcount’ was 23.6% of the population to be ‘poor’ and 9.3% ‘extreme poor’.
They also show that poverty is generally higher in rural areas, with 29.7%, than in urban areas, with 18.3%. They also highlight that the rural employed have 22.6% poverty count compared to only 11.4% for wage earners in urban areas since median-earnings amongst the rural employed are only about 20% the level of those in the urban employment.
World Bank (2009). Georgia Poverty Assessment, p4

3. Employment/Poverty Commonalities
Most rural families are ‘employed’ in this way
But massively under-employed
Rural communities (particularly isolated communities) are generally poorer
Median income for agricultural ‘employed’ is low relative to other sectors
Therefore
In urban communities the problem is unemployment
In rural communities the problem is under-employment and low productivity

4. Georgia has strong basics
High rainfall
more than 2x Azerbaijan
almost 4x Armenia
Large number of microclimates for high value goods
Nuts
Citrus
Low labour costs
Land prices
Potential sources of low-price energy (hydro and thermal)
Rainfall figures for (mm/year): Armenia 352, Azerbaijan 460, Georgia 1,140
Source: FAO, Aquastat, (Reviewed April 27, 2012)

5. But Georgia has low productivity
Productivity per hectare in various countries
Wheat
Maize
Potatoes
Tomatoes
Georgia 1
1.4 11
8.4
Armenia
2.1
4.7 17
38.7
Azerbaijan
1.9
4.5
14.5
Kenya
3.2
1.6
2.9
29.2
Brazil
2.8
4.4
25.3
60.7
France 7
8.9
39.8
98.3
Turkey
2.4
7.3
32.3
33.1
FAO, Crops production statistics 2010, (reviewed April 25, 2012)

6. And a bad comparative decline
Georgia has seen 11% decline per year on average
0.6% recovery per year ( )
Overall 20% growth in value( )
Both Armenia and Azerbaijan have seen far higher growth
Armenia showing particularly high growth in beef and vegetables (4-6% for beef, 7-10% vegetables per year volume growth)
Azerbaijan seeing dramatic increase in beef and in grain production (7-10% for beef per year , 7-8% for grain volume growth)
Absolute FDI in agriculture in Georgia (2007 to 1st/2nd quarters of 2011): 0.8%, 0.5%, 3.4% (peak in 2009), 1.1%, 0.9%
Source: GeoStat, Foreign Direct Investment by Sector (Reviewed December 2011)

7. Slow recovery – the role of the state?
Shevardnadze Government
Failed state
Collapse in infrastructure
UNM Government
Lack of attention and a rural focus
The problems of libertarianism
Animal disease
Irrigation
Education
The problems of state competition

8. An example - irrigation can be fixed
Armenia and Azerbaijan have seen significant improvements
Georgia improvements less impressive. What is needed:
Very local management
Commitment to reinvest revenues
Remove confusion of energy production/agriculture

9. The difference is not just spending
Georgia – at its low point in 2010, Ministry of agriculture spending represented 0.5% of total spending
Azerbaijan hard to estimate but huge categories of inputs are massively subsidized. This has led to distortions.
Armenian MoAg spending only around 1% of total. However:
More market driven
Focused on education and rural advise
Consistent

10. Market Access Internal – Georgia is clearly better
Easier business environment (E0DB- Georgia – 9, Armenia – 32, Azerbaijan - 67)
Armenia has a few big producers offering forward pricing
External Access
Armenia and Azerbaijan – Access to Russia
Georgia – unutilized access to West
External competition
Georgia has unprotected markets

11. Land ownership and useage
The problem is NOT size of land-plots
But privatisation and good land-purchasing system is useful for encouraging FDI
All countries have issues with land-ownership
Problems in Georgia’s system
GPS system is unlikely to lead to correction of ownership issues without central input
Ownership issues hurdle to large and small farmers – though biggest challenge FDI

12. Agricultural support services
For crops: Machinerry, seed, fertiliser, pesticides, orrigation
For animals: Veterinary, genetics, feed
For all: Cost and availability of finance
Lessons learned from the region
Government financing is common
Financing mechanism is key – needs to work through markets
One needs to be wary of causing distortion - Azerbaijan
In many areas – subsidy of support services is no use without education

13. Sector dynamics Beef and Lamb
Imports of beef went up until 2008
Exports of live animals (beef and lamb) have gone up dramatically and local production of beef went down
Local production has gone down (as they are exported as live animals)
Beef and lamb animal exports 2008/2011 in thsd USD (GeoStat doesn’t have previous years): Beef: from 585 to 28,213, Sheep and goats: from 463 to 14,944
Source: GeoStat, External Trade of Georgia by HS Chapters. (Reviewed March 12, 2012)
Number of pigs in Georgia from 2006 to 2011: from 344,000 to 110,000 (lowest point in 2008 at 86,000)
Source: Geostat, Agriculture, Livestock numbers, (Reviewed February 6, 2012)
Domestic production of pork for 2006/2010 (thsd tonnes): 31.1 to 12,8. Imports: from 8.6 to 13.2
Domestic production of chicken 2006/2010 (thsd tonnes): 11.2 to Imports: from 15.4 to 40.8

14. Dairy Driving force of farming sector
Most dairy consumed as cheese. All three countries in the region have high self-sufficiency in own cheese production
But
Very low milk yield
Inefficient use of time in home production

15. Meat and dairy problems
Animal disease
Bad genetics
Animal feed
Poor education
Missed opportunity
Mountain grazing is under-utilised – could be used to raise more calves
Low use of animal feed makes lowland pasture a limiting factor on growth
Demand for ‘fresh cheese’ in the winter – suggests opportunity for shift in milk production

16. Trends - Crops Increase Decrease From 2006-2010/ in tons Increased:
Potatoes
Nuts
Watermelons
Increase
Tomatoes
Wheat
Maize
Grapes
Decrease
From / in tons
Increased:
Potatoes 168,700 to 228,800 (+36%), tangerines et al to 48,600 (0%), shelled hazelnuts 23,500 to 28,800 (+23%), Watermelons 37,800 to 40,900 (+8%)
Decreased:
Tomatoes 69,900 to 56,000 (-20%), wheat from 69,700 to 48,400 (-31%), maize 217,400 to 141,100 (-35%), grapes 162,500 to 120,700 (-26%)
Source: FAO, (2012) FAOSTAT, Agricultural Production of Georgia

17. Fresh fruit and vegetables
Exports Growth Areas
Nuts
Wine/Spirits
Live animals
InternationalCommodity
Regional Commodity
Exports figures comparison (thsd USD):
Nuts: 56,567 to 130,086 (more than doubled)
Wine: 41,051 to 54,103 (over 30% increase)
Spirits: 30,077 to 71,271 (more than doubled)
Total live animals exports: 1,232,110 (for 2007) to 2,189,136 (little over 77% increase)
Source: GeoStat, External Trade of Georgia by HS Chapters. (Reviewed March 12, 2012)
Fresh fruit and vegetables

18. Two Agricultures. Two Problems
Small Farmers
Commercial Farmers
Irrigation
Land ownership
Chronic disease leads to low productivity
Disease is big risk for investment
Availability of capital
Cost of capital
Availability of quality inputs
High level management and agronomists
Basic knowledge
Complex social environment

19. Conclusions for Georgia
Significant opportunities exist. Highest demand depends upon:
Unusual climate (nuts and some citrus)
Geography (live animals and fresh fruit and vegetables)
Cultural product (wine)
Demand/opportunity also exists in supply chain
Sustainability requires limited government intervention
General
Need to ensure that policies are consistent and market oriented
Government should first focus on structural problems
Education
Irrigation
Animal health
Land-ownership
Cooperatives

20. Thank you