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.

 

 

 

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