EPI Case Study: Georgia Agricultural Competitiveness – Chirina

This case study analyzes a unique green field investment project initiated, financed and managed by a prominent member of the Georgian-Russian diaspora. Having earned his personal wealth in the Russian chemical industry, Mr. Revaz Vashakidze chose to repatriate a part of his fortune to Georgia to invest in a modern, fully integrated poultry production plant capable of competing with the cheap imports of frozen meat products dominating the Georgian market until 2013.

Designed and built as a turnkey project by Israel’s Agrotop in 2011-2013, Chirina is a unique, vertically integrated complex that includes production of maize and wheat, drying and storage facilities, a modern feed mill, hatchery, parent stock farms, broiler farms, a meat processing plant, distribution fleet and a mobile retail network. The company’s production facilities are located in Marthopi, Gamargveba, and Sartichala (a total of 172ha of land in freehold), and in immediate proximity to the Tbilisi International Airport and nearby Customs Clearance Zone. This latter area is very well served by air, road and rail transport networks.

After only a year on the market, Chirina’s products – fresh and frozen chicken meat sold under the BiuBiu brand – already account for about a sixth of Georgia’s total consumption. With its plans to double processing capacity by the end of 2014, Chirina will become a major food industry player in Georgia. Its operations will integrate Georgian agricultural producers into its supply base, apply downward pressure on prices, and expand the range and quality of products available to Georgian consumers.

This study carries many lessons learned with implications for Georgia’s economic development. One thing Chirina’s case teaches us is that Georgia, once a powerhouse of food production for the entire USSR, should at least be able to feed itself. Modern agronomic and processing technology is readily available on the global market, and Georgia has the people and the soil and climate conditions to regain the economic territory it once controlled. To achieve this and much more, Georgia should make a serious effort to re-integrate and bring home some of its best talent who left the country during many years of emigration.

In this context, engaging the Georgian diaspora is a first recommendation to the Georgian government from this case. Second, it is abundantly clear that Rezo Vashakidze’s investment would not have happened in the business-hostile context of 1990s. Safeguarding the business-friendly policy environment that has been built in Georgia since 2003 is a necessary condition for Georgian diaspora investors to come back. For instance, a mechanism has to be created to swiftly review and react to complaints about inefficiencies in the tax administration or other bureaucratic hurdles. Finally, the government should avoid using agricultural policy as a primary means of achieving social policy objectives. Rural employment is important, but instead of trying to subsidize smallholder agriculture the Georgian government should encourage investment into large/medium size food processing businesses, which will in turn create demand for agricultural products, integrating smallholders or providing jobs for those not able to survive in agriculture.

As far as investors are concerned, Chirina’s experience provides ample evidence for the benefits of working with international production management and technology partners to design production facilities, install modern equipment, and acquire the necessary management and technological knowhow. Another recommendation is to avoid starting too small in scale-sensitive sectors. In the absence of tariff and non-tariff protection measures, investors have to invest in sufficient capacity to be able to compete with larger foreign competitors. Finally, given the underdeveloped nature of Georgia’s market and supporting environment, investors in food processing should find opportunities to for vertical integration. This means investing in agriculture and basic production capacity to ensure control and stability of raw materials. It also means investing in downstream service capacity like distribution capacity, and, if necessary, even retail channels.