Foreign Investment in Georgian Farmland….Policy Still a Work-in-Progress

For five years, uncertainty surrounding foreign investment in farmland has damaged investor sentiment in the Georgian agribusiness sector. Numerous moratoria, reviews, new constitutional amendments which breach dozens of bilateral investment protection treaties, drafts and redrafts of Land Laws have been publicised by parliament and various government ministries. In the meantime, FDI in agribusiness has plummeted to a few million dollars a year, and the banking sector (much of which has foreign shareholding) has effectively withdrawn from financing agribusinesses. Less than USD$80 million in loans to the agricultural sector has been issued by Georgian banks as a result of this government intervention , according to the head of Parliament’s Agriculture Committee 

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A draft of the new Land Law governing exceptions to the constitutional ban on foreign farmland investment is now circulating. For years now, the international business chambers such as Amcham Georgia and the International Chamber of Commerce have been agitating for a prompt and pragmatic resolution of this issue that will reinvigorate investor sentiment in the agricultural sector, and once again start creating rural jobs and novel export markets for Georgia. For the past six years, much of local civil society and the local Georgian business chambers have been mute on the subject, or expressed only mild objection to government intervening in the market.

Something seems to have changed. The banks are now quite vocal in their disapproval of government policy in regards to farmland; while agriculture is not their bread-and-butter business, they would like enlarge this part of their portfolio and to finance sound rural projects. Prudence prevents them from doing so if land is the major source of collateral, largely due to government policy.

Even more pleasing is that civil society is now likewise speaking out on this issue. Transparency International adopted this issue as a cause celebre  some years ago, concerned not only about the economic rights of foreign investors, but also the economic rights of Georgians to engage in trade, finance, mortgage or joint venture with partners of their choice, not that of a government committee. Leading thinktank, The Agricultural Policy Research Centre at ISET Policy Institute, has likewise been voicing concern over land ownership restrictions for some time and is currently active on this subject.

Domestic NGO’s such as the Georgian Farmers’ Association are now expressing their concern that a two-tier regulatory approach for foreign-invested and domestic agribusinesses will discourage foreign investment, while failing to stimulate domestic landowners to develop and commercially exploit their landholdings. Given that domestic landowners own more than 90% of farmland in the country, and a substantial proportion no longer live in Georgia and leave their land lying fallow in their absence, this is a very sound and pragmatic approach from this local NGO.

The Business Association of Georgia, one of the most powerful business chambers in the country, has taken a low-key approach to this issue over the past six years but now is also more vocal in identifying problems with government policy in this regard.  This is a gratifying development.

Perhaps stimulating the local outcry regarding government intervention in the investment environment is that most measurements of rural resident wellbeing and agricultural productivity have been on a flat or downward trend for the past 6 years. Adjusted for inflation, household income and value-added per household in the countryside are lower than they were in 2012. The area of farmland being actively exploited has trended downwards for the past four years; still almost half of Georgian farmland lies fallow while we import much of our food from abroad. Crop yields have remained stagnant at 25-30% of western European norms with no upward trend. Crop losses due to marmorated stinkbug infestation in western Georgia have caused great hardship. Under such conditions, deliberately turning away foreign investors who wish to create jobs, train people, introduce new technology and develop novel export markets seems counter-intuitive. Likewise, making it difficult for foreign-funded financial institutions to lend to the sector is not helpful.

There are of course bright spots in the agricultural sector, with exports of wine and horticultural products growing at a very pleasing rate, including to novel markets like China, Japan and the EU, bolstered by free trade agreements and GSP arrangements. Steady progress is being made in improving reliability of irrigation water supply. The area planted to high value perennial crops like grapevine, orchard crops and bayleaf is trending upwards, and these are somewhat labour-intensive to develop and operate, with positive implications for rural employment in the mid-term.

It is to be hoped that the Georgian parliament will take into consideration, not only the objections of foreign investors and their lobby groups, but domestic investors who are seeing their businesses impaired by restrictive legislation, and NGO’s who are seeing the welfare of rural communities adversely affected by ill-advised policy. Most serious stakeholders in the industry, foreign or domestic, have a similar desire to see a competitive rural industry develop that will provide satisfactory livelihoods to rural people, while improving Georgia’s food security, economic and demographic situation.

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Constitutional Changes to Farmland Ownership Rights in Georgia

After almost five years of uncertainty, the Georgian Parliament finally approved a number of changes to the Georgian Constitution. In Georgia, the constitution can be altered if 2/3 of sitting parliamentarians approve the changes; no referendum or plebiscite is needed.

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Of considerable concern is the new amendment restricting farmland purchase to Georgians only. Until yesterday, the right of Georgians to sell or mortgage their property to anybody they wished, foreign or Georgian, was enshrined in the Constitution. The numerous moratoria and bureaucratic obstructions of lawful land title transfer of the past 5 years were a direct contravention of the constitutional rights of Georgia’s 600,000 landowners, with thousands of Georgian families and businesses suffering economic damage as a result. Foreign-invested agribusinesses have also suffered difficulty and uncertainty, with many exiting the market in frustration.

Translation of Article 19 point 4 of the Georgian Constitution now reads:

“Agricultural land as a resource of a special significance may only be in the ownership of the state, a municipality, a Georgian citizen or an association of Georgian citizens. Exceptions thereto can be stipulated by an organic law adopted by a majority of two thirds of the total number of the members of the Parliament of Georgia.”

Key issues:

  • Ordinary Acts of Parliament (“organic laws”) generally only require a simple majority to pass in a parliamentary session. The government is deliberately making this intervention in the market more difficult to repeal in future parliaments.
  • The exceptions stipulated are still being considered by Parliament; it is imagined that criteria including technology transfer, employment, and opening up of novel export markets may have some bearing on such exceptions. It is not settled yet as to which body or committee shall rule on individuals or companies applying for such exceptions.
  • Georgia has signed Bilateral Investment Protection Treaties with several dozen countries. A common theme in such treaties is that foreign investors in Georgia shall have market access and property rights no less favourable than a Georgian investor might experience in that counterpart foreign country. Any new organic law on farmland ownership will have to take that into account, lest Georgia be deluged with Breach of Treaty lawsuits and suffer an overflow of negative sentiment into non-agricultural investment sectors.

Most of the domestic and international business organisations in Georgia will continue to lobby the Parliament to make criteria for exceptions very transparent and for agricultural investments (other than pure land bank speculation) to be subject to as little restriction as possible, in the national interest.

By comparison, foreign-invested companies domiciled in Armenia may buy freehold farmland in Armenia without restriction or any approval process. Farmland in Armenia is roughly 2-3 times the price that of equivalent land in Georgia as a result. Armenia’s farmland inventory is fragmented, as is Georgia’s, but interest in capital-intensive, modern agriculture is strong, from diaspora Armenians, as well as Europeans, Gulf Arabs, Iranians and Indians. Many of these foreign investors had spent considerable effort trying to make investments in Georgian agribusiness in the past 5 years, and given up in frustration. With capital investments between USD$30,000-$1 million per hectare involved in the orchard, vineyard and greenhouse sectors, Armenia’s existing satisfactory food security situation is being enhanced by robust food and beverage export development to Russia, Iran, UAE and China, fuelled by foreign investment and technology. World-renowned European and American investors in the wine industry, independent of the existing strong support for this sector amongst the Armenian diaspora, are transferring much-needed viticultural and winemaking expertise to local professionals, and developing lucrative markets in the US and Europe amongst affluent consumers who have never been exposed to Armenia or Armenian products before.

Armenian pragmatism means that Armenia is now attracting much more FDI in agriculture than Georgia is, with the resulting jobs, training and export markets this brings. In 2015, Armenia attracted USD$25 million in agricultural FDI (cp. $14.5 million in Georgia), and USD$21 million in food and beverage manufacture FDI. Agricultural FDI in Armenia in 2017 is likely to exceed USD$100 million, compared to a paltry $10 million in Georgia for 2017. This diverging trend will increase to Georgia’s detriment unless calm heads prevail amongst those responsible for drafting the organic law on farmland ownership in Georgia.

 

 

 

Electromagnetic Induction Scanning; Men at Work

Some footage of our soil scanning/mapping activity.

Scanning is best done when soil is moist but not saturated. Most of the time a small SUV or quadbike is perfectly adequate to tow the sled that the probe is mounted in, but occasionally heavy rain will demand that we swap to a tractor.

 

While an interim electronic map of territory scanned can be developed on a daily basis, validation of the electrical conductivity, and correlation with other parameters like nutrients and texture, needs to be done on a regular basis.

We anticipate heavy demand for this service this autumn, so book early!

Wine Exports and Brexit; Does This Create Opportunities for Georgia?

While perusing Mike Veseth’s excellent US-based blog, The Wine Economist, I stumbled upon his review of a scholarly paper published by Australian economists Kym Anderson from the University of Adelaide and Glyn Wittwer  from Victoria University regarding Brexit and the wine market.

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Kym Anderson is Executive Director of the Wine Economics Research centre at University of Adelaide, the premier wine economics facility in the Southern Hemisphere, and having spent some time here in Georgia, has written extensively on trade blocs and technology uptake, and their likely impact on Georgian wine exports.

The UK imports over 1.8 billion bottles of wine a year; less than 1% of consumption is satisfied by domestic wine production. Existing free-trade arrangements with the EU are coupled with concessional market access for South African and Chilean wine at present.

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FIGURE 1: WINE’S SHARES OF UK MERCHANDISE IMPORT VALUE SINCE 1800 AND OF VOLUME AND VALUE OF UK ALCOHOL CONSUMPTION,a 1950 TO 2015 (%)

 

The chart is taken from Anderson and Wittwer‘s paper. While the UK has been importing table wines and fortified wines from France, Spain and Portugal for over 500 years, the chart above shows that wine consumption is a comparatively recent phenomenon amongst the masses, with wine now making up around a third of all alcohol consumed in the UK by volume, and almost a half of all alcohol consumed by value.

This has relevance to Georgia as, unlike France, Italy, Spain, or Portugal, the vast majority of British wine consumers are only first- or second-generation wine drinkers. The willingness to try something novel or exotic is more developed amongst such consumers, which creates opportunities for up-and-coming wine regions.

The “Free Trade” scenario put forward by the authors could put Georgia, and possibly Armenia, in a more advantageous position. Tariff treatment of wines from the Caucasus would be identical to that of European, Australian, South African or South American wines.

The “Large Brexit” would see Georgian wines facing a higher level of tariff than South African and Chilean wines. However, tariffs are rather small compared to domestic UK excise tax.

There is a third option not considered, of the UK negotiating a FTA with Australia, New Zealand, USA and Canada, while retaining tariffs on EU and Caucasus wines. The tariff situation does not favour Georgian exports. However, more robust trade and investment between the four Anglophone economies would likely add 10-20% to the GDP growth figures of the participants in this FTA, which would likely increase demand for wine, including that from Georgia. Much the the academic establishment would disagree with me on that claim, but my guess is that the UK’s economy 5 years after Brexit will be a great deal more robust than most project.

Overall, a thought provoking and interesting article with relevance for wine producers in this region.

 

 

 

Soil Mapping with Electromagnetic Induction Scanning

Last year we completed a substantial assignment for a large cotton grower in Azerbaijan. Having acquired over 6000 hectares of undeveloped territory in an area with a high water table and issues with salinity, they were aware that a properly designed drainage system would be needed to enable leaching of salts out of the soil and into drains. Over time this will render the soils less saline, improve plant productivity, and allow for more salt-sensitive crops than cotton to be grown as rotation crops. There was also interest in what crops should be grown where, and what fertiliser regimes would be needed to meet certain yield targets.

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The classical approach to soil surveying for such a task is to divide the property up into a grid, and sample soil and groundwater at the grid square intersections, like so.

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Fig. 1: Preplotting soil test sites using a grid generator (PAM software)

The technology for assessing soil type/characteristics without digging holes has advanced to the stage whereby using an Electromagnetic Induction (EMI) probe towed behind a vehicle, a basic map of electrical conductivity can be developed. Soil samples can then be taken from within areas of certain EM characteristics as needed, instead of at regular intervals, potentially saving a great deal of time and money on soil testing of fields with very regular soils, and identifying otherwise undetected variation within a field, down to an accuracy of a few centimetres.

Depending on probe design, scanning may be done at more than one depth; 4 depths is common (e.g. 20,40,60 and 80 cm).

Because electrical conductivity is correlated with many soil parameters of practical importance, such as soil texture, nutrient content, salinity, field capacity/wilting point, Cation Exchange Capacity and so on, we can pre-plot soil sample sites after scanning, and cross-reference soil test results with the EM data to develop quite accurate maps of key soil characteristics. Concurrently, we can map elevation of each square metre of the field.

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Fig. 3 Elevation

 

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Fig. 4 Soil Texture

 

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Fig 5: Field Capacity (Available Moisture at 1/3 Bar)

Field Capacity

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Fig. 6 Soluble Salts

 

The practical applications of this are:

  • Capacity to design and install a precision irrigation system, to ensure that water is applied according to plant need and underlying soil type in various management zones. Water usage and pumping costs per tonne of product can be brought down accordingly.
  • Determine which soil type zones are suitable for which types of crop.
  • Determine exactly where soil amendments like gypsum should be applied to remediate salinity, with clear demarcations between areas requiring such intervention.
  • Target future annual pre-season soil tests and mid-season tissue tests within clearly demarcated zones based on underlying soil type.
  • Modify seeding rates according to soil type zones, to reduce seed cost/tonne of product harvested.
  • Modify fertiliser application rates according to clearly demarcated soil type zones, to reduce fertiliser cost/tonne of product harvested.

These datasets may be used to develop variable rate seeding or variable rate fertiliser application plans for in-cab computer systems, allowing the operator to have the computer automatically adjusting dosage according to need without manual adjustment.

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Fig 7. Nitrogen Application recommendation, cotton

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Fig 8. Phosphate application recommendations

They may also be used in precision irrigation systems to divide fields up into irrigation management zones based on underlying soil type, and to use data from soil moisture sensors to apply exactly the desired amount of water to each small irrigation zone, even under one pivot.

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Fig. 9 , Variable Rate Irrigation Zone Control (from Valley Irrigation)

 

This has application for drip systems in vineyards and orchards also. The following diagrams were part of a 2016 presentation delivered by Luis Sanchez from major US wine company E. & J. Gallo Winery

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Fig. 11: Soil Composition of Vineyard; s= sand sl = sandy loam ls = loamy sand

 

 

Yield Map

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Fig 12: Yield/acre

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Fig 13: Variable Rate Irrigation Design; 96 irrigation zones, 30x30m each, 24.4 acres, Includes Variable Rate fertilisation

 

For more information on how we can map your property and save you money on seed, fertiliser and water pumping costs, and how we can optimise your yield/quality balance in your vineyards to enhance your profits, contact us here

 

Agribusiness Leadership Programme backed by YFN Georgia

It is now 20 years since our founder, Simon Appleby, established his first agribusiness operation in Southeast Asia under the umbrella of YFN Georgia’s East Asian sister company. Looking back over two decades of tremendously hard work, laughter, frustration and satisfaction in emerging markets agribusiness, we recognise that leadership is just as important as technical mastery or market penetration. Our senior personnel have all benefited greatly from mentors in their youth, and from membership of voluntary networks dedicated to developing leadership and technical capability. We wish to ensure that our promising young leaders in the South Caucasus enjoy the same opportunities for growth and good fellowship that we have enjoyed early in our careers. For this reason, we have developed the local chapter of the Nuffield Farm Scholarship Programme.

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The Nuffield Farm Scholarship Programme was developed around 70 years ago, supported by an endowment from British industrialist Lord Nuffield. The programme selected the best and brightest farmers from Britain for a two year period of leadership training, travel, study, and dissemination of knowledge acquired to local industry, to great effect.

The programme spread rapidly through the Commonwealth and Ireland, with Nuffield Scholars drawn from Canada, Australia, New Zealand and South Africa. More recently, France and the Netherlands have become member countries of the programme, with countries such as Brazil, India, China, Mozambique, Indonesia, Japan and the United States as associate member countries.

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A network of 1600 Nuffield Scholars is now in place worldwide, including captains of agro-industry, senior government decision makers and successful owner-operators of family-owned farm businesses. Past scholars have regular networking opportunities at the Annual Farming Conference in November incorporating all of the Nuffield networks from around the world, as well as regular national meetings and conferences. Current Scholars not only enjoy these opportunities, but also the Contemporary Scholars Conference, the Global Focus Programme tours in small groups examining world’s best practice in agriculture for up to 7 weeks, and their own tailored travel programme for the individual research project, from 3-11 months in length. Scholars’ research projects are presented at the Annual Conference to all other scholars, and upon return to their home countries a programme of public speaking and knowledge transfer is arranged for the benefit of local industry.

Nuffield Scholars from Australia and New Zealand share their experiences from their Scholarships.

 

YFN Georgia is currently providing the Secretariat for Nuffield Caucasus, a Georgian-registered NGO tasked with developing a funding network for local scholars from the South Caucasus, and identifying suitable potential Scholars. Nuffield Caucasus shall be approaching industry, government and donors to support Scholars from Georgia initially, and eventually from the whole region.

For potential Scholars and private companies seeking information on the Nuffield Farm Scholarship Programme, click here

For government agencies and foreign donors seeking information on how to support Nuffield Caucasus, click here

Further details can be obtained by contacting YFN Georgia’s Philanthropy Manager, Ms Tamara Mamukelashvili. 

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Educated in Cyprus and California, and with a background in the arts and marketing, Tamara is responsible for three philanthropic ventures developed by YFN Georgia, all involving substantial international interaction.

 

 

New Subsidiary Company, Kartlos Group

In December 2015, we established a new Joint Venture company with American real estate entrepreneur Andrew Earl, Kartlos Group.

Kartlos Group Georgia

Our primary focus is agritourism and mountain tourism resort development in the South Caucasus region. We have a number of investment projects and advisory mandates underway, and will be establishing an independent social media presence for the company soon. Further information can be seen at our website