Diversification and Development in the Kakheti Food and Agriculture Sector
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DIVERSIFICATION AND DEVELOPMENT IN THE KAKHETI FOOD AND AGRICULTURE SECTOR Background and Recommendations Preparation Team: Editor/Author David Land Authors of Background Papers Lasha Dolidze, Team Leader Ana Godabrelidze, Grapes and Wine Konstantin Kobakhidze, Food Processing and Distribution Beka Tagauri, Primary Production, Processing, and Distribution Data Research Assistant Irene Mekerishvili UNDP Sophie Kemkhadze, Assistant Resident Representative George Nanobashvili, Economic Development Team Leader Vakhtang Piranishvili, Kakheti Regional Development Project Manager The views expressed here are those of the authors and not necessarily those of UNDP. This document is prepared and published with UNDP technical and financial support. Preparation of the document made possible with the financial contribution of the Romanian Government CONTENTS Table of Contents MESSAGE FROM UNDP RESIDENT REPRESENTATIVE ....................................................... 4 MESSAGE FROM MINISTER OF AGRICULTURE OF GEORGIA .......................................... 5 SUMMARY OF RECOMMENDATIONS FOR DEVELOPMENT ............................................. 8 CHAPTER 1. INTRODUCTION ................................................................................................ 10 CHAPTER 2. A REVIEW OF PRIMARY AGRICULTURAL PRODUCTION ........................... 12 CHAPTER 3. GRAPES AND WINE PRODUCTION ................................................................. 60 CHAPTER 4. AGRICULTURAL PROCESSING: STATUS AND OUTLOOK FOR GEORGIA .................................................................................................. 82 CHAPTER 5. AN OVERVIEW OF THE FOOD AND AGRICULTURAL DISTRIBUTION SECTOR ............................................................................................................ 96 CHAPTER 6. GOVERNMENT SUPPORT AND OTHER DEVELOPMENT CONSIDERATIONS ...................................................................................... 102 DIVERSIFICATION AND DEVELOPMENT IN THE KAKHETI FOOD AND AGRICULTURE SECTOR after independence and the subsequent confl icts, Kakheti have had their optimism dampened as to Georgia’s economy suff ered massively due to what might be accomplished in the region or their shocks to the system from the breakdown and belief daunted as to their ability to make it a reality. inherent ineffi ciencies of the centrally controlled As a consequence, UNDP is working closely with supply-distribution systems prevalent during the Government of Georgia, the Governor’s offi ce, Soviet times. Th e country’s agriculture suff ered and others within the region to meet the challenges severely during these years as well. However, it found, capitalize on the region’s vast potential, and, was also through reliance on agriculture that the as a result, bring about sustainable development country was able to survive as eff ectively as it did which will materially improve the lives of local during this period as a result of the distribution of residents and benefi t the nation as a whole. land to vast numbers of its citizens which allowed them to produce enough food to survive. Given the importance of agriculture in the region, it is my pleasure to present this report which Beginning in the mid-1990s, Georgia’s economy, provides extensive background information and to include the food and agriculture sector, began perspectives on Kakheti’s food and agriculture to recover. While for agriculture this recovery was sector. More importantly, the report presents very modest at fi rst, there were increasing signs in a broad range of recommendations which, if the 2000-2005 period that a breakthrough might adopted and successfully implemented, will help be about to happen for a number of agricultural bring about the progress and change within the and food products, to include many produced in region which we all believe is possible. We sincerely Kakheti. Th en came the Russian embargo, rising hope that this report, in concert with the Kakheti energy prices, the August war, and a declining Regional Development Strategy, will be the fi rst economy in many countries to which Georgia steps towards new multi-entity partnerships exported or hoped to export its food products. All (donors, government, farmers, investors, agro- these events reversed much of the progress which industries, universities) which will ultimately result had been made in the food and agriculture sector in a revitalized, signifi cantly expanded, and more and created a new set of challenges to those already profi table food and agriculture sector in Kakheti. in place, such as limited credit availability, small To that end, UNDP looks forward to continue its and fragmented farms, aging equipment, and work in this region and in this sector. the absence of an eff ective agriculture research, education, and extension system. Nowhere in UNDP Resident Representative Georgia were these eff ects and challenges more Robert Watkins greatly felt than in Kakheti, the wine and bread basket of the nation. Yet in spite of these increasingly diffi cult problems, neither the Georgian government nor the people of 4 DIVERSIFICATION AND DEVELOPMENT IN THE KAKHETI FOOD AND AGRICULTURE SECTOR Agriculture has a rich and distinguished history product diversifi cation as well as additional in Georgia with a more varied range of products vertical integration in products now simply than found in any other of the former Soviet sold in their raw or basic processed form. republics. At its peak, our nation provided over Additionally, creative new approaches must be 70% more food and agricultural goods to those found to secure the needed investment capital, to outside our borders than we were required to identify and adapt appropriate technologies, to import. Within this vital industry that provides provide farmers the intellectual and physical tools a livelihood to half our nation’s citizens, there is they will need to become more productive and no more important region than Kakheti. More profi table, and to craft a regulatory environment than one-third of our food and agricultural which is supportive rather than suppressive of the production comes from this easternmost part of industry and region it is trying to help. Georgia even though it has less than 10% of the nation’s population. As important as Kakheti’s Th e UNDP report, Diversifi cation and contribution is today, it has vast potential to Development in the Kakheti Food and contribute even more in the future. Agriculture Sector, is an invaluable fi rst step in assisting Georgia and the region to address Yet, in spite of this potential waiting to be tapped, eff ectively these challenges. Th e Ministry of the region also faces major challenges to its Agriculture and I personally, look forward to realization. Perhaps paramount among these is working with the Governor of Kakheti, the the Russian embargo imposed in late 2005 and Kakheti Regional Development Agency, UNDP, early 2006 which severely hurt our all important and others to realize Kakheti’s vast food and wine industry by eliminating over 90% of export agricultural potential to the benefi t of its people markets. However, the wine industry alone was not and the nation as a whole. harmed by these trade restrictions. It also severely aff ected the ability to export fresh fruits and vegetables produced in the region. Th us, Kakheti Minister of Agriculture of Georgia is not simply looking at how to take advantage of production and value-added opportunities which Bakur Kvezereli had never been realized since independence but also how to overcome the hardships which have been infl icted by the embargo. In both instances, this will require market and DIVERSIFICATION AND DEVELOPMENT IN THE KAKHETI FOOD AND AGRICULTURE SECTOR 5 ABBREVIATIONS: ADA Agribusiness Development Activity AOC Appellation d’origine Contrôlée AR Autonomous Republic ATC Agricultural Technical Colleges CIS Commonwealth of Independent States CNFA Citizens Network for Foreign Affairs DFA Dairy Farmers Association ENP European Neighborhood policy EU European Union EUREGAP Euro Retailer Produce Working Group: Good Agricultural Practice FAO Food and Agriculture Organization GDP Gross Domestic Product GEL Georgian Lari GRM GRM International HACCP Hazard Analysis and Critical Control Points ISO International Organization for Standardization JSC Joint Stock Company KRDS Kakheti Regional Development Strategy MCG Millennium Challenge Georgia MTEF Medium Term Expenditure Framework NGO Non Governmental Organization RDA Regional Development Agency SIDA Swedish International Development Cooperation Agency UNDP United Nations Development Programme UNESCAP United Nations Economic and Social Commission for Asia and the Pacific USAID United States Agency for International Development USDA United States Department of Agriculture VAT Value Added Tax WTO World Trade Organization DIVERSIFICATION AND DEVELOPMENT IN THE KAKHETI FOOD AND AGRICULTURE SECTOR INTRODUCTION KAKHETI FOOD AND AGRICULTURE SECTOR: A SUMMARY OF RECOMMENDATIONS FOR DEVELOPMENT 1. INTRODUCTION While the primary purpose of this report is to provide The Office of the Governor in Kakheti and the Kakheti background information on and development Regional Development Agency should have the primary recommendations for the food and agriculture sector responsibility for moving this process ahead, that of further in Kakheti, the second of these—development evaluating and eventually adopting the most promising recommendations—is by far the more important. Therefore,