Lars Brink. Materials of the workshop: Trade Policy, WTO and Development of Agricultural Markets in the Post-Soviet Countries, organized by FAO 5 October, Tbilisi, Georgia http://www.fao.org/economic/est/est-events-new/tpps/en/

1. Georgian smallholder
agriculture: to be or not to be?
Eric Livny, President
International School of Economics, Tbilisi State University

2. Who am I to speak about smallhoder
agriculture?

4. Georgian agriculture is fragmented!
• According to 2014 census data, Georgian agricultural holdings
averaged 1.37ha (average plot size is even smaller, because many
holdings cultivate multiple plots).
• But let’s look at the distribution:
Size of holdings Number of holdings Share (%)
<1 ha 442 540 77.1%
1-5 ha 122 960 21.4%
>5ha 8 577 1.5%

5. Commercial farms operate on a small portion
of agricultural land
All agricultural holdings Households Legal entities
Number of agricultural
holdings (thousands)
574.1
(77% own less than
1ha)
571.9
(99.6%)
2.2
(0.4%)
Agricultural land
(thousands ha)
787.7
(22% of land owned by
holdings under 1ha)
681.1
(86.5%)
106.6
(13.5%)
• Most land (86.5%) is owned by households.
• Ownership is extremely fragmented (77% < 1 hectare, engage in
subsistence agriculture)
• Legal entities own larger holdings, close to 50ha on average, but account
for only 13.5% of the total

6. At the bottom (на дне)
• With smallholders not shifting to other activities, Georgia’s
agriculture continues to underperform (on average) relative to the
rest of the economy.
• For example, in 2016, while accounting for 49.3% of employment, agricultural
sector’s share in total Gross Domestic Product (GDP) was a mere 9.3%.
• The sector is second from the bottom in GDP per employed person (a bit
more than 2,000GEL per annum)

7. Averages are deceptive!
• On the right of the productivity distribution are a few highly efficient
commercial operators:
• industrial farms, such as Ferrero’s AGRIGEORGIA (a 3,500ha modern hazelnut
plantation in Samegrelo)
• and vertically integrated agribusiness holdings, such as CHIRINA (a poultry producer,
representing a $100mln investment by a Georgian diaspora industrialist) or
MARNEULI FOOD FACTORY (a Swiss-Georgian cannery vertically integrated with a
1000ha farming enterprise).
• modern WINERIES and GREENHOUSES of various sizes, growers of KIWIFRUIT,
BLUEBERRIES and other NICHE products.
• The problem is that, on the left of the productivity distribution, is the great
mass of aging Georgian smallholders self-employed in minimum-cost
production of traditional agricultural products.

8. Who are Georgian smallholders?
• According to a nationally representative survey (3,000 households) by
the UNDP :
• The average respondent’s age is 55 (Georgia’s population average is 37-38).
• About 40% are subsistence farmers (almost no monetary income from ag)
• About 56% are semi-subsistence farmers (some monetary income, but less
than the value of consumption). Of these, only a small fraction could
potentially commercialize their activities. The rest are too old and/or lack
sufficient resources, such as land.
• Finally, only 3%(!) may be considered professional farmers (deriving
significant monetary income from agricultural products)

9. Smallholders are small and not specialized
• A closely related source of inefficiency is the lack of specialization
among Georgian smallholders. According to the above UNDP survey,
Georgian farmers tend to grow a little bit of everything.
• Practically everybody grow some maize, tomatoes, and cucumbers,
but do so on tiny plots of land.
• For example, the average plot sizes under maize, tomato and
cucumbers are 0.32, 0.05, and 0.04 hectares, respectively. The
situation is only slightly better in wheat (1.21ha), sunflowers (1.17ha)
and dry forage (0.85ha).

10. Can training and extension measures help?
• Given the lack of specialization and expertise among smallholders, at
least theoretically, significant efficiency gains could be achieved
through extension and training measures
• Unfortunately, as demonstrated by the same UNDP study, land
fragmentation and a lack of specialization reduces farmers’ appetite
for investment in knowledge and skills. The least productive
Georgian farmers tend to have greater confidence in their skills
(Dunning-Kruger effect)
• In the absence of intrinsic motivation to learn, government and
donor-financed training and extension measures have very little
impact.

11. What is to be done?
• Subsidize and otherwise keep smallholder agriculture alive (seems to
be current policy, driven by political economy considerations)?
• Nothing? Just wait for the old generation of farmers to retire (the de
facto policy under Saakashvili)?
• Provide targeted assistance: actively promote mobility out of
agriculture for those who cannot, and support those (and only those)
who can be successful as commercial farmers?

12. If the latter (improved targeting), how?
• Social (poverty-reduction) policy measures:
• Quick and easy to implement improvement in cultivation and post-harvest
treatment techniques (e.g. pruning, drying, storage)
• Long-term (mobility-focused) measures: endow rural youth with social skills
and education that would make them competitive in the urban labor markets.
• With the average Georgian farmer being 55 years old, about 50% of
current subsistence producers can be expected to retire within the next
10-20 years. At this time their children will be facing a crucial decision: to
continue in farming or sell and move to other occupations.
• The biggest policy mistake would be lure young people to stay in
agriculture on farm units that will not be able to provide decent earnings
and standards of living over a 30-35 year planning horizon.

13. How? (2)
• Agricultural policies:
(1) Target people who have the skills, the agricultural assets and the motivation
(2) Focus on tradable (exportable) products
• If many smallholders simultaneously increase productivity in small-scale dairy and
traditional cheese production the result will not be increased prosperity for all, but a lot
of misery.

17. How? (3)
(3) Focus, as much as possible, on higher value niche products that are not scale
sensitive, can be branded, and in which competition is on quality, not price.
• Certainly not cereals but also not so much mandarins or peaches. Margins are very small,
too many eggs in the Russian market.
• Seek synergies with agri-tourism, arts and crafts (100 kinds of matsoni dishes in the
Alaverdi monastery, God-bless honey, wine tasting in original ceramic dishes)

18. How (4)
(4) Focus on overcoming fragmentation
• Farming cooperatives (horizontal coordination)? The very concept discredited by
many years of forceful Soviet collectivization. And, unfortunately, most Georgians
continue to associate farmer cooperation with joint ownership of land and joint
agricultural production, as opposed to joint processing, branding and marketing
(the predominant Western European model of farmer cooperation). A lot of
money ends up wasted because of donor naiveté and opportunistic behavior on
the part of potential beneficiaries.
• Productive alliances (vertical coordination)? A form of public-private partnership
involving three “core agents”: would-be-commercial agricultural producers, one
or more buyers in the same value chain, and the public sector. Can be seen as
outgrowing schemes supported by the public sector/donors. Support takes three
forms: productive investments, technical assistance (provided by the buyer), and
business development.

19. An example of an embryonic “productive
alliance” in the hazelnuts sector
• GEORGIA HAZELNUT IMPROVEMENT PROJECT (G-HIP), the second
iteration in USAID’s cooperation with FERRERO.
• Supports two associations: Georgian Association of Hazelnut Growers
(GHGA) and Hazelnut Exporters and Processors Association (HEPA)
• Building the capacity of farmers by organizing association members in
groups of 8-12 persons to help each other and learn (30 groups thus
far)
• Farmers meet four times/year on each other’s orchards to perform
seasonal works (soil preparation, pruning, plant protection,
harvesting and post-harvest treatment) with guidance by an
agronomist