The main objective of this project was to analyse the predicted potential for Georgia to specialize in the production of various agricultural goods. APRC assisted the German Economic Team within this project with regards to: searching, collecting and summarizing data, reviewing existing literature to study the potential of agricultural goods which have a relative comparative advantage compare to other. The empirical paper by GET Georgia predicted the potential for Georgia to develop its specialization in 14 agricultural goods. Our analysis showed relative comparative advantage of several goods and we grouped them into following three categories: Fruit and Vegetable; Tobacco, Dairy Product, Fish and Sea Food. There are large investment needs, but also many potential benefits from higher value-added, processed products.

Georgia’s wine industry is heavily dependent on export to CIS countries, especially Russia. Two main short-run risks associated with the Russian market presently affect Georgian wine exports: The possibility that Russia might cancel its free trade agreement with Georgia, and the economic slowdown in Russia which could lead to reduced demand for Georgian wine. These short run risks are substantial, albeit manageable as they will reduce Georgian wine exports in total by only USD 28.5 m or 17%.

In the long run, the Russian wine market is likely to stagnate or even decline as the Russian population shrinks and ages. Therefore, steps should be taken to reduce the dependence on this market and diversify exports. We recommend several measures to expand exports to non-CIS markets:

Agriculture makes an important contribution to economic development in Georgia. Value added in agriculture accounted for 9.3% of Georgian GDP in 2013 and 53.4% of employment (World Bank, 2014a). Agriculture also provides an essential basis for the food, beverages and tobacco processing industries, which together accounted for just over one-third of value added in manufacturing in Georgia in 2010 (World Bank, 2014a). Hence, overall agricultural and food production in Georgia accounts for roughly 14% of GDP.

In addition, agriculture growth is closely linked to the alleviation of poverty, which is especially concentrated in rural areas in Georgia. While 14.8% of the Georgian population lived below the national poverty line in 2012, this share was only 10.5% in urban areas, but 18.8% in rural areas. Numerous studies have demonstrated that agricultural growth is an especially effective means of reducing poverty: according to evidence cited in the World Development Report (World Bank, 2008), growth in agriculture is 3.5 times more effective in reducing poverty than growth outside of agriculture in China; in Latin America agricultural growth is 2.7 times more effective.

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