Download Initiates file download

EASTERN EUROPE AND
CENTRAL ASIA AGROINDUSTRY DEVELOPMENT
COUNTRY BRIEF
2014
GEORGIA
Contents
Agro-industry national policy framework ........................................................................................................................ 2
Economic and social development and trends .............................................................................................................. 3
Agro-industry outlook and performance ......................................................................................................................... 5
Trade liberalization, WTO accession and trade performance.................................................................................... 7
Foreign direct investments ................................................................................................................................................. 10
Food safety, certification & quality control ................................................................................................................... 12
Retail, domestic market and international trends ...................................................................................................... 13
Business environment and competitiveness ............................................................................................................... 13
1
Key Economic Indicators1
2009
2011 2012
2013
Food&Beverages Indicators
GDP (PPP), current intl.$, billion
24.2
28.3
30.6
32.1
Value Added, % of manufactur.
34.41
n/a
Manufacturing VA, % of GDP
11.5
13.2
12.8
13.3
Enterprises, % of manufacturing
36.71
36
n/a
n/a
9.4
9.3
8.6
9.3
Employment, % of manufacturing
30.95
34
n/a
n/a
Employment in Agri., % of total
53.0
n/a
n/a
n/a
Investments, % of manufacturing
31.32
36
n/a
n/a
Gross Fixed Capital F.,% of GDP
15.3
21.8
24.8
22.0
FDI inflow, % of total inflow
n/a
n/a
n/a
6.1
7.5
5.2
6.3
Net food trade, US$ billion
n/a
n/a
52.3
64.1
64.5
n/a
Food exp.,% of merch. exp.
32.6
22
29.2
n/a
Merch. exports, curr. US$ billion
1.1
2.2
2.3
n/a
Food imports, % of merch. imp.
17.5
12.4
16
n/a
Merchandise imports, US$ bln
4.5
7.1
7.8
n/a
Food exports, 2006-11 growth. %
16.3
Exports annual growth, %
-24.3
25.7
n/a
n/a
Food imports, 2006-11 growth. %
11.9
Imports annual growth, %
-27.9
25.4
n/a
n/a
Food prod. index (2004-06=100)
72
n/a
5.4
6.1
6.8
7.0
Agribusiness Indicators Value
Agriculture VA, % of GDP
FDI net inflows., % of GDP
Merch. trade., % of GDP
GNI per capita, PPP 1’000 c.intl.$
Trade per capita, US$ 2010-2012
Doing Business Indicators Rank
Global Merch. Exports Rank 2012
Imports Rank 2012
2838
9
8
2009
2011 2012 2013
n/a
-0.7
76
76
n/a
n/a
3.85
FDI inflow rank
95
Global Competitiveness Index
72
130
108
Agro-industry national policy framework
National development programmes. The key documents that set out the Government policies for overall
economic development as well as for agriculture, rural and agro-industry development include: (i) the
Comprehensive Strategy in Competition Policy (2010); the Comprehensive Strategy and Legislative
Approximation Programme in Food Safety (2010); (iii) the Strategy in Standardization, Accreditation,
Conformity Assessment, Technical Regulations and Metrology and Programme on Legislative Reform and
Adoption of Technical Regulations (2010); (iv) the State Strategy for Regional Development for 2010-2017; (v)
the Annual State Control Programme of Food Business Operators (2010); (vi) the Strategy for the Agricultural
Development. The government also launched a state programme of “Cheap Credit” aimed at supporting SMEs,
including farms and other agricultural businesses, as well as the programme 100 New Agro-industry Enterprises
(2007), under which companies can also purchase state-owned agricultural land in rural areas at concessional
prices. The Government adopted the General Plan for Food and Feed Crisis Management (2010). The Bank of
Georgia promoted access to finance through a ‘Small and Medium Enterprise (SME) Lending’ credit line,
approved in 2010. In 2010, agriculture became a development priority for the Government, and the Ministry of
Agriculture started preparing a sector development strategy. The 2011 budget of the Ministry (GEL 69 million)
was increased by 72 percent from the previous year’s allocation (GEL 40 million) to support implementation of
the Agriculture Development Strategy. Most of the activities of the Ministry in 2011 will aim to improve sector
performance and increase output.2
Georgia has had a Partnership and Cooperation Agreement with the EU since 1999 but the Action Plan (ENP
AP) has expired on 31 December 2011. The EU and Georgia have agreed to an open-ended extension, until the
Association Agreement, currently under negotiation, is signed. In the area of agriculture, the EU and Georgia
signed an agreement on the protection of Geographical Indications in 2011. With EU support the Ministry of
1
2
World Bank Indicators, ITC & UNIDO databases, accessed in August 2014. Author’s calculations
FAO and of the Ministry of Agriculture, Government of Georgia (2011) Agriculture Sector Bulletin Winter 2011. Supported by EU
2
Agriculture prepared a long term sector strategy which was approved by the Georgian government in March
2012.
An agreement on the European Neighbourhood Programme for Agriculture and Rural Development in Georgia
(ENPARD), allocating EUR 40 million to increase food production and reduction of rural poverty, was signed by
Georgia’s Minister of European and Euro-Atlantic Integration and EU Head of Delegation.
The EU and Georgia also have signed a financing agreement for a new programme in support of regional
development in Georgia, with a focus on infrastructure, support to SMEs, tourism, rural development and
vocational education. The EUR 30 million programme ‘Support to Regional Development – Phase II’, builds on
results achieved through a first phase of the regional development programme implemented between 2011
and 2013. This laid the groundwork for the Georgian Government’s Regional Development Plan 2015-2017,
adopted in 2014. 3
Together with the UN organizations the country elaborated UNDAF for 2011-2015. Since 2008 Georgia has not
been a member of the CIS.
Legal framework. Georgia has adopted a number of laws to encourage agricultural and agro-industry growth
and rural development, including the Law on Food Safety and Quality (amended in 2010), the Law on Food and
Tobacco (1999), the Law on Vines and Wine (1998), the Law on Privatization of State-owned Agricultural Land
(2005), the Law on Free Trade and Competition (2005) and the Law on Free industrial Zones (2007) among
others.
Supporting institutions. The Ministry of Agriculture and the Ministry of Economy and Sustainable
Development are the main state bodies for agriculture and agro-industry in Georgia. In 2011 the former
National Service of Food Safety, Veterinary and Plant Protection was transformed into the National Food Agency
(NFA) in line with the Law on Food Safety and Quality. The NFA provides food/feed safety and quality assurance,
and also carries out state control over the fulfillment of hygiene, veterinary-sanitary and phytosanitary rules and
requirements, and conducts risk management and assessment among others. To promote and facilitate foreign
direct investment in Georgia the National Investment Agency (GNIA) was established in 2002 under the Ministry
of Economy and Sustainable Development.
In 2010, the government created the Georgian Agriculture Corporation, a 100 percent state-owned company,
aiming to support and to develop the sector's competitiveness in the country. To promote wine production the
National Wine Agency was established. In order to involve relevant government institutions and agencies in
the drafting process of the Strategy and Legislative Approximation Programme an Inter-agency Working Group
was created by the decision of the EU Integration, chaired by the Minister of Agriculture. The Government
started registration of food business operators in order to create a sophisticated database. The government
established a public fund to support private sector investment.
Economic and social development and trends
Economic and social development. Georgia is a lower middle income country with GNI per capita of US$ 2 860
in 2011 and US$ 3 570 in 2013. The total population is 4.48 million, of which 47 percent live in rural area, and
annual population growth is -0.372 percent in 2012. Georgia showed a grown up GDP between 2003 and 2007
with average growth of about 10 percent, and 3.2 percent growth in 2013. As a result of the global economic
crisis, GDP sharply declined to 2.3 percent in 2008 and further to -3.9 percent in 2009. In 2010 and 2011 Georgia
consolidated its economic recovery, when GDP increased to 6.25 and 6.95 percent accordingly. Growth has
been broad, with manufacturing, financial services and tourism being the main contributors. The military
conflict with Russia in 2008 negatively affected the business environment and the functioning of state
institutions. The agricultural sector contributed only 10 percent of value added to GDP but employed more
than 54 percent of the total labour force in 2009. Agriculture value added continued to decrease in both 2010
3
http://www.enpi-info.eu/
3
and 2011. It contributed 9 percent to GDP in 2013, representing US$ 1.3 billion. Agricultural production is
fragmented and productivity is low. Industry sector annual growth also showed a negative trend again of 5
percent. Manufacturing industry generated more than 74 percent of total industrial output and accounted for
about 9.9 percent of GDP in 2011 with a negative annual growth as of -6.6 percent, employing and employed
about 5 percent of total labour force. In 2013 it accounted for 13 percent of GDP after 11 percent growth in
20124. According to the UNIDO Industrial Development Report manufacturing is of medium importance in
Georgia but agriculture is of high importance.
Chart 1. Evolution of value added to GDP in Georgia (percent)
Source: WBDI 2014
Growing demands and trends. Georgia is a net food importer, with about 80 percent of food requirements
being met from abroad. The share of total household expenditure spent on food declined to 51 percent in
2010 compared to 62 percent in 2005.5 The major share in food consumption refers to bakery products and
pasta, fruit and vegetables and dairy products, while fish and seafood consumption is still low. Demand for
processing food products, including ready-to-eat food, is increasing mainly in urban areas. An estimated 17.7
percent of the population was living below national poverty line in 2011 and 15 percent below international
poverty line (2008 data)6
In 2012, the five top agricultural products in terms of value in Georgia were: cow milk (178 million Int$), grapes
(82 million Int$), cattle meat (62 million Int$), hazelnuts (39 million Int$), and potatoes (31 million Int$).7 Crops
with potential for domestic production are tea, fruits and citrus.
4
World Bank Development Indicators 2014
http://www.geostat.ge/index.php?action=page&p_id=434&lang=eng
6
http://en.wikipedia.org/wiki/List_of_countries_by_percentage_of_population_living_in_poverty
7
FAOSTAT, accessed in November 2014
5
4
Agro-industry outlook and performance
Agro-industry background and challenges. Agricultural reforms are ongoing as are reforms in agro-industry
sectors in Georgia. In 2010, the Government identified agriculture as a development priority in order to improve
sector performance and increase its output.8 The food industry – with the exception of wine, mineral water,
dairy, poultry/egg and some sorting/packaging – is further retracted. Agriculture is based on a dual system of
family holdings and commercial operators. More than 90 percent of the production is concentrated within
highly fragmented small-scale family holdings. Around 82 percent of family holdings produce mainly for selfconsumption, while the remaining 18 percent produce cash crops. Agricultural production is diverse, including
viticulture, cereal production, and a wide range of vegetables, fruits, nuts, livestock, dairy, citrus and tea.
Farming systems vary according to climatic zones. Non-irrigated areas are used for livestock and rain-fed cereal
crops, while irrigated areas are devoted to fruits and vegetables. The subtropical climate in western Georgia
favours a wide variety of crops including citrus and tea, while viticulture and fruit production prevail in the east.
Livestock are raised throughout the country. Today one of the main challenges Georgian entrepreneurs are
facing in the farming sector is coping with the lack of modern agricultural know-how. In food processing the
main challenges are improving hygienic conditions throughout the supply chain and developing new products.
Georgia is known as a wine producing country and is a member of the Wine World Trade Group along with
Argentina, Australia, Canada, Chile, New Zealand and the United States. The country has started taking
significant steps to protect Georgian wines as intellectual property of the country. The National Intellectual
Property Centre of Georgia signed a memorandum with the Wine Association, promoting the competitive
environment of the market and securing Georgian wine from falsification both in the country and abroad. At
the initial stage, 18 Georgian wines are given protected geographical indication in EU. 9
Organic products are becoming more popular and expensive commodities in developed countries. Georgia is
at the early stage of organic product development under existing regulations. The land share under organic
products slowly grew from 0.01 percent to 0.06 percent of total agricultural land between 2005 and 2010. The
number of registered producers is only 64, concentrating mainly on production of fruits, grapes, and
medicinal and aromatic plants.10 The Government included bio-farming in its Agricultural Programme.
The National Statistics Office of Georgia started a selective field research on agriculture production during the
third quarter of 2011. As a result of this survey, GeoStat has different indicators for agricultural statistics: key
livestock production (meat, milk, eggs) and information on numbers of domestic animals(cows, pigs, sheep,
goats, and poultry).
Food & beverage industry performance. The food and beverage industry forms a modest part of the
Georgian economy, generating 3.2 percent of GDP, although it shares a significant (33 percent in 2010) part in
manufacturing production. In 2009 the food and beverage industry generated US$ 660 million, which
represents about 39.2 percent of manufacturing output and 31.9 percent of manufacturing value added. Per
capita output was US$ 150.3. It has been fast and steady growing industry at about 33 percent on average
every year, between 2003 and 2007. In 2008 output decreased by 2.2 percent, although it increased by 9.6
percent in 2009. While the volume of food products has increased over time, the performance in terms of
share of output and value added has been declining over time.
In 2010, the F&B industry employed 23 000 people (or 34 percent of manufacturing labor force), although this
employment has been unstable over time. Labour productivity increased significantly between 2001 and 2009
and started increasing slightly from 2010 as the economic shock of 2008 started to fade. In 2010, there were
22 048 F&B enterprises operating (or about 364 percent of all manufacturing enterprises), most of which were
private small or medium-scale enterprises. They generated 39.2 percent of total manufacturing output in 2010.
8
FAO and of the Ministry of Agriculture, of Georgia (2011) Agriculture Sector Bulletin Winter 2011, 2012 Supported by EU
FAO and of the Ministry of Agriculture, Government of Georgia (2011) Agriculture Sector Bulletin Winter 2011. Supported by EU
10
Research Institute of Organic Agriculture FiBL and International Federation of Organic Agriculture Movements IFOAM, 2012,
http://www.organic-world.net
9
5
Processing units in such sub-sectors as dairy, meat, fruits and vegetables as well as wine production are situated
closer to the raw material production areas.
Investments in fixed capital in the F&B industry are not stable from year-to-year. In 2010 it formed US$ 220
million or 34 percent of the total investments in manufacturing, which has increased by 2.7 times since 2003,
but decreased by 5.4 percent in 2009 to the 2008 level. Enterprises – especially in beverage – production have
made large investments to assure compliance with standards due to export oriented products and foreign
investments.
Important subsectors include beverages (mainly wine and mineral water), processed fruit and vegetables and
flour. Since the 2006 Russian trade embargo on wine, spirits and mineral water came into force, Georgian
winemakers, with Government support, have taken steps to diversify exports and improve production quality
for expending the markets for their products.
Chart 2: Evolution of food in Georgia over time
Source: WBDI 2014
Chart 3. Distribution of output, employment, enterprises and investments in food & beverage subsectors of Georgia in 2009
Breakdown of Food & Beverages branches in Georgia, 2009
100%
90% 44,527,175
80% 17,737,430
70% 31,561,817
60% 16,646,433
50%
40%
30% 156,010,811
20%
10%
0%
3,077
6,641
2,533
1,748
6,524
204
109,361,146 19,977,671
130,528,647 39,251,537
1,386
178
85
471
21,019,701
139,418,075 13,458,446
41,523,206
242,162,419 76,771,786
Processed meat, fish, fruit,
vegetables, fats
Other food products
Grain mill products; starches;
animal feeds
Dairy products
Beverages
Source: Author’s calculations are based on UNIDO data and national statistics
6
Trade liberalization, WTO accession and trade
performance
Trade regulation and trade unions. Georgia has streamlined its customs procedures and continued to
liberalize its trade regime. Georgia adopted the Law on Customs Code and the Law on Customs Tariffs (2006)
provides for the reduction of tariff rates and cutting down the number of the existing tariff rates, in most cases,
to 0 percent. Georgia’s weighted average import tariff is among the lowest in the world. Imports of agricultural
products are subject only to tariffs (zero, 5 percent or 12 percent) and sanitary and phytosanitary measures. In
2010, the Customs Code was combined with the existing tax code to create the unified Tax Code, which came
into effect on 1 January 2011. Georgia has signed free trade bilateral agreements with eight countries and with
the CIS, out of which seven are in effect. Georgia is one of only fifteen countries in the world that benefit from
GSP+ access to the EU market, allowing duty-free access for more than 7200 products as well as with the U.S.,
Switzerland, Norway, Canada, and Japan. Fixed excise tax rates apply to certain goods such as alcoholic drinks,
ethyl alcohol, cigarettes, etc.
According to EC progress report 201211 Georgia has made sufficient progress in fulfilling the key
recommendations necessary for launching negotiations on a Deep and Comprehensive Free Trade Area
(DCFTA), as an integral part of the future Association Agreement. However, the reforms undertaken in the traderelated areas are far from complete and Georgia will need to continue them if it is to benefit fully from the future
DCFTA, notably by diversifying its export base and attracting foreign direct investment.
While fiscal consolidation continued, 2013 saw an increase in social spending with raised pensions, a universal
health care programme, support given to education and agricultural development. A new Labour Code in line
with ILO standards was adopted. This had been a longstanding EU request but implementing it properly is still
remains problematic12.
WTO accession. Georgia has been a member of WTO since June 2000 and is an observer to the Agreement of
Government Procurement (GPA) accession with 0.027 percent of contribution to the WTO budget in 2012.
Simple average of imports duties for agricultural goods applied in 2011 were 7.2 percent. The first Trade Policy
review by the Trade Policy Review Body of the WTO was in Dec 2009. According to the report further structural
reforms will be a key to Georgia’s sustained development.
Trade performance. From 2006 to 2010, Georgia's exports increased on average by 14.1 percent each year,
although they contracted sharply by 40 percent in 2011 reaching US$ 2.2 billion and accounting for 8.6 percent
of GDP. During the same period, imports increased on average by 8.5 percent each year and amounted to US$
7.1 billion in 2011. Imports were more diversified across partners than exports: 18 major partners accounted for
80 percent of imports (compared to 14 major partners for exports). The main export commodities were precious
stones, steel, beverages and edible fruits, nuts and citrus, which provide around 50 percent of total export
revenue. 13
Georgia is a net importer of food experiencing a negative trade balance of US$ 404 million in F&B in 2011. Food
and agricultural exports together made 17.8 percent and 15.5 percent of total merchandise exports and imports
of Georgia in 2011. Processed F&B products accounted US$ 190 million or 9.7 percent of total merchandise
exports and US$0.55 billion or 8.6 percent of total merchandise imports in 2011 with an average annual growth
of 10.1 percent and 19.9 percent, respectively, compared to a negative growth of 16.9 percent of exports and
of 29.3 percent of imports in 2009. Per capita exports of F&B were US$ 42.8 in 2011. From 2005 to 2009,
beverages and spirit exports fell by 27 percent as did exports of vegetables and fruits. This was due to the
Russian trade embargo, which caused the loss of the main export market for Georgian agricultural products
11
EC (2012) Implementation of the European Neighbourhood Policy in Georgia Progress in 2011 and recommendations for action.
Brussels
12
EC progress report Georgia 2013
13
Source: UN Comtrade briefs
7
(especially 80 percent of wine) and forced wine producers trying to enter new markets, mainly in EU, the CIS,
the U.S., and China.
The highest share of imported products is with sugars and sugar confectionery products group (20 percent,
ranking in world imports 81), vegetables oils (16 percent, ranked 105), miscellaneous edible preparations (12
percent, ranked 93), and cereals and flour and cocoa preparations (each 10 percent, ranked 103 and 70). The
beverages, spirits and vinegar product group accounts for 84 percent of exports (ranking in world exports
53).14
In 2011, Ukraine was the most important partner of both exports and imports of F&B commodities
Top destinations for F&B products: Ukraine (38 percent), Azerbaijan (30 percent percent), Germany (14
percent), Kazakhstan (5 percent), and Armenia (4 percent) in 2011;
Top origins for F&B products: Ukraine (28 percent), Russia (14 percent), Turkey (12 percent), Brazil (9
percent) and Kazakhstan (4 percent) in 201115
Chart 4. Food and agriculture trade performance over time
Source: WBDI 2014
14
15
ITC (UNCDAT/WTO)
FAOSTAT accessed in 2014
8
Chart 5. Share of product groups in total exports and imports of food & beverages, top ten products
Share of product groups in total F&B
exports by Georgia in 2011
Share of product groups in total F&B
imports by Georgia in 2011
2%
5% 4%
5%
5%
2%
3%
3%
20%
0%
0%
1%
0%
0%
5%
6%
16%
7%
10%
10%
12%
84%
Sugars and sugar confectionery
Beverages, spirits and vinegar
Animal,vegetable fats and oils, cleavage products
Vegetable, fruit, nut, etc food preparations
Miscellaneous edible preparations
Miscellaneous edible preparations
Cereal, flour, starch, milk preparations and products
Residues, wastes of food industry, animal fodder
Cocoa and cocoa preparations
Animal,vegetable fats and oils, cleavage products
Beverages, spirits and vinegar
Milling products, malt, starches, inulin, wheat gluten
Dairy products, eggs, honey, edible animal product
Dairy products, eggs, honey, edible animal product
Residues, wastes of food industry, animal fodder
Sugars and sugar confectionery
Meat, fish and seafood food preparations
Cocoa and cocoa preparations
Vegetable, fruit, nut, etc food preparations
Meat, fish and seafood food preparations
Milling products, malt, starches, inulin, wheat gluten
Cereal, flour, starch, milk preparations and products
Chart 6. evolution of the top five destinations of exported F&B products by Georgia over time
Source: ITC (UNCTAD/WTO). Data is based on the selected products’ groups. Trade Map online, accessed in October 2012
9
Chart 7. Growth of national supply and international demand for exports of F&B products by Georgia in
2011
Source: ITC (UNCTAD/WTO). Data is based on the selected products’ groups. Trade Map online, accessed in October 2012
Foreign direct investments
Strategies, regulations and ranking. The Law on the Investment Activity Promotion and Guarantees (1996)
and the Law on Free Industrial Zone (2007) provide the legal basis for foreign investment in Georgia. The
country encourages foreign investors with low tax rates, competitive trade regimes, low import tariffs and
simplified licensing and permit procedures. To protect investors and to enhance Georgia’s role as an investment
destination, it has established bilateral treaties on investment promotion and protection with 32 countries. The
National Investment and Export Promotion Agency has established Business Information Centers in Tbilisi and
other cities to provide necessary information and facilitate a public-private dialogue.
According to WIR 201216 Georgia was ranked 60 (among 181 economies) by the FDI Inward Attraction Index in
2011 (FDI IA index: 108), which is slightly improved compared to 74 in 2000 (among 178 economies). FDI
performance of the country is slightly exceeding its potential.
According to IAB,17 Georgia is one of the most open countries to foreign equity ownership. There are neither
sectors with monopolistic or oligopolistic market structures nor any perceived difficulties in obtaining any
required operating licenses. With only four procedures and four days, Georgia is among the fastest countries in
the world in terms of establishing a foreign-owned limited liability company (LLC). A foreign company requires
no additional procedures other than the authentication of the parent company’s documents abroad.
Companies are free to open and maintain bank accounts in foreign currency. There is no minimum capital
requirement for foreign or domestic companies. Registration of land-related rights has become a simple and
16
UNCTAD (2012) World Investment Report 2012: Towards a New Generation of Investment Policies, UN Conference on Trade and
Development NY and Geneva, Switzerland
17
IFC/MIGA/WB (2010) Investing Across Borders: Indicators of foreign direct investment regulation in 87 economies. The World Bank
Group. Washington
10
quick process. Both privately and publicly held land may be leased or bought. There are no restrictions on the
amount of land or limits on duration that may be leased.
Foreign direct investments flows. According to WIR 2012 FDI recovered in Georgia some lost ground after
two years of stagnant flows and accounted for 6 percent of the global total. In 2011 Georgia’s FDI inflows
generated US$ 970 million or 6.8 percent of GDP, which is an almost 50 percent increase on the 2009 level,
although it has not yet reached the 2007 level, when FDI inflows peaked. Industry shared 21 percent of total FDI
inflows. The vast majority of FDI is directed to the real estate sector and industry. Manufacturing accounts for
18 percent of FDI inflow. More than 4 600 companies have been established by foreign investors in Georgia. By
2013 FDI inflows had exceeded US$ 1 billion and after a 15 percent decrease in 2012, it is now increasing again.18
The major investors in agriculture and food industry invested more than US$ 100 million between 1994 and
2011; they are: Denmark in wine (since 1994), Sweden in milk and dairy (since 1997), Italy in nuts farming and
processing (since 2007), Germany in wine, fruit and juices (since 2007), Turkey in olive oil (since 2009), Russia in
dairy (since 2009), Ukraine in fruit and juices (since 2007), USA in poultry (in 2011).19
Chart 8. Foreign direct investments in Georgia over time
Source: WBDI 2014
18
19
World Bank Development Indicators 2014
PwC and GNIA (2011) Agriculture: Invest in Georgia…ripe for Investments
11
Food safety, certification & quality control
Food safety background and country’s membership. Georgia is a member of the Codex Alimentarius
Commission and a correspondent member of the International Organization of Standardization (ISO). The food
safety area is regarded as a key priority for the proper functioning of a future Deep and Comprehensive Free
Trade Agreement (DCFTA) between Georgia and the EU. Therefore, Georgia’s goal is to approximate its
domestic legislative framework with relevant EU acquis by 2014. While preparing the Comprehensive Strategy
and Legislative Approximation Programme in Food Safety, the GoG has taken into consideration relevant EU
recommendations. 20
Food products are subject to the Law on Food Safety and Quality (2005), introducing a fundamentally different
approach, shifting the emphasis from end-product testing to a focus on the production process and the
identification and prevention of threats. The Food Safety Law was amended to extend inspections and
traceability to all food and feed operators starting in January 2011. The new Code of Food Safety and Free
Movement of Goods and the Code of Food/Feed Safety, Veterinary and Plant Protection were enforced in 2012.
Sanitary-hygienic Norms related to Food and Trade as well as the Issuance of Hygienic Certificate related to
Food were adopted in 2007 by the Minister of Labour, Health and Social Protection. In 2010, Georgia drafted
and adopted several implementing acts such as General Hygienic Rules of Food/Feed Producing
Enterprise/Distributor and the Rules of Implementation of Supervision, Monitoring and Official Control in the
Areas of Food Safety, Veterinary and Plant Protection. In 2012 the Special Rules on Hygiene of Food of Animal
Origin has been enforced. From 2011, the National Food Agency has elaborated Annual Control Plan of
Food/Feed Business Operators. For the purpose of Programme implementation, in order to measure the risk of
processing establishments, National Food Agency together with the Ministry of Agriculture of Georgia prepared
Risk Level Identification Criteria.
Quality control, certification and supporting institutions. The Ministry of Agriculture of Georgia is the policy
making body in the field of food safety in Georgia. As the part of the reforms, in 2006, the National Food Agency
(NFA) was established as a subordinated body of the Ministry of Agriculture and it became a Legal Entity in 2011
in line with the Law on Food Safety and Quality. The NFA provides food/feed safety and quality assurance and
also carries out state control over the fulfillment of hygiene, veterinary-sanitary and phytosanitary rules and
requirements. It also conducts risk management and assessment and provides information to consumers. After
the structural re-organization, all district divisions of NFA have been abolished and consolidated into 12
Regional/City Divisions. The National Agency for Standards and Metrology (GEOSTM) is a responsible for
Standardization and working in line with the new law on `Code of Product Safety and Free Movement of Goods`.
One of the key principles is that Georgia will not develop and/or adopt national standards in fields in which
international or European standard have been or are being adopted. The government has adopted a system of
“voluntary” standards and certification. If foreign standards for food products are chosen, they must be
registered by the importer in the Ministry of Agriculture. Georgian wine can be imported to the EU after
receiving end product certification at an EU approved laboratory in Georgia. Accreditation is implemented by
the National Accreditation Body – Accreditation Centre, which performs accreditation largely in accordance
with international and EU standards and guidelines in both regulated and voluntary areas. A total of 3 150
companies exporting food products have been registered in the NFA in order to implement food safety
controls. Inspection will be carried out once per year in high-risk enterprises, and once every two years in lowrisk enterprises. Companies with International Organization for Standardization and Hazard Analysis and Critical
Control Points (HACCP) certificates will be inspected less frequently.
20
Codex Alimentarius Commission, FAO/WHO (2012). JOINT FAO/WHO FOOD STANDARDS PROGRAMME
FAO/WHO COORDINATING COMMITTEE FOR EUROPE. Twenty-eighth Session Batumi, Georgia, 25-28 September 2012
12
Retail, domestic market and international
trends
Georgia is becoming an attractive destination for global retailers. Despite the fact that it the market size is small
it is a fast-growing market. According to the Global Retail Development Index 2014,21 out of the 30 top
developing countries for retail expansion worldwide seven countries of the EECA region were included, where
Georgia is ranked seventh with a score GRDI of 55.9. Modern retail penetration and saturation are low.
Traditionally a country of bazaars and corner shops, Georgia is gradually becoming a supermarket nation.
Populi, the Georgia’s biggest supermarket chain, opened nearly 40 stores over the past four years. International
firms such as France’s Auchan acquired local player Goodwill, while Carrefour will open its first supermarket in
the Tbilisi Mall, besides a great number of global brands.
Business environment and competitiveness
SME development. According to the OECD SME Policy Index assessment 2012,22 Georgia made progress in
developing policies and institutions specifically targeting SMEs through increased public-private dialogue and
inter-governmental co-ordination. Georgia shows high scores for responsive administration and access to
finance. Key policies are in place for more developed women’s entrepreneurship. Georgia provides advisory
and financial support for start-ups through publicly funded schemes. It has an agency that specializes in
promoting export-oriented firms. However, limited support is provided to export-oriented SMEs. SMEs share in
business population is 96 percent of active enterprises; SMEs share in employment - 43.6 percent; SMEs share
in value added - 19.3 percent.
Business Environment. According to the Doing Business Report23 Georgia is the top improver (with 31.6
percent of points) since 2005 both in Eastern Europe and Central Asia and globally. With 35 institutional and
regulatory reforms since 2005, Georgia has improved in all areas measured by Doing Business. In 2011 alone it
improved in six areas. The economy was ranked ninth (out of 185 economies) in 2012 (1 point up compared to
2010; 91 points up compared to 2006), and 15th in 2013 regarding ease of doing business globally. Trading
across the borders is ranked as of 33, starting business – 5th, paying taxes – 38th , protecting minority investors
– 43rd , getting credit – 7th , and registering property-1st.
Through business reforms, Georgia has improved in paying taxes by enhancing the use of electronic systems
and providing more services to taxpayers; getting electricity easier by simplifying the process of connecting
new customers to the distribution network and reducing connection fees; enforcing contracts easier by
simplifying and speeding up the proceedings for commercial disputes; protecting investors by introducing
requirements relating to the approval of transactions between interested parties; resolving insolvency by
establishing or tightening time limits for all insolvency-related procedures, including auctions; getting credit
by amending civil code to broaden the range of assets that can be used as collateral; starting business and
dealing with construction permits.
While many economies have made strides in improving some regulations, Georgia has made the greatest
progress towards regulatory practice since 2005 and it has improved in: trading across borders by 49 percent
of points, getting credit by 63 percent, paying taxes by 47 percent; by 31 percent each in dealing with
construction permits and protecting investors. In 2011 Georgia created customs clearance zones – one-stop
shops for different clearance processes – and reduced the time to export and import. Georgia has formed a
regulatory reform committee at the inter-ministerial level, reporting that use the DBIs is one input to inform
21
A.T.Kearney (2014) Full Steam Ahead for Global Retailers. The Global Retail Development Index is an annual study that ranks the top
30 developing countries for retail expansion worldwide. The Index analyzes 25 macroeconomic and retail-specific variables to help
retailers devise successful global strategies and to identify emerging market investment opportunities. The GRDI score includes:
market attractiveness, country risk, market saturation, and time pressure.
22
OECD (2012) Eastern Partner Countries 2012. Progress in the implementation of the small business act in Europe. SME Policy Index.
Supported by EC, ETF, EBRD, CEI.
23
WB/IFC (2012) Doing Business 2013: Smarter Regulations for Small and Medium-size Enterprises. 10th edition. Washington, USA
13
their programs for improving the business environment. It also shares knowledge on the regulatory reform
process related to the areas measured in Doing Business.
Taxation relief. In order is to become the regional hub for businesses in the Caucasus and Central Asia, Georgia
embarked on an ambitious tax and commercial law reform program. The success of this initiative has been
recognized by the World Bank that now ranks Georgia as 15th in its Ease of Doing Business Index and 5th for ease
of starting a business. According to PwC report24 paying of taxes in 2012 was made easier in Georgia by
simplifying the reporting for VAT and introducing electronic filing and payment of taxes. Under the new Tax
Code (2011), the following tax rates are in force from 1 January 2012: (i) personal income tax: 20 percent flatrate; (ii) withholding tax on dividends: 5 percent; (iii) withholding tax on interest: 5 percent. General VAT rate is
18 percent. As of 2012 Georgia is also a party to 38 double tax treaties.
Competitiveness. According to the Global Competitiveness Report 2013-2014 Georgia is at stage 2, efficiencydriven. It got 77 overall on the Global Competitiveness Index 144 economies (93 in 2010-2011 among 139
countries). Georgia is ranked only 126 for Innovation, 113 for Business sophistication factors, and 128 (score 3.1)
for agricultural policy costs25. The five major barriers to doing business in Georgia are: access to financing,
inadequately educated workforce, inflation, poor work ethic in national labor force and tax regulations.
According to IDR 2011,26 in the context of the Competitive Industrial Performance index (CIP) Georgia was
ranked 51 in 2009, seven points up compared to 2005, with manufacturing value added per capita of US$ 185
and US$ 123, respectively.
24
PwC (2012) Paying Taxes 2012. The Global Picture, PriceWaterhouseCoopers supported by WB and IFC
Agricultural policy costs: How would you assess the agricultural policy in your country? [1 = excessively burdensome for the
economy; 7 = balances the interests of taxpayers, consumers, and producers] | 2011–12 weighted average
26
UNIDO (2012) Industrial Development Report 2011. Industrial energy efficiency for sustainable wealth creation: Industrial energy
efficiency for sustainable wealth creation: capturing environmental, economic and social dividends. Vienna, Austria. UNIDO’s
Competitive Industrial Performance (CIP), page 18-19. Note: 144 economies in total. From 2011 the CIP index comprises eight
indicators classified in six dimensions: (i) Industrial capacity, measured by MVA per capita; (ii) Manufactured export capacity, measured
by manufactured exports per capita; (iii) Impact on world MVA, measured by an economy’s share in world MVA.
25
14
The designations employed and the presentation of material in this information product do not imply the
expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United
Nations concerning the legal or development status of any country, territory, city or area or of its authorities, or
concerning the delimitation of its frontiers or boundaries. The mention of specific companies or products of
manufacturers, whether or not these have been patented, does not imply that these have been endorsed or
recommended by the Food and Agriculture Organization of the United Nations in preference to others of a
similar nature that are not mentioned. The views expressed in this publication are those of the author(s) and do
not necessarily reflect the views of the Food and Agriculture Organization of the United Nations.
For more information please contact:
Stjepan Tanic
Agri-food Economist
FAO Regional Office for Europe and Central Asia
Email: [email protected]
15