Georgia's Advantage in Perishable Veg Production: Climate, Market Trends, & USAID Support, Exercises of Marketing

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Sector Selection and Value Chain Analysis I USAID Contract 72011418C Prepared for review by the United States Agency for International Development under USAID Contract No 720 11418C00001, The USAID Agriculture Program implemented by CNFA Prepared for review by the United States Agency for International Development under USAID Contract No72011418C00001, The USAID Agriculture Program implemented by CNFA

SECTOR SELECTION AND VALUE CHAIN ANALYSIS

Sector Selection and Value Chain Analysis II

SECTOR SELECTION AND VALUE CHAIN ANALYSIS

THE USAID AGRICULTURE PROGRAM

SEEDEV

USAID Contract 72011418C Implemented by CNFA Submitted to: USAID/Caucasus Mr. Brent Edelman, COR Submitted on February 5, 2019 DISCLAIMER The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

Sector Selection and Value Chain Analysis IV

II ACRONYMS

ACDA Agricultural Cooperative Development Agency APMA Agricultural Project Management Agency BRC British Retail Consortium Global Standard CEFTA Central European Free Trade Agreement CIS Commonwealth of Independent States DCFTA Deep and Comprehensive Free Trade Area EU European Union EU 15 EU Member States Accessed to EU before 2004 F&V Fruits and Vegetables FSSC Food Safety System Certification GDA Global Development Alliance GDP Gross Domestic Product GEL Georgian Lari (currency of Georgia) GeoStat National Statistics Office of Georgia GI Geographical Indication GlobalG.A.P. Global Good Agriculture Practice standard GM Green Market GoG Government of Georgia HACCP Hazard Analysis Critical Control Point HORECA Hotels, Restaurants, and Catering ICC Information-Consultation Centers IFS International Featured Standards IPM Integrated Pest Management IQF Individually Quick Frozen IRR Internal Rate of Return MENA Middle East and North Africa MEPA Ministry of Environmental Protection and Agriculture NFA National Food Agency NMS New Member State (Accessed to EU after 2004) REAP Restoring Efficiency to Agriculture Production SEEDEV South Eastern Europe Development company SM Supermarket SQF Safe Quality Food Standard TA Technical Assistance UN United Nations UPOV International Union for the Protection of New Varieties of Plants US United States USAID United States Agency for International Development USD USDA United States Dollar United States Department of Agriculture UV Unit Value VC Value Chain WM Wholesale Market

Sector Selection and Value Chain Analysis 1

III EXECUTIVE SUMMARY

The objective of this Sector Selection and Value-Chain Analysis is to assist the USAID Agriculture Program to identify priority value chains, identify gaps in the selected chains, and develop value-chain action plans to achieve improvements in the selected value chains. This document will first offer a general overview of Georgian agriculture, followed by a detailed discussion of the analysis and selection process, and then a view of common constraints and approaches across all value-chains. Following these general sections, the document will offer value-chain analyses and action plans for each of the selected product groups. SEEDEV conducted extensive competitiveness and product analysis for a wide range of products, which were then grouped based on value-chain commonalities in storage, investment, and marketing. This approach captures synergies across similar product value chains and allows the USAID Agriculture Program to avoid market distortions, have country-wide impact, maximize the multiplicative effect of interventions, and account for absorptive capacity. Berries : (already previously submitted with the Project Year 1 Work Plan and updated/integrated here) ranked second as a group, and three berries (raspberries, blackberries, blueberries) were among the top ten individual products. Berries are profitable on small land plots, offer labor opportunities, have high value- adding potential, and enjoy increased consumption patterns in domestic and export markets. Program Interventions will be directed all along the value-chain from inputs to marketing, with a particular focus on post-harvest handling for fresh and processing and marketing for frozen berries. Culinary Herbs : scored highest as a group and second highest as an individual product, and demonstrate competitiveness, strong domestic market potential, labor opportunities, and significant value-adding potential. Program interventions will be directed all along the value-chain with a particular focus on improved production practices, post-harvest handling and packaging of fresh products, and improved marketing linkages. Stone Fruits : Peaches and nectarines were in the individual top ten list, while apricots, plums, and cherries would all be included in the group. Stone fruits demonstrate potential in both domestic and export markets. The focus will be on quality improvements in production and post-harvest handling, with significant attention to strengthening the cold chain and introducing quality standards for improved market access. Perishable Vegetables : include tomatoes and cucumbers from the individual top ten along with eggplants and peppers. Perishable vegetables have a high and growing production value and offer strong opportunities for import substitution and season extension. While the USAID Agriculture Program will work all along the value chain, the focus will be on improved production practices, and access to inputs and extension, disseminating these production practices to large numbers of producers. With an improved and increased production base, the Program will be able to provide support in grading, distribution and processing to post- harvest enterprises. Apples : Pome fruits have promise, with apples offering a significant cluster opportunity in Shida Kartli, and the Agricultural Project Management Agency’s (APMA) Plant the Future Program has invested in new modern, intensive orchards. There is a great opportunity to enhance these production investments by providing post- harvest technical assistance and investments in post-harvest infrastructure. This sector plan will focus on post-production and will be considered as a pilot for expansion based on initial interest and results. Table Grapes : are identified as a small sector in Georgia, but with potential in both the export and domestic markets. This sector will be treated as a pilot, selecting key, replicable activities for support and investment, to nurture an emerging high potential sector that could have a tremendous impact on the rural economy. Citrus (Mandarins) : Mandarins offer a cluster opportunity historically grown in Adjara and receiving significant attention from the regional Ministry of Agriculture. To enhance government investments in production, the USAID Agriculture Program will provide post-harvest technical assistance and support investments in post-harvest infrastructure. This sector plan will be developed to focus exclusively on post- production and will be considered as a pilot for expansion based on initial interest and results.

Sector Selection and Value Chain Analysis 3 lagging behind competitors, as indicated by a very low export value per hectare (1,350 USD/hectare in Georgia, average in NMS 4,945 USD/hectare and in EU 15, 15,710 USD/hectare) and low share in overall agricultural export (13% processed and 87% fresh contribution). Other key characteristics of the horticultural processing sector include:  Very high share of processed fruits and vegetables in overall processed exports, indicating very low export of meat, milk, cereals and oil-based products  Low production and negligible export of frozen F&V products  Unfavorable structure of production and export of processed products: Georgian processing is dominated by juice and canned products, while world trends are shifting towards frozen and dry products, which are poorly developed in Georgia.  The GoG is putting significant efforts into registering food establishments which increases food safety and official sales but also puts a heavy cost on those companies. IV.3 TRADE Agricultural exports from Georgia are relatively low, but growing faster than the world average growth. The primary export products are wine, water, hazelnuts, mandarins, wheat flour and lamb, while main export destinations are Russia and Ukraine. According to the Ministry of Environmental Protection and Agriculture (MEPA) Report from 2017, the agricultural sector accounts for 14.5% of the total GDP, out of which processing is 6.3% and primary production is 8.2%. The total value of agricultural output slightly increased compared to the previous year (1.8%) while processed products enjoyed an 8.9% increase. 778.3 Million USD worth of food and agricultural products were exported from Georgia^1 , which exceeds the equivalent figures from previous years. The share of agricultural products in total exports accounts for 28%. The key exported products were: wine (22%), alcoholic beverages (16%), mineral and fresh waters (12%), hazelnuts (11%), cattle (5%), lamb meat (3%), non-alcoholic sparkling beverages (2%) and others. In 2017, Georgia exported food and agricultural products to 93 countries, with the biggest share of export to the region - Russia, EU and Azerbaijan, Kazakhstan, Armenia and Ukraine. Unlike the balanced exports of the EU 15 and NMS where practically all sectors are equally represented, Georgia exports almost no meat and dairy products, while more than 80% of all exports are of fruit origin. In the same year (2017) 1.2 Billion USD worth food and agricultural products were imported to Georgia, which is 10% higher compared to the previous year. The share of food and agricultural products from EU countries in total Georgian imports has been significantly increasing in recent years. In 2017, the share of food and agricultural products in the total import is 14. 8 %. Based on the data of foreign trade of agricultural food products, in 2017 the negative trade balance increased by 6.6% compared to 2016, primarily due to the decrease in hazelnut export. (^1) GeoStat Graph 3 : Agricultural Trade Balance for Georgia Source: GeoStat -1,000, -500, 0 500, 1,000, 1,500, 2012 2013 2014 2015 2016 2017 Thsd. USD Import Export Trade balance

Sector Selection and Value Chain Analysis 4 IV.4 CONSUMPTION AND DOMESTIC RETAIL TRENDS Georgian consumers are proud of and love their products and cuisine, and are motivated and knowledgeable consumers, who focus on freshness and taste and know the product, its appearance and health benefits. In this the Georgian consumer does not differ much from European or US consumers who are increasingly driven by quality, taste, freshness, clear labels, and natural, local, minimally processed food. Georgian consumers are following the same trends as global consumers, but with different intensity. Expectations are that changes in consumer behavior will be even more noticeable in the coming years. Therefore, systematic attempts should be made to support competitive production that aligns with consumer willingness to pay a higher price for quality, service and image. Georgian consumers will increasingly seek out the benefits of taste, appearance, safety, and nutritional value, but also much more convenience, packaging and even social responsibility. Price remains very important for a large part of the Georgian population and an important factor in the purchasing process. This is particularly evident when it comes to market positioning of private-label products that are often positioned as lower-cost alternatives to regional, national or international brands. These products, usually marketed by retail chains, are expected to grow in offer, as international retail chains such as SPAR open their first stores in Georgia. In Georgia, the share of spending on food is very high (60% in 2016), but there is clear evidence that the figure is decreasing (69% in 2006)^2 , as the average Georgian salary has increased more than 3 times in the last ten years. This influences purchasing power and consequently the consumption of fresh and premium products. In 2017, the number of international inbound travelers grew by 18.8% year on year from 6.4 Million to an all- time high of 7.6 Million. The majority of visitors came from Armenia, Azerbaijan, Russia, Turkey and Iran. The number of international visitors from Saudi Arabia, Kuwait and Iran grew significantly in 2017 by 165%, 154% and 118% respectively. Visitors from the EU countries also increased, and visitors from the UK, Austria and Netherlands were up 40%, 34% and 31% respectively. July and August remained the most popular months 2 ibid Figure 1 : Main Trends in Food Consumption in EU and US

Sector Selection and Value Chain Analysis 6 Despite all of these reforms and achievements, change in the field is slow, in part due to the resistance of farmers to change, and the prevalence of smallholders who do not operate as commercial farmers, but also due to policy measures. For example, policies were focused mainly on large commercial operators (credit, Plant the Future) and very small farmers (plowing program, grape subsidies), and less so on the medium sized farmers who are the backbone of agricultural development. In addition, some policy developments, such as land market development and credit market, progressed quite slowly. The GoG agricultural budget is directed towards action plan implementation, with significant allocations to infrastructure development, irrigation and different support measures. Budget allocations continue to improve with reduction or abolition of measures with limited economic impact (plowing program, grape subsidies), and an increase in targeted investments such as plant the future, credit and insurance support. In addition, MEPA has increased investments in infrastructure and institutional support to the National Food Agency (NFA) and laboratories. Source: MEPA 0 50,000, 100,000, 150,000, 200,000, 250,000, 300,000, 350,000, (^2015 2016 2017 0 50000000 100000000 ) Agriculture Development Program Food safety, plant protection and… Viticulture and winemaking… Scientific research activities in… United AgroProject Support for agricultural… Modernization of amelioration… Graph 4 : Overall Agricultural Budget Graph 5 : Distribution of the Main Agricultural Budget

Sector Selection and Value Chain Analysis 7

V PRIORITIZATION AND SELECTION

SEEDEV conducted extensive competitiveness and product analysis for a wide range of products, and then grouped the products based on value-chain commonalities in storage, investment, and marketing. This approach to value-chain selection has the advantage of capturing synergies across similar product value chains. Grouping products and targeting product groups will allow the USAID Agriculture Program to:  Be focused yet flexible  Leverage logical synergies between products  Avoid market distortion  Have country-wide impact  Maximize multiplication effect  Account for absorptive capacity Based on this approach, the value-chain analyses that follow will use the following product groupings: The analysis focused on fruits, vegetables, and herbs, and did not include livestock, dairy, or other livestock- related products, which are beyond the scope of the USAID Agriculture Program. In addition, for each product group included, an analysis was conducted according to the Bumpers Amendment, and a determination made that no program activities would have an adverse effect on US production or trade. This Bumpers analysis can be found in Annex I, submitted as a separate document annexed to this report. The value-chain selection criteria have been defined and agreed upon with USAID. Balancing indicators which demonstrate competitiveness and commercial viability with those that are linked with program priorities results in the weighted selection criteria, where the red shading indicates a weighted ponder of 2 compared A Fruits 1 Apple and Pears group (Pome) 1 Apple 2 Pear 3 Quince 2 Stone fruit 4 Sour cherries 5 Cherries 6 Peach and nectarine 7 Apricot 8 Plums 3 Berries 8 Raspberries 10 Strawberries 11 Blueberries 12 Blackberries 4 Nuts 13 Hazelnuts 14 Walnuts 15 Almonds 5 Citrus fruits 16 Oranges 17 Lemon 18 Mandarins B Vegetable 6 Perishable 19 Water melon 20 Melon 21 Tomato 22 Pepper 23 Cucumber 24 Zucchini 25 Lettuce, radish and chicory 26 Beans 27 Eggplant 7 Non perishable 28 Potato 29 Carrot and parsley 30 Cabbage 31 Cauliflower and broccoli 32 Onion 33 Garlic 34 Leeks C Grapes 8 Table grapes 35 Table grapes D Herbs, medical and aromatic plants 9 Culinary Herbs 36 Culinary Herbs 10 Medical and aromatic plants 37 Medical and aromatic plants E Cereals and Oil Seed Crops 11 Cereals 38 Wheat 39 Barley 40 Maize 12 Oil seed crops 41 Soybean 42 Sunflower seed Size of the sector/products Primary production Processing Competitiveness Currently competitive Potential For export Domestic market Job creation Labor intensity Importance for rural development Number of small producers Profitability at small plots Possibility for adding value Through processing Through quality Government priority Government priority Figure 2 : Product Groupings Figure 3 : Selection Criteria

Sector Selection and Value Chain Analysis 9 Graph 7 : Competitiveness in Relation to the EU Source: SEEDEV competitiveness analysis These competitiveness scores are then incorporated into the broader scoring table. Based on selection criteria, each product is rated on a five-point scale and then the higher weighted criteria were assigned a multiplier of two. Criteria was quantified based on the existing data or expert opinion and the scoring methodology is detailed in the table below. Criteria Ranking method Size of the sector/products Primary production The value of the production (production multiply by price): 5 > 100 Million $, 4 – 50 to 100 Million, 3 – 30 to 50 Million, 2- 10 to 30 Million 1 – less than 10 Million $ (For example > 100 m hazelnuts 189 m, 50 - 100 tomatoes, potatoes, maize, 30 – 50 apples, walnuts, mandarins, 10 - 30 m pears. Peaches, cucumbers, eggplants, wheat, < of 10 m all berries, persimmons, stone fruits, cherries and others) Trends in production from 2012 – 2017 : Scored by 1 or two points in case of growing trend Processing Value of processing (where data exists and if not then use expert estimation) Trends in export of processed products Competitiveness Currently competitive The range of the product based on Competitiveness index Potential For export Trend of export Number of potential markets and trends on these markets Domestic market Value of import Trend of import of selected product Job creation Labor intensity Based on practice of Serbia in conventional production Number of days per production year: 5 > 250, 4: 150 - 250 days, 3: 100 – 150, 2: 50 to 100, and 1 < 50 (>250 raspberries, strawberries, gherkins, 150 - 250 peppers and blueberries, 100 do 150 apples, cherries, plums, sour cherries, 50 - 100 peaches, apricots, pears, potatoes, carrots, onions, tomatoes, < 50 quinces) 0

1 Hazelnuts Persimmons Mandarin^ Cherries Garlic Blueberries Peaches and nectarines Cattle Walnuts Sheep Cucumbers and gherkins Grapes Tomatoes Plums and sloes Eggplants Onions, dry Apples^ Pears Beans, dry Meat sheep^ Potatoes Watermelons Cabbages and other… Maize Meat poultry Eggs Sunflower & oil Meat cattle Milk Total Wheat Chillies and peppers,… Kiwi Carrots and turnips Meat pig Strawberries Barley Raspberries Fruits Vegetables Cereals Industrial crops Animal products Live animals Table 1 : Detailed Scoring Methodology

Sector Selection and Value Chain Analysis 10 Importance for rural development Number of small producers Estimation of potential involvement of small producers Profitability at small plots Based on practice of Serbia in conventional production Possibility for adding value Through processing Estimation of potential processing possibilities (frozen, juice, canned, dried) Via quality Estimation of potential for adding value by increasing the quality and certification Government priority Government priority Giving only two levels 5 and 3 (binary, priority or not, but using 5 and 3 so as not to give too much weight to this category) While other agricultural products (livestock, dairy) were included in the competitiveness scoring for illustrative purposes, only those meeting program criteria were included in the full product scoring. The individual products by rank after applying the above methodology are outlined below. The full raw data in total and by criteria can be found in Annex II, Scoring Table by Product. Graph 8 : Product Rank by Scoring Methodology Source: SEEDEV calculation According to the applied methodology, the top ten ranked products are:  Hazelnuts  Culinary Herbs  Raspberries  Tomatoes  Cucumbers  Potatoes  Blackberries  Blueberries  Peaches and nectarines  Persimmons As described in the Introduction, products were considered individually and as a group, with groupings by value-chain commonalities rather than strictly agronomic considerations. When groups of products were aggregated and ranked using the same criteria, the results were slightly different, with the top five being:

Hazelnuts Herbs Raspberries Tomato Cucumber Potato Blackberries^ Blueberries Peach and nectarine Perssimon^ Eggplant Table grapes Apricot Manadarins Strawberries Plums Cherries^ Garlic Pepper^ Apple Sour cherries Lettuce Water melon Onion Carrot and parsley Medical and arromatic… Wheat^ Maize Walnuts Cabbage Peer Zucchini Oranges^ Lemon Beans Cauliflower and broccoli Barley Sunflower seed Melon Quince Soybean Almonds

Sector Selection and Value Chain Analysis 12 Perishable Vegetables : As the fifth ranked group, perishable vegetables include tomatoes and cucumbers from the individual top ten along with eggplants (11) and peppers (19). As a group, perishable vegetables are already the sector with a higher value of production than the others and the best trends in production. Also, as a sector with net imports but increasing production there is a need for improvement and an opportunity in the domestic market through season extension. Collectively, there is a tremendous opportunity to leverage commonalities across value chains as berries, perishable vegetables, and stone fruits all require a perishable value chain approach with similar investment requirements in cold storages. Apples (Pome Fruits) : Pome fruits as a group rank quite low (10/11) and apples are the highest individually ranked product at #20. Despite this ranking for the country as a whole, apples offer a cluster opportunity being primarily developed and invested in Shida Kartli region, and APMA’s Plant the Future Program has invested in new modern, intensive orchards. Those established will reach maturity in the next few years, and there is great potential to enhance these production investments by supporting post-harvest TA and investments in post-harvest infrastructure. This sector plan will focus on post-production, and will be considered as a pilot for expansion based on initial interest and results. Investments in post-harvest infrastructure could also benefit other pome fruits (pears at 31 and quinces at 40). Table Grapes : While 12th^ as an individual product and 3rd^ as a group, table grapes are identified as a small sector currently in Georgia, but with potential in both the export and domestic market. Due to the need for investment in primary production for a crop that has a relatively long planting to maturity duration, it is anticipated that there will be limited impacts during the life of the project. However, this sector will be treated as a pilot, selecting key, replicable activities for support and investment, to nurture a new, high potential sector that could have a tremendous impact on the rural economy over the longer term. Citrus (Mandarins) : Citrus as a group ranks quite low (9/11) and mandarins are the highest individually ranked product of this group at only #14. Despite this ranking for the country as a whole, mandarins offer a cluster opportunity historically grown in Adjara and receiving significant attention from the regional Ministry of Agriculture. In 2019, the Ministry will transfer the subsidies from ongoing price support to three different production support programs (upgrading new orchards, equipment for service providers and soil analysis). To enhance these investments in production, the USAID Agriculture Program will provide post-harvest TA and support investments in post-harvest infrastructure. This sector plan will be developed to focus exclusively on post-production and will be considered as a pilot for expansion based on initial interest and results. Investments in post-harvest infrastructure could also benefit other citrus fruits (oranges at 33 and lemons at

34. although they will not be a program focus. Based on the selections above, the estimated types of investment required, inclusion of some limited or pilot activities, the USAID Agriculture Program preliminarily estimates the following allocation of investment grant and technical assistance resources by sector, to be modified and updated at the end of Project Year 1 based on initial activities. Graph 10 : Program Resource Allocation by Value Chain 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Berries Culinary Herbs Stone Fruits Pome Fruits Perishable Vegetables Mandarins Table Grapes TA Breakdown Grants Breakdown

Sector Selection and Value Chain Analysis 13

VI COMMON SUPPLY CHAIN CONSTRAINTS

AND APPROACHES

One of the main characteristics of Georgian agricultural value chains, is their high diversification by types of actors, due to the high number of involved producers, low standard development, and insufficient market information. Georgian value chains are integrating both traditional actors and newcomers to the food production and processing sector. Across all value chains, self-organization and networking are essential to develop supplier-buyer linkages, improve efficiency of supply chains, and build trust among all value chain actors. While each individual value chain has unique characteristics, opportunities, and constraints, they also share many commonalities. This section will discuss some of the commonalities and common approaches, with details for individual product-group value chains following in the subsequent sections. Actors in each of the four common steps – input supply, production, post-harvest handling, and trade and marketing – along the agricultural value chain share common challenges, as described in the following table. Input supply Production Post-Harvest Handling Trade and marketing

• Poor accessibility of improved varieties, seeds and seedlings
• Unknown effects of different varieties / brands of seeds, seedlings, pesticides and fertilizers due to limited testing
• High cost and low quality of pesticides and fertilizers
• Shortage of newest pesticides and fertilizers due to small market size
• Limited choice of equipment - Small production plots that increase operational costs - Limited access to inputs and capital - Poor irrigation systems - Low productivity - Inadequate research and advisory services - Low product standardization due to many small actors - Climatic variation – high temperature and irregular rainfall - Insufficient and high variation (price and supply) of raw material - Small scale processing not regulated and has significant food safety issues - High cost of processing equipment - Limited storage facilities - Inadequate skilled personnel and knowledge of processing techniques - Dependency on food imports - Inadequate market information - Retail margins and requirements raise consumer price and requirements for producers - Insufficient local product labelling - Instability of local currency Input Supply : Due to the size of the market, the Georgian input supply market has limited choice of equipment (and parts and services for that equipment), range of registered pesticides and fertilizers, and access to the newest and best varieties of a wide range of crops. All of these factors limit production, productivity, and product quality, thereby hindering access to markets. Much progress has been made in the country to improve access to basic inputs; most international input companies have representation in Georgia and there is a wide and growing network of Farm Service Centers providing access to inputs and information. Despite this, the size of the marketplace continues to hinder access to inputs. The following compares access to a variety of inputs in Georgia versus in competing countries. Competitors Georgia Varieties Dynamic variety breeding programs linked to major marketing programs Limited number of the varieties introduced under donor projects or by private companies Planting material Advanced quality material developed under the disease free and quality certification schemes Certification schemes are under developed and the disease and quality status is under the responsibility and conscience of the nurseries Fertilizers Sophisticated technologies High-quality water-soluble fertilizers, both granular for base dressing and crystalline for fertigation Mainly still dependent on mineral fertilizers Pesticides Wide choice Limited pesticides due to small market size Biostimulators Wide choice Limited choice due to small market size Equipment Wide choice Limited equipment suppliers Table 2 : Main Challenges in Agricultural Value Chains in Georgia Table 3 : Comparison of Georgia with its Competitors on Inputs Supply

Sector Selection and Value Chain Analysis 15 aggregation function certification. Current role is primarily to aggregate enough product to access new marketing channels Processors At the beginning of 2018, 4,659 enterprises were operating in agricultural sector of which, 3,470 are processors Adding value in processing a primary product, agricultural processing share in GDP reached 6.4% in 2017 According to GeoStat, in the 3 rd^ quarter of 2018, 510,000 tons of products were stored in cold storage facilities. The majority (82.7% was chicken, meat, and fish). Fruits and vegetables occupied 9. 3 % of storage capacity. Over the same period, cold storages sold 19. 2 Million GEL of product, of which almost 80% was local. 94. 2 % of local products sold by cold storage facilities were chicken meat. A significant share of imported products was meat and meat products (70.5%), fruits and vegetables (17. 8 %) and fish (8. 4 %). Majority of the active cold storage facilities are located in Shida Kartli region (35%) and in Tbilisi (17.6%). Active cold storage facilities are also located in Samegrelo-Zemo Svaneti region (13.7%), Kvemo Kartli region (11.8%), Imereti region (7.8%), Kakheti region (5.9%), Mtskheta-Mtianeti region (5.9%) and Guria (2. 0 %). Availability of the cold storage Precooling as well as Storing are important for successful marketing, both to assure the best quality and to target markets. VC analysis identified a limited number of precooling facilities and storages in the production regions. Connectivity Transferring products from production sites to collection points has a vital role. Due to poor rural infrastructure and large number of land parcels this operation is adversely affecting quality and increasing costs. However, connectivity from collection points to market is developed and competitive since the traders are equipped with refrigerated transport. Sorting and grading The m rare. ajority of products are sorted manually.^ Grading practices^ and sorting equipment^ are Packaging Packaging practices are different for different products and some VC are more advanced than others. Culinary herbs are most advanced with a variety of packaging and a cold chamber network at retail markets. For other products, bulk sale is predominant. Trade and Marketing : The expansion of modern shopping formats is ongoing, mostly in urban centers - Tbilisi, Batumi, and Kutaisi - contributes to the change of consumer choices and preferences, in 2017, the total volume of retail floorspace amounted to 1.42 Million square meters, which was a 12% increase as compared to the previous year. The largest portion (79%) is found in the capital city. Some of the Georgian supermarkets are beginning to formalize domestic supply chains, but most engage in ad hoc purchasing. Expectations are that this situation will continue in the medium-term period. Expected changes are:  Start to import products directly  Decrease number of suppliers of fresh F&V  Move from tender based supply from traders to consistent supply from certified producers  Start to have specialized shelves for niche products  Continue to increase sales of all fresh F&V including niche market products  Continue to promote Georgian products  Become more quality oriented In addition to retail players, traders play a key role in trade and marketing in Georgia, with a disparate range of formalization, size, and sophistication among traders. The main types of actors engaged in the trading function include: Trader Main characteristics Expected trends Large importer and trader of fruits and vegetables

• Have own storage facilities, around Tbilisi.
• May have own distribution chain (sellers, trucks, minivans) to final users (shops, restaurants).
• Main buyers are supermarkets and small shops and large traders working in wholesale markets - Increase as number of supermarkets increase - Increase as Georgian production increases Table 5 : Gaps in Cold Chain Organization Table 6 : Types of Traders in Georgia

Sector Selection and Value Chain Analysis 16 Packaging house supply and selling network

• Very few of them and they deal with large producers
• Interested in quality, variety, food safety; however still are not able to establish contractual approach and are ready to pay a higher price
• Selling almost exclusively to supermarkets
  • Number and quality increasing
  • Starting to pay higher prices and to establish contracts with good producers Large traders working on the wholesale market
• Renting space in wholesale markets, have a couple of vehicles and trucks.
• Constant travelling and linkages with producers and buyers; they have an important role in setting prices.
• Important player in developing Georgian agriculture sector since they have knowledge, experience and capital.
• Interested in improvement of quality and packaging and work through official channels
• Main problem is unfair competition during picking season from small middlemen
• Start to supply local shops and not only to import products
• Start to look at Georgian suppliers
• Start to invest into packaging Middlemen with cars or small trucks
• Trade with cash daily, going to the production regions and villages and bringing products to the larger cities with vans or small trucks.
• Selling products on wholesale markets, to the green market or directly to the consumer, often outside the formal market reach (from trucks).
• Mainly working during peak of the season, they are the main competition for the traders on wholesale markets and often cause prices to lower.
• Some of them will become large traders while some will stop business
• Will start to invest into production and some of them in packaging Trading on green local markets and street
• Majority are traders and not producers. Getting products either from local farmers (especially when the price is low since transport costs have a significant share in the total cost structure) or going to the wholesale markets to buy products.
• Number will be reduced as markets formalize Specialized shop owner
• Paying taxes therefore interested in legal trade which make them less competitive
• Some of them are specialized traders for healthy or premium food
• Number and trade through them will increase In addition to these four key components of all agricultural value chains, there are several aspects that impact the development of all value chains that will also be discussed here, as they are common to all of the value chains chosen for development under the USAID Agriculture Program. These include association development, support for agricultural cooperatives, access to finance, and environmental considerations. Association Development: The USAID Agriculture Program recognizes the potential of associations to develop linkages and foster cooperation along and among value chains. In each targeted value chain, the Program will identify existing, interested sectoral associations and support them to build internal capacity, improve services for members, and foster cooperation among members up and down the value chain. At the same time, the Program will identify and support cross-value chain associations whose role and functions could have a transformative impact on targeted value chains. One immediate example is the Cold Storage Association, whose development could positively impact producers and enterprises across a variety of agricultural value chains. Agricultural Cooperatives: In Georgia, agricultural cooperatives are in the emerging stage; most developed cooperatives are in dairy and honey production. The USAID Agriculture Program will closely work with ACDA to build capacity of agricultural cooperatives engaged in horticultural value chains. The Program will conduct a specific mapping and needs assessment of horticultural cooperatives and will develop a tailored program for strengthening their capacity, enabling cooperatives to help their producer members to improve access to inputs, knowledge and technology, to improve and standardize product quality, and to improve access to post-harvest handling, storage, and processing. Cooperative development can improve market access for producers and lessen dependence on middlemen for services and market access.