Investments from the EU member states to Georgia exceeded 820 million US dollars and amounted to 45% of total foreign direct investments in 2014. This figure tripled for the last five years. Exports of Georgian products to the EU has also seen substantial growth. In particular, exports amounted to 650 million US dollars in 2014, which is twice as much as five years ago. Exports of agricultural products increased by almost 300% in 2010-2014 and made up 216 million US dollars last year. In January-September this year, the overall exports to the EU member states surpassed 470 million US dollars.
Almost half of Georgia’s workforce is employed in the agriculture sector. Nonetheless, the share of agricultural output in the gross domestic product (GDP) is merely 9%. The lack of productivity is due to a number of inter-related factors including the extreme fragmentation of agricultural land, low capital investments, lack of access to financial resources (credit) and problems of cooperation among farmers.
Georgian farmers are overwhelmingly (95%) small business operators who typically own 1.2 hectare of land. The land fragmentation resultedfrom the privatization process in the 1990s that allocated large chunks of the state-owned land to half a million farmers. Later, the consolidation of land plots, which is the main prerequisite for attracting investments and modernizing the sector, has been hampered by restrictions placed on the sale of land and tax exemptionsfor plots under 5 hectares. Moreover, due to the low level of cooperation among farmers, agriculture in Georgia turned into means of subsistence rather than business.
The EU has been funding projects aimed at addressing problems in Georgia’s agriculture since the 1990s. Initially, the budgetary support programs in the field of food safety were being implemented. The support package was significantly expanded afterwards. For instance, the EU funded program provided basic agricultural means of production and essential livelihood to the victims of 2008 Russia-Georgia war.
In 2013, the EU launched the European Neighborhood program for agriculture and rural development (ENPARD) worth 53 million EUROs. It seeks to improve both the state policy and legislation in the field of agriculture, as well as to facilitate cooperation among farmers in order to increase production and help reduce rural poverty. The lack of farmers’cooperatives makes the development of economies of scale in agriculture impossible. Thus, the amount of locally produced merchandise is small and cannot compete with imports.
ENPARD supported the creation of 900 agriculture cooperative that include 6,000 farmers. Moreover, the cooperatives were trained in business management; regional consultative centers were established to support farmers’ initiatives; and agro service centers were equipped. Increased cooperation among farmers leads to better access to financial resources. Usually, cooperatives find it easier to comply with the loan requirements of commercial banks compared to individual farmers. They also provide advantage whenplacingproducts onthe market. The more goods one produces, the better trade opportunities one gets.
The EU-Georgia deep and comprehensive free trade agreement (DCFTA) entered into force in September 2014. The customs duties were lifted between Georgia and the EU member states. Georgian exporters have been given additional opportunities to reduce expenses and gain footholdon the world’s largest market with the GDP exceeding 18 trillion US dollars. For instance, Georgian business operators are able to save 32 EUROs on every hectoliter of vine exported to the EU.
Georgian exports to the EU rose by 12% in the first 6 months of DCFTA despite economic problems that caused the overall exports to plummet. Exports of some agriculture products, including hazelnuts and fruit juices, doubled or even tripled. Wine export also rose by 6%. However, in order to allow Georgian businesses to gain full access to the EU market and facilitate further growth of exports, non-tariff barriers to trade must also be lifted.
The latter involves the approximation of trade related legislative and institutional frameworks between the parties to the agreement. In particular, DCFTA requires Georgia to implement food safety controls and technical supervision system in accordance with the EU standards. These measures aim to improve the quality of goods produced in Georgia and simplify their export to the EU market.
The EU has launched the program DCFTA Facility worth 37.5 million EUROs since 2015. The program helps small and medium-sized businesses to fully realize the potential of DCFTA. In particular, the program provides for the risk-sharing instruments that lower the lending risks for commercial banks and other financial institutions, and will therefore facilitate the financing of the economy. The DCFTA Facility also provides for currency hedging that will allow Georgian businesses to borrow in local currency at acceptable rates. Local business operators can make use of these possibilities to comply with the EU sanitary, phytosanitary and technical requirements. The DCFTA Facility is essentially an investment program that assists Georgian entrepreneurs to implement new standards and increases the export potential of Georgian merchandise.
