SYN TH ES I S R EPORT A N D WAY F O R WA R D AGRICULTURE, WATER, AND LAND POLICIES TO SCALE UP SUSTAINABLE AGRI FOOD SYSTEMS IN GEORGIA © 2022 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org SOME RIGHTS RESERVED This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. RIGHTS AND PERMISSIONS The material in this work is subject to copyright. 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Cover image: © Wirestock Creators | Shutterstock SY N T H ES IS R EPORT AN D WAY F O RWA RD AGRICULTURE, WATER, AND LAND POLICIES TO SCALE UP SUSTAINABLE AGRI FOOD SYSTEMS IN GEORGIA CONTENTS Acronyms and Abbreviations........................................................................................ 01 Acknowledgements........................................................................................................ 02 Preface............................................................................................................................. 03 Policy summary............................................................................................................... 04 CHAPTER 1. Introduction .................................................................................................................... 16 CHAPTER 2. Context and developments in Georgia’s rural sector................................................ 22 A. Government policies and strategic sector goals in Agriculture, Water, and Land .................................................................................. 23 B. Recent developments in the agriculture sector...................................................... 26 C. Recent developments in water resources management .................................... 35 D. Recent developments in land management sector............................................... 37 CHAPTER 3. Achieving the vision for Agriculture in Georgia by 2030......................................... 40 Competitiveness ............................................................................................................... 41 Sustainability....................................................................................................................... 50 Climate resilience and mitigation.................................................................................. 58 CHAPTER 4. Moving forward toward growth and sustainability.................................................... 62 Annexes........................................................................................................................... 66 Case study on: dairy milk sub-sector– integrated buyer-producer experience............................................................................................ 67 Case study on: meat and wine grapes sub-sector– Contract farming experience.......................................................................................... 69 Case study on: hazelnut sub-sector–Producer organization experience........... 71 ACRONYMS AND ABBREVIATIONS AMMAR Agriculture Modernization, Market IFAD International Fund for Access and Resilience Project Agricultural Development ASAP Adaptation for Smallholder ISET International School of Economics Agriculture Programme at University of Tbilisi CSA Climate Smart Agriculture IWRM Integrated Water Resources Management ECA Europe and Central Asia M&E Monitoring and evaluation ENPARD European Neighborhood Programme for Agriculture MEPA Ministry of Environmental and Rural Development Protection and Agriculture EU European Union NAPR National Agency for Public Registry FAO Food and Agriculture Organization NASP National Agency of State Property of the United Nations NSDI National Spatial Data Infrastructure GA Georgian Amelioration O&M Operation and Maintenance GDP Gross Domestic Product OECD Organization for Economic GEL Georgian lari (currency) Co-operation and Development GHG Greenhouse gas PA Productive Alliance GHGA Georgian Hazelnut RAPDI Rural and Agricultural Policy Growers Association and Development Institute GHMD Georgia Hydro-Meteorology RDA Rural Development Agency Department UNFCCC United Nations Framework GoG Government of Georgia Convention on Climate Change GRID Green, Resilient, and VGGT Voluntary Guidelines on the Inclusive Development Responsible Governance of Tenure of Land, Fisheries, hg/ha Hectogram per hectare and Forests in the Context I&D Irrigation and drainage of National Food Security ICT Information and commu- WUO Water Users Organization nications technology ACKNOWLEDGMENTS This Synthesis Report was authored by Aira Htenas, Ranu Sinha, Nadege Orlova, and Pierrick Fraval, with inputs from Rufiz Vakhid Chirag-Zade, Jan Joost Nijhoff, and Svetlana Valieva. Bozena Lipej, Richard Grover and David Egiashvili (indepen- dent consultants), and a team of researchers affiliated with the Policy Institute at the International School of Economics at Tbilisi State University (ISET): Salome Deisadze, Salome Gelashvili, Ia Katsia, and Norberto Pignatti contributed to the research. The report benefited from advice by Irina I. Klytchnikova and Sergiy Zorya. Militsa Khoshtaria, Mariam Ghambashidze, and Rosalie Quong Trinidad provided invalu- able administrative support in carrying out and completing this work. Sergio Andres Moreno Tellez implemented the layout and design. Victoria Stanley, Joop Stoutjesdijk, Christopher Ian Brett, and Ioannis Vasileiou pro- vided detailed and careful peer review comments. Overall guidance was provided by Frauke Jungbluth, Practice Manager, Europe and Central Asia (ECA) Agriculture and Food Global Practice (GP); David Michaud and Winston Yu, Practice Manager at inception and completion, respectively, ECA Water GP; Ellen Hamilton, Lead Urban Specialist, ECA Urban, Disaster Risk Management and Land GP; Sebastian-A Molineus, Country Director; and Abdulaziz Faghi, Program Leader. Unless otherwise specified, all individuals are with the World Bank Group. PREFACE This Synthesis Report summarizes the main con- — Stakeholder consultations and sector-level straints and opportunities that Georgia faces in assessments for the sectoral focus areas. amplifying the contribution of the agriculture sector Evidence and analysis from the previous work to the country’s economic growth and diversifica- were complemented with new findings and tion, employment creation, poverty reduction, food extensive consultations on the experience of security and nutrition, and climate resilience and agricultural value chain integration, climate mitigation. Successful achievement of these multi- smart agriculture (CSA), as well as standalone ple objectives, however, requires an integrated set analytical reports on the irrigation and land of multi-sectoral policies. Key sectors to focus on sectors in Georgia. were identified by applying three sets of filters: Synergistic public and private investments in agri- — Natural resources affecting agricultural pro- culture, water, and land can lead to increased duction and productivity. Land and water are production and productivity by transitioning from finite resources and factors of production on low returns from agriculture to high-value crop which agricultural production and productiv- production. Identified policy areas connected with ity depend. This is even more pronounced agriculture, water, and land sectors were sorted for in Georgia where national trends toward a the elements of “urgency” and “technical readi- warmer and drier climate (with some excep- ness” by the Government of Georgia (GoG) sectoral tions) will continue contributing to grave stakeholders during a (virtual) technical workshop consequences such as water shortages and carried out on May 19, 2021, and follow-up discus- land degradation (Shatberashvili et al 2015). sions with GoG stakeholders between June and — Evidence and findings from previous World August 2021. This Synthesis Report builds on the Bank work. This Synthesis Report builds on following detailed sectoral notes that are available earlier analysis carried out by the World Bank as companions to this report: “Constraints to sus- in Georgia. Insights and conclusions from the tainable, efficient, and resilient irrigation systems review of the agriculture sector in Georgia in Georgia–What is a Possible Way Forward?”1, identified opportunities to improve the tar- “Policy note on agricultural land market develop- geting and effectiveness of support to the ment in Georgia”, and “Climate Smart Agriculture agriculture sector, and especially for small- Country Profile for Georgia.2” holder farmers, by addressing deep-seated constraints, including in the water and land sectors (WBG 2020a). 1 https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099455201282220713/p175705002a55c0f 0bd530343061f0212f 2 https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099515003142224173/ p1757050ef513000f08c7e06db4bf027f59 04 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA POLICY SUMMARY Image: © Galyna Andrushko | Adobe Stock. Ushguli, Georgia Policy summary 05 meet high-quality standards and that have been A VISION FOR THE FUTURE produced in an environmentally sustainable way. OF AGRICULTURE IN GEORGIA BY 2030 Yet, despite these successes and potential oppor- tunities, challenges remain. A significant share of The potential of agriculture in Georgia to contrib- Georgia population remains involved in low-pro- ute to achieving green, sustainable, and inclusive ductivity agricultural activities contributing to high development is clear; and years of focused pol- levels of poverty and inequality especially in rural icy interventions and investments in this sector areas. Farms in general have a low level of pro- have started to bear fruit. Despite external shocks, ductivity and are disconnected from markets, and the past four years have been positive in terms of agri-food export products and destinations remain economic growth with a gross domestic product highly concentrated. A recent World Bank review (GDP) real growth rate of 5.1 percent in 2019, with of the agriculture sector in Georgia has identified Georgia moving from a lower-to upper-middle-in- a critical opportunity to improve the targeting and come country during this period (SDG ICG 2020). effectiveness of support to the agriculture sector, The agriculture sector has played a vital role in this especially for smallholder farmers, by addressing economic growth story despite the relatively small deep-seated constraints jointly across two key size of the sector: agriculture makes up 8.4 percent inputs to the agriculture sector: water and land, of the Georgian GDP (2020), and agro-processing and by moving toward a joint and integrated policy accounts for a further 7-8  percent. Agriculture is approach for the agricultural, water, and land sec- also the country’s largest employer representing tors (WBG 2020a). 19.1 percent of total employment. Even though agri- culture contributes a modest share to total GDP, it To unlock the potential of Georgia’s agriculture makes a significant contribution to exports: as of sector, this Policy Summary presents a vision 2020, agri-food products constituted 28 percent of for Georgia’s agriculture sector in 2030, which the country’s total exports. is grounded in an agriculture-water-land nexus approach. This Policy Summary advocates that by Recent developments in Georgia’s agri-business 2030 Georgia can increase the agricultural sector’s space and its rich history in the sector are reasons contribution to economic growth, create employ- for optimism about the future potential for sus- ment, contribute to poverty reduction, improve tainable growth.3 In the past decade the value of food security and nutrition, and enhance climate food production has increased sharply, and some resilience and mitigation by focusing on joint and export-oriented producers and agri-business enter- coordinated actions across the agriculture-wa- prises (involved mainly in wine, hazelnut, and edible ter-land policy nexus. Progressing toward the fruit production) have been successful in develop- 2030 vision entails ensuring water and land ten- ing value chains and have shown that sustainable ure security for the agricultural sector by improving growth is feasible. Furthermore, the agri-business access to reliable and ecologically sustainable sector in Georgia has proven more resilient to the irrigation & drainage (I&D) services for all types COVID-19 pandemic than other economic sectors of farm structures, encouraging higher value crop (PwC Georgia 2020, and Tevdoradze et al 2020). production, further enhancing land administration Georgia has a rich agricultural and food tradition services delivery, completing the rural cadastre that it can build on and, with concerted efforts, can and land registration process, increasing land use transform into a vibrant sector that contributes to efficiency, and improving agricultural land markets economic growth, and capitalize on opportunities in functioning to make land accessible to those who markets that value high end agri-food products that want to make farming a business. 3 The term “agri-business” spans from primary agricultural production along the value chain to markets. 06 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA With joint and coordinated investments in sus- fair, healthy, and environmentally friendly food tainable use and management of water and land system ‘from farm to fork’” is of particular impor- resources, Georgia will be able to create suc- tance to Georgia. The EU aims to promote new cessful agricultural value chains and expand on global food standards with the goal of becoming a emerging opportunities in a green and climate-re- leader in setting standards for sustainability. To tap silient manner, equipping farmers with the capacity into the opportunities presented by the European to better cope with risks and to adapt food supply Green Deal, Georgia needs to articulate and to changing climate and market demands. The assert practices that render it not only competitive agriculture sector will be organized around value but also sustainable and green in meeting these chains that are well-integrated from production to aspirations and eventually complying with new final markets, and that will also enable women and standards. Georgia can be successful in meeting youth to thrive. This approach directly aligns with this challenge by overcoming a set of inter-related the GoG Ministry of Environmental Protection and constrains. This Policy Summary and the Synthesis Agriculture (MEPA) strategic goals for agriculture Report aim to aid in that challenge. and rural development, which are “based on the sustainable development principles, to diversify/ develop economic opportunities in rural areas, UNDERSTANDING improve social condition and quality of life.” THE LINKAGES AND This is an opportune time for Georgia to transform INTERACTIONS BETWEEN its agriculture sector to contribute to its vision of THE AGRICULTURE-WATER- achieving sustainable and inclusive economic LAND NEXUS IN GEORGIA development and growth. Georgia is part of the Constraints and opportunities in the agriculture, Food Systems Summit Dialogue, with the first water, and land sectors are interlinked, and can- meeting held in April 2021. The country has identi- not be addressed in isolation in Georgia. Land and fied the key trends to ensure sustainable agri-food water are finite resources and factors of production systems in Georgia; those include ensuring com- on which agricultural production and productivity petitive agricultural value chains, effective systems depend. This is even more pronounced in Georgia of food safety, sustainable use of natural resources, where national trends toward a warmer and drier and climate change mitigation and adaptation. climate (with some exceptions) will continue con- Earlier in December 2020, Georgia launched its tributing to grave consequences such as water new strategy, the GoG Program for 2021–2024, shortages and land degradation (Shatberashvili et “Towards Building a European State,” that sets al 2015). While agriculture in Georgia is primarily forth key directions to “secure the country’s rapid rainfed, I&D investments are vital to guard against economic recovery and development, along with climatic extremes and are critical for high-value agri- building a strong, unified democratic State.” A culture production. The eastern part of the country, strong agriculture sector in Georgia is at the center which is subject to frequent droughts, requires the of both. use of irrigation to buffer climatic extremes, while The renewed policy interest in sustainable agri- the western part of the country, which is wetter, is food value chains occurs against the backdrop confronted with drainage problems. Meanwhile, of favorable external developments in Georgia’s I&D infrastructure has deteriorated due to lack of important trading partner, the European Union maintenance, difficulty of continuing operation of (EU). The European Green Deal,4 and specifically large-scale infrastructure, and reduced financial the component on food that calls for “creating a resources allocated to I&D management, eroding 4 https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en Policy summary 07 I&D services provision in Georgia (Box 1). Pressure impacts of climate change. This underscores that on land resources is also expected to grow, mak- an integrated suite of water security investments ing better agricultural land management in Georgia that improve efficient and sustainable delivery of imperative. I&D services from the basin to the farm are critical for the transition from low-productive agriculture to Georgia is facing a reduction in total irrigated more economically viable, high-value agriculture lands due to shortage of irrigation infrastructure and are vital to enhance resilience against climatic capacity. Significant steps have been taken by extremes threatening growth of the agriculture the Government of Georgia, including the rehabil- sector in Georgia. itation of a large part of the main canal systems, and in some areas secondary and tertiary irriga- Water security investments in agriculture entail tion systems, expanding the irrigable area from providing efficient and affordable I&D services 88,000 hectares in 2015 to about 130,000 hect- to farms in Georgia within an integrated water ares in 2020. The Irrigation Strategy for Georgia resources management framework. The ability for 2017-2025 has a goal to increase the total irri- to increase the agricultural sector’s contribution to gated area to 200,000 hectares by 2025 (MEPA economic growth, create employment, and con- 2017b). According to Georgian Amelioration (GA), tribute to poverty reduction is directly linked to the national irrigation agency and the main irriga- the availability of adequate, reliable, timely, and tion service provider in Georgia, there were a total affordable I&D services. Irrigated agriculture is, of 123 irrigation schemes under use in 2020. Thus, on average and globally, at least twice as produc- as of 2020, although a total of 130,000 hectares is tive per unit of land as rainfed agriculture, thereby available for irrigation, only about 65,000 hectares allowing for more production intensification and is publicly irrigated. This is largely because many crop diversification (Box 2). However, in terms of I&D systems still require rehabilitation and estab- water consumption, agriculture accounts for more lishment of institutional organizations that enable than 70 percent of total water use in Georgia, with the systems to be sustainable. However, the ongo- abstraction from surface water for agriculture more ing reconstruction of existing irrigation schemes than doubling since 2003 (UNECE 2016).5 This alone will not suffice to improve service delivery underscores the need to manage available use of to targeted areas as the availability of irrigation water resources for agriculture in a sustainable and water becomes a limiting factor with the increasing integrated manner. BOX 1 High reliance on rainfed agriculture in Georgia translates into rising climate vulnerability • Actual irrigated area, comprising around 386,000 hectares • Total public irrigated area in Georgia is only about 65,000 by the end of 1980s, shrank to 43,000 hectares by 2015 due hectares, implying that only an estimated 31 percent of total to the lack of O&M. agricultural production comes from irrigated land. • Recent investments in the rehabilitation of irrigation infra- • Rainfed agricultural systems are vulnerable to projected structure have allowed a portion of the previously serviced climate change. Increasing temperatures, eroding soils, fluc- areas to be brought back under irrigation. tuating rain precipitation, and increased aridity and drought, • Despite considerable achievements by GoG to expand the which are already affecting Georgia combined with farmers’ irrigable area from 88,000 hectares in 2015 to about 130,000 low climate adaptation, exacerbate vulnerability. hectares in 2020, a significant area of agricultural land remains under rainfed agriculture. Source: Authors. 5 Groundwater resources are mainly used for drinking water in Georgia and therefore less applicable for agricultural purposes (EEA 2020). 08 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA BOX 2 Losses and potential benefits for farms from I&D expansion • In 2018, the annual estimated loss of agricultural productivity • The annual income per hectare of each farm in Georgia would compared with the maximum productivity of water storage increase by 59 percent, or US$250 (700 GEL) for small and capacity in the form of reservoirs was US$21 million. marginal farms, and by 85 percent, or US$2,380 (6,720 GEL) for medium and large farms, if the land is irrigated and drained. Source: WBG (2020e). BOX 3 Agricultural land ownership and management in Georgia • As of 2021, 64 percent of registered agricultural land belongs signed before 2014 and for unregistered land, have there- to, and is managed by public authorities. fore not been paid. • There is no integrated nationwide land management system • The system of allocation and monitoring of state-owned agri- containing land use, land cover, registration and cadastral cultural land does not provide visibility and predictability to data. The land balance report and corresponding database, farmers (especially small-scale farmers) for renewing leases which had monitored and evaluated soil quality, land cover or planning long term, therefore limiting their willingness to and use nationally in the former Soviet Union countries, has invest into perennial crops, soil quality improvement, and not been updated since 2010. infrastructures construction and maintenance. • The NASP has an incomplete inventory of state land (only • This situation has a direct impact on foregone revenues to 72 percent of land is registered) and status of land leases the State budget and indirect impact on GHG emissions from (the data are only complete and up to date for leases con- agriculture, as the cultivation of perennial crops would have cluded since 2014). Rental fees for leases, which were captured on average three times more GHG emissions. Source: Authors. Resolving agriculture sector constraints is a nec- country’s farm structure are some of the major essary but insufficient condition for improving constraints to growth. Yields in hectogram per sector performance: simultaneous interventions hectare (hg/ha) for major crops in Georgia have not will be required in addressing core sector con- shown marked improvements in the last decade straints in the water and land sectors in Georgia. and are lower than world averages.6 Low yields The availability and efficient use of water resources have been attributed to a variety of factors that in a reliable, timely, and flexible manner for farmers include poor accessibility to improved varieties, and functioning agricultural land markets are criti- seeds, and seedlings; high cost and low quality cal for sector growth. Improved land management of pesticides and fertilizers; lack of adaptive test- and administration underpins sustainable and pro- ing and development of local seeds; inadequate ductive management of land resources, provides agronomic practices; and inadequate irrigation secure land ownership, and supports investments (WBG 2020d). Globally small-scale farming sys- in agricultural production (Box 3). The timing is tems produce more than 50 percent of the world’s even more urgent when factoring in increasing cli- food and control anywhere from 40 to 50 percent mate change variability and risks. of global farmland (Samberg et al 2016). Under the right conditions (access to inputs, resources, and Agricultural productivity in Georgia is low and opportunities), smaller farms can be more produc- stagnant for most crop products; and the predom- tive per hectare than larger farmers; they invest in inance of small agricultural holdings within the 6 Indicatively, for grapes, slightly over 100,000 hg/ha (world) versus less than 50,000 hg/ha (Georgia); for apples, over 150,000 (world) versus less than 50,000 (Georgia); for tangerines and mandarins, almost 100,000 (world) versus less than 50,000 (Georgia); for potatoes, a little over 200,000 (world) versus less than 150,000 (Georgia); and for maize, a little over 50,000 (world) versus around 25,000 (Georgia) (WBG 2020b). Policy summary 09 their lands’ fertility, and they also tend to grow a for the changes in precipitation are uncertain. wider variety of crops, contributing thus to agro- Observations suggest that a decrease of rainfall in biodiversity. In Georgia, however, the fragmented, the summer period is expected. Climate change is small-scale farming has become an impediment to also expected to negatively affect irrigation-water growth.7 A small and growing cohort of commercial availability by reducing river flows with significant farmers in Georgia, focused on quality, has not yet impacts on most crop yields (about 30 percent in achieved the scale required to service demanding the eastern lowlands in the 2040s) (Ahouissoussi external markets, which require minimum volumes et al 2014). Soil salinization is mainly observed in to control transaction costs. In addition, many the eastern region of the country, specifically in agri-businesses resort to vertical integration as the Kakheti region, where salinized soil constitutes the best means to secure consistent flows of raw 22 percent of the total area. In the south-western material rather than through procurement from region of Adjara, high levels of precipitation have smallholders (WBG 2020d). High land fragmen- increased soil erosion and led to landslides and tation for private agricultural land, inefficiency of avalanches, resulting in a net reduction in agricul- management and allocation of state agricultural tural land area of 7.4  percent between 1980 and land, and weak development of rural land markets 2010. Desertification, which is an extreme case of create barriers for endogenous farm growth and soil erosion, is causing an expansion of semi-arid the entry of larger-scale producers. This constraint and arid areas in Georgia due to increased tem- needs to be at the core of the agri-food sector peratures, severe droughts, and intense winds. transformation policy agenda. The predicted increase in temperatures and dry periods over the coming decades is likely to com- Climate change has put unprecedented pressure pound the problem of desertification and water on water resources and land systems and on agri- availability in East Georgia (WB and FAO 2022). culture to become a more efficient user of natural While agriculture is a large contributor to global resources. Despite being rich in water resources, warming, accounting for about a quarter of total with 14,000 square meters of surface water per greenhouse gas (GHG) emissions globally (WBG capita compared to the European average of 2015b), it also has a big role in adaptation and 9,300 square meters (MEPA 2019), available water mitigation measures being a major provider of resources are not evenly distributed in Georgia and environmental services sequestering carbon, man- they are mainly accumulated in the western part of aging watersheds, and preserving biodiversity the country (FAO 2008). Moreover, the availability (WBG 2007). The CSA approaches, taken to scale of water resources is highly seasonal. River flows, in Georgia, can play a critical role to attain a triple especially in Eastern Georgia, depend on snowmelt win by implementing agriculture and food produc- with high flows occurring in April-May and low flows tion practices that not only boost productivity but in July-August during the peak of when crops need also enhance resilience and lower GHG emissions. water. During the last 50 years, the number of gla- ciers in Georgia decreased by 13 percent and the Improvement of agricultural land markets in glacier area decreased by 30 percent. With global Georgia would enable more private sector warming, their full melting is projected by 2160. The investment in agriculture and a move toward high- warming trend is clear in Georgia,8 but estimates er-value crops production. Currently 64  percent 7 Almost 80 percent of households operate less than one hectare of agricultural land, 14.9 percent operate one to two hectares, 4.3 percent operate two to five hectares and only 1.3 percent (8,577 households) have five hectares or more (WBG 2020c). For most small farms, the combination of small farm size and low farm productivity means that agricultural incomes are too low to survive on farm earnings alone. In fact, non-farm wages and income transfers are the major sources of rural household income. Small and micro farms (less than 1 hectare) sell small surpluses and have little incentive to invest in yield improvements and product upgrading. This structure increases the transaction costs and risks of downstream packers, processors, exporters, and large-scale retailers who require compliance with minimum product standards. 8 According to available projections, temperature is expected to increase by +1.6°C to 3.0°C in 2041-2070 compared to 1971-2000 (MEPA 2021). 10 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA Image: Nadege Orlova | WBG – Georgia of registered agricultural land is still under state critical bottleneck hampering investment, agri-busi- ownership, and around one million plots across the ness development, and commercialization. Limited country, primarily in the rural areas, have not yet access to credit among farmers is a major con- been registered according to the 2021 data from straint to increased use of technologies and inputs the National Agency of Public Registry (NAPR). and is largely related to farmers’ lack of collateral The responsibilities for state land management as only 72 percent of the land under GoG control and allocation are not clearly delineated between is registered.9 The privatization process for land in national and local authorities. This leads to aban- state ownership has practically ceased since 2010. donment of certain farms due to inefficiency of the Given high-level of fragmentation for agricultural state land management system and land tenure land in private ownership and certain inefficiencies insecurity for some of the rural dwellers, especially in allocation and management of state agricultural for those leasing state land. These two phenom- land, improvement in valuation and taxation regu- ena result in abandonment or inefficient use of latory frameworks and their implementation could agricultural land, overgrazing of pastures, and incentivize land pooling and consolidation for those disincentives to invest into the soil quality improve- desiring to create larger land plots that would be ments and to maintain infrastructure. High-level suitable for commercial agriculture and attractive to fragmentation for already privatized land is another national and foreign private sector investors. 9 One out of three plots is registered, and this proportion is lower for agricultural land. Policy summary 11 social, and ecological factors so that the effect of PATHWAYS FOR the planned investments can be anticipated; and JOINT ACTION– their design adjusted, when needed. This can be RECOMMENDATIONS complemented with a detailed operations and main- TO ACHIEVE GEORGIA’S tenance (O&M) plan for ensuring the viability of the VISION FOR THE FUTURE infrastructure in the medium to long term. OF AGRICULTURE BY 2030 Concurrently, measures are needed in the agricul- To address the environmental, sustainability, and tural sector across agricultural value chains from productivity challenges facing food production farm to market. The measures should improve mar- in Georgia, there is a need to move toward an ket integration, increase flow of raw materials from integrated policy approach by considering agri- smallholders to agri-business, encourage market cultural, water, and land policies together. This linkages and product aggregation, close the knowl- Policy Summary lays out four pathways of joint edge gaps, increase access to finance, improve action, which can reduce bottlenecks and mitigate transport and agrologistics, encourage innovation the pressure on resources while contributing to a along the value chains, and foster public-private green, resilient, and inclusive transition toward a dialogue. These measures should also widen the more economically profitable agriculture sector: use of public-private partnerships in areas such as agrologistics, information systems, and training 1. Implement a holistic approach to infra- programs. Such measures would benefit both the structure investment in water, land, and small cohort of progressive, larger farmers and agriculture systems. agri-business enterprises focused on the export 2. Reform and strengthen institutions that of high-value commodities and the larger group of deliver water, land, and agricultural ser- more traditional smallholder farmers who produce vices at multiple scales. for themselves and family agri-businesses that focus largely on production for domestic markets. 3. Strengthen information systems and scale technological innovations across the agri- The Government of Georgia has expressed the culture-water-land nexus. need for an investment plan for the agricultural sec- 4. Invest in human capital development and tor which should be taken up seeking input by all systems for monitoring progress. main sectoral actors (public and private sectors, civil society, and development partners). Similarly, the land sector would benefit from the development of a 1. Implement a holistic approach unified policy document outlining the GoG approach to infrastructure investment in toward sustainable land management and adminis- agriculture, water, and land systems tration, and a clearer distribution of responsibilities for land management and administration among To provide adequate water for agriculture, and central and local governments as well as different to enhance the economic potential of all types of agencies and units of different ministries and gov- farms, the priority need is to increase access to ernment authorities. Additionally, investment into a irrigation by more farmers. This can be done by National Spatial Data Infrastructure (NSDI) connect- increased rehabilitation and modernization of main, ing and sharing data among different stakeholders secondary, and tertiary systems. However, future would provide a solid foundation for strategic and I&D investment projects need to analyze and con- policy decision-making, enable savings on data sider the constraints and requirements of water use, acquisition costs, and support monitoring of land soil, and cropping needs of the farmers; the needs of policies implementation. the surrounding environment, including economic, 12 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA 2. Reform and strengthen institutions and operational capacities, and to invest in estab- lishing viable and active farmer-led institutions that deliver water, land administration such as Water User Organizations (WUOs), in rel- and management, and agricultural evant command areas where I&D infrastructure services at multiple scales is improved and modernized, or where farmers Since 2010, public expenditure on agriculture has are willing to improve, maintain, and operate infra- increased significantly, both in absolute terms structure. In addition, gender-inclusive irrigation and as a share of total public expenditure. There management institutions and community-based is scope in Georgian agricultural public spending organizations can deliver and manage water more to be re-oriented to serve better GoG strategic effectively than those that exclude women as key objectives and aspirations for agriculture. Public stakeholders. There is some evidence that women’s services such as research, extension and training participation in WUOs results in better enforcement need more budget support. Although a re-organi- of rules, collection of fees, conflict management zation of Georgia’s agricultural research institutions and resolution, and sustainable irrigation systems has established a more rational base for research (WBG 2012; Quisuimbing 1994; Vasavada 2005; van activity, the public research system remains under- Koppen 2002; Najjar et al 2019; Imburgia et al 2020). funded, and the research agenda is not aligned In conjunction, a revised tariff for I&D services needs with the needs and interests of commercial agricul- to be rolled out in consultation with farmers as GA ture. Moreover, food safety systems in the country capacity is improved. are under-developed: there is no state certification system to enhance the competitive advantage of The recently created Land Management Agency high-standard producers. And although accred- under MEPA needs further strengthening to ful- ited, many laboratory services lack international fill its responsibilities of land balance report recognition and credibility. production establishment, land management and monitoring, and facilitation of agro-investments Also, measures to promote private investment providing access to and information on available through support for subsidized loans and insur- agricultural land for potential investors. The com- ance premiums need to be re-formulated. Public pletion of nationwide systematic land registration support for commercial bank lending should target should enhance land tenure security and willing- smallholder farmers more widely and emphasize ness of landowners and users to invest in irrigation support for collateral substitutes rather than interest infrastructure maintenance and sustainable man- subsidies. Simultaneously, Georgian Amelioration agement of land resources. The revision of the (GA) has limited capacity to deliver irrigation ser- land valuation and taxation frameworks and their vices to farmers in a timely and operationally implementation would incentivize reallocation of efficient manner, and there is limited willingness of land resources and their more efficient use. Political water users to pay a higher irrigation tariff without decision on resuming the privatization process for significant improvement in the service quality, lead- agricultural land should further enable agricultural ing to a vicious cycle of build-neglect-rehabilitate. land market development. This leads to limited recovery of O&M costs by GA, increased reliance on state funds for GA opera- In addition, knowledge and competency in gen- tional activities, deterioration of irrigation schemes, der equality and women’s empowerment needs which were recently upgraded, and reduction in to be built in MEPA and its agencies, including the irrigated lands. Thus, an important reform to accel- Regional Information Consultation Centers as well erate improved service delivery of irrigation and as GA, Land Management Agency under MEPA, drainage services is to reform the GA governance and NAPR. Policy summary 13 3. Strengthen information systems & a bundle of Decision Support Systems (DSS) tools such as water accounting, drought and flood mon- scale technological innovations across itoring, irrigation and crop monitoring system, and the agriculture-water-land nexus basin management reports to provide actionable Innovations that can support resilience to climate information across the scales from farm to basin change are necessary to support Georgia to reach targeting institutions that works across the food, the future vision of agriculture by 2030, which can water, land sectors such as MEPA, NAPR, Georgian be implemented at multiple scales. At the farm Amelioration, and others. Effective NSDI imple- level, CSA practices and technologies can sustain- mentation should enable multi-scale exchange of ably increase agricultural productivity and farmers’ sectorial and reference data. income, and build resilience to climate change, and reduce and/or remove GHG emissions in line with national development priorities. 4. Invest in human capital development and systems To accelerate the transition to CSA, however, for monitoring progress smallholders need to be incentivized to adopt climate-smart agriculture technologies. In turn, Strengthening human capital is necessary as these technologies must be readily available and investments in capacity building will ensure that affordable. Farmers need incentives and enabling staff are properly skilled to perform responsibilities conditions to make transformations on the ground, at the policy setting, implementation, and monitor- which must be facilitated by institutions and poli- ing levels, and that service providers (agriculture cies. State institutions are particularly important for extension specialists, veterinarians, etc.) have the the production and dissemination of information necessary skills. Knowledge of modern technolo- related to technology options and management gies, how and where to innovate along the value methods, climate variability, and value chain con- chain and market opportunities and behavior needs ditions. In addition to governmental institutions, to be strengthened throughout the agricultural sec- non-governmental entities can play a major role in tor in Georgia. This can be achieved by increasing CSA adoption. Development partners promote CSA the number of well-trained extension officers, food in Georgia, and when implementing operations, technologists, and agri-business advisers together also engage local entities (such as non-govern- with the re-organization of the institutional base mental organizations) building local capacity and for knowledge transfer. Simultaneously, investing further disseminating practices. CSA development in human capital is highly relevant for the I&D sec- requires intensive communication among farmers, tor where there is need to strengthen cooperation authorities, and agri-businesses. Lastly, an analysis with higher education institutions and the Ministry of a MEPA agricultural program showed that tar- of Education and Science of Georgia to increase geted support was needed in awareness-raising specialist (male and female) graduates for recruit- at policy and field level to pursue programs that ment in key GoG water sector agencies. improve women’s access to information, knowl- In addition, the establishment of a monitoring and edge, and innovation; technology, machinery, and evaluation (M&E) framework for public programs agricultural inputs; markets; and agri-finance (Powell and policies would help to strengthen the perfor- et al 2020). mance and effectiveness of government programs For the water sector, one of the key innovations that by providing useful feedback on program out- can support adaptation to climate risks is to invest comes and outputs, detecting implementation in systems for integrated monitoring of water and difficulties, and identifying actions to overcome agriculture, using advanced tools such as remote them. Objective and transparent M&E of agricul- sensing, big data analytics, and ICT-based appli- tural support programs should be conducted and cations as well as ground collected data to rollout used to facilitate policy design and implementation 14 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA based on concrete evidence. Currently no such interventions will be required in addressing core framework exists in the sector. This also applies for sector constraints in the water and land sectors irrigation services, where there is need to improve along the four broad pathways of joint action. M&E procedures, where entities such as MEPA and GA can reliably collect, share, analyze, and act Although all policy areas identified in the on irrigation system performance and user data Synthesis Report are important, consultations to further improve service delivery and financial with the Government of Georgia revealed some accountability. As a necessary complement, NSDI that are deemed more urgent than others, and establishment and implementation at governmen- some that are more technically ready with solu- tal, sectoral, and municipal levels would support tions sufficiently in place. Even though some areas optimal planning of resource use and efficient were not sorted for urgency and technical readi- management of processes as well as increase ness, they are still of relevance. Addressing these quality of decisions made by central and local gov- areas will be important to enable the transition to ernment based on standardized, systematized, the vision. These include realigning agricultural valid, reliable, and current information. support to help the government achieve its goals for the sector; M&E progress to sustain growth Although the GoG has an ambitious yet incom- across all sectors; increasing human resources plete agricultural transformation agenda, multiple capacity; and investing in women. opportunities for joint sectoral coordination exist, which can accelerate progress toward Georgia’s This Policy Summary outlines the rationale for an future vision of agriculture by 2030 (Figure 1). agriculture-water-land nexus approach to realize Land and water are finite resources and factors of a vision for the future of agriculture by 2030 in production on which agricultural production and Georgia. In the following sections, the Synthesis productivity depends. Resolving agriculture sector Report presents a multi-sectoral approach constraints is a necessary but insufficient condition grounded in three themes: competitiveness, sus- for improving sector performance. Simultaneous tainability, and climate resilience and mitigation, underpinned by inclusiveness. Image: © Oleg. Vineyards in the Alazani Valley FIGURE 1: How to accelerate progress toward Georgia’s future vision of agriculture by 2030 How to accelerate agriculture sector growth in Georgia along competitiveness, sustainability, Vision for agriculture climate resiliency & mitigation underpinned by inclusiveness (for women, youth, and smallholders) sector FACTORS OF PAT HWAYS F O R P O LICY A RE AS SO RT E D BY GOG P RODUCT I ON JOI NT ACT IO N U R GENT T EC NI CA LLY R EA DY Implement a Expand access to finance for agriculture Improve knowledge transfer across • Contributes to economic holistic approach agricultural VCs, including on CSA growth, employment, COMPETITIVENESS to infrastructure poverty reduction, investment in COMPETITIVENESS improved food security agriculture, water, CLIMATE RESILIENCY and nutrition, and Diversify agri-trade markets and and land systems commodities enhanced AGRICULTURAL climate-resilience INPUTS COMPETITIVENESS Increase integration of agricultural value chains (eg seeds, fertilizers), labor, agri-finance COMPETITIVENESS • Is competitive, green, Reform and Reform I&D tari structure sustainable and strengthen inclusive (of women, institutions that SUSTAINABILITY Adopt more e cient youth, smallholders) deliver water, land, on-farm water resources and agricultural • Is based on developed services at Improve institutional capacity in water resources and irrigation management COMPETITIVENESS agricultural land markets multiple scales CLIMATE RESILIENCY at the national and local leves • Is endowed with WATER SUSTAINABILITY Improve I&D infrastructure reliable, sustainable, Strengthen and gender inclusive information COMPETITIVENESS irrigation & drainage Improve functioning of land markets CLIMATE RESILIENCY services systems & scale technological COMPETITIVENESS innovations across the agriculture- Complete national systematic registration water-land nexus Develop policy and legal framework for land mgmt. and administration COMPETITIVENESS SUSTAINABILITY LAND Important transversal policy areas to enable the Improve land valuation transition to the vision: Invest in and taxation practices Develop land inventory including land • Realigning agricultural support to help the human capital COMPETITIVENESS government achieve its goals for the sector. development balance, and land monitoring system • Monitoring and evaluating progress to & systems for SUSTAINABILITY Reduce soil degradation sustain growth across all sectors. monitoring progress • Increasign human resources capacity. CLIMATE RESILIENCY • Investing in women. Source: Authors. 1 INTRODUCTION The purpose of this Synthesis Report is to identify binding constraints and knowledge gaps in the development of the agriculture, water, and land sectors in Georgia, and to identify pathways for the future of Georgian agriculture. This Synthesis Report proposes recommendations across the three sectors fostering a productive, competitive, environmentally sustainable, and diversified agriculture sector in Georgia, which can serve as actionable inputs for future investment operations both for donors and the GoG. This Synthesis Report builds on earlier analysis carried out by the World Bank and complements that with new findings and extensive consultations on the experience of agricultural value chain integration, CSA as well as a standalone analysis of the irrigation and land sectors in Georgia (WBG 2020a). I ntroduction 17 Constraints and opportunities in the agriculture, in the eastern mountainous region), the phenom- water, and land sectors are interlinked, and can- enon is expected to greatly decrease irrigation not be addressed in isolation. Synergistic public water availability in the country during key months and private investments in agriculture, water, and for agricultural productivity (Ahouissoussi et al land can lead to increased production and produc- 2014). Climate change also increases the risk of tivity by transitioning from low return agriculture reduction of the agricultural land fertility and deg- to high-value crop production. Mismanagement radation intensity growth (MEPA 2017a). carries the risk of degradation of water and land resources. A recent analysis on the cost of envi- Georgia is facing significant water resource chal- ronmental degradation points to an increasing lenges due to risks related from climate change. trend of unsustainable resource use in Georgia Water resources availability in Georgia varies (WBG 2020e). The updated evaluation of agricul- greatly by season and geographical area (ADB ture and forest land, air quality, lead exposure, and 2020). Water distribution is uneven throughout the the state of Georgia’s coastal zone indicates neg- country, given the levels of precipitation observed ative effects on the country’s economy, with costs in the humid west and semi-arid east.10 The west- that include both direct costs and the cost of lost ern part of Georgia has sufficient resources while economic opportunities from compromised future the eastern part is relatively dry, and water is resource production potential (WBG 2020c). scarce. Also, increasing temperatures will lead to glacier melt reducing water surpluses (OECD The need for an integrated approach is becoming 2021b). During the last 50 years, the number of more relevant and urgent given climate change glaciers in Georgia has decreased by 13  percent, trends and their impacts in Georgia. Current trends and the glacier area decreased by 30  percent. of climate change in Georgia such as increasing With global warming, their full melting is projected temperature, eroding soils, intensifying droughts, by 2160 (ADB 2020). The country is already expe- floods, and an increased occurrence of hail are riencing significant variability in precipitation and expected to reduce yields in major agricultural surface water run-off. These are projected to be regions, including the eastern region of Kakheti. more severe in the coming years. Glacial run-off is The incidence of destructive natural disasters such projected to decrease by 40 percent by 2100 com- as landslides and mudflows has increased con- pared to 2010 levels, which will severely impact siderably. Hail and drought in the eastern part of Georgia’s energy, agriculture, and ecosystems (IEA the country have caused large losses in Georgia’s 2020). Droughts are also expected to put further agricultural sector, and the frequency and length pressure on water availability (OECD 2021b). of these hazards have increased in recent years (WBG 2019). Georgian agriculture is expected to Pandemic-related exogenous shocks are impact- be negatively affected by the direct impact of tem- ing the agri-food sector in Georgia and renewing perature and precipitation changes on crops, the calls for investments in the sector’s growth and increased irrigation demand required to maintain resilience given its importance to food secu- yields, as well the decline in water supply asso- rity and employment. COVID-19 has had a direct ciated with higher evaporation and lower rainfall. negative impact on the Georgia’s gross domes- The latter includes the potential for increasing dry tic product (GDP) that contracted by 6.8  percent days, meaning the consecutive days without rainfall in 2020 (WBG 2021a). Even though the agri-food events. Although climate change has a relatively sector in Georgia proved more resilient to the mild negative effect on crop yields when ignoring pandemic than other economic sectors (PwC irrigation water constraints and is even predicted to Georgia 2020, and Tevdoradze et al 2020), the boost yields of certain crops in Georgia (particularly pandemic also exposed the vulnerabilities of 10 Droughts are common in the eastern region, and irrigation is necessary there. 18 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA Image: © bubutu | Adobe Stock Georgia’s agri-business sector. A survey of micro, food-and-beverage and tourism industries (such as small, and medium-size enterprises in Georgia restaurants, cafés, and hotels). revealed that, farmers financially survived the crisis slightly better than non-food manufacturing enter- Concerted efforts to increase growth in agricul- prises of small and medium size (FAO et al 2021). ture can contribute to decreasing rural poverty Nevertheless, access to agricultural inputs, includ- in Georgia. Overall, growth originating from agri- ing labor, and access to output markets declined. culture has been two to four times more effective A survey, conducted during the first wave of the at reducing poverty than growth originating from pandemic (March-April 2020) by the Georgian other sectors. And there is some evidence that Farmers’ Association, revealed that 61  percent of income gains from agricultural activities have surveyed farmers and agricultural businesses had been no more costly to achieve than income their access to agricultural inputs curtailed as the gains in other sectors (WBG 2015a). A significant price of the imported agricultural inputs increased. share of Georgia’s population, and most of its rural In addition, 42  percent of surveyed farmers cited population, remains working in low-productivity limited access to machinery services and construc- agricultural activities. This contributes to continued tion materials. Movement restrictions and curfews high levels of poverty in rural areas (WBG 2021a). complicated workers mobility and the logistics and As of 2013, the average annual salary of a farm- marketing of products (GFA 2020). Sixty percent of worker amounted to only 64 percent of the national surveyed farmers reported that they were simply average (Geostat 2021). unable to sell their products due to closures in the I ntroduction 19 An integrated approach addressing bottlenecks particular wholesale markets. Women are active in the agriculture-water-land nexus simultane- in retail markets but have less mobility and more ously might also provide the opportunity for restricted access to transport, that would allow quality employment for women by addressing them to participate in more profitable settings. practices that keep women in lower paid, casual Female farmers were particularly hard hit by the work. Despite GoG progress in establishing suspension of public transport as part of the con- national legislative frameworks and developing tainment response to COVID-19. Reportedly male gender equality policies over the previous two farmers utilized private means of transport, that are decades, gender inequality persists in agriculture, not available and accessible to women, to reach water, and land. Operating under pervasive gender markets (Tevdoradze et al 2020); and (4) accessing stereotypes that define family and the household agri-finance, as women tend to not have any col- as the women’s domain, women’s contribution to lateral registered in their name (FAO 2018a). Even agriculture is often overlooked and largely under- when women own property, and in fact female and even un-paid. In agriculture, hunting and landowners or co-owners represent 40  percent forestry, women earn 75  percent of what a man on average of all landowners, their parcels are on would earn; in fisheries women earn 35 percent of average 30 percent smaller than those owned by a man´s wage (FAO 2018a). More than half (60 per- the men.11 All these constraints, that are also asso- cent) of self-employed women in agriculture are ciated with the low level of female entrepreneurial non-paid workers, reflecting the traditional view participation in Georgia, have only gotten aggra- that assumes that female household members vated due to COVID-19 (Tevdoradze et al 2020). will participate in agriculture labor for free, in addi- tion to household and family care (FAO 2018a). Agriculture has a unique and critical role in Constraints to women’s growth in agri-business improving nutrition. Georgia has been exhibit- range from: (1) accessing information, knowledge, ing some worrying food security and malnutrition and innovation, where rural advisory services are trends. Prevalence of undernourishment estimates, primarily targeting male farmers and where female from 2004 to 2019 in Europe and Central Asia providers of these services are only between 9 and (ECA), place Georgia among the countries with the 25  percent of all employees. Women tend to be highest rates of prevalence of undernourishment also under-represented in producer organizations, in the region (at 8.2  percent). On the prevalence where those exist. For example, only 25  percent of moderate food insecurity, Georgia is among the of all farmers’ cooperative members are female; four ECA countries that have rates higher than the and out of 2,106 cooperatives, only 100 were world average (38.3 versus 25.5  percent). At the reported to be headed by women (FAO 2018a); (2) other end of the malnutrition spectrum, the preva- accessing technology, machinery and agricultural lence of overweight among children younger than inputs, given that men tend to be considered as five in Georgia was 19.9  percent (2012)—almost the decision makers and responsible for access- four times the global average (5.6 percent in 2019). ing resources and for capital-intensive tasks, while Lastly, of all the ECA countries, only Georgia (and women carry out mostly manual and labor-inten- Moldova) was found to not have access to the 400 sive farm work. According to 2019 data provided grams per day of fruits and vegetables12 recom- by the National Agency of Public Registry (NAPR), mended by the Food and Agriculture Organization the  percentage of female water users (i.e., land- (FAO) of the United Nations, and the World Health owners who have irrigation service contracts) is Organization (WHO). High rates of prevalence of just 3.7 percent indicating a gender gap in access- undernourishment, moderate food insecurity and ing water resources; (3) accessing markets, and in overweight prevalence, in combination with low 11 According to statistical data provided by NAPR to the task team in September 2021. 12 Measured in availability of fruits and vegetables for consumption. 20 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA availability of fruits and vegetables indicate that across all three sectors, and identifying policy both hunger and regular access to healthy food actions to address jointly the integrated challenges are issues of concern for Georgia (FAO et al 2021). and support Georgia in achieving a modernized There are several pathways through which to con- agriculture sector by 2030. This Synthesis Report tribute to improved food security and nutrition summarizes the rationale for an agriculture-wa- (Herforth and Ballard 2016). The Government of ter-land nexus approach to realize a vision for the Georgia (GoG) can contribute to improved nutrition future of agriculture by 2030 in Georgia along four through agriculture by enhancing public programs broad action pathways. In the following sections, the and investments that make local production more brief presents a multi-sectoral approach grounded productive and competitive (increase availabil- in three themes: competitiveness, sustainability, ity of safe, diverse, and nutritious food), while and climate resilience and mitigation, underpinned increasing export competitiveness of selected by inclusiveness. These themes reflect the three products (increase incomes). This should be com- dimensions of the Green, Resilient, and Inclusive plemented with campaigns to raise awareness on Development (GRID) Approach identified by the healthy diets and nutrition, as also recognized by World Bank (Box 4) as important ingredients to the Food Systems Summit Dialogue in Georgia. achieving a more sustainable and equitable recov- Moreover, very importantly, continuing to invest in ery from COVID-19 and a long-term development women’s empowerment, as also supported by this paradigm (WBG 2021b). These dimensions make Report, have been shown to translate into nutrition the GRID Approach a useful framework for devel- improvements in their households. The economy oping solutions/policy recommendations. This of tomorrow will demand a healthy, educated, and multisectoral approach can unlock core constraints, resilient workforce. Agriculture can make or break reduce water, and land degradation, foster coordi- countries’ ability to be ready for this future. nated actions, and support Georgia in becoming an export-oriented agriculture producer that can com- Overall, this Synthesis Report aims to assess how pete in EU markets while transitioning to greener, to increase growth in the agriculture sector in more gender-and small-holder producer inclusive, Georgia by examining the government’s policies and sustainable water and land use and food pro- and strategic sector goals in agriculture, land, and duction standards. water, detailing constraints, and opportunities BOX 4: The three dimensions of the GRID Approach GREEN: Environmental, socio-economic, and financial sustain- conflict and violence, natural hazards, climate change, and pan- ability will be considered. Sustainability hinges on promoting demics driven by zoonotic diseases. By building resilience to a growth through public and private sector investments that elim- variety of shocks—economic, social, climate, or health-related— inate (or mitigate) the adverse side effects of activities that countries and firms would avoid diverting scarce resources to threaten future growth. Growth can be impacted due to risks repeated cycles of shock, restructuring, recovery, and rebuilding. such as disasters, health effects of pollution, or the degradation INCLUSIVE: Rising inequality and the exclusion of different social of fertile soils. Risks also arise from getting locked into activi- groups from services, markets and opportunities impedes devel- ties for which there is declining demand. By extension, growth opment and foments discord. Ensuring that the recovery does opportunities emerge from investing in clean products for which not leave anyone behind can reduce disparities in opportunities demand is rising. and outcomes and help excluded groups to realize a fair share of RESILIENT: To safeguard development, countries and firms face benefits. Including diverse perspectives and involving communi- the need to prepare for, mitigate and adapt to a wide range of ties in the design of policies and investment projects by private risks and uncertainties, including recessions, financial shocks, and public sector entities can ease implementation challenges. Source: World Bank (2021c). I ntroduction 21 The rest of this Synthesis Report is structured for the future of agriculture by 2030 along the as follows: three main themes of competitiveness, sustain- ability, and climate resilience and mitigation. — Chapter 2 examines the context and develop- — Chapter 4 concludes by suggesting specific ments in Georgia’s rural sector and presents policy actions that are required for moving recent developments in agriculture, water the agriculture sector forward by considering resources, and land management areas. the nexus between agriculture, water, and — Chapter 3 presents concrete recommenda- land in Georgia. tions to support Georgia in achieving its vision Image: © Michele Burgess | Adobe Stock 2 CONTEXT AND DEVELOPMENTS IN GEORGIA’S RURAL SECTOR The rural sector in Georgia is changing, shaped by a combination of opportunities, constraints, and the country’s overall economic development trajectory. Current policy and program developments affecting agriculture, water, and land are discussed below. Context and de velopments in Georgia’ s rural sector 23 To increase the competitiveness of the agricul- A. GOVERNMENT POLICIES tural sector, the following specific objectives are AND STRATEGIC SECTOR prioritized: GOALS IN AGRICULTURE, WATER, AND LAND a. Increasing farmers’ knowledge and skills; b. Developing value chains through their Georgia’s agriculture policy and overarching diversification, adoption of innovative tech- national policies recognize the need for inte- nologies, and promotion of cooperation grated investments across agriculture, water, and among farmers; land to advance agriculture and value chain devel- c. Increasing access to finance; opment. Specifically, the Strategy for Agricultural Development 2015–2020 prioritized hydro-amelio- d. Supporting market integration of farmers ration and soil fertility, specifically improvement of and entrepreneurs; the I&D systems, and reasonable use of soils. The e. Supporting young farmers and entrepre- Social-economic Development Strategy of Georgia neurs in rural areas; (or Georgia 2020) acknowledged that I&D invest- f. Increasing access to infrastructure and ser- ments would contribute to elevating Georgia’s vices; and agriculture export potential, as well as that address- g. Improving irrigation and drainage systems. ing the weaknesses of the land cadaster system would improve access to agricultural finance. The Agriculture is also at the center of “build back bet- Government Program 2021–2024: Toward Building ter” from the COVID-19 agenda guiding the United a European State envisions investments in water/ Nations Food Summit Dialogue in which Georgia is irrigation and land (including land ownership) as participating (UN 2021). key parts of its agenda on development of rural areas and agriculture. The country’s climate com- Georgia has been aligning its food/feed safety mitments reflect the same understanding. and veterinary and plant protection-related objectives and legislation with the EU regulatory Georgia recognizes agriculture as one of the framework, as it committed under the Association country’s sources of economic development and Agreement signed between the two. Established identifies specific objectives to develop it. The in 2010, the National Food Agency implements all MEPA-issued Agriculture and Rural Development activities related to food safety, veterinary services, Strategy 2021–2027 aims to ensure sustainable and plant protection. The spending on food safety socio-economic development of rural areas with and veterinary control however is particularly the following strategic goals: 13 low, and a relatively small number of enterprises are inspected annually on a permanent basis. a. Development of competitive agricultural The need for more efficient and transparent state and non-agricultural sectors; control is constantly emphasized by sector stake- b. Sustainable use of natural resources, eco- holders (World Bank 2020a). system conservation, and climate change adaptation; and The Irrigation Strategy for Georgia 2017–2025 c. Development of efficient systems in food/ sets out the vision to modernize irrigation infra- feed safety, and veterinary and plant structure and boost the area of irrigated lands to protection. 200,000 hectares by 2025. The strategy sets out an ambitious agenda to not only increase irrigated 13 The Strategy for Agricultural Development for 2015-2020 and for 2017-2020 have been revised and consolidated into one MEPA- issued strategic document, the Agriculture and Rural Development Strategy 2021-2027. 24 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA area, but also to reform Georgian Amelioration into In December 2019, legislation supporting the a professional and financially sustainable irrigation formal establishment and operation of WUOs service provider with database management and was introduced. The legislation transferred the decision-making, a new irrigation tariff system, responsibility of managing localized irrigation and local-level management entities as its clients canals to WUOs with the expectation that local (e.g., WUOs). Overall, the strategy has the follow- water resource management will improve (ADB ing objectives: (a) Improve reliability of the water 2020). The main WUO functions are as follows: (a) supply through renovation and rehabilitation of Management, storage, maintenance, and utilization infrastructure; (b) Ensure financial sustainability of of existing infrastructure in the WUO service area amelioration service providers by reducing their (i.e., secondary/tertiary canals, the local irrigation dependency on direct government subsidies; (c) system, and hydrotechnical unit) and provision of Ensure efficient allocation of water across alterna- irrigation services; (b) Provision of services to WUO tive uses; and (d) Increase the competitiveness of members in accordance with the organization’s Georgia’s agricultural sector by providing reliable statute, and provision of services to other water irrigation and drainage services at reasonable users in accordance with an agreement; (c) Record- prices (USAID 2016). keeping of water at the supply point and its rational distribution; (d) Collection of fees for water use An important part of the strategy is to reform the and settlement with a primary water user; and (e) current tariff arrangements for I&D services, which Issuance of a writ of execution on forced payment the strategy states is the single most important of fees for water use, the form of which is approved factor in determining the success or failure of the by the Ministry, in accordance with the Law of institutional architecture for irrigation services Georgia on Enforcement Proceedings (Parliament in Georgia. Currently, the bulk irrigation tariff in of Georgia 2019a). Georgia is set at such extremely low levels that it does not even cover the costs of service pro- Land registration has been identified as a vision and does not provide any incentive to use pre-requisite for land market development in water efficiently (USAID 2016). The strategy clearly the Government Program 2021–2024: Toward points out that the current tariff arrangements are Building a European State. The Government’s sub-optimal, not only as regards the level of the vision on land sector development is to some tariff, but also in that it is structured as a per-hect- extent reflected in the Government Program are payment based on voluntary annual contracts 2021–2024, which sets the completion of the land with water users. Therefore, the development of a reform as top priority related to the land sector. new I&D tariff methodology is another key reform The government plans to continue its work on “the that is urgently needed in the Georgian I&D sec- development of concepts, schemes, and plans for tor. According to best international practices, this nationwide and municipal spatial planning, and methodology should focus on one of two strat- plans for land use and development regulations egies: (a) cost-recovery (ensuring the financial for cities, settlements, and villages; land registra- sustainability of service providers), or (b) demand tion; state serving as a mediator in land disputes; management (ensuring the efficient allocation of privatization and leasing of state-owned land and water resources). The Government is currently in development of land balance” (GoG 2020). the early stages of consultations with internal and external parties on how best to reform the existing Land market development, support of land reg- irrigation tariff and with the support of the World istration process, and improvement of NAPR Bank has launched a study to determine how to services are prioritized in the State Budget Note calculate a fixed and variable binary bulk irrigation for 2021 for the next three years. Two state pol- tariff for Georgian Amelioration to charge to future icy goals regarding land are outlined in the State WUO members. Budget for 2021: (a) land market development, and (b) supporting land registration and improving NAPR Context and de velopments in Georgia’ s rural sector 25 services. Over the next years, the Government of and all persons concerned with tenure governance Georgia has planned a range of activities under as well as to promote the cooperation between the each goal: (a) Systematic land registration in 74 actors mentioned. settlements of five municipalities (Sagarejo, Tetri Tskaro, Gardabani, Gori, and Kareli); (b) Upgrade Management of natural resources focuses on of NAPR property registration information system adoption of sustainable, climate-smart agricul- for purposes of systematic registration of irriga- tural practices, agrobiodiversity conservation, tion areas; (c) Capacity building of specialists who eco-tourism development, sustainable manage- prepare the plot sketch plans and systematic reg- ment of forests, and promotion of renewable istration of land (1.2 million hectares); (d) Creation of energy sources. The Georgian Nationally records for property ownership, leases, and other Determined Contribution has a target to reduce documents; (e) NSDI development; and (f) Update greenhouse gas emission by 30  percent below NAPR with spatial data. Establishment of NSDI is 1990 levels by 2030. Georgia’s first Nationally an EU requirement, which is set for its Member Determined Contribution was updated and sub- States. Like EU Member States, the availability of mitted in 2017, updated again in 2019, but in 2021 high-quality geographic data and the develop- is still waiting to be adopted (OECD 2021b). The ment of location-based services are a priority for main sectors that would be affected by adapting Georgia in terms of crisis and emergency manage- these emission target levels are energy, industry, ment, transport, tourism, agriculture, environment, and agriculture and water resources management urban planning, and property markets. A newly (including for improved food production). In addi- established Land Agency is responsible for devel- tion, improving the policies that govern these oping land balance and an integrated database of sectors are part of the Government’s adaptation land resources (Parliament of Georgia 2019b). priorities: introduce innovation irrigation manage- ment and water application techniques, implement Georgia acknowledges the importance of the coastal zone protection technologies, and imple- implementation of the Voluntary Guidelines on ment a list of strategic documents/policies (OECD the Responsible Governance of Tenure of Land, 2020). Furthermore, the 2030 Vision outlined in Fisheries, and Forests in the Context of National the Climate Change National Adaptation Plan for Food Security (VGGT). The following major objec- Georgia’s agriculture sector calls for CSA practice tives, as defined in the Guidelines, are relevant for in Georgia, ensuring food security, rural poverty Georgia but not well reflected in major strategic elimination, and sustainability of agro-ecosystem documents defining Georgian land policy (FAO services through introduction of the highly effec- 2012): (a) Improve tenure governance by provid- tive production methods and management of the ing guidance and information on internationally climate change-associated risks (MEPA 2017a). accepted practices for systems that deal with the Georgia has established a high-level Climate rights to use, manage, and control land, fisheries, Change Council, chaired by the MEPA Minister. and forests; (b) Contribute to the improvement The Council is intended to provide policy direc- and development of the policy, legal, and orga- tion and guidance on climate action; improve nizational frameworks regulating the range of cross-ministerial co-ordination; and oversee the tenure rights that exist over these resources; (c) country’s measuring, reporting, and verification Enhance the transparency and improve the func- system (OECD 2021b). tioning of tenure systems; (d) Strengthen capacities and operations of implementing agencies, judicial Although, the Government of Georgia has aligned authorities, local governments, organizations of its national cross-sectoral policies to recognize farmers and small-scale producers and fishers and the importance of agricultural development, I&D forest users, pastoralists, local peoples and other systems, and land market development through communities, civil society, private sector, academia, various discrete initiatives, implementation of 26 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA these important initiatives is hampered by critical constraints blocking progress in all three sectors. B. RECENT DEVELOPMENTS Georgia 2020, adopted in 2014 as the country’s IN THE AGRICULTURE plan of development and business support, places SECTOR high priority on increasing the export potential of Agriculture is one of the most important sectors of the country’s agricultural products and, moreover, Georgia’s economy in terms of GDP contribution, recognizes the importance of improving the coun- employment generation, and foreign exchange try’s I&D systems in increasing the export potential earnings. The sector’s contribution to the national of the country’s agricultural products. Georgia economy during the last five years on average has 2020 outlines also the importance of land market been 7.8  percent. In 2020, agriculture was one of development. The Government Program 2021– the sectors of the economy that was relatively less 2024 spurred on by the COVID-19 crisis pledges to affected by the COVID-19 pandemic. Preliminary implement activities under the unified Agriculture estimates show that while the country’s economy and Rural Development Strategy 2021–2027 (MEPA contracted by 6.2 percent, agricultural share in total 2017c). Moreover, under the Development of Rural GDP increased by one percentage point from 7.4 to Areas and Agriculture, the Government Program 8.4 percent in 2020 (RAPDI 2021). The sector’s con- 2021-2024 focuses on land registration activities tribution is typically underestimated when measured and pledges that in the next three years systemic without taking forward and backward linkages and registration of 1.2 million hectares of land will be car- the associated multiplier effects into account. Studies ried out. Specifically, the land-related objectives of have shown large, positive linkages to rural growth the Government Program 2021-2024 are (a) devel- and employment creation associated with primary opment of land balance, inventory of all agricultural agriculture (Morris et al 2020). In fact, agro-process- areas, and development of a unified database of ing accounts for a further 7-8  percent of Georgian land resources; and (b) privatization of state-owned GDP (WBG 2020a). Approximately 41 percent of the agricultural lands. The Government Program 2021- total population live in rural areas, and the majority 2024 also announces investments in rehabilitation of those living in rural areas still rely on agriculture of water supply (and sewage) systems as well as for their livelihoods. Agriculture provides 19.1  per- more than 220 million GEL (US$70.4 million) to be cent of total employment.14 Even though Georgia is invested in the irrigation of an additional 40,000 a net importer of agri-food products, its trade bal- hectares and in the dewatering of almost 1,000 ance significantly improved during the last decade. hectares of land. The combination of these stra- For the period of 2010-2020 agricultural imports tegic objectives, goals and implementation plans and exports exhibited increasing trends, but agricul- paints a promising opportunity for Georgia to take tural exports grew at a higher rate than imports. As advantage of important synergies across all three of 2020, agri-food products constituted 28 percent sectors. However, as detailed in the next sub-sec- of the country’s total exports, while the correspond- tions, each of the three sectors is facing complex ing share in total imports was 15  percent (Geostat and a unique set of constraints that are preventing 2021). In the domestic market, the production and accelerated progress on these initiatives. processing of cereals, meat, milk, and processed foods for domestic markets faces high competition from imports which account for 65 percent of all cal- ories consumed. Supermarket penetration is low, with 70  percent of food commercialized through 14 In 2020, Geostat updated the methodology for calculation of employment and unemployment statistics in accordance with the International Labour Organization (ILO) in Labour Force Statistics. According to the new methodology, self-employed persons who are not market-oriented and produce mainly agricultural products (more than 50 percent) for their own consumption are no longer considered as self-employed. Persons with this status were reclassified into other categories (unemployed, population outside the labour force) depending on whether they are looking for or ready to start a job. As a result, the percent of employed persons in agriculture out of total employment changed from 41 percent in 2019 to 19.1 percent in 2020. Context and de velopments in Georgia’ s rural sector 27 bazaars, although this presents a growth opportu- climate change implemented by farmers in Georgia nity in the formal retail sector, subject to improved include conservation agriculture (crop rotation, mulch- product standards (World Bank 2020d). ing, no tillage, or minimum tillage), precision irrigation, or micro irrigation technologies, wind breakers, anti- Notwithstanding domestic and export market hail, and anti-frost system as well as investment in opportunities, the agricultural sector growth rate pastures. Nevertheless, most of the practices and remains far below potential. Productivity is low and technologies identified for crop and livestock systems stagnant for most crop and livestock products, both in Georgia have a low degree of adoption rates (less in absolute terms and relative to comparator coun- than 30 percent) despite their multiple CSA benefits. tries. Almost 80 percent of households operate less The key cross-cutting barriers to wider-scale CSA than one hectare of agricultural land, 14.9  percent adoption include limited financial capacities, lack of operate one to two hectares, 4.3  percent operate knowledge and practice, lack of equipment and skills two to five hectares and only 1.3  percent (8,577 (WB and FAO 2022). Limited access to credit among households) have five hectares or more (WBG farmers is a major constraint to increased use of tech- 2020d). For most small farms the combination of nologies and inputs and is largely related to farmers’ small farm size and low farm productivity means lack of collateral as only 40  percent of the land is that agricultural incomes are too low to survive on registered. Alongside land plots’ size, limited land farm earnings alone. In fact, non-farm wages and tenure security has shown to be a critical bottleneck income transfers are the major sources of rural hampering investment, agri-business development household income. A small but progressive cohort of and commercialization. All this demonstrates a large larger, export-oriented producers and agri-business potential for increasing agricultural productivity under enterprises involved in wine, hazelnut, and edible rainfed and irrigated conditions. Climate change has fruit production have developed successful supply added a further challenge creating the need for irriga- chains and show that sustainable growth is feasi- tion, which is currently practiced on a small share of ble. The remaining farmers are poorly integrated the potential area. into commodity markets. The smaller agri-business enterprises are mostly focused on domestic markets Agriculture in Georgia is on a path of structural and struggle to compete with imports. Moreover, transformation. As in other countries in the region, despite the increasing value of agricultural produc- while the sector continues to grow in absolute terms, tion in Georgia, forward and backward linkages the relative contribution of primary agriculture in the with input industries and agro-processing could be economy is diminishing, with other sectors generat- stronger. This is true with other sectors of the econ- ing greater value-added (Figure 2), and the sector omy as well. The impact can be consequential for is employing fewer people in primary production the value-added potential in agriculture and sector (Figure 3). Other elements of structural transfor- modernization and competitiveness. The role of mation typically include increased value added for markets in the value-added process continues to be agro-related industries. Indeed during 2010 and limited. Direct sales to households and household 2019, production of manufactured15 food products consumption, in general, continues to be important as well as production of beverages have increased for the sector. Many agri-businesses resort to vertical (Figure 4). The value added in food production integration as the best means to secure consistent has significantly increased from 222.9 million GEL flows of raw material rather than through procure- in 2010 to 401.8 million GEL in 2019 in real terms, ment from smallholders (WBG 2020d). while the value added in production of beverages has increased almost three times from 222.3 million Georgian farmers have still to take advantage of GEL to 596.4 million GEL (GeoStat 2021). green technologies. Key practices to respond to 15 GeoStat follows the NACE Rev. 2 classification of national accounts. According to this classification, manufacture of food includes the processing of the products of agriculture, forestry and fishing into food for humans or animals, and includes the production of various intermediate products that are not directly food products. The activity often generates associated products of greater or lesser value (for example, hides from slaughtering, or oilcake from oil production). 28 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA FIGURE 2. Sectoral shares of value added FIGURE 3. Sectoral shares of employment (1996–2020) (1991–2019) 70 60 60 Labor share (% of total employment) 50 Average value added (% GDP) 50 40 40 30 30 20 20 10 10 0 0 Industry Services Agriculture Industry Services Agriculture Source: WBG (2021d). Note: Accessed in September 2021. Source: WBG (2021d). Note: Accessed in September 2021. FIGURE 4. Value added in manufacturing of food products and beverages at 2015 prices 1200 1000 milion Gel 800 Manufacture of beverages 600 400 Manufacture of 200 food products 0 Source: GeoStat (2021). Note: Accessed in June 2021. Context and de velopments in Georgia’ s rural sector 29 Nevertheless, a high proportion of Georgia’s work Agricultural structural transformation is driven force is involved in low productivity agriculture. by interrelated processes in improved productiv- Approximately 41  percent of the total population ity, changes in composition of production (from live in rural areas, and the majority of those living staples to high-value products) and commercial- in rural areas still rely on agriculture for their liveli- ization (Divanbeigi et al 2016). Previous analytical hoods. Almost 80 percent of holdings own no land work carried out by the World Bank showed that or operate less than one hectare of agricultural Georgia needs to make more progress on all: crop land, 14.9  percent operate one to two hectares, production is dominated by cereals, grapes and 4.3  percent operate two to five hectares and only potatoes, with cereals (maize, wheat) accounting 1.3 percent (8,577) have five hectares or more (WBG for 42  percent of cropped area; crop productivity 2020d). Georgia’s farm structure, with its predom- is low relative to comparator countries and crop inance of small agricultural holdings, is a major yields have increased little in the past decade; determinant of the high contribution that agriculture and although agricultural exports are growing makes to total employment. But as this workforce faster than imports, they comprise a small number generated only 8.4  percent of GDP in 2020, it of export commodities (wine, hazelnuts, mineral means that a high proportion of Georgia’s work water) and are driven by a small cohort of larger, force is involved in low productivity employment. progressive farms and agri-business enterprises Labor productivity should ideally be presented in (WBG 2020d). actual hours worked or in full-time equivalent rather than output per worker. This information, however, is In turn these processes driving agricultural trans- not available for Georgia. Actual labor productivity formation are affected by adoption of efficient might in fact be underestimated because farming is technologies (such as irrigation), appropriate a part-time job for most farmers, even those 19.1 per- regulatory systems over water and land, and cent, which are counted by statistics as agricultural access to markets and finance amongst others labor force. The Georgia 2018 Household Incomes (Divanbeigi et al 2016). While issues pertaining and Expenditures Survey  reveals that Georgian to water, irrigation and land are discussed later farms derive only 8  percent of their income from in this Synthesis Report (Sections 2C and 2D), in farm sales and 16 percent from own production. The terms of access to finance, the previous analyt- remaining income comes from wages, pensions, ical work carried out by the World Bank noted and non-farm self-employment. The weight of agri- that financial inclusion and credit for agriculture cultural sales increases with farm size but does not in Georgia compares favorably with other ECA exceed 25 percent even in the largest farms (WBG countries. Specifically lending to primary agricul- 2020d). Even if the average agricultural labor pro- ture production and agri-businesses has grown in ductivity is higher than perceived, however, it still significance and has outperformed the growth of should be increased by moving more subsistence lending in the overall economy (although after 2017 farmers to the cohort of commercial farmers. While it reached a plateau and has declined relative to structural transformation leads to less jobs in pri- total credit to businesses). Moreover, for the past mary production, typically it creates more jobs in 17 years, following the introduction of the GoG agri- other parts of the agri-business sector: downstream cultural preferential credit program, substantially such as food manufacturing and food services, and more credit has gone to agriculture and agri-busi- upstream such as agricultural inputs and services. ness (WBG 2020c). Nevertheless, it was noted that It can also mean better jobs in primary production. other than banks, there are very few other sources Creating good quality jobs will require the rethink- of finance. Banks tend to be conservative to be ing of policies and of spending priorities and focus able to keep low levels of non-performing loans on improving sector performance and creating by relying on rather conservative loan underwriting opportunities. and high collateral requirements. This is happen- ing in a context of very limited use of moveable collateral and low penetration of digital financial 30 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA services in rural areas. Moreover, while the reliance all farmers’ cooperative members are female; and on foreign currency lending is being reduced, par- out of 2,106 cooperatives, only 100 were reported to ticularly to primary agriculture (due to smaller loan be headed by a female (FAO 2018a). Among buyers sizes), foreign currency lending is quite dominant of farm products there is a preference to work with in agri-business loans which should be an issue fewer but larger farmers capable of delivering con- of concern particularly for agri-business firms that sistent quality products at large volumes rather than do not rely on exports (WBG 2020c). In terms of with many individual small farmers (RAPDI 2021). access to markets, the previous analytical work Many buyers have also begun to integrate vertically carried out by the World Bank ascertained that the and engage in production. Vertical integration allows market structure is generally competitive, but value for better control over how a product is grown, har- chains are fragmented and uncoordinated (WBG vested, and handled. It also allows processors to 2020d). maintain high-capacity utilization in processing or ensure minimum throughput in cases of failure to Weak integration of emergent smallholder farm- source raw materials in sufficient quantities on the ers and agri-businesses is one of the most spot market (RAPDI 2021). It comes at the expense critical constraints to agricultural sector growth of small and medium-size producers, however. in Georgia (WBG 2020d). Given the prevalence of small-scale farming, a key challenge for established Overall, existing agricultural value chains integra- buyers (processors, wholesalers, exporters, inter- tion mechanisms in Georgia fall short of pulling mediaries) of farm products is to obtain the right smallholder farmers in and up the value chain. quality in sufficiently large volumes of acceptable Across the spectrum of arrangements to enhance quality inputs from small scale farmers, often incur- cooperation amongst agricultural value chain ring high transactions costs of working with many actors in Georgia, supply chain integration arrange- individual smallholders. Moreover, on one hand ments, such as found in the dairy milk sub-sector linkages between farmers and buyers are mostly (Annex case study), stand at the most formalized informal and are based on spot market cash trans- end. Spot market arrangements, which are the actions, as is the case in the beef and sheep (live most prevalent, stand at the other end of the spec- and product) markets, as well as in the nut, berry, trum. Between the two ends are experiences with fruit, and vegetable crops markets (RAPDI 2021). producer organizations that at best are mixed Linkages between suppliers and buyers are rela- (except for the success in the hazelnut sub-sector tively more developed in those value chains where as described in an Annex case study), and with production and demand are not characterized by contractual links, such as contract farming arrange- seasonality, and agro-processors have established ments, which in general have not been positive market linkages, such as the dairy milk sub-sector, where tried as described in Annex case studies on but only between large producers and large buy- wine grapes and meat sub-sectors. Table 1 pres- ers16 (RAPDI 2021). On the other hand, farmer-or ents the landscape of integration mechanisms that producer-based organizations (such as associa- were observed across the ten agricultural value tions and cooperatives) that could have facilitated chains examined in Georgia via interviews and linkages between smallholders and buyers are focus group discussions between April and June lacking in Georgia (RAPDI 2021). Women tend to be 2021 for the purpose of this Synthesis Report.17 also under-represented in producer organizations, The table captures experience with mechanisms, where those exist. For example, only 25 percent of irrespective of whether that was successful or not. 16 For the purposes of this Brief, RAPDI (2021) categorized farm sizes as follows: small (at most 1 hectare of land and at most 5 head of cattle; medium (1-5 hectares of land, or 6-20 head of cattle); and large (more than 5 hectares of land, or more than 20 head of cattle). 17 Between April and June 2021, RAPDI conducted 32 interviews with agri-businesses and 10 focus group discussions with the total participation of 150 farmers across 10 select agricultural value chains, specifically dairy milk; beef; wheat; corn; potato; peach/ nectarine; blueberry; culinary herbs (mainly coriander, dill, parsley, and celery); hazelnut; and wine grapes. The following criteria were used to select the agricultural value chains for the analysis: (a) contribution to agricultural GDP; (b) generation of foreign exchange inflows; (c) high participation of small-scale farming households in production; (d) contribution to food security; (e) existence of sectoral associations; (f) GoG and donor support; and (g) existing quality-based payment systems. Context and de velopments in Georgia’ s rural sector 31 TABLE 1 Landscape of integration mechanisms across ten agricultural value chains in Georgia Dairy Beef Wheat Corn Potato Peach/ Blueberry Culinary Hazelnut Wine (Milk) nectarine herbs Grapes Supply chain More formalized integration via contracts ✓ (incl. price) Contract farming ✓ ✓ ✓ ✓ ✓ (excl. price) Vertical integration ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Independent retailers and other inter- ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ mediaries/ aggregators Producer organization (horizontal ✓ Less formalized integration) Spot market/ on farm ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Source: Authors based on RAPDI (2021). Also, agricultural value chains might be character- deals” on transactions in very general terms. They ized by multiple arrangements concurrently. rarely involve agreement on specific volume and quality, and nearly never on price. Even when gen- A variety of agricultural value chain integration eral purchase agreements are concluded after mechanisms are active to different degrees, but the harvest and even after inspection of the farm contractual links, where they exist, are largely product, as in the case of wheat, agreements may informal and they almost never involve pre- specify quantities and time periods of transactions, agreed prices. Current arrangements involve (a) a but never the price. The exceptions have been link- network of middlemen who perform the functions ages in those value chains with no seasonality of of on-farm purchase, assembly, and transportation, production and with relatively long supply chains, as and (b) a predominance of spot market, cash-based in the dairy milk sub-sector, where market arrange- transactions between farmers and buyers. These ments have been more developed and based on markets are characterized by many small and dis- long-term cooperation (RAPDI 2021). Elements that organized intermediaries between producers and would enable the strengthening of contractual rela- consumers, who moreover lack specialization, do tions amongst actors, such as a warehouse receipt not rely on formal grades and standards, conduct system, and market and price information services, one-on-one negotiations, and work on the basis of do not seem to be utilized in Georgia.18 informal agreements. Informal agreements before the harvest, which are common for most of the Low skills and poor infrastructure compound the selected value chains, usually include “handshake difficulties of integrating along the agricultural 18 For example, the agricultural market information system that FAO had supported with MEPA (FAO 2020) has temporarily halted functions; and it is unclear what is the status of a 2007 proposal that would introduce a warehouse receipt program in Georgia in the context of a project to integrate the grain markets of Georgia, Ukraine, Azerbaijan and Moldova (Hollinger and Rutten 2009). 32 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA value chains.19 Knowledge of modern agricultural advantage of high-standard producers, and there technologies, innovative how-to along the agricul- are gaps in the regulation of inputs and logistical tural value chain, and farm-to-market opportunities services. Although accredited, many laboratory are insufficient throughout the sector. Farmers services lack international recognition and credibil- often lack access to critical information, and as a ity (WBG 2020d). Poor regulation of the small-scale result become also reluctant to adopt improved processing sector (including households) also cre- production technologies and modern business ates food safety issues. And as most of the smaller practices. Processors rely on international consul- enterprises produce for non-EU markets there is tants to guide investment in plant and equipment. little incentive to meet the high cost of compliance All actors, sector-wide, lack guidance on how to with EU standards (WBG 2020d). find new markets and to manage weather and mar- ket volatility. A major part of these disconnects is Furthermore, transport and agrologistical capac- a shortage of well-trained extension officers, food ity are insufficiently developed, and both internal technologists, and agri-business advisers, further and external connectivity are low. Although the exacerbated by a small and fragmented institu- government has made significant strides in improv- tional base for knowledge transfer. Although a ing primary and secondary road networks, tertiary re-organization of Georgia’s agricultural research road infrastructure remains limited. Fuel costs are institutions has improved the knowledge and inno- high, and the transport system is still reliant on old, vation activities in the sector, the public research soviet-era trucks. Georgia also scores low for most system remains seriously underfunded. In addi- indicators of the World Bank Logistics Performance tion, research priorities are not adjusted to the Index, although progress has been made with cus- changing needs of commercial agriculture (World toms clearance (WBG 2020b). Processing costs Bank 2020). Moreover, while MEPA is expanding are also increased by a high reliance on imported extension & advisory services through its Regional equipment, packaging material and other inputs. A Information Consultation Centers (established shortage of qualified equipment operators obliges in 2013) and ICT instruments, these services are firms to hire foreign specialists, often at high cost weakened by the limited knowledge of staff, as (WBG 2020b). Larger agri-businesses are not most have no formal training in agriculture. Women immune to these constraints either, but they have are further disadvantaged in accessing informa- more resources at their disposal to overcome them. tion, knowledge and innovation with rural advisory Both small and larger agricultural sector players services primarily targeting male farmers, and with would benefit from measures to improve market female providers of these services being only integration and product aggregation, increase the between 9 and 25 percent of all employees (FAO flow of raw materials from smallholders to agri-busi- 2018a). Some private companies that sell inputs ness, fill knowledge gaps, encourage innovation also offer advisory services to farmers, but they along value chains, improve access to agri-finance focus mostly on providing branded products to and agrologistics, and stronger public-private dia- larger farms. Some donor-supported companies logue (WBG 2020d). Furthermore, women tend and non-governmental organizations are gener- to be disadvantaged in accessing markets. Even ating innovative systems for technical assistance, though they are active in retail markets, they have with immediate potential for addressing this gap. less mobility and because of more restricted access to transport they cannot participate in In addition, food safety systems in Georgia are more profitable settings (i.e., wholesale markets under-developed, with weak control of informal that might be a distance away). Indicatively, female and non-compliant enterprises. There is no state farmers were particularly hard hit by the suspen- certification system to enhance the competitive sion of public transport as part of the containment 19 They have been analyzed under the Maximizing Finance for Inclusive Development of Agri-food Value Chains in Georgia. Context and de velopments in Georgia’ s rural sector 33 response to COVID-19. Reportedly male farmers and generate a mean net present value of US$6.8 utilized private means of transport, that are not million (WB and FAO 2022). available and accessible to women, to reach mar- kets (Tevdoradze et al 2020). Although CSA is a priority for MEPA, farmer adoption of CSA practices is not widespread in Georgian agriculture is vulnerable to climate Georgia. Georgia has set the following specific change. Current trends of climate change impacts climate change adaptation priorities:21 (a) The resto- in Georgia, such as increasing temperature, erod- ration of pastures and windbreaks to reduce wind ing soils, drought in specific areas of Georgia, and water erosion, siltation problems in irrigation intensifying floods, frost, and hail in addition to canals, as well as to improve microclimate condi- new pests and diseases affecting crops, forests, tions and soil fertility in agriculture land; (b)  Water and livestock, are expected to reduce yields in conservation and water use efficiency, by reha- major agricultural regions. Georgian agriculture is bilitating and improving irrigation schemes and expected to be negatively affected by the direct employing advanced irrigation methods such as impact of temperature and precipitation changes micro-irrigation technologies; (c)  Soil conservation on crops, the increased irrigation demand required cropping systems and technologies, such as con- to maintain yields, and the decline in water sup- servation agriculture to improve soil structure, soil ply associated with higher evaporation and lower fertility and soil water retention; (d) The selection of rainfall, including the potential for more dry days more water-efficient crops, such as drought-resis- (WB and FAO 2022). The expected impact of cli- tant varieties of higher-valued fruit and vegetable mate change on specific agricultural sub-sectors in crops; (e) The diversification of landscapes and Georgia is described in Box 5. income to help buffering against climate impacts through a diversified on-farm production and CSA can help achieve a more resilient and sus- eco-agriculture techniques that improve environ- tainable sector in a cost-effective way. The CSA mental services and resilience to natural disasters approach supports development and ensures food and soil erosion; (f) Effective storage and pro- security in the face of climate change by (a) sus- cessing technologies for the diversification of tainably increasing agricultural productivity and agriculture products to address increased variabil- farmers’ income, (b) adapting and building resil- ity and shortfalls in high demand months; (g) The ience to climate change, and (c) reducing and/or improvement of agricultural research and exten- removing greenhouse gas emissions in line with sion capacity; and (h) The development of early national development priorities. In addition, CSA warning systems for natural disasters and seasonal practices are relatively cost-effective. Although, forecasting. During April and June 2021, several estimates on the costs and benefits of adapta- CSA practices were identified in Georgia as a result tion to climate change vary, ex-ante economic of research as well as participatory stakeholder analysis shows that, over a 20-year timeframe, workshop and consultations for each production the 32 country-level Adaptation for Smallholder system. Identified practices range from conserva- Agriculture Programme (ASAP)20 investments tion agriculture (crop rotation, mulching, no tillage) approved since 2010 will generate and redistrib- in wheat and maize; drip irrigation in the potato ute net worth US$0.44 to 1.63 per dollar invested to fields of Samtskhe-Javakheti, and drip irrigation smallholder farmers and other project beneficiaries with row middle grass cover for grape wines; to windbreakers in hazelnuts, and free movement 20 ASAP is an IFAD flagship program for channeling climate and environmental finance to smallholder farmers. The program is incorporated into regular IFAD investment processes. For more information, see: www.ifad.org/en/asap. 21 According to the Technology Action Plans for Climate Change Adaptation (2012) and the Second National Communication to the United Nations Framework Convention on Climate Change (UNFCCC) (2009). Other climate change adaptation and mitigation commitments made by Georgia are listed in Section IIA. 34 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA BOX 5. Expected impact of climate change on specific agricultural sub-sectors in Georgia Wheat: Over 60 percent of wheat is produced in Kakheti (east- Khulo) revealed that, based on climate change scenario of ern region), and the rest is almost completely concentrated in A1B, non-irrigated potato productivity will probably increase in other regions of eastern Georgia (Shida Kartli and Kvemo Kartli). Mtskheta-Mtianeti, and will significantly decrease in the highland In the current climatology, wheat is more frequently subject to of Adjara (by 10-40 percent) and Khulo. Productivity of irrigated drought during the tillering phase compared to the historical potato cultivation is expected to increase in all production areas; data (1956-1985). The last of these severe droughts happened the effect of irrigation is especially high in Akhaltsikhe and is in 2020, resulting in yields that were lower than average. The relatively insignificant in Mtskheta –Mtianeti, which is explained negative impact of warming will be more evident in rainfed and by different precipitation regimes and, also, the granulometric drought-prone regions like Shiraki and Eldari. If sufficient mois- composition of soil. ture is available, an increase in carbon dioxide concentration will Tangerines: Most of the tangerines in Georgia come from the have a positive effect on wheat productivity. The projected aver- Adjara and Guria region (south-western region). The expected age annual temperature rise of 3.6°C expected in 2071-2100 will increase in average temperatures, in general, will positively reduce wheat yields approximately by 15-25 percent, if the same impact the sector in terms of expected yield, extension of suit- agro-technology is applied. Higher expected temperatures will able area, and duration of harvest season. However, currently create favorable conditions for an increase in pest populations, the sector is characterized by huge production and price volatility which can also have adverse impacts on wheat yields. due to frequent early fall frosts and hail, when fruits are not yet Maize: About 70 percent of maize comes from western Georgia, fully developed and are highly susceptible to climatic conditions. where humidity is high and therefore production is not signifi- In addition, moisture needed for citrus production will substan- cantly dependent on the irrigation system. Kakheti in the east, tially drop by 2100, thus zones favorable for tangerine (citrus) also a maize producing region, has seen a change in rainfall production will be reduced by three times if irrigation does not pattern which requires the use of irrigation for short periods in occur. Climate change could also increase the conditions suit- summer, at critical stages of grain filling. The projected average able for pest and disease occurrence in the coastal areas which annual temperature rise of 3.6°C expected in 2071-2100 will might affect tangerine productivity. reduce maize yields approximately by 15-25 percent, if the same Hazelnuts: More than half of the hazelnut production comes agro-technology is applied. In addition, higher expected tem- from Samegrelo (western region). Increases in precipitation peratures will create favorable conditions for an increase in pest levels during the vegetation period have been observed along populations, which can have adverse impacts on maize yields. with droughts in July through August. Frequency duration and Viticulture: The cultivation of grapes is widely practiced in velocity of hot winds have been increasing in the last five years Georgia, particularly in the country’s eastern region: approxi- which have damaged the harvest and negatively also influenced mately 38,000 to 40,000 hectares are currently dedicated to the future harvest as the plant is weaker and poorly developed. grape production, and there are more than 35,000 small-scale Future climate projections indicate a negative impact on the grape growers. Over the past two decades, Georgia has faced yields, specifically in long dry periods and after warm winters. increasingly heavy rainfall, hail, and flooding events, which have Increased amount of extreme precipitation in Samegrelo would affected the Kakheti wine region, causing severe damage to hun- cause temporary flooding of lowlands. Changes in temperature dreds of vineyards. The expected climate change may have a regime would increase the harmful pathogen load and cause significant negative impact on yields, primarily because of longer the need for more comprehensive plant protection measures. drought periods, which would result in significant deterioration of Stronger hot winds would increase losses and decrease yield. yield and quality characteristics. Livestock: Warm winters can increase the spreading of live- Potatoes: Almost half of the potato production in Georgia comes stock diseases and even the introduction of new types of pests from Samtskhe-Javakheti (central southern region), where the and diseases. Temperature and prolonged periods of hot days precipitation level (May -June) has increased by 10  percent in in summer may cause heat stress in animals that impacts ani- the past ten years. This has led to high water and flooding in mal health and productivity. Georgia counts about 1.9 million areas of newly harvested potato seeds as well as higher infes- ha of meadows and pasture areas, half of which is in Kakheti tations of fungus, especially phytophtora and alternaria. A joint (eastern region). The most severe impacts are expected in arid assessment by Aquacrop (FAO) model and experts on the impact and semi-arid grazing systems, where higher temperatures and of present and expected climate changes on potato productiv- lower rainfall are expected to reduce yields and increase land ity in three regions of Georgia (Akhaltსikhe, Dusheti-Pasanauri, degradation. Source: WB and FAO (2022). Context and de velopments in Georgia’ s rural sector 35 shelter without grazing, using cattle forage blend are vital against climatic extremes and are (including feed supplements and premixes) for live- critical for high-value agriculture production. Non- stock (WB and FAO 2022). Most of the practices irrigated areas are used for livestock grazing and and technologies identified for crop and livestock rainfed cereal crops, while irrigated areas in the systems, however, have a low degree of adoption lower elevations are devoted to fruits and vege- rates (less than 30  percent) despite their multiple tables. The eastern part of the country, which is CSA benefits. The key cross-cutting barriers to wid- subject to frequent droughts, requires the use of er-scale adoption of CSA in Georgia include limited irrigation to buffer climatic extremes. The western financial capacities, lack of knowledge and practice, part of the country, which is wetter, is confronted lack of equipment and skills (WB and FAO 2022). with drainage problems. In addition to CSA skills, the capabilities for Following the collapse of the former Soviet Union, collecting, measuring, and utilizing up-to-date the actual irrigated area in Georgia has declined agrometeorological data are acutely needed in significantly. This can be partly attributed to the Georgia. Agriculture-relevant weather forecasts abandonment of I&D infrastructure in Georgia due can yield immediate benefits to farmers, providing to lack of maintenance, difficulty of continuing oper- information on temperature and precipitation in the ation of large infrastructures, and reduced financial short term and facilitating irrigation planning over resources allocated to I&D management resulting the long term. Knowledge of an impending drought, from lack of economic or financial viability. All these for example, can help farmers choose crops and factors contributed gradually to the overall ero- manage irrigation as well as help the irrigation ser- sion of I&D services in Georgia. According to the vice provider to adequately manage water supply Irrigation Strategy for Georgia 2017-2025, “actual shortfalls through irrigation infrastructure and allo- irrigated area in Georgia, which was as much as cation measures. While there is no legal framework 400,000 hectares during the Soviet period, had that governs hydrometeorology and agrometeo- dwindled to one-tenth of that by 2015.” (Figure 5). rology, a general regulation issued by the MEPA The poor performance of the sector combined with Minister spells out the obligations, functions, and the characteristics of farming systems, land reforms, responsibilities of the Georgia Hydro-Meteorology the transition to a market economy, and the loss Department (GHMD). Agricultural meteorolog- of markets with traditional trading partners have ical services are among the oldest services of also contributed to a significant reduction of the GHMD, and every district in Georgia has agricul- irrigated area (FAO 2019). Although some reports ture extension services that provide farmers with show that there is a substantial uncertainty about information from GHMD bulletins (World Bank the desirability of expanding the irrigated area 2019). The Department of Hydrometeorology is back to the Soviet Union coverage (ISET 2016), the also responsible for collecting data on river dis- irrigation potential is estimated to 725,000 hect- charges and meteorological conditions throughout ares (FAO 2019). However, out of these, only about the country. However, it currently collects little real- 17 percent of total area is equipped with irrigation time data on river discharges (MEPA 2017b). today (World Bank 2021a). C. RECENT DEVELOPMENTS IN WATER RESOURCES MANAGEMENT Agriculture in Georgia, as in many countries in the region, is primarily rainfed, but I&D investments 36 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA FIGURE 5. Area covered with irrigation and drainage infrastructure 1988–2020 500 400 Thousands ha 300 200 Irrigable Area 100 Drained Area 0 Source: Authors. Note: For data 1988-2011, refer to ISET (2016). For data 2012–2020, refer to GACo (2021)  (accessed in June 2021). The I&D services have been falling short of what human resources and skilled staff employed in the would be optimal for the country, in both quanti- I&D sector in Georgia. These factors underscore tative and qualitative terms (USAID 2016). Further the need to address these issues from an inte- investments in I&D systems are necessary to sup- grated systems perspective. The course of action port the growing production of high-value food would involve upgrading and modernizing irriga- products such as fruits and vegetables. Labor- tion systems in conjunction with investments to intensive high-value crop production fundamentally support institutional service delivery reform, mod- depends on reliable and affordable irrigation ser- ernizing on-farm investments by individual farmers, vices, which are currently lacking in Georgia (World reforming the tariff structure in the country, and Bank 2018). However, I&D systems are in the pro- upgrading skills and staffing of key I&D agencies to cess of being developed and improved, with areas deliver improved I&D services to farmers. of land served by I&D infrastructure increasing every year with the help of state programs. Modern Despite some progress on increasing the overall irrigation systems are also gradually being intro- irrigated area, questions remain on the criteria duced (MEPA 2019). However, many small and driving the prioritization of rehabilitation activ- marginal farmers cannot afford to modernize (e.g., ities and the reliability of the water service. As adopting drip or sprinkler systems) or switch to of December 2019, according to MEPA, 130,000 producing higher-value crops. This is coupled with hectares had already been rehabilitated. But the institutional challenges with I&D service delivery in rehabilitation is only partial since it focused on pri- Georgia where there exist poor schemes for irri- mary canals and not the entire irrigation system, gation management and O&M; poor financial cost including secondary and tertiary canals.22 Climate recovery of I&D capital investments; and limited change, together with the existence of substan- tial water losses and the overall increase in water 22 Sourced from stakeholder consultations. In parallel to this brief, the World Bank Water Global Practice in ECA in partnership with BRL and ISET has produced a standalone irrigation sector policy gap analysis, which provides a more granular picture of the constraints and opportunities for the irrigation sector in Georgia. The study is forthcoming and is due to be published by the end of 2021. Context and de velopments in Georgia’ s rural sector 37 demand, can be expected to increase pressure on both the irrigation systems and the risks of conflict D. RECENT DEVELOPMENTS with other water-using sectors. Mostly the irrigated IN LAND MANAGEMENT area is served by gravity systems (i.e., open canals). SECTOR Drip irrigation is not widespread. The approximate The land reform in Georgia followed two stages number of hectares irrigated with micro irriga- after the collapse of the Soviet Union in 1992. tion is not known. The government also aims to During the first stage, land was distributed to the implement irrigation management transfer for the households in private ownership, free of charge secondary and tertiary levels of irrigation systems during 1992-1998. As a result, hundreds of thou- from LTD Georgian Amelioration23 to WUOs, which sands of small family farms were created (with an are yet to be established. Irrigation management average of about one hectare of land, that was transfer is expected to be implemented in parallel often fragmented into three or four parcels of land). with reform of the water tariff since the actual GA During the second stage completed by 2005, operating income, excluding government subsi- the rest of the state-owned agricultural land was dies, constitutes just 13 percent of its expenditures. leased out. The state transferred non-agricultural This low contribution of I&D service revenue can land, such as residential, commercial, and indus- be attributed to (a) low level of tariffs, (b) low level trial buildings, free of charge to private ownership of contracting associated with the lack of land reg- but maintained ownership of the land on which the istration, and (c) low reliability of services. A fourth buildings were located. cause of the low-level cost recovery is the struc- ture of GA incentives, which faces soft budget Over time, the legal and institutional frame- constraints (i.e., losses are covered by transfers works for land registration and privatization have from the government budget). changed. In 1996, the Parliament of Georgia issued a law on land registration, which is a legal and The reform of the water tariff is key for cover- institutional framework built on restoring the right age of the costs of the irrigation system and to private property. There were several shortcom- for encouraging efficient use of water, in con- ings, such as the following: the NAPR recorded junction with improved I&D service delivery for only initial owners and not subsequent transac- improved cost recovery from water users. Two tions; there was no unified cadastral system; and key aspects to note when developing the new the arrangement of documentation was based on tariff structure are (a) the ability to pay and willing- maps of the site in municipalities and villages. In ness to pay by the farmers and (b) the potential 1999, the President issued a decree on “Urgent impact of the new tariff on the competitiveness measures for the initial registration of agricultural of the agricultural sector. It has been suggested land ownership rights and issuance of registration by several stakeholders that the introduction of certificates to Georgian citizens.” To ensure that the new tariff should be accompanied by a broad the process of initial registration was transparent effort to increase awareness about the potential and less time-consuming, the decree minimized benefits associated with the new setup of the the number of documents required for land pri- I&D sector, namely, increasing the likelihood of vatization and initial registration. The process of successful implementation of both tariff reforms documenting the recognition of ownership of and establishing a process for establishment and agricultural land started in the late 1990s with the development of Water Users Organizations. help of international donors and continues today as new laws on land registration and privatization were adopted during the last 10-15 years. The land 23 Georgian Amelioration, which operates under MEPA, has become the sole provider of water and drainage services in the country. It carries out rehabilitation works of amelioration infrastructure, including I&D systems. 38 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA ownership rights are regulated by the “Law on rec- The Parliament of Georgia adopted a new decree ognition of property rights of the parcels of land in 2019, to further simplify systematic registration possessed (used) by natural persons and legal procedures based on the results of piloting of sys- entities under private law” adopted in 2007. The tematic registration activities under the Georgia privatization of state-owned land is regulated by Irrigation and Land Market Development Project the “Law of Georgia on State Property” adopted in financed by the World Bank. The NAPR uses block- 2010 as amended. chain technology to increase transparency and efficiency in the registration process of land titles Some institutional issues have been progres- and to ensure increased security and reliability of sively addressed to better support the needs of digital certificates of properties. land users. From 1998 to 2004, two different agen- cies were responsible for registering property in The land tenure pattern and incomplete system- Georgia: the Bureau of Technical Inventory, which atic registration constrain agricultural productivity was responsible for surveying and registering apart- and investment. According to statistical data pro- ments and buildings; and the State Department vided by NAPR dated October 2021 so far only of Land Management, which was responsible for 72  percent of land plots are registered in the land administration and management that included country. This figure is even lower for agricultural registering property rights and maintaining the parcels and is around 30  percent. Overall, there cadastre, privatizing and leasing state-owned land, remains around 1million unregistered agricultural categorizing and compiling land statistics, con- land plots in rural areas. This fact undermines agri- trolling the use of land and natural resources, and cultural production and productivity. As of 2019, mediating land disputes. Some of these responsi- only 20  percent of land is operated by holdings bilities were overlapping with mandates of other owned by women (GeoStat 2021). The lack of own- government agencies, and procedures were ership of land limits women from participation in vague. Following the Rose Revolution in 2003 and some agricultural programs, and lack of collateral subsequent reforms that included privatization limits women from qualifying for credit and grant of state properties, the Government of Georgia schemes that operate in the regions (FAO 2018b). abolished both the Bureau of Technical Inventory and State Department of Land Management and With the aim of determining the purpose of land established the NAPR under the Ministry of Justice use and providing a basis for land use planning to handle land administration (i.e., maintaining the and monitoring, a new land agency has been cadastre and registration of property rights). established. In 2019, the MEPA Minister issued an approval of the Statute of the Legal Entity The process of formal registration of land through under Public Law called the National Agency for the cadastral and property registration systems Sustainable Land Management and Land Use has been slow. Only around 20  percent of rural Monitoring (Land Agency). According to the law, properties have been registered. The second the functions of the Land Agency are to (a) draw stage of land registration reform started in 2016 and up a balance sheet for land, (b) register agricultural employed sporadic as well as systematic registra- land resources and create an integrated database, tion approaches, with the major focus on sporadic (c) carry out state monitoring of land use, and (d) registration. In 2016 the Parliament adopted the ensure the availability of relevant information “Law on the improvement of cadastral data and the (Parliament of Georgia 2019b). The Land Agency procedure for systematic and sporadic registration will resume a land inventory process to build a of rights to plots of land within the framework of foundation for future increased land consolidation the State Project.” Systematic registration has only and efficient land use (World Bank 2020f). While been piloted in a few settlements across Georgia. there is a separate agency for regulating some of Context and de velopments in Georgia’ s rural sector 39 the land-related matters, there is no consolidated activities dedicated to the deepening of cooper- strategic document that covers all aspects of agri- ation between the main agencies producing and cultural land management and administration. consuming spatial data in the country and the dis- A comprehensive action plan for implementing cussion on the issues of sharing geodata (UN 2015). land-related policies is also absent. Although NSDI has a webpage and an institutional structure, its establishment is not yet finalized, and In 2013 Georgia started to work on establish- some of its components are operating in a pilot- ing NSDI with NAPR as designated leading ing regime (e.g., Geo Portal). The Georgian NSDI organization; the nationwide full-scale NSDI Metadata Specification was designed in 2015 and implementation is yet to be developed and revised in 2016. Metadata Regulation sets out the operationalized. The respective “Law on the requirements for the creation and maintenance of establishment of a governmental commission for metadata for spatial data sets, set series and ser- the establishment and development of the NSDI vices. To ensure proper management of geospatial in Georgia” was adopted in 2013 and amended in information, Georgia has started to work on the 2014 and 2015. The NAPR was tasked with coor- Integrated Geospatial Information Framework, with dinating the creation, operation, and development Norway funding pilot action and investment plans. of the NSDI in the country. The NAPR leads the Image: © soft_light. Vineyards in the Kakheti region. 3 ACHIEVING THE VISION FOR AGRICULTURE IN GEORGIA BY 2030: Options for its increased contribution to economic, sustainability and resilience goals Georgia has the potential to improve the competitiveness, sustainability, and climate resiliency of its agricultural sector, in line with its Agriculture and Rural Development Strategy 2021–2027 vision and objectives for the sector, adding value to the economy, while accelerating the sector’s structural transformation. Achie v ing the v ision for Agriculture in Georgia by 2 030: 41 Chapter 3 provides concrete recommendations markets where food safety standards are enforced across all three sectors along the following three and there is strong buyer and supplier interest in themes: (a) competitiveness (specifically agricul- contract farming emerged as a good fit for a con- tural value chain integration, including agrologistics, tract farming mechanism (RAPDI 2021). Efforts to agri-finance, I&D infrastructure, on-farm agricultural introduce and strengthen contact farming opera- water resources management, land registration, tions are ongoing. Most notably MEPA has been land taxation and valuation, and agricultural land collaborating with FAO on technical support toward markets); (b) sustainability, including financial/fis- the promotion of responsible contract farming cal sustainability (specifically I&D service delivery, operations, which FAO is providing together with I&D tariff, institutional capacity in water resources the EU under the flagship program, the European planning and management at national and local Neighbourhood Programme for Agriculture and levels, unified government policy of land manage- Rural Development (ENPARD).24 The Government ment and administration, legal framework for land of Georgia can help strengthen the enabling management and administration, and agricultural environment needed to support contract farming public spending); and (c) climate resiliency (specifi- operations, such as development/ establishment cally CSA practices, agrometeorological and water of reliable market and pricing information services, accounting capacity, and land degradation and soil uniform product marketing standards, warehouse health). These three themes are underpinned by receipt system, as well as quick and accessible inclusiveness for women, youth, and small holders. dispute resolution mechanisms. PRODUCER ORGANIZATIONS. ENPARD has COMPETITIVENESS also been funding work on analyzing the agri- cultural cooperatives experience in Georgia and supporting some of them. Findings include calls A. Integration of agriculture to focus more on service cooperative develop- and agri-business ment (and agriculture value chain development in general) (Kakulia 2017). Also, access to finance, Globally demonstrated strategies for integrating assets (machinery, land, etc.), inputs and mar- small-holder producers, such as producer-driven kets were ranked as the most pressing concerns models (e.g., producer organizations), and buy- affecting the success of agricultural coopera- er-driven models (e.g. contract farming), that have tives (Kochlamazashvili 2017). The Government been tried in Georgia could be strengthened. Out of Georgia could seek support in implementing of the mechanisms active in Georgia there seems the Productive Alliance (PA) approach, whereby a to be scope to address the factors that would group of smallholder producers, one or more buy- enable their development. Specifically, ers, and the public sector are connected through CONTRACT FARMING. Despite some negative a business proposition, or “business plan”, which past experiences, during the interviews and focus describes the capital and services needs of the group discussions there was significant interest producers and proposes improvements that would expressed from both sides (producers and buyers) allow them to upgrade their production capaci- in continuing to explore contract farming to improve ties and skills to strengthen their linkage with the the quality, quantity, and consistency of supply market, i.e. the buyer(s) (World Bank 2016). The (from the buyer side), and predictable access to approach can encourage the development of markets with more consistent income streams both horizontal alliances among the producers (from the producer side). Perishable, high value, and vertical alliances between the producers and export-oriented products with quality-sensitive buyer(s). In response to constraints to access to 24 https://eu4georgia.ge/enpard/ 42 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA finance, financial support to PAs can be provided the difficulties of integrating along the agricultural through matching grants, which is a mechanism value chains, as well as under-developed food that Georgia has a positive experience with (under safety systems.25 A variety of simultaneous actions the IFAD AMMAR Project, for example). would be needed to start addressing these issues that include: » SHORT-TERM RECOMMENDATION (1): Perform deeper analysis on areas comprising » SHORT-TERM RECOMMENDATION (1): the enabling environment for contract farming, Develop and implement training and appren- such as development/ establishment of reli- ticeship programs in partnership between the able market and pricing information services, private sector and government in order to uniform product marketing standards, ware- develop the necessary skills in agriculture and house receipt system, as well as quick and agri-business. accessible dispute resolution mechanisms. » SHORT-TERM RECOMMENDATION (2): » SHORT-TERM RECOMMENDATION (2): Examine current exports and potential product Perform feasibility analysis for implementing pipelines to markets in Europe, the Gulf, and the PA approach. East Asia to develop a sequenced logistics » MEDIUM-TERM RECOMMENDATION: Create improvement strategy in collaboration with the public-private dialogue platforms on agri- private sector. culture and agri-business to feed into policy » SHORT-TERM RECOMMENDATION (3): process and facilitate clustering, bundling, Reduce costs of certification and incentivize and vertical coordination along value chains, scaling up of supply of fresh products for paying particular attention to the inclusion export by supporting cluster and value-chain of women and youth. These need not be certification processes. new structures but would ideally build on the » SHORT-TERM RECOMMENDATION (4): Regional Information Consultation Centers that Promote wider use of GLOBAL GAP standards MEPA established in 2013. These Centers pro- that have been applied in Georgia since at vide agricultural extension services, including least the early 2010s. They are adopted how- informing farmers about state policy and pro- ever by primarily big agricultural players (with grams, and collect information and statistical the facilitation of private companies). Economy data from farmers related to agricultural pro- of scale considerations and maintenance duction, local context, and current constraints. costs of the certification prevent Georgian They could become a wider platform on agri- smallholders from adopting them. Efforts could culture and agri-business to inform the policy be extended to create awareness of the local process and facilitate clustering, bundling and g.a.p. program26 that incorporates the special vertical coordination along value chains. needs of small-scale producers through a stepwise approach toward certification, and As mentioned earlier, there are more, well-docu- the GLOBALG.A.P. Farm Assurer program that mented weak points affecting the development of seeks to train independent consultants who the agricultural value chains in Georgia that persist advise farmers locally in their audit prepara- regardless of the integration mode. These include tion or establishment of quality management low skills and poor infrastructure (including trans- systems and thereby reduce costs.27 port and agrologistics capacity) that compound 25 Constrains and proposed solutions were analyzed under the Maximizing Finance for Inclusive Development of Agri-food Value Chains in Georgia. 26 https://www.globalgap.org/uk_en/for-producers/localgap/ 27 As of now, there is no registered Farm Assurer in Georgia: https://www.globalgap.org/uk_en/what-we-do/the-gg-system/ gg-farm-assurers/Farm-Assurer-List/ Achie v ing the v ision for Agriculture in Georgia by 2 030: 43 » MEDIUM-TERM RECOMMENDATION (1): B. Access to finance for agriculture Create a scholarship program for tertiary education abroad to create the critical mass of Georgia has relied on government programs professionals required to reduce the capac- that are primarily focused on subsidizing inter- ity gap and sustain future agriculture and est rates to expand lending to agriculture and agri-business growth. agri-businesses. While these programs have led to an increase in both the absolute level and the » MEDIUM-TERM RECOMMENDATION (2): share of total lending in agriculture and agri-busi- Invest in market intelligence advisory ser- ness, measures are still needed to address supply vices to understand options in trade logistics, constraints. Supply constraints have mainly to do and to develop marketing strategies for high- with risks and service costs as banks perceive value products. agriculture as risky. Measures to enable more com- » MEDIUM-AND LONG-TERM RECOMMEN- mercial bank lending without public support would DATION: Identify and promote public private help to broaden and deepen the mobilization of partnership options for agrologistic zones, private sector finance for investment, together with warehousing, and cold chains, as well as increased use of guarantees and other collateral agrologistic supports services (such as substitutes (e.g., warehouse receipts) as an alter- shipping). native to collateral-based lending. Such a move » LONG-TERM RECOMMENDATION: Explore would also enable women to benefit from agri-fi- bundling and clustering opportunities to gain nance products and services. Since women tend scale for exports to new markets. not to be registered as property owners of land, houses, capital equipment or other assets, they Actions to increase competitiveness should are less likely to qualify for and access agri-finance be taken with the aim of explicitly responding (FAO 2018a). Wider use of loan guarantees could to the needs of women and reducing the barri- also be linked to a reduction of interest rates and ers they face.28 This means that knowledge and a reduced consequent use of subsidized credit. competency in gender equality and women’s These changes would significantly reduce the empowerment needs to be built in MEPA and fiscal cost of promoting private investment in the its agencies, including the Regional Information sector, allowing for more resources to be allocated Consultation Centers. They also need to be sup- to public goods that require greater funding (such ported in awareness-raising at policy and field as agricultural knowledge generation and transfer) level to pursue policies and programs that improve (World Bank 2020c). women’s access to information, knowledge and innovation; technology, machinery and agricultural » SHORT-TERM RECOMMENDATION: Enable/ inputs; markets; and agri-finance. Specific activi- facilitate technical assistance to banks in ties could include (a) adapting capacity building lending to agri-business and developing to women’s (substantive and logistical) needs; (b) appropriate products. Banks are conservative mobilizing various channels of communication (i.e., when it comes to agri-finance and building ICT, women’s groups) to spread information; (c) their awareness on what products and ser- training extension and advisory services to reach vices are suitable for the agriculture sector will women by adjusting place and time of outreach be needed. (e.g., closer to home); (d) encouraging women » MEDIUM-TERM RECOMMENDATION (1): to enroll in vocational and tertial education and Promote the expansion of digital financial training in agriculture and agri-business; and (e) services in rural areas, heightening impact employing more women as extension officers so in expanding financial inclusion and credit to they can serve as role models. agriculture. 28 Activities informed by FAO 2018a. 44 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA » MEDIUM-TERM RECOMMENDATION (2): later growing seasons when demand is high and Reduce interest rate subsidies for agriculture river flows are at their minimum (MEPA 2017b). and improve credit program targeting, with This will require supplemental storage options to particular attention to value chain financing be explored in high-risk areas as well as potential and working capital. overflow regulation tanks that address potential » MEDIUM-TERM RECOMMENDATION (3): issues of overflow and prevent increased water Increase use of guarantees and other col- loss in applicable areas. lateral substitutes (e.g., warehouse receipts) Investment in I&D infrastructure requires com- as an alternative to collateral-based lending. prehensive planning to meet future objectives. Such a move would also enable women to Beyond purely engineering criteria of the system, benefit from agri-finance products and ser- I&D infrastructure must incorporate factors related vices, who are less likely to be registered as to economic, climate, environment, and social property owners of assets. aspects in selection of a rehabilitation or moderniza- tion plan to ensure sustainability. Before extending C. I&D infrastructure irrigable areas and selecting specific plans for rehabilitation/modernization, an I&D master plan- As of 2015, only 11 percent of the production area ning exercise is needed to clarify the objectives to in Georgia was irrigated. A deteriorating irriga- improve the reliability and the capillarity (ensured tion infrastructure has severely constrained the by the proper development of secondary and ter- provision of adequate irrigation service delivery tiary channels) of the water service in areas already to end-users, namely farmers. In many systems, served. A prioritization methodology should also a deteriorated facility limits water management be incorporated into the I&D master planning exer- options to basic on/off control with possibly some cise to guide investments according to objective crude adjustment of operating levels in canals criteria. Early in the process, consideration should (MEPA 2017b). Therefore, beyond rehabilitation, be given to where systems are economically via- options for modernization of existing systems need ble with potential for farmers to scale higher-value to be explored where economically viable. Without crop production from the additional irrigation area reliable, flexible (on-demand), and equitable water expanded, including on whether agriculture is pri- delivery, farmers’ risk to crop failure increases. marily male, female or dual as this has an impact Just as importantly, farmers may also be reluctant on design of infrastructure and delivery of services to adopt more innovative farming activities that (WBG, FAO, and IFAD 2009), and where schemes require access to water. The combination of farm- are at risk of water stress from changes in pre- ers being reluctant to pay the irrigation fee and cipitation and run-off, which may need additional the service provider being unable to recover the storage options as well as other environmental and costs of delivery through service fees leads to a social criteria. vicious cycle of most irrigation systems in the coun- try (rehabilitate/neglect/rehabilitate). To that end, » SHORT-TERM RECOMMENDATION: Define investment in rehabilitation of non-functional irriga- a shared vision and methodological approach tion infrastructure is necessary with an expected for the development of the I&D sector to guide restoration of the irrigable area to 200,000 hect- and prioritize investments. This will include ares by 2025. the clear definition of the role and mandate of the main actors. An irrigation master plan can Water storage capacity is diminishing. Due to the be one way to achieve this, which can also predicted and progressive loss of snowpack stor- incorporate a multi-criteria decision-making age resulting from climate change, water shortages model to support decision makers to think in Georgia are expected to increase, particularly in about investments from environmental, social, Achie v ing the v ision for Agriculture in Georgia by 2 030: 45 and economic perspectives. For example, it is management program, including starting important that the master plan also considers farmer field knowledge and information train- aspects of gender inclusion such as the impor- ing programs for improving farmer knowledge tance of incorporating women’s preferences in about potential irrigation technologies and irrigation infrastructure design, and considering potential yield and income benefits from sprin- including in the infrastructure design, water kler/drip adoption. This can potentially target systems that are often more valued by women farmers as future WUO members. Attention because they support both domestic and irri- must be paid also to the provision of irrigation gation uses (e.g., multiple-use water systems). technologies preferred by women (e.g., easy to use, small-scale, labor-saving, cost-effective, socially acceptable) undertaken together with D. On-farm agricultural water targeted outreach to women to inform them resources management about available irrigation technologies. In addi- Current on-farm agricultural water management tion, in areas where agriculture productivity practices in Georgia employ low-technology furrow enhancement measures are planned or ongo- and flood application methods, with uncontrolled ing, consideration can be given to scaling up flow rates.29 Sprinkler irrigation systems can be matching grants schemes under the Georgia found in the Kakheti region; however, their use is Rural Development Agency. Lastly, consider- not widespread since capital costs for installation ation can be given to targeting the provision are high and typical small farm holdings do not of irrigation water supply to activities that par- justify the use of larger equipment (such as center ticularly benefit and generate jobs/income for pivots). Drip irrigation, used for horticultural crops women (e.g. horticulture, home gardens). on relatively small areas, is growing in popularity as most farmers recognize its advantages in reducing E. Land registration water use, raising yields, and improving product quality. A particular emphasis is given to enhancing The land registration process in Georgia has been private groundwater development for irrigation in going slowly until recently and most of agricultural the Georgian Irrigation Strategy 2017-2025, partic- land in Georgia is yet to be registered (World Bank ularly in conjunction with drip irrigation technology, 2021a). Some constraints contributing to slow land which is expected to expand to cover as much as registration are (a) problems with documentation 10 percent of irrigated area by 2025 (MEPA 2017b). (i.e., mistakes in registration of owner name, old documents, lack of documents, problems with the » MEDIUM-TERM RECOMMENDATION (1): plot sketch plans, time-consuming and prolonged Update the national licensing and regula- procedures); (b) misunderstandings or disputes tion scheme for groundwater pumping and with neighbors (i.e., unfixed fences, overlaps); (c) develop a national licensing and regulation underdeveloped infrastructure (i.e., difficulties in scheme for surface water use, which coin- accessing plots for measurements); and (d) lack of cides with strengthened capacity of MEPA to and competence of specialists (both in private and monitor quantity and quality of groundwater public sector) who prepare the plot sketch plans. and surface water resources at the national, regional, and basin scales. Many private landholders avoid registering their » MEDIUM-TERM RECOMMENDATION (2): land for various reasons. Some landholders fear Develop and implement a comprehen- losing their social allowance or losing (registered) sive on-farm agricultural water resources land to credit authorities. Others fear land taxation and disputes about land demarcation. Many hold 29 Field crops are typically irrigated by furrow and tree crops by borders between the tree lines. 46 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA TABLE 2. Private land ownership by gender (As of May 27, 2021) AREA OF % NUMBER OF % AVERAGE AREA REGISTERED PLOTS OF LAND PLOTS LAND (HA) (HE) Women 216,184.9 36 728,024 51 0.30 Men 477,654.3 80 1,089,342 77 0.44 Source: NAPR (2021). the view that land belongs to the household and owned by women is of around 0.3 hectare, while does not need to be registered. There are cases of the one owned by men is around 0.44, which is absent landholders from the country or the region practically 50 percent bigger (Table 2). The results (due to migration). Lastly some avoid registration obtained during the Systematic Land Registration because of the registration cost, or lack of informa- conducted under the Georgia Irrigation and Land tion about the land registration reform (ISET Policy market Development Project show that thanks to Institute 2018). public awareness campaign and gender-sensitive business processes introduced by NAPR the out- The process of legalization of deficient documents comes for registration are more gender-equitable for land registration was slow and cumbersome in terms of number and size of parcels owned and until recently. The local governments had been in co-owned by women. Women’s limited land own- charge to conduct the legalization process which ership (as compared to men’s), limits also their takes places when the owners cannot prove their access to some of the agricultural programs, credit ownership of agricultural land due to deficient and grant schemes that operate in the regions due documentation. This task has now been taken to the lack of collateral (FAO 2018a). It is notewor- over by NAPR as part of the systematic registra- thy, that only 1 percent of total private lands are in tion process. It is now up to NAPR to deal during foreign ownership and 0.7  percent are owned by the Systematic Land Registration with challenges religious organizations. While most of the landown- such as discrepancies in the measurement plans ers have small land parcels, the average size of and overlaps of parcel boundaries, lack of access registered land is the highest for religious organi- to old records by municipalities, and lack of human zations and amounts to 2.53 hectares per plot. and financial resources that leads to delays in the legalization process. The low rate of property registration can cause delays in investment in critical rural needs like Most of privately owned land registered to natural irrigation, roads, and electrical supply. Delays persons belongs to men. As of May 2021, accord- might be caused by prolonged land expropriation ing to the statistics produced by NAPR, the total process. Only registered land is eligible for com- area of land under private ownership was 778,784 pensation in cases of expropriation. hectares out of which 76.5 percent was owned by natural persons and 23.4 percent by legal entities. The NSDI should function on national (across Men and women own/co-own 80 and 36 percent, various governmental stakeholders), sectorial, respectively, of the land registered in the owner- and municipal levels. NSDI has not yet been fully ship of natural persons. In terms of plots, men and established in Georgia. Once it is functional and women own/co-own 77 and 51  percent, respec- fully operational, it would support optimal plan- tively, of plots registered and owned/co-owned ning of resource use and efficient management of by natural persons. The average size of the parcel business processes as well as improve the quality Achie v ing the v ision for Agriculture in Georgia by 2 030: 47 of decisions made by central and local govern- geographical location of land. An individual owner ments based on standardized, systematized, valid, pays the tax on their property and objects on the reliable, and current geospatial data and other land such as unfinished buildings and other struc- information. tures. Moreover, the Tax Code of Georgia changes frequently. It has been amended 173 times. It is dif- » SHORT-TERM RECOMMENDATION (1): ficult for taxpayers to follow their tax obligations in Create additional incentive mechanism for light of these frequent changes. Moreover, accord- landholders to register their property and do ing to stakeholders, tax collectors are not trained it in a gender-equitable way. That needs to be properly and may not have up-to-date information accompanied by delineation and registration on recent amendments to the Tax Code of Georgia. of public lands like pastures, mitigating con- flicts over boundaries with private lands. Stakeholders lack trust in the agricultural land val- » SHORT-TERM RECOMMENDATION (2): Build uation approach currently applied to define land capacities of private and public sector person- value. In 2008, the National Agency of Standards, nel in the land administration sector. Technical Regulations, and Metrology of Georgia registered International Valuation Standards » MEDIUM-TERM RECOMMENDATION: Ensure that had been elaborated and approved by the further development of NSDI to increase data International Valuation Standards Committee. This transparency, sharing and openness of public internationally recognized land valuation approach institutions involved in land registration and was employed by LEPL Levan Samkharauli National market development and to support evi- Forensics Bureau under the Georgian Ministry of dence-based decision making and land policy Economy and Sustainable Development30 but is design. still questioned by stakeholders consulted in the » LONG-TERM RECOMMENDATION (1): context of this study. Some stakeholders thought Mobilize financial resources to complete that agricultural land was overvalued, which pre- nationwide systematic registration. vents its privatization. Other stakeholders thought » LONG-TERM RECOMMENDATION (2): that land was undervalued, which reduces land- Evaluate cost-efficiency of policy interven- owners’ access to finance. There are several tions and reforms based on the data obtained instances when land valuation is required: (a) through NSDI from relevant stakeholders. when buying and selling land; (b) securing credit; (c) entering or withdrawing capital from the enter- prise; (d) implementing an investment project; (e) F. Land taxation and valuation determining the best use of the land; (f) gift-giving Agricultural land taxation is administered by the in cases of inheritance; and (g) proving and arguing Ministry of Finance through its Revenue Service. the tax base in cases provided by the Tax Code. The base rates for property taxes are regulated by The first two cases—buying/selling land and secur- Article 204 of the Tax Code of Georgia (Parliament ing credit—have proven to be the most problematic of Georgia 2010a). The current tax and regulatory with stakeholders. The stakeholders do not trust the system provides no incentives to change the cur- competencies of state valuers although the National rent pattern of land use and small-scale production. Accreditation Center has accredited the Valuers In many cases, the system of property taxation is and Experts Professional Development Center in not assessing properties based on their current line with the international accreditation standard.31 market values. Instead of current market values, The valuers of LEPL Levan Samkharauli National the tax amount is determined according to the Forensics Bureau are accredited by the Valuers 30 The major state entity responsible for land valuation in Georgia. 31 ISO 17024 is the standard for bodies that accredit personnel and so does not contain any requirements about valuations. 48 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA and Experts Professional Development Center and, » LONG-TERM RECOMMENDATION: Reform under this scheme, pass their examinations. They the system of property taxation. Land taxa- follow the International Valuation Standards and are tion should be based on transparent market recertified every two years.32 valuation. It is important to encourage the involvement of private valuers and promote The regulatory framework for land valuation is the formation of self-regulating organizations underdeveloped. A law on valuation that is required to support them. According to the VGGT, the by the Law on Accounting, Reporting, and Audit has information about land valuation and taxable not been adopted. Over the last five years, there amounts should be publicly available and tax- have been draft laws produced by the Service for payers should be able to engage in disputes Accounting, Reporting, and Auditing, but these regarding valuations. A high level of transpar- drafts are not publicly available. No significant prog- ency in the taxation process and objectivity in ress in this direction has been made so far because the valuation process should be ensured by of the many interested parties who struggle to reach the state (FAO 2012). consensus on the issues. The draft law is expected to regulate adoption of valuation standards, estab- lishment of councils for solving disputes regarding G. Agricultural land markets land valuation, and certification process for special- The agricultural land market in Georgia faces sev- ists, among other provisions. eral constraints and obstacles to its development. » SHORT-TERM RECOMMENDATION (1): Lack of unified land policy and long-term strategy for Seek ways of making the use of International agricultural land use optimization, incomplete legis- Valuation Standards more effective and lative framework and land registration, gaps in land increase transparency of the land valuation taxation and valuation systems, high level of land process and build trust between stakeholders fragmentation and degradation, high-level of state (landowners, users, valuers, etc.) involved in ownership of agricultural land and a practical halt the land valuation process. of its privatization process perpetrate agricultural land use inefficiency and low contribution from its » SHORT-TERM RECOMMENDATION (2): use into the national budget. Even though the State Encourage meaningful participation of the has multiple revenue sources from land taxes and private sector in the land valuation process land-related transactions, they contribute very little, through fair competition and transparent set- around 0.1 percent to the total national budget (State tlement of disputes regarding land valuation. Treasury at Ministry of Finance of Georgia, 2021). » SHORT-TERM RECOMMENDATION (3): Build During 2012-2020, the National Agency for State the capacity of tax collectors and provide Property (NASP) held 3,895 auctions in total and in consultations to taxpayers to help them submit only 2.5 percent of auctions agricultural land with or their tax declarations. without buildings was privatized (NASP 2021). » MEDIUM-TERM RECOMMENDATION: Finalize the development of the draft law on valuation Land market and administration-related infor- in order to ensure establishment of proper mation is not publicly available and is difficult to valuation standards, procedures to settle obtain upon request. Limited availability of data disputes, high qualification of staff involved in makes it difficult to assess the progress of land pol- land valuation, etc. icy interventions and reforms and identify avenues for improvement. The data on policy interventions and reforms should be available to evaluate the 32 LEPL Levan Samkharauli National Forensics Bureau conducts most land valuations even though there are private companies conducting land valuations. From a competitive standpoint, the Bureau valuations are more prioritized in court during disputes. Achie v ing the v ision for Agriculture in Georgia by 2 030: 49 efficiency of the interventions and develop recom- carefully balanced approach. In Georgia 64  per- mendations for next steps. cent of land is registered as agricultural in the name of State or municipalities and 28 percent of land is Agricultural land in Georgia is characterized by not yet registered and most of this land is likely to highly fragmented, small-scale plots in private be agricultural (approximately 82  percent accord- ownership (36  percent of all agricultural regis- ing to the estimations by NAPR from the Systematic tered land) and agricultural plots of larger sizes in Land Registration piloting). To enable agricultural State ownership and management (64 percent of transformation and move out of subsistence agri- all registered agricultural land). One of the ways to culture, better land tenure security should be move from subsistence to commercial agriculture is provided to the farmers, especially those leasing to enable progressive consolidation of agricultural land from the State. The privatization of agricultural land in private ownership. The average agricultural land leased before 2005 was stopped in 2011, and land area operated by an agricultural holding is the decree to relaunch this process has been with 1.37 hectares. In terms of land holding, the largest the Parliament for the past 10 years. The State land average agricultural land area is 3.55 hectares in leases, which have expired since 2005, have not Kakheti region, followed by Samtskhe-Javakheti been renewed. As a result, the agricultural land in region (2.21 hectares). More than 50  percent of State ownership for those expired leases is either the agricultural land in Samtskhe-Javakheti is ded- abandoned, or still being utilized by the same les- icated to pastures (GoG 2013). Kvemo Kartli region sees, but without paying the rental fees and taxes is third in terms of average agricultural land with and thus without contributing to the State budget. 1.81 hectares (GFA 2018). In the remaining regions, Without provided land tenure rights users hesitate most of the agricultural holdings are small-scale to invest into sustainable land management prac- family farms under 1.37 hectares, which is the coun- tices, such as CSA perennial crops, and/ or rotation try’s average. of pasture use to prevent overgrazing. The phe- nomena of pastureland grabbing by reclassifying it Despite significant advances in property regis- as agricultural land and privatizing it, is also taking tration systems and simplification of procedures place. Table 3 presents details on the land tenure 28  percent of land nationwide, predominantly pattern for registered land. agricultural, is yet to be registered. Weak rural land markets create endogenous limitations to both » SHORT-TERM RECOMMENDATION: growth (i.e., farmers seeking to enlarge their farms) Elaborate a privatization strategy of underuti- and entry (i.e., farmers or agri-business enterprises lized state land and auction medium-to-large seeking large, contiguous blocks of rural land blocks (greater than 50 hectares) to attract for investment). Creation of an ad hoc regulatory agri-business investors. Elaborate a national and legislative mechanism, such as the National land consolidation strategy and regulations Sustainable Land Management Strategy, including facilitating its implementation. policy agenda on land consolidation, would sup- » LONG-TERM RECOMMENDATION: Speed port overcoming these limitations. There is already up development of the Farm Registry, linked an implicit demand for regulation of land consoli- to the Land Registry and the future National dation as 11 percent of agricultural plots registered Sustainable Land Use System. This will pro- during the Systematic Land Registration campaign vide geo-localized land quality and tenure underwent consolidation following a spontaneous data for investors and would facilitate the demand from the owners. implementation of sanitary and phyto-sanitary Agricultural land market in Georgia represents a measures and traceability systems required by significant potential for development through a demanding markets. 50 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA TABLE 3. Land tenure pattern for registered land in Georgia STATE/ MUNICIPAL OR MUNICIPAL/ STATE MUNICIPALITY PRIVATE PRIVATE TYPE OF OWNERSHIP OWNERSHIP CO-OWNERSHIP OWNERSHIP LAND TOTAL (HA) (HA) % (HA) % (HA) % (HA) % Total land area excl. forests and 3,399,666 – – – – – – – – occupied territories All registered land (72% 2,453,355 1,423,929 58 163,586 7 87,057 3 778,784 32 of Total) Registered agricultural 2,014,655 1,071,261 53 133,262 7 81,015 4 729,117 36 land (82% of All registered) Registered non-agricul- tural land 438,687 352,664 80 30,323 7 6,040 1 49,660 12 (18% of All registered) Source: NAPR (2021). SUSTAINABILITY B. Redefinition of the I&D tariff The existing tariff for I&D services (75 GEL per hectare or approximately US$23 per hectare) A. I&D service delivery does not incentivize farmers to save water and Reliable water service is critical to the sustain- does not cover O&M costs of GA-provided infra- ability of an I&D system as well as helps create structure. Therefore, the tariff must be redefined the conditions for better valorization of the farm- in such a way as to prevent blocking the I&D man- ing systems by mitigating risks linked to variable agement transfer to WUOs and leaving Georgian water supplies. Tackling any improvement in key Amelioration in a position where the water service I&D service delivery functions for Georgia would has to be heavily subsidized by the state budget. take a multi-dimensional approach. On the one hand it requires setting up conditions for ensuring The definition of the water tariff must take into reliable irrigation service delivery in all irrigated consideration multiple elements. First, the tariff areas. On the other hand, service should be based structure must be redefined to encourage a more on a full understanding of water users’ needs, efficient use of the water resource at the farmer’s including of female water users. When taking this level. The transition to a pricing system that includes approach, it is important to (a) establish indica- a direct or indirect volumetric share (i.e., using infor- tors to monitor and evaluate the reliability of the mation on the crop systems to be irrigated) could water service, (b) characterize the users and uses require a review of rehabilitation design and, more of water under different conditions, and (c) define generally, the creation of conditions for effective measures to make both the service provider and monitoring or estimation of volumes consumed, the water users accountable for their actions. including adding meters at certain off-take points where Georgian Amelioration intends to supply bulk water services to WUOs. The redefined tariff Achie v ing the v ision for Agriculture in Georgia by 2 030: 51 should also consider the different types of water mechanisms is one of the major problems related uses such as for industry, fish farm, and small to water resources in Georgia” (WBG 2020e). In gardens in peri-urban area, as well as a gender-in- addition, there are no special permits for surface formed analysis of who would pay. Second, the water abstraction and wastewater discharge. The level of tariffs must be progressively increased. government is hoping to address these concerns This increase should cover a larger share of O&M by passing a comprehensive water resources man- costs at the initial stage with the objective of cov- agement law. ering the full O&M costs in the long term. WUOs will be key change agents in supporting Georgian Establishment of viable local-level management Amelioration when convincing farmers of the entities remains. In the early 2000s, Amelioration need for revising the tariff to provide improved Associations were established to operate irrigation and reliable services. And third, the redefined tar- facilities at the local level but were disbanded. In iff must consider, with the O&M transfer process, December of 2019 the law for establishing Water the new relationships that will result between Users Organizations was approved (ADB 2020). Georgian Amelioration and the water users. The Additionally, provisions were established for a newly role of the Georgian  National Energy and Water formed WUO Support Unit to assist in forming and Supply Regulatory Commission must be clarified supporting local-level organizations with provide to consider the diversity of possible relationships service to individual users. At that time, Georgian between Georgian Amelioration and water users, Amelioration would assume the role of bulk water either part of organizations or individual users. supplier to these local-level organizations. To that Finally, the definition of the water tariff must con- end, once these local-level organizations would sider the new basin management approach and be established, Georgian Amelioration would sign therefore consider the possible implications of the contracts with them for bulk water supply (MEPA implementation of the integrated water resources 2017b). However, establishment and operational- management framework. ization of the local-level organizations to support WUOs has been severely delayed with limited progress made thus far. Moving forward, it must C. Institutional capacity in water be clear that WUOs would be established only resources planning and management where it is feasible and where there is a willing- at national and local levels ness of water users to self-organize, and maintain systems, allocate water among users, and collect In Georgia, unsustainable abstraction of ground- fees. In addition, it is equally important to consider water and surface water in some localities is the role of women when forming WUOs in Georgia. evident. Water variability, in the form of flooding and As such, there are various effective approaches to the occurrence of local and seasonal shortages, is increasing the membership, leadership, and voice seriously problematic in many localities. The need of women in decision-making in community-based is urgent for water resources management planning water organizations. These include changing mem- at the basin scale, including watershed and river bership criteria, supporting women’s access to land, basin management, water storage and flood con- providing training to women on specific topics (such trol, and habitat and ecosystem protection. Water as legal status of the committee, running a meet- pollution is also serious and widespread, needing ing, leadership, conflict resolution, communications, action on municipal wastewater treatment, control bookkeeping and public speaking, etc.) (UN 2012). of industrial and mining effluent, and improved solid waste management (OECD 2018). In its 2016 A capacity shortage of technically skilled individ- Environmental Performance Review of Georgia, uals is unable to meet the demands for growth UNECE concluded: “the absence of effective pol- of the I&D system. The Georgian higher educa- lution prevention and water extraction control tion system is not equipped to teach the technical 52 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA skills associated with the growth of I&D systems service provider, but the survival, evolution, to support development of the sector. According and competitiveness of the agriculture sector. to ongoing stakeholder consultations, Georgian » MEDIUM-TERM RECOMMENDATION (1): Amelioration needs to strengthen its staffing and Staff and train regional WUO Support Units expertise to adequately manage I&D systems. A to become effective and operational to lead scarcity of civil engineers and agronomists with WUO establishment where schemes are relevant knowledge and experience has a debil- going to be fully rehabilitated (i.e., primary, itating effect on management and operation and secondary, and tertiary systems) and where the future of the I&D sector in Georgia. The few water users express the will to self-organize. professionals with expertise in these areas were Hire female WUO support unit staff to lead all trained in the Soviet period. Stakeholders report female WUO engagement. Complement the extremely limited number of students with efforts to support WUOs development with, for relevant specializations in water resources man- example: adding gender-affirmative mea- agement, civil engineering, hydrology, agronomy, sures in by-laws such as quotas for women in and related fields; this problem is coupled with leadership positions; specific training (commu- outdated academic programs lacking an applied nication skills, technical skills) to help women focus with field experience. This skilled capacity have their concerns heard in male-dominated shortage is expected to increase with the rehabili- spaces; gender sensitive training in all training tation of secondary and tertiary channels and with sessions for example to explain the benefits of WUO establishment. The Georgian higher educa- having balanced representation. tion system should revisit its curricula and provide » MEDIUM-TERM RECOMMENDATION (2): the necessary training for a future cadre of skilled Implement the recommendations resulting human resources to replace the retiring experts from the audit of Georgian Amelioration. and to expand the staff to meet the growing needs of the sector. » MEDIUM-TERM RECOMMENDATION (3): Based on a study of the root causes of the » SHORT-TERM RECOMMENDATION (1): limited appeal of higher education and voca- Conduct an audit of Georgian Amelioration to tional programs to provide technical courses identify potential reorganization needs, human and degrees in water resources management, resource and capacity-building needs, finan- strengthen the cooperation with higher educa- cial model and cost structure over time, and tion institutions and the Ministry of Education ways to make Georgian Amelioration more and Science of Georgia to address lack of accountable for their activities. professionals in the water sector and update » SHORT-TERM RECOMMENDATION (2): the relevant curricula and expand the number Define a typology of water users to better of courses and degrees offered as well as understand average size of farms, types of incentivize the enrollment in higher education irrigation sources used, types of crops grown, and vocational programs for degrees related and how and whether they access to water resources management. I&D services. » MEDIUM-TERM RECOMMENDATION (4): » SHORT-TERM RECOMMENDATION (3): Invest in upgrading the capacity of the Clarify and agree on a clear tariff structure MEPA to monitor, measure, and analyze river for I&D services that will ensure financial basin water supply and demand, including sustainability to Georgian Amelioration in the investments in staffing, skills, technologi- long run. The tariff should not only ensure the cal instruments, to allow improved water financial sustainability and efficiency of the I&D resources management and basin-scale plan- ning; and in capacity in dealing with gender issues. In addition, invest in improving water Achie v ing the v ision for Agriculture in Georgia by 2 030: 53 FIGURE 6. Summary of short-term I&D reform actions Roles and mandates of each stakeholder are clear Irrigation Management Transfer is clearly defined and understood. It is not a systematic approach but a strategic medium term reform for creating the conditions for the Define a shared vision establishment of sustainable WUOs and methodological Standards for selecting and approach for the designing projects from an Methodological approaches to development of the identify, guide and prioritize environmental, social and I&D sector investments are existing climate change point of view are defined Indicators to monitor and evaluate the development of irrigation sector are defined The drainage strategy is clearly linked to irrigation strategy Human Resources Capacity building needs are identified needs are identified Financial model is defined Conduct an audit of GA Ways to make GA more e cient and accountable for its actions are identified Indicators to monitor and I&D evaluate the reliability of the Urgent Actions water service are defined Capacity and willingness of water users to pay is assessed Define a typology Define a tari structure of water users Needs of water users, in terms of water service, are identified Georgian Amelioration can have a clear way forward on WUO reforms Incentives for an improved on-farm Define a tari structure water management are existing In the short-term a larger The financial impact of share of the O&M costs is water service on the covered by the irrigation fees State budget is reduced Define a baseline for Lessons from the pilot approaches can be identified selected irrigation to improve the policies systems and set up the conditions to Impacts of the rehabilitation e ectively evaluate projects and other the pilot approaches investments can be identified Source: Authors. 54 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA quality monitoring and regulatory systems for E. Need for a unified government controlling pollution and water abstraction policy of land management from agriculture and non-agriculture activities and administration at a river basin scale. These measures would be in place prior to large-scale investments in There is no unified policy document outlining dam or irrigation scheme modernization. the government’s approach to sustainable land » MEDIUM-TERM RECOMMENDATION management and administration in Georgia. A (5): Merge the local service centers from fragmented land management system leads to an Georgian Amelioration and from MEPA to uncoordinated sector. One of the main constraints have a single structure in charge of a global in land management and administration is lack of an support to farmers. integrated management system. This results in an unclear vision for the sector’s development and the To summarize, Figure 6, provides a detailed syn- absence of specific indicators to track progress in thesis of the short-term recommendations and the sector. There are two strategic documents that actions for irrigation and drainage. outline the government’s vision regarding land sec- tor development: the State Budget Note 2021 for the next three years and the Government Program D. Legal framework for integrated 2021-2024: Toward Building a European State. water resources management The latter outlines land registration reform as a top priority for development of the land sector. The The lack of a comprehensive framework for inte- State Budget Note 2021 sets goals for land mar- grated water resources management (IWRM) ket development and supporting land registration leaves Georgia without a legal provision for and for improving NAPR services. Currently, there basin-to-farm water resource allocation (MEPA are several institutions without a unified approach 2017b). Although a new IWRM Law was drafted in or coordination in the sector. These institutions and 2015 with the aim of re-establishing a water-permit- their major functions are listed in Table 4. ting system in the country, its adoption has been delayed (OECD 2020). In addition, with the abro- The distribution of roles among central and local gation of the Law on Amelioration of Georgia (the governments in land management and administra- Amelioration Law) in 2010, Georgia has no legisla- tion is not efficient. The inefficiency in distribution tion in place governing its I&D sector (MEPA 2017b). of roles arises in case of pasture management Instead, the sector is subject only to laws of gen- and spatial planning. Pasture management is not eral application such as the Water Law of 1997 with decentralized as pastures are owned by the NASP several references to irrigation and use of water for under the Ministry of Economy and Sustainable agriculture purposes. The Government of Georgia Development of Georgia. However, it is not clear is notably working to approve and pass the com- who is responsible for their management. The cur- prehensive IWRM Law. Certain aspects governing rent management and administration approach I&D services will fall under this draft law; however, led to the number of challenges in this sector. Due it is not yet clear if there is an immediate need to the gaps in the system of renting of the state- for amendments on I&D to address and regulate owned pastures, most farmers are using pastures aspects that may not be covered in the new IWRM informally which results in overgrazing. As for the Law to be adopted. spatial planning, the roles and responsibilities of local government for spatial planning are not » MEDIUM-TERM RECOMMENDATION: Conduct clearly defined. Proper land administration and analysis of the draft IWRM Law to ensure that management in the context of spatial planning I&D uses are correctly covered by the law’s requires the involvement of local authorities and provisions and, if necessary, include provisions strict division of responsibilities between local and in the draft law to address these aspects. Achie v ing the v ision for Agriculture in Georgia by 2 030: 55 TABLE 4. State agencies and their functions regarding land management and administration STATE ENTITY FUNCTIONS Department of Hydrology and Developing land policy, strategic documents, and regulations Land Management (MEPA) Reviewing and providing feedback on normative acts, policy documents, strategic documents and research reports Participating in discussions on land administration and management National Agency for Sustainable Drawing up a balance sheet for land Land Management and Land Registering agricultural land resources and create an integrated Use Monitoring (MEPA) database Carrying out state monitoring of land use and ensure the availability of relevant information Agrarian Committee of the Developing regulatory framework for land management and Parliament of Georgia administration Supporting land policy development National Agency for Public Carrying out land registration Registry (NAPR) Coordinating creation, operation, and development of the NSDI National Agency of State Managing and disposing of state property Property (NASP) Transferring state property for use Exercising powers of a partner/shareholder in enterprises with state ownership Managing issues related to the agreement, registration, production, storage, usage, and expert utilization of strict accounting forms Facilitating management of the property of interested individuals and legal entities, including through the electronic auction website Levan Samkharauli National Involved in land privatization though land valuation and deriving the Forensics Bureau initial prices for auctions Participating in landowners’ disputes regarding overlapping land plots and/or land valuation Revenue Service of Georgia Collecting land tax Local governments Carrying out legalization of deficient documents for land registration Source: Authors. central government to avoid duplicating the activi- » SHORT-TERM RECOMMENDATION (2): ties (Georgian PRC 2020). Stakeholders recognize Strengthen the capacities of municipalities to a need for review and adjustments of the legal increase local stakeholder participation in land framework as well as the adjustments in execution management and administration. of currently defined roles and responsibilities. » MEDIUM-TERM RECOMMENDATION: Develop a unified strategic document that » SHORT-TERM RECOMMENDATION (1): outlines the government’s vision regarding the Clearly define the roles and responsibilities land sector, its objectives, outcomes and out- of stakeholders involved in land management puts, and develop a monitoring and evaluation and administration. system to measure progress against targets. 56 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA » LONG-TERM RECOMMENDATION: comprises marshes, rocks, and rocky ground Decentralize management responsibilities located in a forest or other land not used for between central and local governments to afforestation; infrastructure necessary for the improve the efficiency of land management. implementation of forestry measures (forest roads, timber yards, landings), and others. (Parliament of Georgia 2020). F. Legal framework for land management and administration Some core legal documents pertaining to land management require updates (e.g., Law on Soil Various land-related issues are currently regu- Protection) or expansion of scope. The current legal lated by separate and sometimes inconsistent framework should be updated to include such con- legal acts creating a complicated legislative cepts and their applications as for example: (i) the framework and leading to inefficient land man- status of community land ownership, including both agement. A review of the legislative framework for use rights and the specific rights of rural groups, land management reveals the absence of a uni- and (ii) the legal status of internal roads passing fied document, such as a Land Code, that would through privately owned properties in commercial include regulations for all types of land bodies areas. This is particularly challenging in the context (Chitanava 2020). This leads to inefficient land of village pastures. The community groups do not management and prevents the development of have use and ownership rights of pastures poten- the land sector. The main legal documents that tially resulting in alienation of these pastures. regulate specific aspects of land-related matters include the following: » MEDIUM-TERM RECOMMENDATION: Develop unified and integrated Land Code — LAW ON AGRICULTURAL LAND OWNERSHIP that serves as a basis for the legislative frame- defines agricultural land as “land parcel reg- work on land-related matters and defines the istered in NAPR as agricultural land used for responsibilities between central and local livestock and plant production purposes,” and governments. includes household land as well. » LONG-TERM RECOMMENDATION: Define — LAW ON STATE PROPERTY states that pastures the status of group/community land especially and livestock grazing routes are not subject to for village pastures, including both use rights privatization unless they have been leased by and the specific rights of rural groups. Under the local government prior to July 30, 2005, the current framework, cooperatives can be together with the attached building. These established, and they can be given the right to pastures are permanently used by neighboring use village pastures with associated responsi- villages; however, they are legally owned by the bilities to maintain the land resource. State (Parliament of Georgia 2010b). — LAW ON FUNDAMENTALS OF SPATIAL PLANNING AND CONSTRUCTION DEVE- G. Agricultural Public spending LOPMENT regulates spatial planning in There is scope in Georgian agricultural pub- Georgia and defines the planning process and lic spending to be re-oriented and support authorized agencies. improvements in competitiveness, sustainabil- — THE FOREST CODE OF GEORGIA recognizes ity, and climate resiliency as per GoG strategic forest land as an open area of land inside a objectives and aspirations. Since 2010, public forest boundary such as land used as grass- expenditure on agriculture has increased signifi- land or pasture; special purpose land; land that cantly, both in absolute terms and as a share of Achie v ing the v ision for Agriculture in Georgia by 2 030: 57 total public expenditure.33 The recent agricultural 2. FUNCTIONAL ANALYSIS OF public expenditure review (WBG 2020a) pointed to AGRICULTURAL SPENDING: HIGH- three main areas that the Government of Georgia RETURN PUBLIC INVESTMENTS could take into account when considering its sup- The most important spending category in total port to the sector. agricultural spending in Georgia is agriculture development programs. As of 2019, spending in 1. ECONOMIC COMPOSITION OF this category accounted for 44  percent of total AGRICULTURAL SPENDING: PUBLIC spending. The corresponding shares for irrigation VERSUS PRIVATE GOODS and drainage; food safety, veterinary and plant A key dimension in understanding the effec- protection; and wine support program were 27, 21 tiveness of public expenditures is the share of and 5  percent respectively (World Bank 2020a). public spending directed to support the produc- Investments in I&D support sustainable productiv- tion of public goods and services (i.e., research ity growth and improved resilience, and since the and development, extension services, and irri- end of 2012, spending on this type of infrastructure gation infrastructure) and the share of spending has increased six times from 6.2 million GEL to 43 dedicated to subsidizing the provision of private million GEL in real terms. As a result, irrigated agri- goods and services (i.e., input or energy subsidies). cultural land area and area covered with drainage Public spending on private goods directly benefits have increased (World Bank 2020a). Spending on individuals (Morris et al 2020). Empirical evidence food safety and veterinary control, which is another shows that a shift of ten  percentage points of area supporting growth and resilience, is particu- total agricultural public spending from private to larly low (WBG 2020a). public goods—while keeping total expenditure Within public goods it is important to ascertain constant—leads to a five  percent increase in val- how much is spent on agricultural research and ue-added per capita. Alternatively, by keeping development, which has been proven to have the composition of expenditure constant, such an high returns on investment. The latest OECD increase would require a corresponding agricul- Agricultural Policy Monitoring and Evaluation study tural expenditure increase of 25 percentage points reports that from the overall US$102 billion of (Morris et al 2020). In Georgia, during the period expenditure (in the form of general services for the 2010-2019, the composition of spending fluctuated agricultural sector), which includes US$76 billion of among categories, with the share of subsidies in public investments in research and development, total agricultural spending increasing over time, biosecurity and infrastructure just six  percent is and accounting for the largest share of agricultural on agricultural research and development (OECD spending, on average 21  percent (WBG 2020a). 2021a). Meanwhile in Georgia, the share of spend- Most of these subsidies are interest rates subsi- ing allocated to research and development was dies (i.e., private goods) that have been credited the smallest, and averaged two  percent of total with most likely having contributed the most to the spending during 2014-2019, which is less than the increase of private sector investment in agriculture OECD reported average (OECD 2021a). (by facilitating bank extension of credit to the sec- tor) but have come at a fiscal cost. 3. SUPPORTED-PROGRAMS COMPOSITION Since 2012, the Government of Georgia has pri- oritized agricultural sector development. Major initiatives include launching more than ten agri- cultural support programs managed by what has 33 For the period 2010-2019 the average annual rate of growth for agricultural spending was ten times faster than that of total public spending. It has accounted for two to three percent of total expenditure since 2012 (World Bank 2020a). 58 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA become the Rural Development Agency (RDA), the the production and dissemination of information mission of which is to contribute to the competitive- related to technology options and management ness of the agricultural sector and the sustainable methods. Development of CSA requires intensive production of agricultural goods though introduc- communication among farmers, authorities, and tion of international food safety standards. The agri-businesses. RDA programs account for around 45  percent of total agricultural spending in the country, and » SHORT-TERM RECOMMENDATION (1): most of RDA resources (67  percent) are used for Create /reinforce regional communication plat- financing the Preferential Agro-credit Program.34 forms to facilitate the adoption of agronomic Around 11 percent of RDA budget is spent on the practices by farmers. Support demonstration Plant the Future Program35 with 9  percent going plots and farmer field schools that allow farm- to each program on agro-insurance and co-financ- ers to better understand CSA good practices. ing of agro-processing and storage enterprises. » SHORT-TERM RECOMMENDATION (2): Furthermore, RDA’s programs mostly support pri- Support knowledge transfer (adequate mary agricultural production and only a few of them agronomic and veterinary practices, targeted target processing and value-added (World Bank vocational training, and technical assistance 2020a). While this is a common pattern in coun- services for business development and tries’ agricultural spending, it may be a potential exports) based on specific market demands or tool to increase agricultural value-added. market-driven value-chain strategies. » MEDIUM-TERM RECOMMENDATION: Develop incentive programs to increase CLIMATE RESILIENCE private sector research and development on AND MITIGATION inputs and technologies adapted to Georgia’s varied agro-eco-systems. Promote innova- tion partnerships with research institutions, A. CSA knowledge transfer across private sector technology partners, and farmer agricultural value chains groups, to identify new ways to bring CSA To accelerate the transition to CSA, smallholders technology to a larger audience (CIAT and must use farming technologies that are read- World Bank. ND). ily available and accessible in Georgia. Farmers » LONG-TERM RECOMMENDATION: Explore need incentives and enabling conditions to make the option of payments for environmental transformations on the ground, which must be services (or payments for ecosystem services), facilitated by institutions and policies including especially if land tenure issues are addressed investments in agricultural research and innova- in the country. Such an arrangement would tion systems. Partnerships among governments, be useful to support overall investments and research institutions, private sector technology incentivize farmers to change practices. partners, and farmers are particularly important for 34 Preferential Agro-credit Program was implemented in 2013 with the intention to support primary production, processing, and storage by providing legal and natural entities with cheap, long-term, and preferential credit. Agro-credits are issued by commercial banks and financial institutions involved in the project, in compliance with the terms and conditions set by the RDA. Through the program, the government subsidizes interest rates of the following financial products: (a) current assets; (b) fixed assets; (c) preferential agro leasing; and (d) the state program Produce in Georgia. 35 Plant the Future Program, initiated in 2015, is designed to improve the effective use of agricultural land plots in Georgia through subsidizing the planting of perennial crops. The program’s goal is to substitute imports and increase the export potential. Co-financing is carried out in three different components: (a) co-financing of perennial orchards; (b) co-financing of nursery gardens; and (c) co-financing for the installation of anti-hail systems and/or arrangement of a well/borehole pumping station. The component of co-financing perennial orchards includes provision of financial and technical assistance to beneficiaries. Orchards eligible for co-financing differ across regions and the program determines the types of perennial plants that may be planted in different regions of Georgia. Achie v ing the v ision for Agriculture in Georgia by 2 030: 59 A gender-responsive approach to CSA would information to facilitate decision-making and need to be taken. This means that the needs and risk management in agriculture and agri-busi- priorities of men and women will need to be recog- ness, in partnership with the private sector. nized and adequately addressed in the design and » MEDIUM-TERM RECOMMENDATION (3): application of CSA so that both men and women Expand farmer support services to crop can equally benefit. Beyond understanding the insurance and incentivize farmers to use agri- gender balance in the local context and develop- cultural insurance. ing practices that meet both men and women’s needs given their preferences, constraints, and potential benefits, this also means giving attention C. Land degradation and soil health to gender issues in CSA policymaking and building There are no official statistics on the degraded an evidence base on gender in CSA (Nelson and land area in Georgia, and accounting and moni- Huyer 2016). toring of losses of fertile arable lands is practically non-existent. However, it is estimated that more B. Agrometeorological and than 100,000 hectares of land is degraded in Georgia (ISET Policy Institute 2020). water accounting capacity The agrometeorological and water accounting Land degradation has a direct effect on the capacity of Georgia is not adequate to respond country’s economic health. The causes of land to emerging climate risks in the agriculture and degradation in Georgia are numerous and include: water resources sector. While the Department of overgrazing; lack of soil protection measures; Hydrometeorology is responsible for collecting implementation of agricultural activities in areas data on river discharges and meteorological con- at risk of natural disasters; improper land rotation ditions throughout the country, it currently collects practices; excessive water consumption; loss and/ little real-time data on river discharges (MEPA or reduction of forest cover; exploitation of forest 2017b). Management and further development of resources; post-harvest clearing fires; absence of water resources is thus constrained by a lack of a legislative base for soil protection; and unclear national hydrological data collection and analysis division of responsibilities between stakeholders systems. As part of its service delivery systems, (ISET Policy Institute 2020). According to World GHMD should further advance and modernize its Bank estimates, land degradation directly reduces capability for monthly and seasonal long-range national GDP by 0.7  percent and GDP in agricul- weather forecasting to provide detailed and accu- ture by 8  percent yearly. Natural hay meadows rate representation of localized extreme climate and pastures comprise about 1.91 million hect- events (WBG 2019). ares in Georgia, of which a significant amount is degraded due to unsustainable agricultural prac- » MEDIUM-TERM RECOMMENDATION (1): tices and overgrazing. Soil degradation resulted in Invest and improve the hydrometeorological a productivity reduction of about 23 percent and is and water accounting capacity of the National estimated at about 7 tons of dry matter per hect- Environment Agency of Georgia and Georgian are. This loss of pasture productivity (valued with a Amelioration, as well as strengthen farmer market price of a substitute) generates total annual capacity to more accurately measure and costs of around US$59 million (WBG 2020e). monitor weather patterns for improved agricul- ture decision support. Soil degradation is another factor affecting agri- » MEDIUM-TERM RECOMMENDATION (2): cultural productivity. Soil fertility has declined over Invest in the generation, processing, and time due to lack of technologies, capital, and basic dissemination of market and agro-climatic skills and practices for soil management (MEPA 2015). Poor quality soils are mostly concentrated in 60 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA the eastern parts of the country where overgrazing » MEDIUM-TERM RECOMMENDATION (1): and reduced precipitation have led to wind ero- Develop incentive mechanisms for agricultural sion. The annual land productivity loss has been producers to adopt soil protection measures. estimated at 1.8  percent with a total annual agri- » MEDIUM-TERM RECOMMENDATION (2): cultural productivity loss of about US$11.9 million Improve data collection regarding land degra- (WBG 2020e). dation and ensure its regularity. » SHORT-TERM RECOMMENDATION (1): » MEDIUM-TERM RECOMMENDATION (3): Increase farmers’ awareness on the impor- Strengthen soil monitoring and soil health-re- tance of soil protection by showing the impact lated educational programs for farmers in of soil quality on agricultural productivity and areas where soil conditions are known to be losses associated with land degradation. severely degraded from agricultural activities. » SHORT-TERM RECOMMENDATION (2): The institutional set up, specifically the concentra- Clearly define central government, municipal- tion of  many of the agencies governing  all three ity, and private sector responsibilities regarding sectors and the environment under one minis- soil protection and pasture management. try,  MEPA,  facilitates the implementation of actions and reforms in these identified policy areas (Table 5). TABLE 5. Summary of roles and responsibilities of state & local agencies AGENCY ROLE & RESPONSIBILITY RESPONSIBLE FOR IDENTIFIED POLICY AREAS MEPA (various Oversees the implementation of the State Realign agricultural public support. departments) policy in the areas of environmental protec- Improve institutional capacity in inte- tion, agriculture, and rural development. grated water resources management. Improve functioning of land markets. Regional Provide agricultural exten- Improve knowledge transfer across Information sion & advisory services. agricultural value chains, includ- Consultation ing on climate smart agriculture. Centers (under MEPA) State Laboratory Responsible for diagnosis of and development Under recommendation area, diversify of Agriculture of measures against animal and plant diseases. agri-trade markets and commodities, in Georgia contribute to the development of effi- cient systems in food/feed safety, and veterinary and plant protection. MEPA and RDA RDA is the management and implementation Increase integration of agri- agency for agricultural support programs. cultural value chains. Expand access to finance for agriculture. GNERC Reviews and approves tariffs charged by Reform I&D tariff structure. Georgian Amelioration (from 2023). Continue > Achie v ing the v ision for Agriculture in Georgia by 2 030: 61 AGENCY ROLE & RESPONSIBILITY RESPONSIBLE FOR IDENTIFIED POLICY AREAS Georgian In charge of O&M and development of I&D Improve I&D infrastructure. Amelioration schemes; is held by the National Agency for State Property Management, a division of Ministry of the Economy; and reports to MEPA. Georgian This sub-unit is in charge of establish- Adopt efficient on-farm water Amelioration ment of WUOs and supporting WUOs (or management practices. WUO Support farmers) to use sustainable on-farm prac- Unit, and tices; WUOs will be run by local water Water User users but is a legally recognized entity. Organizations NAPR (under Carries out land registration, and coordinates Speed up property registration process. Ministry of creation, operation, and development of NSDI. Justice), and local Local governments carry out legalization of governments deficient documents for land registration. MEPA Department of Hydrology & Land Management Develop policy and legal framework for Department of develops water and land policy, stra- land management and administration. Hydrology & Land tegic documents, and regulations. Management, and Agrarian Committee of Agrarian Committee develops regu- the Parliament latory framework for agriculture, land of Georgia management and administration, and supports land policy development. Revenue Service Revenue Service collects land Improve land valuation and of Georgia, and all other taxes. taxation practices. and Levan Levan Samkharauli National Forensics Bureau is Samkharauli involved in land privatization though land valu- National ation and deriving the initial prices for auctions Forensics Bureau and participates in landowners’ disputes regard- ing overlapping land plots or land valuation. MEPA National National Agency for Sustainable Land Develop land inventory including Agency for Management and Land Use Monitoring land balance, and land monitoring. Sustainable Land carries out state monitoring of land use. Reduce soil degradation. Management and Land Use Monitoring National Agency Manages state property. Ensure efficient management of state of State Property property and support its privatization. Source: Authors. 4 MOVING FORWARD TOWARD GROWTH AND SUSTAINABILITY Agriculture plays a vital role in the economy of Georgia despite the relatively small size of the sector. Agriculture is the country’s largest employer and makes a significant contribution to exports even though agriculture contributes a modest share to total GDP. The Government of Georgia has made substantial efforts to increase support to the agriculture sector and recognizes that actions are urgently needed to increase competitiveness, sustainability, and climate resilience and mitigation as a way of driving growth in the sector. Mov ing forward toward growt h and sustainability 63 Securing sustainable growth will require — Monitoring and evaluating progress is nec- increased investments in agriculture, water, and essary for sustaining the growth across all land sector development. Land and water are sectors. The establishment of a monitoring finite resources and factors of production on which and evaluation framework for public programs agricultural production and productivity depends. and policies would help to strengthen the per- Resolving the sweep of agriculture sector con- formance and effectiveness of government straints associated with top export concentration, programs by providing useful feedback on farm structure, knowledge gaps, and weak agrolo- program outcomes and outputs, detecting gistics is a necessary but insufficient condition implementation difficulties, and identifying for improving sector performance. Simultaneous actions to overcome them. This in turn would interventions will be required in addressing core support the adjustment of policy design and sector constraints in the water and land sectors. identify the key elements of spending pro- The availability and efficient use of water resources grams such as the objectives, priorities, and in a reliable, timely, and flexible manner for farmers expected use of resources to achieve targets. and functioning agricultural land markets are criti- — Increasing human resources capacity is an cal for sector growth. Improved land management investment in the citizens of Georgia. Strong and administration underpins sustainable and pro- human capital is necessary to implement ductive management of land resources, provides these changes. Investments in capacity build- secure land ownership, and supports investments ing will ensure that staff are properly skilled to in agricultural production. The timing is even more perform responsibilities at the policy setting, urgent when factoring in increasing climate change implementation, and monitoring level, and variability and risks. Although all policy areas iden- service providers (public and private) will be tified in this Synthesis Report are important, some well-equipped. of them are deemed more urgent than others, and — Investing in women is a priority with impli- some are more technically ready with solutions suf- cations beyond just agricultural productivity ficiently in place. Figure 7 provides an overview of and rural development. Women’s active par- policy areas connected with agriculture, water, and ticipation in the economy, and ownership and land sectors as they were sorted for the elements control of and access to of productive assets of “urgency” and “technical readiness” by GoG contributes to economic development, to pov- sectoral stakeholders.36 erty reduction, and better life outcomes for Even though some areas were not sorted for their offspring. urgency and technical readiness, they are still The government of Georgia has all the potential relevant transversal policy areas to enable the tran- and the tools at hand to accelerate its agricultural sition to the vision, and they include: transformation agenda. This Synthesis Report has — Realigning agricultural support can help the outlined the rationale for an agriculture-water-land government achieve its goals for the sector. nexus approach to making progress toward a vision Public services such as research, extension, for the future of agriculture by 2030 in Georgia, and training need more budget support; and examined constraints and opportunities across measures to promote private investment all three sectors, and identified policy actions to through support for subsidized loans and jointly address these interconnected challenges insurance premiums need to be re-formulated. and support Georgia in moving the agriculture sector forward including effective water and land management. The sorting of identified policy areas 36 As discussed during (virtual) technical workshop carried out on May 19, 2021, and follow-up discussions with stakeholders between June and August 2021. 64 AGRICULTURE, WATER, AND L AND POLICIES TO SCALE UP SUSTAINABLE AGRI-FOOD SYSTEMS IN GEORGIA FIGURE 7. Matrix of policy areas URGENT TECHNICALLY READY Expand access to Improve knowledge finance for agriculture transfer across agricultural (competitiveness) VCs, including on CSA (competitiveness, Agriculture climate resiliency) Diversify agri- trade markets Increase integration of and commodities agricultural value chains (competitiveness) (competitiveness) Reform I&D Adopt more efficient tariff structure on-farm water resources (sustainability) (competitiveness, climate resiliency) Improve institutional capacity in water Water resources and irrigation management at the national and local levels (sustainability) Improve I&D infrastructure (competitiveness, climate resiliency) Improve functioning Complete national of land markets systematic registration (competitiveness) (competitiveness) Develop policy and legal framework for land management and administration (sustainability) Land Improve land valuation and taxation practices (competitiveness) Develop land inventory including land balance, and land monitoring system (sustainability) Reduce soil degradation (climate resiliency) Source: Authors. Note: Table 5 is based on results of (virtual) technical workshop carried out on May 19, 2021, and follow-up discussions with stakeholders between June and August 2021. Mov ing forward toward growt h and sustainability 65 between “urgent” and “technically ready,” and society, and development partners). The process within those areas the outlining of phased recom- of developing the Synthesis Report as well as the mendations for the short-, medium-, and long-term accompanying sectoral studies was underpinned is meant to help facilitate implementation. These with inclusive stakeholder consultations and an recommendations can be taken up in the context iterative process that has hopefully set the stage of GoG’s expressed need for an investment plan for a new, more joint and collaborative dialogue for the sector, and/ or be pursued by any main with the government in securing a strong future for sectoral actors (public and private sectors, civil agriculture sector in Georgia. Photo: © Gia Abdaladze / World Bank ANNEXES ANNE X 67 C A S E S T U DY O N DAIRY MILK SUB-SECTOR–INTEGRATED BUYER- PRODUCER EXPERIENCE (RAPDI 2021) INDUSTRY DESCRIPTION: There has been strong — Transactions are based on formal written competition for quality fresh milk among a wide contracts: Contracts between parties specify range of downstream actors along the dairy value responsibilities of the parties, including quality chain. Recently adopted Government of Georgia and volume requirements, terms of payments, regulation on the labelling requirements of dairy penalties for the breach of responsibilities, products, along with increased consumer demand collection periods of product, and dispute res- for quality dairy products, has contributed to an olution. As a rule, the duration of contracts is increased demand for fresh milk. Buyers of fresh for one year, and contracts are renewable. The milk are large-scale processors, middlemen (aggre- contracts specify prices and provide incen- gators), and small-and medium-scale processors. tives to dairy farmers in terms of premiums for Processors transform milk into assorted dairy prod- the quality and the volume of supplies above ucts. tTo much of space processors mainly have the established thresholds. The contracts do been involved in the production of cottage cheese, not consider provision of any inputs to farm- fresh milk, sour cream, and other dairy products, ers and represent purely commercial contracts while small-and medium-scale processors mainly between a product supplier and a buyer. have been involved in cheese production. During the inspections of dairy farms that take place on a regular basis, the company — Coordination/Cooperation Arrangements– representatives provide recommendations to Large-Scale Processors: Demand for dairy dairy farmers on various improvements on an products produced by large processing com- as-needed basis. panies has been stable and high. Also, they — Coordination/Cooperation Arrangements– have sufficient market power to negotiate Small-and Medium-Scale Processors: In the terms of payments with downstream actors case of small-and medium-scale processors, and have not faced significant difficulties in the transactions with small-and medium-scale collection of accounts receivable. Large dairy farmers have been based on trust through processors primarily transact with bigger dairy informal agreements, and their sourcing of farmers. Large suppliers can deliver consistent fresh milk is through cash-based, spot trans- quality products at large volumes. Also, the fers with dairy farmers either directly or through transaction costs associated with negotiation, middlemen, aggregators. Given the high monitoring of quality, and milk collection are competition for fresh milk, some companies less if the company works with a small number provide dairy farmers with access to livestock of large farmers. To engage with large dairy feed to try to secure an uninterrupted supply processors, dairy farmers must make invest- of fresh milk. In contrast to large-scale proces- ments in livestock and farm infrastructure such sors, demand for dairy products produced by as milking machines, milking parlors, and cool- small-and medium-scale processors has not ing tanks. Small-scale farmers cannot afford been stable. Volatility in demand and frequent such investments, do not organize to work delays of payments by downstream actors to collectively, and hence have been excluded dairy processors, has led to frequent delays from the opportunity to work directly with large of payments to farmers by small-and medi- processors. um-scale processors. Small-and medium-size dairy processors lack the human and financial 68 AN N EX capacity to negotiate terms and conditions of small-and medium-scale farmers to participate the contracts, monitor production practices in formal markets. This model for milk collection and quality at the producer level, and ensure centers is conducive to replication to increase contract compliance. proliferation of supply chain mechanisms that include smallholder producers. Providing support One of the large dairy processing companies, to small-and medium-scale milk collection centers in addition to sourcing fresh milk directly from to upgrade their practices to qualify as suppliers to large dairy farmers, has been sourcing fresh milk the large-scale processors would lead to greater through company-established milk collection availability of quality and safe fresh milk and centers. Several years ago, due to the absence of improve the cash in-flows of milk collection centers farm marketing organizations and only a few large and their small-and medium-scale farmer suppli- dairy farms, this company established milk col- ers. Additional support to develop the dairy value lection centers in major dairy production regions chain could include development and adoption of throughout the country. This outsourcing approach uniform marketing standards along with promotion allows the processor to reduce transactions costs and introduction of quality-based pricing schemes. and ensure quality of raw material while allowing ANNE X 69 C A S E S T U DY O N MEAT AND WINE GRAPES SUB-SECTOR–CONTRACT FARMING EXPERIENCE (RAPDI 2021) Meat (beef) primary production, research and breeding, slaughterhouse operations, processing, logis- Industry Description: While livestock sales are tical/ distribution services, and retail sales. The free from regulations, beef sales require livestock company also started an out-grower scheme with to be slaughtered at registered slaughterhouses the objective to promote sound beef farming prac- before it enters the market. Primary cattle beef tices, improve availability of homogeneous quality production is concentrated among small-scale pro- products, and to increase capacity utilization of ducers. A few medium-and large-scale beef cattle processing facilities. The scheme included 20 farmers have emerged, but their share in the sector farmers. The company supported scheme partici- is still not significant. High inefficiencies, especially pants with the establishment of sophisticated farm in terms of feeding and fattening of the livestock, infrastructure, and with obtaining bank loans. It also characterize livestock farming. provided farmers with the livestock, free veterinary Coordination/Cooperation Arrangements: Cattle and breeding services, as well as a market outlet and beef markets are characterized by cash, spot for fattened cattle. In addition, the company pro- market transfers involving many small, specialized, vided to the farmers, farm machinery for livestock and organized middlemen. There are no estab- feed preparation, and funds for cattle husbandry lished grades; prices are negotiated one-on-one; activities, as well as it paid for the delivery of cat- and there are mainly informal agreements. tle with the premiums. Based on the agreement, all farm infrastructure would have transferred under Most slaughterhouses in the country provide the farmers’ ownership in a seven-year period. only slaughterhouse services to cattle farmers Contrary to expectations, 17 out of 20 farmers and middlemen: Sourcing of cattle is based on failed on their commitments to deliver cattle to the simple purchasing agreements and there are no company. Two main factors contributed to the fail- formal contracts between sellers and buyers. All ure of this out-grower scheme: poor screening and suppliers are paid immediately upon delivery of the selection of scheme participants, and provision of cattle. Slaughterhouses do not provide any produc- financial support to farmers without attaching sig- tion inputs to the suppliers. The main challenge of nificant responsibilities. sourcing cattle from all categories of suppliers has been the quality (cattle sold by suppliers are not in The second buyer, the slaughterhouse opera- a condition to be slaughtered in terms of weight). tor, entered into formal written agreements with livestock farmers. The slaughterhouse opera- Two interviewed buyers of cattle have had dis- tor supplied livestock farmers with the feed and appointing experience with contract farming: grain milling services free of charge and allowed One buyer, a processing company, was involved participation in transactions at the livestock mar- in the production of high-value meat products. The ket without charging any fees. Livestock farmers other buyer operated a slaughterhouse, who in reportedly engaged frequently in side-selling activ- addition to the provision of slaughtering services ities, and the slaughterhouse operator terminated to livestock farmers, was also involved in sourcing the contractual relations with farmers and col- of live cattle from farmers for further fattening. lected accounts receivable from indebted farmers through informal channels. The first buyer, the processing company, has fully vertically integrated operations, including 70 AN N EX Livestock farmers expressed interest in contract buyers and sellers depend only on price and do farming. Aspects of contract farming that were not involve any other commitments. A key chal- attractive for them included predictable markets, lenge for wineries has been that they do not always improved availability of feed, and the possibility to fulfill their sourcing plans due to inability to obtain concentrate on farming activities. the desired quality of grapes (e.g., in terms of sugar content, mold, and consistency) from small farmers. To address this challenge, wineries have estab- Wine grapes lished cooperation arrangements with large grape Industry Description: The Government of Georgia growers. Transactions have been based on trust operates the “Grape Price Subsidy Program”, and and informal agreements. In few cases wineries the wineries participating in the program source advance cash to the most trusted farmers so that most of their needs from small-and medium-scale they can finance agronomic activities. Some win- farmers. Farmers sell grapes to individual consum- eries also have been vertically integrated to have ers as well as to wineries. Individual consumers buy more control over grape production and harvest. grapes from farmers and make wine for their own Based on focus group discussions with grape consumption and that of their extended household. growers and individual interviews with wineries, The quality of grapes sold to individuals reportedly contract farming was introduced by one of the has often been superior to that of grapes supplied wineries several years ago. Farmers were provided to the wineries. with production inputs and had committed to deliver Coordination/Cooperation Arrangements: specific volumes and quality of grapes. However, Transactions between wine grape growers and commitments were defaulted upon. This was a wineries are based on spot transfers. Grape grow- negative experience in the sector and has caused ers sell in spot markets, and transactions between skepticism about contract farming. ANNE X 71 C A S E S T U DY O N HAZELNUT SUB-SECTOR–PRODUCER ORGANIZATION EXPERIENCE (RAPDI 2021) Industry Description: There has been high com- 2021 GHGA designed a special program in coop- petition among buyers for quality hazelnuts. Buyers eration with a commercial bank to improve access of hazelnuts are processing companies, middle- of growers to quality production inputs under favor- men, and aggregators of all sizes. Hazelnuts are able terms and conditions. Moreover, GHGA also produced by various types of growers, although provides incentives for growers in terms of premi- production is concentrated among small-and medi- ums for the quality of delivered hazelnuts above um-scale growers. the established thresholds. Transactions between growers and GHGA or GHGA-linked buyers involve Coordination/Cooperation Arrangements: purchasing agreements that are simply based on Transactions between hazelnut growers and pro- weight and price. cessing companies have been based on spot transfers and involve cash. As a strategy to attract Other buyers of hazelnuts include middlemen and hazelnut growers and source more quality hazel- collectors. Sales to middlemen take place in the nuts, some processing companies have introduced spot market, and transactions do not involve any storage services for medium-and large-scale farm- long-term commitments and depend only on price. ers and farmer groups, where growers deliver Middlemen are mobile, village-based operators, hazelnuts after the harvest. Processing compa- and procure hazelnuts from local growers. They nies conduct an analysis of delivered products are not subject to any regulations (i.e., food safety, on amongst others moisture content, extraction traceability, taxes, etc.), they do not have adequate rate, and internal moldiness. Terms and conditions storage facilities, they do not maintain the quality offered by processors are favorable for farmers of hazelnuts, and they use weights and measure- who opt to sell their production off-season and to ments that are not standardized. Despite these generate higher incomes. Processing companies’ shortcomings, they are useful in that they facilitate responsibility includes to maintain the quality of linkages between small-scale farmers and hazel- product throughout the storage period. Farmers nut processors. As a strategy to compete with the who store hazelnuts at the processors’ storage middlemen, some processing companies intend to facilities are free to decide when, where and to establish small-scale storage facilities in the proxim- whom to sell their product, and are subject to ity of major hazelnut production areas and establish storage service fee payment only after hazelnuts direct linkages with small-scale growers. Small- either leave the storage facility or change owner- scale growers with their small volumes of output ship. In certain cases, processing companies do find it easier to sell their production to middlemen not charge any service fees if the farmer decides operating in the same village rather than travel rela- to sell their product to them. tively long distances to processing facilities. 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