From the ISET Economist news (http://www.iset.ge/news/?s=survival&lang=en)
By Nino Mosiashvili
The conclusion of the Association Agreement (AA) with the European Union was euphorically acclaimed by Georgian media as well as political and economic decision makers. Part of the AA is the Deep and Comprehensive Free Trade Agreement (DCFTA). The DCFTA is intended to liberalize trade between Georgia and the EU by lowering tariffs and reducing non-tariff barriers. For agriculture, the most relevant changes relate to food safety (bacterial contaminants, pesticides, inspection, and labeling) as well as animal and plant health (phytosanitation). For the manufacturing sector, the removal of so-called “technical barriers to trade” is similarly important, with the goal being to prevent the usage of technical standards as a means to protect domestic markets from foreign competition. “If regulations are set arbitrarily, they could be used as an excuse for protectionism”, states the World Trade Organization on its homepage.
It is clear that all these agreements require unilateral adjustment of Georgian regulations to European standards. Georgia is economically too small to impose its preferences on Europe. This is stated quite frankly in the AA, when it says that it aims to “support the efforts of Georgia to develop its economic potential via international cooperation, also through the approximation of its legislation to that of the European Union”.
Whether these unilateral adjustments are beneficial for Georgia is not generally clear. European regulations do not necessarily reflect “best international practice”. In democracies, laws and regulations come about through the lobbying efforts of political interest groups much more than through rational planning. In the future, internal political decisions made in the European Union will be relevant for Georgia much more than they were previously, and it will be more difficult to pursue policies tailored to the specific situation of Georgia.
Yet Georgia hopes that the convergence to European standards will make it easier for Georgian firms to access the European market. Most critical in this respect is Georgian agriculture, as it is the sector employing the bulk of the Georgian labor force, while it is at the same time dramatically lagging behind European productivity levels. In 2013, Georgia’s agriculture accounted for only 9.3% of the Georgian gross domestic product but employed about half of the labor force. Thus, one of the benchmarks for evaluating the usefulness of the DCFTA will be its impact on Georgian agriculture.
THROWN INTO THE WATER – WILL IT SWIM?
The impacts of the DCFTA for Georgia were assessed in a report with the lengthy title Trade Sustainability Impact Assessment in support of negotiations of a DCFTA between the EU and Georgia and the Republic of Moldova. It was written by a consortium consisting of the Dutch consulting company Ecorys and the The Center for Social and Economic Research (CASE), a Warsaw-based think tank. On a broad level, the report estimates that due to trade liberalization with the EU the national income of Georgia will increase by 291.9 million euro in the long run, corresponding to a GDP growth of 4.3%. This goes along with an increase in Georgian exports and imports by 12% and 7.5%, respectively, leading to an improvement of the Georgian trade balance. But what about agriculture?
According to the study, the DCFTA will have different effects on different agricultural products, and the overall picture is very ambivalent. The output of some product categories will increase, namely vegetable oils and fats (+6.7%), vegetables, fruits, nuts, and oilseeds(+3.4%), and animal products (+3.1%), while for many other products, the output is expected to shrink, e.g. livestock and meat products (-14.8%), other processed foods (-8.8%),beverages and tobacco (-4.0%), sugar (-2.4%), and other crops (-2.0%). The report attributes the increases to reductions of EU tariffs on Georgian exports and the decreases to the reduction of Georgian tariffs on goods imported from the EU. These numbers, if they say something about the true developments, suggest that parts of Georgia’s agricultural sector will get under severe pressure due to increased competition with European producers.
ECONOMIC DARWINISM
What are the implications for Georgian agricultural policy? Some of the producers will benefit from the integration into the European market, as they can stand the pressure and even expand in this highly competitive environment. Other producers are likely to run into essentially insoluble problems. One particularly beneficial category in this respect is vegetables, fruits, nuts, and oilseeds, because some of the products in that category (e.g. hazelnuts) are labor intensive and serve niche markets. This implies that more people can be employed in the production of these goods, making the transformation to a modern, efficient agriculture less painful, and it means that competition is lower and margins are higher. If policy recognizes these advantages, producers in that category might become “national champions”.
Currently, vegetables, fruits and nuts are in Georgia primarily produced by small and medium sized farmers. Due to lack of greenhouses the production is seasonal. Yet farms can be consolidated and technical equipment can be upgraded. In the end, it will be relevant that Georgia has fundamental advantages in the production of goods in that category, namely clean soils, little usage of chemicals, a relatively large amount of available land for cultivation, and a long tradition in vegetable and fruit production.
Moreover, about half of Georgia’s current export of vegetables, fruits, and nuts already goes to the EU, which means that Georgian producers already have “a foot in the door”. Currently, the exports almost entirely consist of hazelnuts (there are no tariffs, as hazelnuts are already covered by the GSP+ regime, and hazelnuts easily satisfy sanitary and phyto-sanitary standards). Thus, while the DCFTA may not change Georgia’s hazelnuts export to the EU significantly, there may be other niche products in this category, like berries and other kinds of nuts, which may benefit from the DCFTA, for example through adjustments of Georgian regulations regarding product packaging.
It will be important that policy will subscribe to what one might call “Economic Darwinism” – do not try to keep those producers alive that are incapable of surviving, but instead create good circumstances for those that have a future in Georgia.
The first Women’s Business Forum was held on the 31st of January, in Batumi, Ajara, the event hosted by the Association of Businesswomen of Ajara (ABWA) of the Ajara Chamber of Commerce and Industry (ACCI) in partnership with the Women’s Rooms municipal service. For the first time in Ajara, 140 representatives of local, regional and central government and private sector have gathered to share their experience and look for business growth opportunities.
For more information on the event's impression here .
The dream of many pop brands is to ‘make it in America’. Tsalka producer Tsezari Cheese Company, has started to do just that. Sun Breath Corps a Georgian distribution company based in New York contacted Tsezari through contacts related to the programme to export the cheese. Beginning in June1,200 kgs of Smoked Sulguni has so far been exported to New York, US. Tsezari who is HACCP certified and has been a main supplier of Sulguni cheese to the Carrefour chain in Georgia for over two years, can guarantee quality and a regular supply which is vital for successful export.
Batumi Boulevard is still buzzing from this summer’s sweetest festival, Honey Festival 2016. Organized for the second time by the Ajara Beekeepers Business Association on 13th of August. Last year’s debut festival was so impressive that this year’s festival had the support of governmental bodies Agroservice Center and the Cultural Heritage Preservation Agency of Ajara, who wanted to contribute to the festival and promote local honey production. Thus the festival was larger in scale this time, with activities taking place over two days, starting in Batumi Boulevard and closing in Gonio Fortress on 16th of August.
Informational leaflets on Animal Identification-Registration were distributed to the farmers of Samtskhe-Javakheti, Kvemo Kartli and Ajara regions by NFA representatives. These leaflets will serve to increase awareness of the compulsory EU regulation for preventing animal diseases, ensuring the health of animals and traceability that contributes to safe selling of meat, protecting consumers` rights and Georgia’s image as a country of high export potential. The NFA has also been providing vaccination for Foot and Mouth and blood tests for Brucellosis on the site. According to the latest data, 1 939 674 livestock and 140 466 small ruminants have been identified, and in total 994 058 animals have been registered.
The promotion of Ajara as a world class ecological hotspot and eco-tourism destination is soon set for a massive boost. Filming on the ALCP facilitated Eco Films production ‘Jara’, a 52 minutes, a half-wildlife, half-human story observational documentary about mountains of one specific region of Republic of Georgia – Ajara, is nearly complete and the production to bring together the material is now ongoing. The film has brought together various conservation stakeholders World Wildlife Fund Georgia, Caucasus Nature Fund, Eco Tours Georgia, Environmental Association Psovi, to produce what will be a stunning showcase of the beauty, nature and unique livelihoods of the rural inhabitants of Ajara.
The programme has already worked with EcoTours Ltd on developing Ajara as a destination for rural tourism based on nature and people. View their promotional video here and visit their website where they offer tailor-made tours to help you unlock the beauty of the region.
Source of Photos: Jara Documentary Film
