Fruit and vegetables will become key export commodities. Both CIS and EU markets import significant volumes of fruit and vegetables, making them obvious targets for Georgian exporters. Domestic demand is also strong, but underutilization of storage facilities and their uneven distribution, as well as the lack of post-harvest treatment, hamper the development of the domestic segment. Agricultural production would exceed consumption by 1.1x by 2021, leaving room for exports, on our estimates.
Attractive opportunities for organic production. Despite stable growth in organic farm production in Europe in recent years, demand for organic goods continues to outstrip supply. Growth drivers include increasing health consciousness (including an aversion to pesticide use and genetically modified foods), income growth, rising environmental awareness, and greater accessibility to retail outlets. In 2004-2011, the European organic market almost doubled to EUR 21.5bn. Low chemical fertilizer and pesticide use positions Georgia well to tap into this opportunity.
CIS to remain a vital trading partner. The CIS will remain Georgia’s key trading partner over the mid-term, in our view. Sticking with a focus on traditional product mix of alcoholic beverages and mineral water (which together accounted for 58% of agricultural exports to the CIS in 2011), and boosting vegetable and fruit exports should bode well for Georgia in the CIS space. Expected growth in fruit and vegetable consumption will come from gradual increases in real incomes in the CIS.
Ample government incentives for agriculture investment. The Georgian government supports agricultural development via incentives and investments, including infrastructure and logistics projects and rehabilitation of irrigation networks. State investments will introduce irrigation up to 278,000ha of agricultural land by 2017, more than 11x the current 25,000ha. The state’s recently established GEL 1bn (US$ 0.6bn) agriculture fund will provide short- and long-term funding to farmers and support the creation of new value-added production capacities. Moreover, simplified customs regulations, an absence of quantitative restrictions on trade, WTO membership, and numerous trade agreements will support trade volumes. Finally, Georgia is currently negotiating a Free Trade Agreement with the EU. Once in place, the agreement will vastly simplify Georgia’s access to EU markets.
