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.
Referred to as Liquid Gold, for its color and perceived health benefits, Erbo the Georgian word for melted butter is a well-kept secret in Georgia. Traditionally made at home Erbo is much used in local traditional cuisines. Butter is an important fat in Georgia, very common in Azeri cuisine and in mountainous regions where both the harsh winter climates and distance from markets increased the importance of butter which can be stored, in communities dependent on dairy farming.
Now thanks to Milkeni Ltd who have started to produce and sell Erbo as part of their products made under the Georgian Milk Mark, quality assured Erbo is now available commercially for the first time in Georgia in Madagoni and Libre supermarkets chains. Interest and demand is growing rapidly.
Of all regions, perhaps Ajara is most famous for its use of Erbo. Most traditional Ajarian dishes contain Erbo. Borano is a dish of melted butter containing traditional Chechili cheese, a dish which been awarded the status of Intangible Cultural Heritage and Khavitsi a sauce made with flour and Erbo.
So what is special about Erbo? People believe that it is a healthy fat, processed differently and beneficially in the body and is well absorbed in the human body; it does not contain lactose and casein, so it is recommended for those with lactose intolerance. Mountain people believe Erbo boosts metabolism and energy, improving brain function, memory and their immune system.
In summer 2019, ten new Jara hives were placed in the Goderdzi Alpine Garden (GAG), Jara Beekeeping area, an area which aims to publicize Jara beekeeping and teach people interested in taking it up. With the help of the Jara Beekeepers Association (JBA) they were moved for wintering to Paksadzeebi Village in Khulo last autumn. Last week, all the hives were checked and fortunately, all the bee colonies are alive and working productively.
This Jara apiary is currently undergoing the Bio certification process and is due to obtain certification in July this year. It will be moved back to the GAG (Goderdzi Pass, 2000m above sea level) in May and be the focal point of Jara beekeeping workshops for school students and garden visitors.
The Goderdzi Alpine Garden is a tourist and environmental hub in the rural part of Ajara, Western Georgia. It involves and develops a sense of ownership for rural inhabitants in the field of biodiversity and environment, showcases the beauty and ecological assets of rural Ajara and generates added value from rural tourism for locals.
The Government of Georgia declared a curfew on March 30th, 2020 to restrict the spread of the COVID-19 virus which imposes restrictions on the movement of transport from 9:00 PM to 06:00 AM. However, producers and distributors of key commodities may apply to the Ministry of Environmental Protection and Agriculture (MEPA) for a permit to continue distribution. The Business Institute of Georgia (BIG) is currently helping GMM dairies to apply for this permission.
To gain permission follow these instructions:
- A producer/distributor should contact the MEPA on the hotline number - 247 01 01 or 1501 - and provide information about their activities and the need for permission.
- The MEPA will send the applicant an email address and an application form to send to this address. The application form requires information about the distribution driver (ID number, name, surname, date of birth, phone number, workplace and title) and distribution car (registration number of vehicle, brand, model, type, ID number of a company who is the owner of a vehicle, a type of business).
- The MEPA will respond to the company about issuing permission.
- After that, the company should call the Emergency Number 112 and check whether the information about the distribution car and driver is listed in the Ministry of Internal Affairs database.
Amidst the negative news and stories of unthinking behaviour, some stories have emerged globally of people and business who have responded to the crisis with kindness and generosity. These stories fill all of us with a sense of hope and comfort in our ability to work together. So we are delighted to be able to share the stories of some of the ALCP clients who have been contributing to the common good over the past week:
Roki Ltd, the largest veterinary input supplier and producer in Georgia, has started the production of a new hand sanitizer Septer as a response to increased demand. Supplies sold out in a day to banks, the Ministry of Education and clinics and there is a new order for four tonnes of Septer from the government. The company closely cooperated with the government in developing the product trying to use its resources for the benefit of all;
A GMM cheese distributor has organized the collection of cheese from eleven Georgian Milk Mark dairies: Milkeni, Tsintskaro +, Cheese Hut, Shuamta, Tvisis Kveli, Tsifora –Samtkhe, Tsezari, Coop. Khiza, Coop. Disveli, Teleti Ltd, I.E. Hakob Hambaryan and distributed it to theInfectious Diseases and AIDS Center in Tbilisi to support medical staff during the outbreak;
GMM dairy Tsipora Ltd in Samtkhe-Javakheti has supplied cheese to the Abastumani Lung Center.
Tsivis Kveli Ltd Kakheti brought cheese to the hotel Chateau Mere in Kakheti - for those under quarantine;
The Georgian Beekeepers Union initiated the collection of honey from local beekeepers across the country to supply people in vulnerable groups.
The KTW group offered the government the use of their forty-one rooms hotel-complex Akhasheni Wine Resort &Spa, for arranging a quarantine zone in Kakheti region.
In a country first, eighteen Jara beekeepers in Ajara have received Bio certification. Jara honey was not even commercially harvested and branded until 2018, however the market for the honey has proved its strength so successfully that the beekeepers saw the opportunity to further promote their product through bio certification.
The conversion was relatively simple and certainly achievable as Jara honey is based on the capture of wild swarms and is relatively hands off. Since November 2018, the Jara Beekeepers Association (JBA) has been facilitating training and on-site recommendations; it also provides treatment of hives with a Bio vet medicine and special equipment for the mentioned Jara beekeepers. The beekeepers now follow the bio requirements; including keeping records, better husbandry, use of bio vet medicine. This allowed for smooth journey through the minimum one-year conversion period for certification.
Caucascert, the only organic certification company in Georgia issued the internationally recognized Bio certificates after laboratory results and field checks, which did not show any incompliance.
‘I am very proud that I was able to get Bio certification. It was challenging, as I did not have any kind of information before, but support from the JBA was crucial. I can already see the outcomes, because the process already contributed to minimizing disease risk and increase productivity of a Jara hive by thirty percent’ – Bio certified Jara beekeeper from Keda municipality.
Six more Jara beekeepers, including the Jara apiary in the Goderdzi Alpine Garden, are currently undergoing the certification process and might obtain certification by the end of this year.
The Jara honey mark was registered in February, 2020 and both its production and the market for it, including export is growing. More details on Jara honey to be found on www.jarahoney.com.
As part of the agreement which allows Georgian Honey to be exported to the EU, the government annually carries out a Residue Monitoring survey. Worryingly high residues of prohibited antibiotics were found in previous years (see infographic below). 2019 however saw national information campaign carried by the Georgian Beekeepers Union, who developed and disseminated Do’s and Don’ts Antibiotic Use Infographic and facilitated breakthrough legislation adopted by the Government of Georgia, which prohibits registration of the beekeeping vet medicines containing restricted antibiotics, among others. As a result, this year, only eight percent of honey samples tested positive for prohibited substances, compared to fifty-four percent of the last year, according to the Residue Monitoring Plan results, made by the National Food Agency in the BIOR laboratory in Riga, Latvia.
It is a significant achievement for Georgian honey export opportunities and expanding markets.
