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Agriculture in Georgia: Lessons from Europe

Per Eklund, Ambassador, Head of EU Delegation to Georgia
Wednesday, November 3
The potential and the challenges for Georgian agriculture

The Georgian people have good reasons to be proud of their country’s beautiful rural landscape and delicious cuisine. These invaluable assets are at the very core of the Georgian national identity and cultural heritage. Parts of this heritage are the agricultural traditions recognised already by ancient Greeks.

Having worked as Head of Delegation of the European Union to Georgia over the last four years, I feel that sharing my observations in the field of agriculture might contribute to bringing these traditions forward and, on their basis, develop a more efficient and modern agricultural system. Naturally, my observations refer only to those years that I have spent in Georgia and are based on the views of experts that I have met, or whose works I have read during the years in Georgia.

Being one of the most prominent sectors of Georgia’s economy, employing 50% of Georgia’s labour force, agriculture contributes only 9% to the Gross Domestic Product (GDP). Since 2005, agricultural activities, regardless of their huge potential, have dropped by 20%, with the total sown area reduced by 43%. There has also been a dramatic decline in average production per hectare. The decline in the dairy sector is also dramatic: in 1990 the country had more than 4 million cattle; now there are only 1.7 million cows pasturing in the Georgian meadows.

There is broad consensus on the fact that Georgian agriculture still operates in subsistence mode. The large majority of farmers own small land-plots and work primarily to support their families. Their work is not organised in any way, thus, they cannot enjoy the benefits that economies of scale could offer, also depriving them from proper access to the national market.

Regrettably, this makes Georgia dependent on external agricultural supplies, hampering the country’s food security (as the recent increase of wheat prices has clearly showed) and keeping most of the farmers under the poverty line. The failure of Georgian agriculture to reform and modernize is, in my view, the primary explanation as to why high poverty levels in the countryside still persist.

Small farming in Europe

How to break this vicious circle that I have described? I do believe that there are interesting lessons that can be drawn from Europe’s transition to a modern agricultural system. I would start by recalling the crucial role of agriculture for social, economic and cultural foundations of Europe.

Just like in Georgia, most of Europe’s land is covered with farms and forests. Rural areas are home to around half of the European Union’s population with about 12 million full-time farmers in the 27 EU Member States. Agriculture and rural development are vital for European Union’s economy.

Although many people tend to associate modern farming with big investor-owned companies, the truth is that Europe hosts one of the most sophisticated agricultural industries in the world; most farm-plots are family owned and rather small. Almost 70% of the agricultural lands are less than 5 hectares. Like in Georgia, small family farming is the most common form of agriculture. Beyond its economic significance, this small-scale family agriculture is also a key cultural asset: family farming is deeply rooted in the tradition of almost all the Member States. Many farms have been owned and run by the same family for generations.

How come that despite the disadvantages of having small and fragmented farms, the European agro-economic sector has developed as one of the most productive and efficient sectors in the world? I think the answer is just one simple word: co-operatives. For many decades, the EU has been supporting the development of producer groups and farmer cooperatives through our Common Agricultural Policy. Now the vast majority of European small and medium-sized farms are united in agricultural cooperatives. There are about 40 000 co-operatives in the EU, with 9 million members, with an annual turnover of about ˆ260 billion. These co-operatives hold over 50% share in the supply of agricultural inputs (seeds, fertilizers, and so on), and over 60% share in the collection, processing and marketing of agricultural products.

What is an agricultural co-operative?

I firmly believe that Georgia needs to overcome a popular misconception about the essence and nature of agricultural co-operatives. It is not surprising that, due to the old and often unpleasant memories, the term "co-operative" is directly associated with the Soviet "kolkhoz". The Soviet term has actually nothing to do with the perception of a ''co-operative" in Europe.

In a market economy, a co-operative is a business organisation owned and run by a group of individuals for their mutual benefit. Thus, as any other business, a cooperative strives to maximize benefits. The only difference from other types of businesses is that co-operatives are owned and controlled by those who work in them and use their services. The prime motivation for the creation of agricultural co-operatives can sometimes be described as overcoming "the curse of smallness". A co-operative, being an association of many small farmers, acts as a large business entity on the market, gaining significant advantages of economies of scale not available to individual members.

Carrying out reforms that do not address and favour small farmers will be unfair and even worse - a mistake. On the one hand the state cannot force small farmers to sell their lands - this way of consolidating land could take at least a generation. On the other hand promoting big agricultural estates at the expense of small farming would create enormous social problems since this might cause a dramatic increase in unemployment and poverty.

In my view, the disadvantage of having small, fragmented farms in Georgia can best be overcome by creating agricultural co-operatives and this is the fastest alternative too. The option is not to choose one or another alternative. Both options, i.e. promoting big farms on State-owned lands and promoting co-operatives to organise small farmers can go hand-in-hand, as they do in most European countries.

The way forward

By organising themselves in co-operatives, Georgian small farmers could exploit economies of scale and increase their capacity to compete in a larger market. They would be able to concentrate on supplies at better prices and stabilise production prices. Furthermore, it could have a positive impact on the national market in terms of diversification of production. It would help to meet the growing consumer demand for a variety of regional products. In addition standards for grading, packing and storage could also be improved.

It is not up to the government to create co-operatives. Such top-down approaches never work, and are against the basic rules of a market economy. Nevertheless, the government could certainly do a lot to promote such a model by creating favourable legislation. A favourable fiscal policy for agricultural co-operatives would represent a very important and strong signal in this direction. The promotion of well-tuned training programmes would prepare farmers to face this challenge. This is not an easy task, but I do believe that there is no other way to move ahead.

The good news is that the idea of co-operatives has already been tested in Georgia and the results are generally very positive. The EU has assisted farmer groups and co-operatives through various projects implemented by international and Georgian non-governmental organisations. The results, in terms of increased production and income for the farmers are astonishing. I have had a chance to witness the success in Akhalkalaki and Gori, and was extremely impressed. Unfortunately, these efforts remain on a rather small scale. Scaling up these schemes and promoting them on a national level is needed.

Agriculture is becoming dominant on the Georgian political and economic agenda. The Ministry of Agriculture has recently started drafting a Sector Strategy. Moreover, the current governmental policies to promote regional development should also create a more favourable climate for rural development. These steps forward will set up a proper food safety system and pave the way to a Deep and Comprehensive Free Trade Agreement with the EU. It should foster the development of agriculture in the coming years. Foreign trade and investment until now has been focused on sectors such as infrastructure, banking, transport, tourism and others, but is now showing signs of extending to the tradable sectors of the economy, including agriculture. All these positive trends provide excellent grounds for starting to seriously think about co-operatives as a way to move forward. The EU is ready to help Georgia on this path.