ABSTRACT

International wheat prices have emerged as a significant policy concern in recent years, notably during the Covid-19 pandemic and Russia's war in Ukraine, as Russia has been known for periodically halting its grain exports to impact global prices. Georgia heavily depends on wheat imports from Russia, with over 95% of its wheat historically sourced from there. Despite Russia's recurrent bans and restrictions on wheat exports every 2-3 years, Georgia has yet to successfully diversify its import sources. The policy brief analyzes the Impact of Russian wheat policies on Georgia's market and Georgia's response to trade restrictions. 

In June 2023, the Georgian government introduced a temporary import duty on wheat flour imported from Russia in response to requests from the Georgian Flour Producers Association. The association began advocating for an import duty after Russia, in 2021, imposed a so-called “floating tariff” on wheat which made it relatively more expensive to import wheat in comparison to wheat flour. As a result of the “floating tariff” on wheat, wheat flour imports skyrocketed and almost fully substituted wheat imports. Eventually, many Georgian mills shut down and local wheat producers struggled to sell domestically produced wheat. Such an increase in flour imports raises the risk of completely replacing domestically produced flour with flour imported from Russia.

In order to solve the aforementioned problems, the government of Georgia has established a temporary import tax on imported wheat flour. The import tax on flour came into effect from June 2023 and amounted to 50 GEL per ton. At a later stage, from 10 October 2023, this tax rose to 250 GEL (92 USD). In turn, millers agreed to purchase 1 kilogram of wheat from Georgian farmers at 0.7 GEL (0.3 USD). The tax was supposed to be in effect until 1 March 2024, however it was extended to 1 September. In addition, under a governmental decision, an import tax was imposed on barley and bran after flour and was set at 100 GEL.

The Georgian Flour Producers Association advocates for an extension of the temporary import duty to uphold fair competition in the wheat and flour market. According to the Georgian Wheat and Flour Producers Association, further extension is desirable due to the following reasons (Resonance daily, 2024):

• Under the import duty, fair competition between wheat flour and wheat has been restored, and Georgian mills have resumed their operations.
• Following the government intervention, farmers have successfully sold over 50,000 tons (on average half of the annual production) of domestically produced wheat. The Ministry of Environmental Protection and Agriculture has reported a 60% increase in local wheat production over the past two years, with expectations of sustained growth. 
• Wheat imports have resumed, with Georgia importing 20,000 to 25,000 tons of wheat monthly, while prior to the government intervention, the average monthly wheat imports amounted to 15,337 tons (in 2022). Additionally, 8,000 to 12,000 tons of wheat flour, on average, are also imported monthly, while in the absence of government intervention, wheat flour imports surged to over 15,000 tons (in 2022).
• Post-intervention, the price of 100 kilograms of first-quality flour has remained stable, ranging from 45 to 49 GEL. Consequently, the price of bread has not increased but remains steady.
• The import duty has generated an additional 20 million GEL in government revenue.
• Through the efforts of the mills, the country now enjoys a steady and strategically managed supply of wheat, in accordance with UN recommendations. Coupled with the seasonal harvest of Georgian wheat, this ensures complete food security in any unforeseen critical scenario.

While many arguments support the decision to preserve the import duty on wheat flour, in order to make an informed decision on that matter, it is essential to thoroughly assess production, trade and price dynamics in the wheat market in Georgia. Additionally, to design adequate trade policy measures, one has also to consider the issue in a broader perspective and assess the risks associated with a high dependency on Russian wheat, especially given Russia’s history of imposing wheat export restrictions.