Investment Opportunitiesin Georgia - Agriculture

Georgian National Investment Agency(GNIA)

2012

Agriculture and Agribusiness

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• Over 21 micro-climates - a wide range of grain, vegetables, hard and soft fruits, meat and dairy could be farmed

• Agriculture accounts for 9% of GDP. It contributes ~53% of employment mostly in subsistence farming (average farm size of 1.22 ha)

• Traditionally Georgia has strengths in wine, nuts, fruits which account for more than 60% of agriculture exports

• The average gross monthly salary in the agricultural sector in Georgia is USD 220

Opportunities:• Import substitution opportunities - meat, dairy

products, onions, potatoes etc • Export opportunities - traditional strong sub-sectors, like

wine, walnuts, hazelnuts, sheep meat, etc• Productivity gain opportunities –

tomatoes, apples, cucumbers, stone fruits, citrus etc

Overview of Georgia's agriculture and agribusiness sector

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Latent potentials to capture growing domestic demand and exports

▪ Given relative low starting points, productivity gain potentials are significant across a broad range of crops/livestock

▪ Based on competitiveness and productivity gain potentials, Georgia can select priority crops/livestock to exploit exports and import substitution potentials

Major employment yet modest GDP, investment and trade share

Value add and productivity

▪ Low value add per hectare (only $1,220/ha of arable land)▪ Productivity level lags most regional and more developed economies in

all crops▪ Four major hurdles are root-causes for underperformance and lie in

fragmented industry structure, lack of investment, obsolete production and lack of market access

▪ Agriculture and agribusiness accounts for ~12% of GDP, 54% of employment, 1.3% of FDI and 16% of trade volume– Agriculture captures higher share of value add: agriculture

GDP/agribusiness GDP ratio is ~3-to-1– Employment driver is subsistence farming in rural areas– Georgia is reliant on processed food imports (10.7% of total imports)

while export is balanced between fresh and processed (7.4% and 9.5% respectively)

– Consumer food accounts for 30% and 24% of total agriculture commodities/processed food imports and exports respectively

▪ Sector trade balance is -886 million (2011); deficit is widening

Agriculture and agribusiness contribution to the economy

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Investor22

15

20112009

FDI inflowUSD mn

Top FDI projects

ProjectVolumeUSD mn

Kutas Group (Turkey)

Laurel factory 32

Pakmaya(Turkey)

Not disclosed 11.7

% of total

1.3%3.4%

Wimm Bill Dann(Russia)

Dairy 15

Perdue (USA) Poultry processing

>10

Contribution to the economyx Agriculture (USD mn or ‘000 FTE)Percent

1284 881

Employment1

3.17.4

Exports2 Imports2

0.44.4

53.0

GDP1

100%

10.78.9 9.5

270223

Investments in agriculture and agribusiness

13

32

20102009

Investment in fixed assets, USD mn

1.8%1.0%

445 7.0 656287

x Agribusiness (USD mn or ‘000 FTE)

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The sector is well diversified with export strengths in nuts, fruits, wine and live animals Processed

Fresh

Grain mill products, starch products,prepared animal feed

Bread, fresh pastry goods and cakes

Mineral water and soft drinks

Other food products

Cereals

Tobacco

Alcoholic beverages incl wine

Fishing and Fish farming

Live animals and animal products

Vegetables, horticultural specialities

Agricultural services

Fruits, nuts, beverage and spice crops

10

12

8

4

26

15

11

20

4

10

6

8 30

3

1 0

9

3

0

145

10

1 2

1

927

3

34

11

1

511

8

3

4

31

511

33

3,383

0 2

26

7

2

6

16

5

8

1,729

0

Share of fresh

Share of processed2

1284

445

1834

1549

270

656

223

287

2011

GDP Output Import Export

100% =

Trade is mainly regional and deficit has been widening

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Turkey Russia

184137

9087

6551Chocolate 4

Share of top exports2011, USD mn, percent

Share of top imports2011, USD mn, percent

Imports by country2010, percent

1911

Others

7

Azerbaijan

5USA

5Kazakhstan 10

Brazil11

Ukraine32

13068

5448

2815Sugar water

Live animalsWaterWineAlcoholic bev.Nuts 30

16

12

11

6

Poultry

Cooking oilCigaretteSugar

Wheat 16

11

8

7

5

Exports by country2010, percent

209

16

7

Germany Azerbaijan

Ukraine365Kazakhstan 7

Armenia

Others

Turkey

2003

0.2-0.2

2001

0.1

-1.52011

0.4

Agriculture tradeUSD bn

0.5

0

-0.5

-1.0

-1.2

-0.2

2009

-0.8

0.3

2007

-0.8

0.3

2005

-0.4

0.3

ExportImportNet trade

3

Agriculture lands and farms

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Number of farms

Agricultural land use

100% =

Commercialfarms

Semi-commercial

Subsistence

1,090,942 Ha

54.2

25.7

20.1

703,132

2.5

23.4

74.1

Average farm size (ha)xx

0.4

1.7

34.1

Average farm size2009, Ha

24,0

13,0

6,5

1,7

1,6

1,6

0,7

46.0

52.0

54.0

68.0

182.0

2010, percent

Production mode is on par with regional benchmarks yet trails advanced agriculture

www.investingeorgia.org 88

395

292

257

217

148

138

129

98

82

60

685

838

Machinery, tractors use2000, per 100 sq. km of arable land

181

167

148

125

109

96

43

30

29

16

13

504

Fertilizer use2010, kg/ha

Other hurdles in production mode▪ Intermittent (and counterfeit) supply of high quality seeds/saplings▪ Deterioration of obsolete irrigation now covers ~15% of arable land▪ Lack of post-harvest handling facilities (e.g., cold storage, packing, sorting) and distribution infrastructure

Georgia can prioritize development of crops/livestock with high productivity gain potential and sizable volume

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Neutral

Import reliant

Export-led

Import substitutionGross productionvalue (2010, USD mn)

Import-oriented Export-led

High productivity potential

Average productivity potential

Trade neutral

Medium productivity potential

Maize

Hazelnuts

Sheep meat

Potatoes

Honey

-20-70-180-185

Productivity gain potentialsTo-be to current ratio

Stone fruits

26

16

12

11

10

9

8

7

6

5

4

3

2

1

0

Trade balance, 2011, USD mn

706515105-5-10-15

Pear

Tobacco

Olive oil

Onions, dry

Barley

0

Apples

Beans, dry

Walnuts

Wheat

Cucumbers, gherkins

Citrus

Tomatoes

Hen eggs

Grapes

Pig meat

Chicken meat

Milk

Wine

Cattle meat

Potential priority crops

Import substitution opportunities

Export opportunities

Productivity gain opportunities

14 potential priorities crops/livestock to focus development efforts

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Georgia’s competitiveness High potential projects

Expo

rt-le

dD

omes

tic

Productivity gain potentials

Nuts (cultivationand processing)

▪ Top 5 global exporters of nuts, ideal growing conditions, commitment from Ferrero

Grapes (cultivation and winemaking)

▪ Distinctive varieties and growing conditions, traditional strong industry, access to CIS market, large base of experienced and low-cost labor in the sector

Lamb (husbandry and meat production)

▪ Well-reputed for lamb quality, significant export potentials to Middle Eastern markets

Citrus (cultivationand juices)

▪ Ideal growing conditions, multiple investors already establishing fruit, processing operation, large base of experienced and low-cost labor

Beef/dairy (milk and cattle meat production)

▪ Big import overhang, sizeable and fast growing domestic demand, good natural conditions for rearing

Pork (meat production) ▪ Import overhang, sizeable and fast growing domestic demand, good natural conditions for rearing

Poultry (chicken meat and egg production)

▪ Big import overhang, sizeable and fast growing domestic demand, commercial farms with intensive operations already in place

Olive oil (cultivationand processing)

▪ Large demand for oil-related products, good growing condition, access to CIS markets

Stone fruits (cultivationand juices)

▪ Ideal growing conditions, multiple investors already establishing fruit, processing operation, large base of experienced and low-cost labor

Tomato (cultivationand canned)

▪ Import overhang, low investment needed in greenhouse and irrigation, quicker to realize quality and yield improvements

Tobacco (plantationand processing)

▪ Sizable demand for tobacco and tobacco-related products, well-reputed for tobacco quality

Cucumber (cultivationand canned)

▪ Low investment needed in greenhouse and irrigation, quicker to realize quality and yield improvements

Apple (cultivationand canned)

▪ Ideal growing conditions, multiple investors already establishing fruit, processing operation, large base of experienced and low-cost labor

Onion (cultivation) ▪ Low investment needed, quicker to realize quality and yield improvements

Regional competitiveness and potentials map

Based on regional specialization (natural endowments, cultivation history), productivity and seasonality

Crop potentials by region

12

GEORGIAN NATIONAL INVESTMENT AGENCY

8, Rustaveli avenue, 0118 Tbilisi, Georgia

Tel/Fax: (+995 32) 2 281 196

E-mail: enquiry@investingeorgia.org

www.investingeorgia.org