A cow rests in view of Bagrati Cathedral outside the city of Kutaisi, western Georgia. Photo CC-by-00: Candoyi / Pixabay. Some rights reserved.Constitutional reform is afoot in Georgia. Many observers worry that new amendments to the electoral system may help entrench the parliamentary majority of the ruling party Georgian Dream, which claimed victory at the ballot boxes last October. This week, the Georgian parliament started discussing a new amendment restricting the sale of agricultural land to foreign citizens. It’s a move that has raised less of a stir – but nonetheless could have important repercussions.
Free Georgia, free land
Following the collapse of the USSR, most people in Georgia received small plots of land from the government of first president Zviad Gamsakhurdia. The state granted individuals exclusive usage of these modest plots, though it was not until 1996 that Eduard Shevardnadze’s government conferred ownership on their users. Nevertheless, land records remaind patchy, and disputes were not uncommon.
Along came the reformist government of Mikheil Saakashvili, which in 2007 instituted a digital record of land ownership, helping to streamline the sale of these small plots; the Georgian Dream government has gone further, utilising potentially risky blockchain technology to develop a land register.
Banning sales of agricultural land to foreigners may be an easy populist vote-winner, but it still has an internal logic
Today, Georgian politicians tend to tread delicately around the question of land ownership. This is in part due to popular memories of the Soviet Union’s catastrophic experiments in state-owned collectivised land, and partly due to the capacity of the issue to feed into inter-ethnic disputes. In this context, Georgian Dream’s decision to raise the issue anew was a bold one – but not without precedent. Fears of foreign ownership of land and displacement by a foreign workforce may feed into rising xenophobic discourse, but there’s an internal logic to them.
Much like other proposed amendments, the proposal to ban sales of agricultural land to foreign owners seems partly an easy populist move bound to appease certain sections of the electorate. Parliamentary chairman Irakli Kobakhidze admitted just that, noting that Georgian society “had a particularly emotional attitude to the issue, so it served as an important driver for the decision.” Of course, such a popular gesture by Georgian Dream comes at just the right moment, given impending local government elections.
Singapore of the South Caucasus
The amendment in question is a mechanism that can at least delay the fire sale of valuable land to which many developing countries have been subjected. After all, there are certainly examples of foreign attempts to monopolise sectors of Georgian agriculture.
One colourful but mostly unknown incident occurred during Eduard Shevardnadze’s rule (1995-2003), and involved Aslan Abashidze, maverick ruler of the autonomous region of Adjara in southwestern Georgia. Abashidze, who ruled the balmy Black Sea region as a virtual fiefdom, was in constant opposition to the central authorities in Tbilisi until he was ousted by Saakashvili in 2004 and fled to Russia. Hillary Clinton’s brothers, Hugh and Tony Rodham, were introduced to Abashidze where they made a deal to corner the hazelnut processing business in 1999. The Rodhams were about to strike a deal worth $118m, which was stopped providentially by Bill and Hillary – Shevardnadze was seen as an ally of the US, while the unruly Aslan was his enemy.
Saakashvili’s supply-side: headaches and high hopes. Photo CC-BY-2.0: Thierry Ehrmann / Flickr. Some rights reserved.
A more recent example of a foreign companies having free reign on Georgian soil involves the Baku-Tbilisi-Ceyhan (BTC) pipeline, whose owners include BP, Stratoil and the Azerbaijani state gas company SOCAR. In the course of its construction, farmers who surrendered land to the pipeline’s eight kilometre corridor received little to no compensation, losing access to water and seeing their land polluted, especially in the vicinity of Borjomi. This deal was made by Shevardnadze, and the pipeline was constructed under Saakashvili, who had some surprisingly tough words against BP in 2004: “We won't be bullied, here in Washington [BP] are pressuring us... We are not a banana republic, and we still have issues with BP.”
While there were some initiatives to inject funds into small agrobusinesses (such as a 2011 voucher scheme), Saakashvili’s plan for economic development mostly saw little role for rural life apart from attracting tourism. His rule also saw a failed hybrid corn fiasco where seeds were sold to farmers for purportedly “high yield” harvests, ending abruptly when the harvests failed and the farmers had to challenge the government in court to avoid paying.
Despite Georgia’s focus on exporting specialised agricultural products, the fact remains that the country imports around 80% of its food
The opposition under Saakashvili consistently pointed out the government’s neglect of the countryside. Many of the United National Movement’s policies were inspired by the East Asian Tigers, embracing high industrialisation in lieu of agriculture, mixed with a heady blend of American libertarian supply-side ideology. The result was a mass import of foodstuffs with which local agricultural producers simply could not compete. The only role left for many plots was subsistence farming.
Today, Georgia may be gaining a reputation for its wine industry, but alongside this new taste for specialised agricultural products, the fact remains around 80% of Georgia’s food requirements are met with imports – mostly from Russia, Turkey and the EU.
Theft or investment?
Since Georgian Dream came to power in 2012, the state has given the Ministry of Agriculture a new lease of life, assigning it concrete programs to encourage agricultural development.
While these new agricultural initiatives may leave much to be desired, they are still unprecedented for post-Soviet Georgia. The ministry has subordinated institutions that co-finance small and medium loans to farmers by covering high interest rates of the banks, providing agricultural training and expertise, encouraging building and expanding of processing plants. They also offer support for agricultural cooperatives, market Georgian agricultural products abroad (especially wine), develop new systems of irrigation, promote agro-insurance, and try to resurrect Georgia’s tradition of tea production.
Morning market in Telavi, Kakheti province, eastern Georgia, 2013. Photo CC BY-NC-ND 2.0: Carsten ten Brink / Flickr. Some rights reserved.
Nevertheless, the size of Georgia’s small, fragmented land plots makes it difficult to develop farming on a large enough scale to drive down prices and increase overall yield. As it stands, 73% of land ownership is below a hectare, in a country where 43% of land is designated as agricultural.
Representatives of Georgia’s libertarian right, such as the UNM member of parliament Zurab Chiaberashvili, have argued that this fragmented land ownership is a perfect reason for a complete free-for-all in Georgia’s market for agricultural land, regardless of the buyers’ origin. As Chiaberashvili stated in a panel discussion at Tbilisi’s Ilia State University, unless these areas of land are amalgamated into larger plots, large-scale agriculture can never develop. Other parliamentarians have even argued that Georgia shouldn’t develop its agriculture sector at all, as urbanisation is linked to higher incomes and foreign direct investment.
Other parliamentarians and businessmen stress that Georgia must instead concentrate on its new role as a “transport hub” for trading goods between Europe and Asia. Georgia’s proximity to the “new silk road” is a motivating factor. The move would also be an attractive prospect for investors from China, Iran and Turkey – countries which unlike Georgia do not enjoy an association agreement with the EU. Here’s the crux: with their products registered as Georgian exports, foreign businesses will now be able to capitalise on the European markets they could otherwise only access with difficulty.
Indeed, Georgian Dream’s projects to support agricultural development are also tailored to this new reality – they are oriented to develop exports to EU markets. The EU Association Agreement and the Deep and Comprehensive Free Trade Agreement (DCFTA) have strict and expensive standards that have to be applied in agriculture and animal husbandry in order to enter the EU market.
“It is a shame that Georgian khachapuri is now produced with imported wheat, and that Georgian cheese is produced with imported powdered milk”
Crucially, the Georgian Dream government has taken no concrete steps to reduce cheap food imports, instead further encouraging the hyper-liberalisation of trade. Even the responsible EU attaché, Juan Echanove, advised correctly that the “priority for Georgia should be to replace imports. It is a shame that khachapuri is produced with imported wheat, it is a shame that your cheese is made from imported powdered milk. Think about it.” Echanove stressed that he believed Georgia was more than capable of exporting competitive agricultural products to Europe, and meeting its domestic food requirements.
The summary of the Ministry of Agriculture’s 2016 report boasts of increases in exports, thus lowering our trade deficit. Imports have only slightly declined, reflecting their continuing importance in domestic consumption. Of course, those products developed for export are hardly daily fare for most Georgians – expensive wines, spirits, and mineral water.
Dependence on imports for staple foods is especially dangerous given that the lari frequently devalues in relation to the dollar, thus increasing food prices. Although a new law on “lari-isation” is supposed to bring some relief, Georgian families find it increasingly difficult to meet their increasing loan payments with their meagre household incomes. This increasing vulnerability drives families to take out even more loans.
Credit on the cheap
While the libertarian Liberty Act, which could be enshrined in the constitution, forbids government debt to be more than 60% of GDP, many Georgian households now have loans that are 200% more than their disposable income.
According to the IMF’s 2016 financial assessment survey, 717 of every 1,000 Georgians borrow money to meet basic needs. This was shockingly the second highest in the world (though by my calculations in 2016, it was the fourth most). The net profits of one of the country’s largest banks, TBC Bank, over the first quarter of 2017 alone have increased by 64.5% y/y, which amounts to $40.25 m. The exorbitant interest rates charged by Georgian banks are justified by the argument that “Georgians are high risk,” though it has been consistently shown that repayment is actually very high.
Given low wages and high prices, the only option for many people is to either leave the country or take out loans at exorbitant interest rates
By statistical sleight of hand, rates of employment are inflated by the authorities. Given the low wages (according to official statistics, the mean monthly wage was 990 lari (£295); the median is not calculated), high prices and high dollarisation, the only option for many people is to either leave the country or take out loans. The countryside is hit hardest; waged work is hard to find and most people have small plots of land with extremely basic farming tools. An estimated 43% of Georgia’s total workforce is engaged in some form of agriculture, but 97% of those people are described as self-employed. The category of self-employment is also a dubious classification – it could include anyone selling a few eggs on the side of a country road.
A block of Georgian 20 Lari banknotes, ready to be put into circulation – and ready for easy credit. Photo CC: Videoblocks. Some rights reserved.
In my opinion, encouraging further commodification of land in this situation is highly irresponsible. The desperation in our countryside, the lack of jobs, low financial literacy, the high cost of healthcare and high dependence on loans guarantees that Georgian citizens will sell land cheaply and quickly.
With that in mind, a constitutional amendment is a necessary but insufficient step to protect Georgia’s farmers. Land cooperatives, once proposed by Georgian Dream, could help circumvent the problem of fragmented smallholdings. Logistical problems like the efficient collecting of produce by distributors should also be a central concern. Most importantly, the underlying logic of export orientation needs to be completely overhauled and replaced with a food security program. In addition, many rural households depend on collective land like forests (which make up 40% of Georgia’s total land area) in order to survive. Any sound agricultural policy has to take accessibility to these traditionally communal lands into account.
By substituting imports, Georgian Dream could actually decrease poverty and develop a domestic market for agricultural goods, safeguarding Georgia from the global and local market volatilities that affect our currency. It could also protect Georgians from the inferior quality food that big multinational corporations have been found selling in Eastern Europe under the guise of their western counterparts. In many countries, the agricultural resources for self-sufficiency simply don’t exist. But Georgia is exceptional in this regard.
After all, we should remember that if food insecurity is man-made, this means it can be unmade too.
Read this response from Hans Gutbrod, a businessman and executive director of Transparify based in Georgia.