The importance of agriculture in the
Caucasus
employment
poverty
growth
security
Employment/Poverty
• Commonalities
– Most rural families are ‘employed’ in this way
– But massively under-employed
• Rural communities (particularly isolated communities) are
generally poorer
• Median income for agricultural ‘employed’ is low relative
to other sectors
Therefore
• In urban communities the problem is unemployment
• In rural communities the problem is under-employment
and low productivity
Georgia has strong basics
• High rainfall
– more than 2x Azerbaijan
– almost 4x Armenia
• Large number of microclimates for high value goods
– Nuts
– Citrus
• Low labour costs
• Land prices
• Potential sources of low-price energy (hydro and thermal)
But Georgia has low productivity
Productivity per hectare in various countries
Wheat
Maize
Potatoes
Tomatoes
1
1.4
11
8.4
Armenia
2.1
4.7
17
38.7
Azerbaijan
1.9
4.5
14.5
17
Kenya
3.2
1.6
2.9
29.2
Brazil
2.8
4.4
25.3
60.7
France
7
8.9
39.8
98.3
Turkey
2.4
7.3
32.3
33.1
Georgia
And a bad comparative decline
• Georgia has seen 11% decline per year on average
1990-2000
– 0.6% recovery per year (2000-2010)
– Overall 20% growth in value(1996-2010)
• Both Armenia and Azerbaijan have seen far higher
growth
– Armenia showing particularly high growth in beef and
vegetables (4-6% for beef, 7-10% vegetables per year
2000-2010 volume growth)
– Azerbaijan seeing dramatic increase in beef and in
grain production (7-10% for beef per year 2000-2010, 78% for grain 1995-2005 volume growth)
Slow recovery – the role of the state?
• Shevardnadze Government
– Failed state
– Collapse in infrastructure
• UNM Government
– Lack of attention and a rural focus
– The problems of libertarianism
• Animal disease
• Irrigation
• Education
– The problems of state competition
An example - irrigation can be fixed
• Armenia and Azerbaijan have seen significant
improvements
• Georgia improvements less impressive. What is needed:
– Very local management
– Commitment to reinvest revenues
– Remove confusion of energy production/agriculture
The difference is not just spending
• Georgia – at its low point in 2010, Ministry of agriculture
spending represented 0.5% of total spending
• Azerbaijan hard to estimate but huge categories of inputs
are massively subsidized. This has led to distortions.
• Armenian MoAg spending only around 1% of total.
However:
– More market driven
– Focused on education and rural advise
– Consistent
Market Access
– Internal – Georgia is clearly better
• Easier business environment (E0DB- Georgia – 9,
Armenia – 32, Azerbaijan - 67)
• Armenia has a few big producers offering forward
pricing
– External Access
• Armenia and Azerbaijan – Access to Russia
• Georgia – unutilized access to West
– External competition
• Georgia has unprotected markets
Land ownership and useage
• The problem is NOT size of land-plots
• But privatisation and good land-purchasing system is
useful for encouraging FDI
• All countries have issues with land-ownership
• Problems in Georgia’s system
– GPS system is unlikely to lead to correction of
ownership issues without central input
– Ownership issues hurdle to large and small farmers –
though biggest challenge FDI
Agricultural support services
For crops: Machinerry, seed, fertiliser, pesticides, orrigation
For animals: Veterinary, genetics, feed
For all: Cost and availability of finance
Lessons learned from the region
•Government financing is common
•Financing mechanism is key – needs to work through markets
•One needs to be wary of causing distortion - Azerbaijan
•In many areas – subsidy of support services is no use without
education
Sector dynamics
Beef and Lamb
• Imports of beef went up until 2008
• Exports of live animals (beef and lamb) have
gone up dramatically and local production of
beef went down
• Local production has gone down (as they are
exported as live animals)
Dairy
• Driving force of farming sector
• Most dairy consumed as cheese. All three countries in the
region have high self-sufficiency in own cheese production
But
• Very low milk yield
• Inefficient use of time in home production
Meat and dairy problems
-
Animal disease
Bad genetics
Animal feed
Poor education
Missed opportunity
- Mountain grazing is under-utilised – could be used to raise
more calves
- Low use of animal feed makes lowland pasture a limiting
factor on growth
- Demand for ‘fresh cheese’ in the winter – suggests
opportunity for shift in milk production
Trends - Crops
Increase
Potatoes
Nuts
Watermelons
Wheat
Maize
Decrease
Tomatoes
Grapes
Exports Growth Areas
International
Commodity
Nuts
Wine/Spirits
Live animals
Fresh fruit and
vegetables
Regional
Commodity
Two Agricultures. Two Problems
Small Farmers
Commercial Farmers
Irrigation
Land ownership
Chronic disease leads to low
productivity
Availability of capital
Disease is big risk for
investment
Cost of capital
Availability of quality inputs
High level management and
agronomists
Complex social environment
Basic knowledge
Conclusions for Georgia
•Significant opportunities exist. Highest demand depends upon:
•Unusual climate (nuts and some citrus)
•Geography (live animals and fresh fruit and vegetables)
•Cultural product (wine)
•Demand/opportunity also exists in supply chain
•Sustainability requires limited government intervention
General
•Need to ensure that policies are consistent and market oriented
•Government should first focus on structural problems
•Education
•Irrigation
•Animal health
•Land-ownership
•Cooperatives
Thank you