What will Georgia bring to EU market?
03 July, 2014
What will Georgia bring to EU market?
Georgia signed the associated agreement with the EU on 27 June and the Deep and Comprehensive Free Trade Agreement enters into effect soon between the two sides. This means a huge market of 500 million people with high purchase power becomes open to Georgian export. However, this huge market also challenges small and poorly developed Georgian production.

To have a deeper insight of opportunities and challenges the free trade with the EU holds for Georgian agriculture Georgian Journal interviewed Shalva
Pipia, Minister of Agriculture of Georgia.

Q: Mr. Minister, what prospects does the DCFTA hold for Georgian agriculture?

A: I believe this DCFTA offers the best paragraphs to Georgia: it allows Georgian entrepreneurs to export all our key products to the market with around 500 million consumers free from customs barriers. Accordingly, more competitive prices become available to our entrepreneurs.

Q: But the DCFTA still implies quotas and restrictions like the ad valorem component of the import duty to almost all products except the garlic.

A: In fact, garlic is the only product we have a quota at 220 tons while all other products are free in volumes and exempted from duties. That said, there are fixed volumes for some other products too but it means no restrictions. We just assume obligation that we will inform the EU if we exceed those volumes and then go ahead. The Ad Valorem component is built in the deal but it is so low that implies no risk to Georgian producers. It simply means that if the sale price of the export is lower of ad valorem price - that is a price fixed at the EU market - the producer must pay the difference between its sales price and the ad valorem price. The trick is that the ad valorem prices are so low in the EU that it is quite unimaginable that we will be selling any of our products cheaper. For example, the ad valorem price for citrus is between 45-50 cents while it is impossible to sell Georgian product below this if we take into account the production cost plus logistic and storage expenses. It will be higher at any rate. So, Georgian entrepreneurs face no ad valorem price risk in fact.

Q: Which products do you think have greater potential to be exported to the EU?

A: All the products that are already exported today like wine, mineral water, alcohol drinks, hazelnut, dry and frozen fruits, chestnut, will be exported free of customs duties now. In nearest future we expect to start exporting fresh fruits and citrus while honey and product subject to the veterinary product will go in the middle-term prospect.

Q: How long will this middle-term take?

A: We are the meat and dairy product importers as yet. Besides, we have number of regulations to approve. We have already approved changes to the national food code which is an umbrella document and a national program has already been approved. Within the next 7 years we have to change around 90 enactments from both veterinary and phytosanitary points of view. We already strengthened the National Food Agency, added 180 employees and four-fold increased the number of inspectors. The goal is to meet the EU standards on those products that we do not meet today and export them in near future. Now we are building the phytosanitary lab in order to have high quality referral lab on the herbal product. Besides, we have a plan to make the honey diagnostic and international certification available at our lab by the end of the year. Accordingly, in the first phase we will start honey production and then the fish and other product of animal origins will follow.

Q: The volumes have always been the problem of Georgian export. Do you think there is sufficient production of honey, wine or citrus to be exported to the EU?

A: But I believe there is a great potential for export. Georgian honey is in great demand in Turkey and, to my information, in the EU too, especially the chestnut honey. As of wine, I cannot say there is a volume problem. Wine export exceeded 50 million bottles last year and there is a potential for 100 million bottles as new vine-yards were deployed within last 2 years. Georgia is already an important player at the global hazelnut market. It was the third largest exporter and fifth largest producer of hazelnut last year and the production will only increase with new plantations.

Q: Some analysts fear that the huge EU agriculture goods supported by subsidies and modern know-how may kill the local production. What are the plans of Georgian government to increase the competitive power of Georgian agriculture?

A: Georgian export to the EU was 23% past year whereas the EU import was just 12% and I do not expect the figure to change much. The point is that in spite of high subsidizing of the EU agriculture its production price is too high first of all due to high salaries and high expenses on production and I do not expect this trend to change. We should not expect the EU production to suffocate us.

Q: Tangerines for example could not get a strong foothold even at the Ukrainian market due to low standards of package and logistic. How can they get this produce in the EU?

A: I can not agree with that, honestly. Tangerines were properly packed and we exported around 60 million tons of tangerine to many countries including the Ukraine past year that is an unprecedented statistic of the last 10 year. Logistic and standards are settled. As to effective production, we have some problems and are working on this. There was no scientific-research in the country, no new specimen were made and adopted. We set up a scientific-research center that will be focused on the transfer of technologies and new specimen.

Q: But the credits still remain unavailable and expensive to farmers, beside no alternative financial instruments like leasing or agriculture insurance is developed.

A: We are working on an agriculture insurance project together with the KFW that carries on a research and will offer certain projects soon. The cheap agro-credits [implying the state co-financing of banking loans] are on and will be continued, Produce in Georgia project focused on reprocessing industry has been added recently. We boost cooperatives by special consultancy and financial support programmes, provide consultation to farmers and entrepreneurs. As we have problems of professionals at every level in agriculture there is a project to raise due specialists. Besides, the Technical University together with the Iowa University launches training courses on agriculture direction.

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