June 21, 2015 4 Comments
Zviad Khorguashvili of the thinktank GRASS has produced a concise and rather elegant analysis of the growth rate in Georgia’s agriculture sector, and raised two excellent questions that are posed altogether too infrequently.
Has the massive expenditure of taxpayers’ money on Georgian agriculture since October 2012 resulted in greater growth than if the State had restrained its spending?
If Georgia has a small proportion of its GDP contributed by agriculture, is that necessarily a bad thing?
The article can be read in its entirety here , but the charts are quite illuminating.
Real Growth Rate of Agriculture
The Russian Embargo on Georgian wine and other food products imposed in 2006 had a serious effect that continued to be felt until 2013. The large increase in growth in 2013 arguably can be attributed mostly to increased market access to the lucrative Russian market. Growth was still positive in 2014 but the drought seriously curtailed output amongst those farmers not using irrigation.
GDP Per Capita vs % of GDP generated by Agriculture
Source: World Bank
This World Bank data is common knowledge amongst development economists. The most productive and competitive agricultural producers in the world, such as Australia, New Zealand, Canada, USA and the EU (to a point) all concurrently have quite a small proportion of agriculture in their economies, while GDP per capita and living standards are nonetheless quite high. For some reason elements within the Georgian political spectrum find agriculture occupying a small proportion of the Georgian economy a badge of shame, which is irrational.
One should be careful what one wishes for; if the aim is to have agriculture at 50% of GDP, all one needs is to incite a vicious ethnic conflict, destruction of most infrastructure and the collapse of the formal economy, as witnessed in Somalia or Central African Republic, and one’s target will be achieved in short order.
Zviad’s call for a rigourous cost-benefit analysis is a sound one; of course taxpayers should know whether the funds they spend on particular programmes are effective. However, I would apply the proviso that cost-benefit analyses based on only two years of data (2013 and 2014) can provide a skewed outcome, given the massive impact of market access and drought on the figures, which is largely independent of government spending.
It would also be very interesting to study the correlation between growth in the agricultural economy, and previous Foreign Direct Investment in the sector (as a leading indicator, as it can take up to 5 years after breaking ground for many commercial agricultural projects to generate any cashflow). Given the tepid FDI in the sector since the ban on farmland purchase came into play in June 2013, it may not be until 2018 that the effect is fully apparent, if indeed such an effect exists. Our previous study on the effects of agricultural FDI on competitiveness suggests that such an effect exists and we did identify that the effects are not instantaneously observed due to the lag mentioned above.