New Logistics Options for Georgian Wine and Nuts

This month, a train from Lianyunyang port in East China’s Jiangsu province arrived in Tbilisi. Performed as a test shipment, the exercise was designed to test how a shipment of non-perishable goods (in this case electronics) could travel through China’s domestic rail network to its border with Kazakhstan at Korgas, through the Kazakhstan rail network to Aktau, cross the Caspian on a ferry to Azerbaijan’s capital Baku, and then travel to Tbilisi.

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The duration of travel for this journey was 15 days, which compares with the current 10-15 days that container freight on trucks taking the same route. It is 25 days shorter than the same route by sea.

From Civil.ge

According to the state-owned Georgian Railway one more container train is scheduled to deliver cargo via Georgia through this Trans-Caspian International Transport Route. The Georgian Railway also said, without specifying figures, that it expects “several thousand” of containers to be shipped via this route in 2016. Georgia hopes that completion of the Baku-Tbilisi-Kars railway in 2016, that will link Azerbaijan with Turkey via Georgia, will increase efficiency of the route.

It is worth noting that this route runs in parallel with China’s planned high-speed rail network routed between Turkey and China via Iran.

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As can be seen, the planned high-speed link bypasses Georgia and the Caspian altogether, with no need for moving carriages onto ferries for a slow trip over the Caspian Sea. It also avoids passing through either Azerbaijani or Armenian territory, which may or may not be linked to regional security issues. Using standard high-speed rail technology, cruising at 200-250 km/hour, a trip from Julfa in northern Iran to China’s Eastern or Southern coastal cities( a journey of 8000 km), could be accomplished in 2-3 days. Likewise, freight from Julfa to New Delhi (around 4000 km) could be accomplished in 1-2 days.

A high-speed spur line from Julfa, through Azerbaijan to Tbilisi and onwards to Poti and Anaklia would make sense, but it is not yet known if that is planned.

The high cost of freight and ponderous speed of transit has been an impediment to Georgian exports of agricultural produce to East Asia and South Asia. Wine and hazelnuts are products that Georgia has certain competitive advantages in producing, and hopefully faster, cheaper freight with better temperature control will improve competitiveness of Georgian exports in those markets

 

 

Grape Subsidy and the Way Forward

Factcheck‘s article lays out key data on the nature of Georgia’s grape subsidies, which have been wound back substantially this year. It is worth reading in its entirety, but the basic data is interesting reading. Various parties suggest that subsidy should be rerouted towards improving vineyard productivity, and hence reducing the cost of production per tonne of grape. This is worthy of serious consideration.

ISET Policy Institute also performed a brief review of this subject, and suggested that subsidies should be directed towards wine export market diversification, rather than grape subsidy. In this way, it is suggested that vignerons would hence be buffered from wild swings in price due to difficulties in Georgia’s traditional markets.

Aus Vineyard

It has already become a “tradition” in Georgia that the grape harvesting process is always paired with some sort of public agiotage with the 2015 grape harvest being no exception. The low grape prices have seriously angered farmers from the Kakheti region who were expecting continued subsidisation and not the prices for 2015 which are, for them, unacceptable. As a result, some farmers have joined in protests against the low prices. Given the importance of this issue, we attempted to analyse the situation in Georgian viticulture and winery over the past several years.

Vineyards occupy a total of 37,419 hectares in Georgia (according to the agricultural census of 2004) of which 22,227 hectares are located in the Kakheti region. A total of 5,000 hectares of new vineyards wereplanted in Georgia in 2013 and 2014 (4,700 hectares in Kakheti). According to the explanation of industry specialists, the planting of new vineyards (in 2013 and 2014) was due to the successful grape harvests of the past several years and the high incomes from the sold grapes.

According to the data of the National Statistics Office of Georgia, the largest amount of grapes, after 2007 (227,000 tonnes), was harvested in 2014 (224,000 tonnes). The share of the Kakheti region in the overall amount of harvested grapes varied from 51% to 71% from 2007 to 2015. The amount of grapes processed for industrial purposes over the years changed as follows:

Table 1: Amount of Grapes Processed for Industrial Purposes from 2009 to 2014

Year 2009 2010 2011 2012 2013 2014
Amount of Processed Grapes (Tonnes) 23,000 23,000 43,500 54,000 92,773 124,606

Source: Ministry of Agriculture of Georgia

The amount of revenues from processing grapes equalled GEL 116 million in 2013 whilst the revenues in the Kakheti region alone were GEL 102 million. The overall amount of revenues from processing grapes equalled GEL 177 million including GEL 114 million to Kakheti. As of today, the amount of processed grapes equals 143,167 tonnes of grapes and the revenues amounted to GEL 102,341,924.

It should be pointed out that, over the years, grape prices, including subsidies, changed as follows:

Table 2: Prices of White and Red Grapes (in GEL) from 2010 to 2014

Year 2010 2011 2012 2013 2014
White GEL 0.60 GEL 0.70 GEL 1 GEL 1 GEL 1
Red GEL 0.80 GEL 1 GEL 1 GEL 1.3 GEL 1.95
Racha (Red) GEL 3 GEL 3 GEL 4 GEL 8 GEL 8

Source: Ministry of Agriculture of Georgia

As for the role of the government in determining grape prices, the state has been subsidising the grape harvest since 2008. The government decided to subsidise the grape harvest in order to neutralise the negative effects caused by the Russian embargo and encourage the fields of viticulture and winery. The amount of subsidies for grapes by year was as follows:

Table 3: Amount of Money in GEL for the Subsidisation of Grapes from 2008 to 2014

Year 2008 2009 2010 2011 2012 2013 2014 2015
Rkatsiteli 0.15 0.15 0.15 0.15 0.25 0.40 0.35 0.35
Saperavi 0.25 0.25 0.25 0.25 0.35 0.35 0.15 0.15
Mujuretuli 1.0 1.0 1.0 1.0
Overall 6.1 Million 5.5 Million 4.7 Million 8.7 Million 14.8 Million 32 Million 32 Million 30 Million

Source: Ministry of Agriculture of Georgia

It should be noted that wine is among the top ten Georgian export goods and its share of overall export constituted 6.3% in 2014. The amount of exported wine by year was as follows:

Table 4: Wine Export from 2010 to 2015

Year 2010 2011 2012 2013 2014 2015 I-II Quarters
Wine Exports (0.75 Liter Bottles) 15 Million 19 Million 23 Million 46 Million 59 Million 13 Million

Source: National Wine Agency

Georgian wine was exported to 61 countries from 2010 to 2014. The top five export destination countries for wine from 2010 to 2012 barely changed (Ukraine, Kazakhstan, Belarus, Poland and Latvia). Since 2013-2014, after the abolition of the Russian embargo, it has firmly occupied the first place in export destination countries:  a total of 22,997,170 bottles in 2013 (49% of overall exports) and 37,615,052 in 2014 (63% of overall exports). The rest of the top five remains the same:  Ukraine, Kazakhstan, Belarus and Poland. According to the data of the first two quarters of 2015, exports have increased to markets such as:  China – 23%, Japan – 21%, Latvia – 20%, Estonia – 16%, Germany – 5%, Canada – 159%, USA – 61%, Kazakhstan – 6%, UK – 33%, Hong Kong – 230% and so on. However, the share of wine exports to these countries is so small that it fails to change the larger image. Hence, due to the decrease in exports to Russia and Ukraine in the first six months of 2015, exports of Georgian wine dropped by 49%.

Tbilisi’s Floods and Donations to the Bereaved

As many will know, a severe thunderstorm on Saturday night in Tbilisi caused a landslide, followed by a severe flood of the Vera River and the areas adjacent to the Mtkvari River. This video from the Ministry of Environment details how the disaster occurred.

The scenes of devastation associated with houses along the Vera River being washed away, with inhabitants trapped inside, has been deeply distressing. Tbilisi people have nonetheless shown up in their thousands, unpaid, to shovel and sweep away debris and to get their city working again. Many companies have donated heavy equipment, shovels and wheelbarrows to the effort and many private citizens have been feeding the volunteers from their own resources. The spirit shown has been heartening

As some may know, our company has a substantial cooperation with ISET, the International School of Economics at Tbilisi State University. Simon sits on the Policy Expert Committee of the school’s thinktank, ISET Policy Institute, we host graduate students from ISET as Summer Interns in Agribusiness, and there is extensive co-operation between our firm and ISET-PI’s new Agricultural Policy Research Centre.

It is with great sadness that we found out today that two of ISET’s students, Mariam Kutelia and Ivlita Jibuti, were killed in Saturday’s flood. Both women were 22 years old and in their final year of their Masters degrees in Economics; they were only a few weeks from graduation. It is a great tragedy that such talented Georgian professionals with such a bright future ahead of them were taken from us so prematurely, and devastating to their families. May their Memory be Eternal.

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ISET has established a fund for the assistance of the families of these two young ladies, who have not only lost beloved family members but their homes as well, and to further endow a scholarship at ISET in their memory. Those wishing to contribute may do so at:

By internal (Georgian) wire transfer:

Partnership for Economics Education and Research
ProCredit Bank, Central Branch
Account Number: GE57PC0233600100011081
SWIFT Code: MIBGGE22 

By international wire transfer:

Partnership for Economics Education and Research (PEER)

Citibank NA

SWIFT code: CITIUS33

ABA#:0210-000-89

Further credit: Citibank FSB, Washington, DC, ABA #254070116

Account #:  9250388020

Account Holder: Partnership for Economics Education and Research (PEER) 

By US domestic wire transfer:

Citibank FSB

Washington, DC

ABA#: 254070116

Account #: 9250388020

Account Holder: Partnership for Economics Education and Research (PEER)

Russia Blocks Wheat Exports As Recession Likelihood Grows

Russia’s decision to ban wheat exports may have quite an effect on the local price of wheat, and possibly flour, as a result. Georgia imported 77% of its imported wheat from Russia last year, and imports will make up probably 95% of Georgia’s wheat consumption this season (August 2014-July 2015). Domestic production was only 81,000 tonnes last year, and this year is probably less than a third of that due to drought.

As a good deal of Ukraine’s wheat production is in the country’s war-torn east, Georgia is likely to be very dependent upon Kazakhstan wheat shipped across the Caspian from Aktau and railed from Baku to Tbilisi.

Image from Spokeo.com

On Tuesday, the Russian government restricted grain export certificates to a few nations, leaving exports unaffected to Egypt, Turkey and Armenia, reports show, though Veterinary and Phytosanitary Surveillance Service (VPSS) officials deny it’s happened yet. Regardless of whether it’s been mandated yet, analysts say it’s inevitable and though the nation still has an estimated 30 million metric tons of grain available to the export market before key domestic stocks are impacted, it’s a sign that the economic contraction won’t likely go away soon. And, that kind of demand restriction could have long-lasting implications for the nation’s farmers, says Iurii Mykhailov, Agriculture.com correspondent and editor-in-chief of Agribusiness-Ukraine magazine in Kiev, Ukraine.

“I think that the possible ban on the grain export will be introduced because of the sharply increased refinancing rate by the Russian central bank. This means the sharp increase in the interest rate (maybe up to 25% to 30% per annum) so there well will arise big problems for the growers next spring as they will be unable to buy inputs such as seeds, fuel, fertilizers, pesticides, etc., in the necessary volumes,” Mykhailov says of the announcement Tuesday. “So growers either will have to decrease the planting area or to decrease the volumes of inputs per hectare. Either way this means the decrease of the crop.”

The implications of recession unfolding in Russia will be magnified by a federal government that’s unpredictable in its actions at best, Mykhailov says. Continued restrictive economic policy to reverse the economic downturn could have the opposite effect.

“Russian economists start to talk about the collapse meaning it is to late to do anything; regardless of the measures taken, the situation will go from bad to worse,” he says. “The Moscow authorities are absolutely unpredictable. There are proposals in Moscow to ban the possession of hard currency by the population in order to provide the hard currency influx to banks. The authorities may also introduce the mandatory 100% selling of the export income in hard currency (now the requirement is 50%). Also the authorities may cancel the ban on the import food though this again requires the spending of the hard currencies. There are a lot of possible decisions.”

via Russia Blocks Wheat Exports As Recession Likelihood Grows.

Target 100 Media Programme

A very well produced series of interviews with Australian graziers, discussing their lives and their environmental and welfare programmes. Well worth watching each of them, they are a credit to the industry.

Happy New Year from YFN Georgia

As 2013 draws to a close, we would like to thank our loyal clients for their support this year, in the horticultural and livestock sectors.

We would also like to pay tribute to the strong support of our many partners in horticultural technology and livestock genetics and production software whom we represent in this market, from Spain, USA, UK and Australia; they have been most generous with their time and technical support, and we are very grateful.

2014 will see some interesting innovations in our business. Simon Appleby’s receipt of Georgian citizenship means that our company is now under 100% Georgian ownership and that we are free to commence purchasing some small land plots for demonstration of Precision Agriculture, irrigation technology and modern crop nutrition. Our aspirations for chemical manufacture are very close to realisation, and we will have exciting news in the New Year regarding value-adding of local agricultural produce, and export-oriented farm machinery manufacture.

We would like to wish you all a very Happy and Prosperous New Year, and for those who celebrate according to the Julian calender in Georgia, a very Blessed Nativity season.

 

 

Paul Ehrlich wrong again: World Cereal Production Set To Reach Historic High

The food security situation has never looked back, but discredited Prophet of Doom Paul Ehrlich is still in a lather about the imminent starvation of mankind….

Watts Up With That?

There’s a surging current of alarm that we’re headed for a food doomsday by 2050—that the world’s food-producing capacity will crash before population peaks at 10 billion. Don’t you believe it! Smart technology and better management policies will let us feed the hungry hordes to midcentury and beyond. —IEEE Spectrum, Summer 2013

World total cereal production is forecast to increase by about 7 percent in 2013 compared to last year, helping to replenish global inventories and raise expectations for more stable markets in 2013/14, according to the latest issue of the UN Food and Agriculture Organization’s quarterly Crop Prospects and Food Situation report. —Food and Agriculture Organization of the United Nations, 11 July 2013

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