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Ajara Agriculture Sector Competitiveness and Export Promotion Policy Study

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Ajara Agriculture Sector Competitiveness and Export Promotion Policy Study Ajara agriculture sector competitiveness and export promotion policy study Prepared by Dr Steve Goss for UNDP Co-financed by the EU through its European Neighbourhood Programme for Agriculture & Rural Development (ENPARD) BATUMI 2014 All right reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission. This is an independent publication commissioned by the United Nations Developmen Programme (UNDP). The views expressed in this publication are those of the authors and do not necessarily represent those of UNDP. Copyright UNDP, 2014 by the United Nations Development Programme cover and layout: CALLIGRAPHY Ltd. Printed in Georgia by Table of Contents 1 Introduction 6 1.1 Overview of Ajara 6 1.2 Regions of Ajara 7 1.2.1 Coastal strip 7 1.2.2 High mountains 8 1.2.3 Mountain valleys 9 1.3 Agricultural production and exports 9 1.3.1 Farm structures 10 1.3.2 Main products 10 1.3.3 Main exports 13 1.4 Focus of this study 13 1.4.1 The question of competitiveness 14 1.4.2 Exports and import substitution 15 1.4.3 Products and issues 16 2 Citrus 17 2.1 Background 17 2.2 Citrus production 18 2.2.1 Choice of crop 19 2.2.2 Production issues 20 2.2.3 Variety testing and sapling production by the AgriService Centre 21 2.3 Citrus marketing chains 22 2.3.1 Domestic marketing 22 2.3.2 Export marketing 24 2.3.3 Usage of sub-standard fruit 27 2.3.4 Consolidation centres 28 2.3.5 Price formation from farm to trader, exporter or processor 30 2.3.6 Economics of the marketing chain 33 2.4 Citrus export markets 38 2.4.1 Georgia in the world 38 2.4.2 Citrus markets 40 2.4.3 The destination of Georgian production 40 2.4.4 Income potential 45 2.5 Conclusions: The competitiveness of Ajaran mandarins 45 2.6 Recommendations for the mandarin value chain 48 3 Hazelnuts 48 3.1 Key statistics 48 3.1.1 Production 49 3.1.2 Trade 50 3.2 Hazelnut production and marketing 52 3.3 Potential for improvement 56 3.4 Conclusions and recommendations 57 3.4.1 Conclusions: Mandarins or hazelnuts? 57 3.4.2 Recommendations: Improve productivity through knowledge transfer 57 4 Cattle-potatoes-maize 58 4.1 Case study of “Did-ajara” village, Khulo region 58 4.2 Cattle 61 4.2.1 Key statistics 61 4.2.2 Cattle production and marketing 65 4.2.3 The potential to increase forage yields 69 4.2.4 The challenge of common pastures 71 4.3 Potatoes 72 4.3.1 Key statistics 72 4.3.2 Potato production and marketing 75 4.4 Maize 77 4.4.1 Key statistics 77 4.4.2 Maize in the Did-ajara case study 80 4.5 Current and potential whole-farm incomes 80 4.5.1 Quantity and price assumptions 81 4.5.2 Current whole-farm gross margin 82 4.5.3 Potential increase in gross margins 82 4.5.4 Conclusion: The scope to increase cattle profitability 84 5 Honey 85 5.1 Key statistics 85 5.1.1 Production 85 5.1.2 Trade 87 5.1.3 Consumption and supply balance 88 5.2 Honey production 89 5.3 Honey processing & marketing 91 5.3.1 Marketing routes 91 5.3.2 Marketing initiatives and opportunities 93 5.4 Exporting honey and other animal products to the EU 95 5.4.1 Central Competent Authority 96 5.4.2 Animal health situation 97 5.4.3 Public health situation and approved establishments 97 5.4.4 Residue monitoring 98 5.4.5 Marketing standards 100 5.5 Conclusions and recommendations 100 5.5.1 Scope for improvement 100 5.5.2 Obtaining EU approval for honey exports 102 6 Trout 103 6.1 Key statistics 103 6.2 Trout production and marketing 106 6.3 Conclusions and recommendations 109 7 Summary and conclusions on competitiveness and export promotion 111 7.1 How can Ajaran agriculture become more competitive? 112 7.2 Can Ajara compete? 114 7.3 Recommendations 118 Annexes 121 Annex 1. Survey of Batumi retail marketing 121 a. Retail market 121 b. “Goodwill” supermarket 121 c. “Yalçin” supermarket 122 d. “Willmart” supermarket 123 Annex 2. EU citrus marketing standards 124 1 Introduction The EU-funded European Neighbourhood Programme for Agriculture and Rural Development (ENPARD) began operating in Georgia in 2013 with the objective of boosting the production of food and reducing rural poverty, through strengthening of co-operation amongst small farmers and improved performance of the institutions engaged in agriculture. Its main partners are the Ministry of Agriculture of Georgia and the Ministry of Agriculture of the Autonomous Republic of Ajara, together with their agencies and other agricultural service providers. Project activities are implemented through FAO, local NGOs and in the case of Ajara UNDP, which also provides co-financing. The objective of this assignment was to prepare a study of agricultural competitiveness and export promotion, to contribute to policy development and programme implementation. The field work was carried out in a 3-week mission in January-February 2014, and the report submitted in March. 1.1 Overview of Ajara The Autonomous Republic of Ajara lies in the south-west corner of Georgia, with the Black Sea as its western border and Turkey to its south. It gained its current name in 1991 after the dissolution of the Soviet Union, where it was known as the Ajar Autonomous Soviet Socialist Republic.1 Certain responsibilities, such as foreign trade and defence, remain at the state level but Ajara has its own government with four ministries: finance and economy; labour, health and social care; education, culture and sport; and agriculture with the Ajara Ministry of Agriculture being the main counterpart for ENPARD Ajara. The Republic of Georgia has two large neighbours, Russia to the north and Turkey to the south- east, that have played major roles in its history, and also borders Armenia to the south and Azerbaijan to the south-west, as well as having 310 km of Black Sea coast. Every lorry-load of goods exported from Georgia must pass through one of these countries or leave by ship. Relations with Russia have been frequently difficult since the end of the Soviet Union, including a Russian import ban on Georgian products that began with wine in 2006, then added mineral water, and was soon extended to include citrus fruit. Conflict with Russia broke out in 2008 over the region of Abkhazia in the north-west corner of the country and the coastal region of South Ossetia, which borders Russia and includes the important Roki tunnel through the Greater Caucasus Mountains. By the end of August 2008 Georgia had effectively lost control of both these regions. Both countries cut off diplomatic relations with the other and closed their embassies. This all had considerable trade implications, including the continuing Russian embargo, complete closure of the road route along the Black Sea coast to the Russian city of Sochi, and major difficulties in trading through the Roki tunnel due to South Ossetian control and toll charges at one end and Russian control at the other. 1. For a summary of Ajara's long history and a discussion of some of the factors that led to its autonomous status, see http://en.wikipedia.org/wiki/Adjara. 6 The trade embargo had a dramatic impact on Ajara's citrus exports, for which Russia had been the main market, and an estimated 50 % of the 2006 crop was simply wasted for lack of markets.2 Traders worked hard to shift their exports to the Ukraine, which is now the largest export destination, though it is understood many of the imports are shipped on to Russia, Moldova and Belarus. Exports to Azerbaijan have also grown markedly, and it is believed that the majority of this fruit ultimately reaches the Russian market. The economic costs of this for Ajara have included higher transport and transaction costs, the share of the marketing margin being taken by the intermediary Ukranian and Azeri traders, and the various costs and lost opportunities resulting from the lack of stable trading relationships. Tensions with Russia have recently started to ease, with citrus exports being permitted from December 2013 and exports of wine and mineral water planned to restart in February 2014. On 19th December 2013, Vladimir Putin indicated in a press conference that diplomatic relations with Georgia might soon be resumed, though no official decision has yet been taken. These developments are viewed by farmers and traders with a mixture of excitement at the new export opportunities they offer, and nervousness that access could be cut off again at any moment.3 1.2 Regions of Ajara Ajara is divided into six administrative regions: Keda, Kobuleti, Khelvachauri, Shuakhevi, Khulo and the City of Batumi with its surrounding villages. It has considerable diversity within its 2,900 square kilometres, but can be roughly divided into three main agro- ecological zones: Coastal strip High mountains Mountain valleys 1.2.1 Coastal strip The coastal strip includes the western part of the regions of Khelvachauri in the south and Kobuleti in the north. It also contains the regional capital and port of Batumi, and the second city of Kobuleti. Along most of the coast, the land begins to rise almost immediately as you move inland, so this is a region of low hills.
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