Down on the Farm: Georgia Struggles to Open EU Market for Agricultural Exports

Gone are the days when a female tea worker in a straw planter hat symbolized Georgia to regional neighbors, or when bottles of Georgian wine and mineral water were commonplace on the dining tables of citizens in formerly Soviet states. Barred from the Russia market, Georgia is now trying to reorient agricultural exports toward Europe. But stringent European Union quality and safety rules are proving a formidable export obstacle.

Once a thriving agricultural republic within the Soviet Union, Georgia today imports up to 80 percent of the agricultural produce it consumes, according to official figures. While agriculture still employs more than 55 percent of Georgia's work force, rampant rural poverty has forced many farmers in recent years to migrate to large towns, especially Tbilisi and Batumi. Those farmers who remain in the countryside generally work small plots that cannot provide the output volume needed to boost production levels – or to take the vast European market by storm.

Agricultural production has increased by just 3 percent since the Russian embargo against Georgian wine, mineral water, fruit and vegetables went into effect in 2006. [For background see the Eurasia Insight archive]. In 2007, the sector generated roughly 1.6 million lari (about $1.14 million), just shy of pre-embargo levels. Exports of wine, fruit, citrus, nuts, bay leaves and herbs have been largely redirected to markets such as Ukraine and Kazakhstan, countries that inherited from the Soviet Union an appreciation for Georgian foodstuffs.

But penetrating the EU – with its 500 million potential customers, the world's largest food importer – is turning out to be a more daunting task than originally envisioned. And this despite the fact that Georgia, as a developing economy, is entitled to the EU's privileged trade tariffs system, known as the Generalized System of Preferences. Agriculture Minister Bakur Kvezereli estimates that the country's export volume remains "very small."

An elaborate set of "from-farm-to-fork" safety rules that control not only food content, but labeling for product ingredients, suppliers and production practices has proven the biggest single snag. Separate requirements from individual member states, supermarket chains and distributors are creating additional hurdles.

European farm policy chiefs say the standards are meant to protect consumers, but, after decades compromising quality for quantity, Georgia is finding it hard to meet standards. "We have had several cases when shipments of wine had been sent back from places like Germany due to inconsistent quality," said Maria Iarrera, an agricultural policy analyst at the European Commission's mission in Tbilisi.

Meanwhile, some Georgian farmers simply wonder why the government cannot step in to buy up more of their products.

Georgia's former EU Ambassador Konstantin Zaldastanishvili says it is imperative to raise awareness of the EU food safety system among Georgian producers. "It is very important to inform producers about such issues as labeling, product shipment details, documents on provenance, the use of fertilizers and chemicals in growing the crops," said Zaldastanishvili, who also heads the EU-Georgia Business Council, a non-profit group that consults with businesses on how to export to the EU.

The European Commission, the EU's executive branch, also demands that export countries' governments monitor compliance with EU hygienic and other standards. According to Iarrera, the Georgian government has been slow to tighten quality and safety regulations, concentrating instead on stimulating production.

Officials in Tbilisi counter that relevant food safety legislation is in the making, but that now the focus is on the domestic front. Most Georgian farms are too small in size, poorly organized and suffer from a lack of mechanized equipment. Thus, many farms are unable to move beyond subsistence farming and produce enough for export.

To encourage consolidation, the government last year launched a crash program, dubbed 100 New Enterprises, which was meant to attract capital to agribusiness and promote industrialization. Under the program, 100 parcels of state-owned land totaling 150,000 hectares were offered for sale at an eye-popping 80 percent discount. The plots, which are not bigger than 2,000 hectares, must be used for agricultural purposes. To date, more than 20 bids for the land plots have been approved, the agriculture ministry states.

Meanwhile, the government plans to spend over $50 million (70 million lari) in 2008 to replace rakes and spades with tractors and other machinery. Farmers can rent equipment from the government (a tractor goes for 15 lari – about $10.72 – per hectare) and also have an option to purchase it on a prorated basis with no interest applied.

"It all comes down to economies of scale," commented Nika Grdzelidze, general director of AgVantage, a project sponsored by the United States Agency for International Development that works to help Georgian food producers, processors and marketers compete in international markets. "Of 400,000 farmers, merely 4,000 own more than four hectares of land. ... As a result, supply is very small and fragmented."

Despite the troubles in the agricultural sector, Tbilisi is currently negotiating a free trade agreement with the EU within the framework of the European Neighborhood Policy. An agreement that would restrict food product sales based on their official provenance – and not allow substitutes from third countries – is slated to be signed by Brussels and Tbilisi by the end of the year. But the government has yet to table a draft law on the legislative and administrative changes required for establishing EU-compliant food standards.

Further incentive could come from an administrative measure within the EU itself. With food prices increasing worldwide, the European Commission recently called for scrapping some safety rules to give outside countries easier trade access to the EU. The consent of all 27 member-states is required for the decision to enter force, however.

While the decision would be a welcome change for Georgian farmers, Ambassador Zaldastanishvili argues that an effective EU-compliant food safety system remains the key to the European market. "Simplifying regulations will without doubt make it easier for Georgian exporters to bring produce to the European market.