Executive Summary Georgia Dairy Sector

Worldwide Agricultural Development

Développement Agricole à Travers le Monde - Desarrollo Agropecuario a través del Mundo

Executive Summary

EXECUTIVE SUMMARY

DAIRY SECTOR STUDY GEORGIA

Strengthening the Dairy Sector in Georgia

A Chain Approach

Following independence the structure of the Georgian dairy sector has gone through some major changes, including:

	A major shift in milk production from the state owned farms to the private sector: the share of the private sector in milk production has increased from about 60% before independence to almost 100% in 1997
	General reduction of cattle numbers on state farms, including transfer of state-owned livestock to the private sector increased the proportion of privately owned cattle from about 60% before independence to almost 100% at present
	Reduction of the genetic potential of the herds due to uncontrolled breeding.
	Privatisation of land, 27% of agricultural land was in private hands as per 1997, and leasing out parts of state owned land of large farms
	Sharp reduction of industrial processing of locally produced milk (from more than 500,000 ton in 1990 to an estimated 40,000 ton in 1998) and associated increase of small-scale milk processing at home and in small workshops
	Distribution and marketing methods have developed that are adapted to the change in milk production and processing patterns. These practices have an informal character and lack quality control except for the few operating dairy factories
	Sharp reduction in production and import of combined concentrate feeds and raw materials for concentrate feeds (oil seed cake, wheat bran, pre-mix). As a results feeding systems have become largely based on natural pasture and crop residues and livestock farming has become more integrated with crop farming
	With the collapse of the state farms, extension and veterinary services have become almost unavailable for private livestock farmers
	There is no longer an effective animal disease monitoring and prevention system
	Privatisation of the majority of agro-processing enterprises, of which only few have managed to attract investment and working capital to resume production

As a result of the collapse of the centrally controlled production system, dairy production and marketing has been privatised almost completely, although the land privatisation has not yet been completed. Most milk is produced by smallholder farmers, which are found throughout the country. Increasingly medium scale private dairy farms and medium-large scale co-operative farms are emerging that use facilities of former state and collective farms. Milk production has almost reached pre-independence levels, but cannot satisfy domestic demand completely (about 14% of consumed milk and dairy products is imported, see table below).

Production and consumption of dairy products (in ton milk equivalents)[1]

Local production	631,125
Imported milk powder for reconstitution	33,000
Imported dairy products	66,125
Consumption of dairy products	730,250

Import substitution is a major challenge and opportunity for the Georgian dairy sector and can be achieved by increasing the availability of good quality milk for industrial processing. Existing operational dairy factories are interested in processing locally produced milk but because of the primary production structure (many small scale producers), milk collection and quality control is expensive and difficult to organise. If fresh milk is available for processing the range of dairy products produced by the operating dairy factories can be extended to (hard) cheese and other high added value products, thus creating an alternative for imported goods.

Georgia has good potential to increase its dairy production, although there are some serious constraints associated with the lack of effective institutions and legislation and macro-economic aspects, such as high interest rates. The main opportunities and constraints for the development of the dairy sector are:

Opportunities:

	Favourable climate in most of the country (relatively mild winters, good pasture and fodder crop production possible without irrigation)
	Availability of good quality natural alpine pastures in some areas
	Still reasonable to good animal health situation (presently few outbreaks of infectious diseases reported)
	Good possibilities to produce fodder crops in mixed farming systems (double cropping of grain and fodder crops, fodder crops in rotation with grain crops)
	Availability of under-utilised land (poorly drained or on slopes) on which improved pastures are an appropriate form of land use
	Strong potential demand for dairy products (present consumption per capita is much lower than before independence)
	Long-standing tradition in dairy production and high appreciation of local dairy products
	Supportive government policies (liberalised markets, equal treatment of foreign and domestic investors, privatisation of land (27% of agricultural land), and leasing out state owned land).

Constraints:

	High cost of collecting milk and quality control associated with the livestock farming structure dominated by smallholders
	Land privatisation is not completed, there is no functioning land market and lease rights are not transferable. This is a constraint for the establishment of larger farming units and for the availability of credit (land is no collateral).
	No effective disease monitoring and prevention.
	Lack of state regulation of markets with regard to quality standards and control
	Agricultural and veterinary education and research do not have the resources to adapt o the new situation
	Lack of farmer support services (AI, first line veterinary services, farm mechanisation service, extension)
	Low genetic potential of local breed in some dairy areas (especially in the humid sub-tropical western part). Suitability of individual animals may be further limited by their insufficient development due to poor feeding at young age
	Insufficient availability of good seed of adapted varieties of fodder, pasture and arable crops
	There are few operational dairy plants or plants that are still in reasonable condition for rehabilitation.
	In general limited availability of by-products (especially protein rich oil seed meals) or combined feeds
	There is a shortage of investment and working capital throughout the sector. Credit is particularly difficult to obtain for farmers

Taking into account above mentioned opportunities and constraints, the Consultant recommends dairy development along two basic scenarios:

Establishment of full-service milk collection centres, combining milk collection, and quality control, with input supply, applied research, farmer training and extension and first-line veterinary services and AI.
Milk can be collected from smallholders, from medium to large-scale farmers or from a combination of the two types of farming. As rehabilitation of run-down dairy plants or construction of a new dairy plant will require substantial investments, first priority should be given to the set up of collection schemes around existing operational dairy factories.
Establishment of integrated self supporting dairy farms with on farm small (but expandable) to medium scale milk processing facilities with or without a milk collection scheme for smallholders in the region.

Dairy development according to both scenarios can only be successful in the long term if adequate support can be provided by agricultural institutions, e.g. farmer support services, identification and registration of livestock, national diagnostic laboratory services, national disease monitoring and prevention programme, effective food legislation and quality standards and agricultural research. It is also essential that smallholders can increase their scale of production, e.g. by buying more land, thus reducing the cost of milk collection.

It should be taken into account that development of the dairy production chain is closely linked with development in related sub-sectors such as agro-processing (flour mills, vegetable oil mills, breweries), crop production (mixed farming systems) and meat processing and distribution. These sub-sectors face similar problems as the dairy sector. In particular with regard to the lack of protein rich concentrate feed and the mixed nature of the present and preferred farming systems, arable farming and agro processing should require adequate attention.

[1] Source: Consultant’s estimates based on data of the State Department of Statistics, consumer interviews and surveys of markets and dairy factories.

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