Background to the Ban

In Spring 2013, two Members of Parliament, Gigla Agulashvili, Chair of the Agricultural Issues Committee and Zurab Tkemaladze, Chair of the Sector Economy and Economic Policy Committee drafted a ban on all non-Georgian citizens (including Georgian entities with a foreign minority shareholders – “foreigners”) from purchasing or inheriting agricultural land. The ban has been in effect since June 2013 and will expire in December 2014. Prior to this decision, there were several minor protests by Georgian farmers against foreign landowners. For example, in January 2013, in response to media articles that Indian farmers were settling in Kakheti and encouraging other farmers to come and cultivate “cheap, fertile lands”, Georgian farmers demonstrated for the preservation of, “Georgian land for Georgians”.

In September 2013, TI Georgia challenged this ban as vaguely worded, discriminatory, unconstitutional – and likely to have a negative effect on the development of the agricultural sector. The Constitutional Court heard TI Georgia’s case, Mathias Huter vs. Parliament of Georgia, in January 2014 and a judgment is awaited. After our claim was filed, the Ministry of Economy proposed to modify the ban, a draft law was approved in February 2014. This law will create a government-appointed commission that will judge foreigners’ applications to purchase agricultural land on a case-by-case basis, as detailed in our blog post.

Foreign Farmers and their Landholdings

An explanatory note accompanying the draft law banning the sale of land to foreigners stated: “as of today, there is a real threat of the irrational privatisation of land.” However, the initiators did not analyse any data on how many foreigners have purchased agricultural land in Georgia, or how much land they currently own. According to GeoStat, Georgia has 2.6 million hectares of agricultural land, but neither this agency, nor NAPR, the Public Registry, keep these statistics.

Three agricultural experts TI Georgia spoke with estimate that foreigners currently own approximately 18,500 hectares of agricultural land – about 0.7 per cent of all agricultural lands.

This temporary ban was also justified by the government as necessary to give themselves time, “to develop a uniform state policy on agricultural land ownership and organize an integrated land cadastre by December 2013”. The government has not done this, nor has it provided guarantees to foreign investors who are prepared to invest in the Georgian economy, as detailed in our blog post.

According to a response letter sent by the Public Registry to TI Georgia, “the agricultural land market is still weak. A very low number — 1 per cent — of agricultural land changes ownership.” So far, the data indicates that the ban was perhaps premature: if agricultural land sales to foreigners are very low and the government has not analysed how many foreign purchasers there are, their business activities, or how much land they own, it is difficult to conclude that land sales are irrational.

Foreign Farmers

According to research by TI Georgia, around two thirds of foreign-owned agricultural land (approximately 11,000 hectares) is held by two investors — Agri Georgia (Ferrero Rocher) in Zugdidi and TR Georgia Projects in Sagarejo (see below).

Chateau Mukhrani

Impact of the ban

In 2009, two Georgian investors, Badri Japaridze and Mamuka Khazaradze, the founders of TBC bank, and one Swedish investor, Frederik Paulsen, the majority shareholder, purchased Château Mukhrani, located just outside of Tbilisi, from the Ministry of Economy, on the condition that the investors renovate the manufacturing facilities, vineyards and château. The subsequent, UNM government also asked the investors to build a local school and some social housing projects for Internally Displaced Persons (IDPs) from nearby South Ossetia. Château Mukhrani and Marussia Beverages, its sister company, own approximately 500 hectares in Georgia. According to Petter Svaetichin, CEO, the companies have been unable to expand due to the ban:

“Currently we produce 500,000 bottles [of wine] per year, with the potential to produce 1 million within the next few years. 50 per cent goes for export: to Europe, the USA and China. We have a core staff of 60, which increases to 250 people during the harvest season. Our shareholders invested 8 million Euros in renovating the estate and purchasing manufacturing machinery and wine technology, so that we can comply with the highest food safety and export quality standards. A similar amount will be invested over the next few years. We train our staff in the highest international levels of viticulture, in turn they train our future employees. With the opening of the Russian market, it has become the companies’ biggest export market. We considered purchasing additional agricultural land, but cannot because of the ban. The government said we could expand production with a land lease. From a business perspective this is not something that we could realistically consider, it takes many years of cultivation and financial investment to create a good harvest. With a lease you do not have the legal security that you do with ownership, the next government comes and can revoke the terms of your contract and then you have nothing.”

TR Georgia Projects

TR Georgia Projects is the largest foreign landowner in Georgia (not counting hydropower plant projects) and owns 7,500 hectares in Sagarejo Municipality, Kakheti, purchased from the Ministry of Economy in March 2012. The company was registered on August 5, 2011 and is wholly owned by Taieb Rashidmanesh, a British citizen of Iranian origin who lives in Georgia.

Last year TR Georgia hired more than 300 employees, this figure will increase to 2,000 in 2014, according to the website; making it one of the largest employers in the Georgian agriculture sector.

According to the website the TR Georgia’s mission is, “to increase the competitiveness of the agricultural sector in the international and local markets, through the effective use of human capital and the latest high technological equipment.” In 2014 the company says it will plant: wheat, corn, barley, colza, soya, pomegranate, “the best variety of pistachio: and hazelnut. Future plans include building a grain dryer and grain storage, a forage processing plant, a poultry, meat and dairy production complex, a fertilizer manufacturing plant and greenhouses for many different vegetables, such as cucumber, tomato and pepper etc.

Problems connected with TR Georgia's investment project

On March 21, 2012, residents of Iormughanlo, an Azeri village in Sagarejo Municipality, protested over the land sale. They claimed that the government had sold land that they own and is their only source of income (75-80% of agricultural lands in Georgia are not formally registered, in the absence of which the government can presume ownership.)

According to Natik Rasulov, the official representative of Iormughanlo village (appointed by Sagarejo sakrebulo), approximately 20 cattle farms were located on this land, as well as other grazing plots that were leased to local farmers. Rasulov says these villagers were told to leave and dismantle their farms, and they have not been given any compensation. According to Rasulov, the local residents are angry because they have no other grazing land they can use near the village, and they cannot pass through the privatised land in order to access grazing land located further from the village. He says they are talking with Taieb Rashidmanesh and  Tina Khidasheli, the elected representative of the region (Georgian Dream - Republican party), to resolve some of these issues and negotiate the return of some of the land.

TR Georgia Projects is still replying to a letter sent by TI Georgia. According to MP Tina Khidasheli, “the locals did not own the land, they thought they did, they have papers, but officially they do not. They are angry because they cannot graze their cattle there and there is no access route through. Now the investor has agreed to create and pay for a right of way though his land for the locals and fund other social projects, but this could have been done a year ago, before the hostilities developed and escalated. This is what we’re hoping the new government-commission will achieve, some foresight of these problems so that they can be resolved earlier, before a sale.”

Of TR Georgia’s business activities Khidasheli said:

“Currently, TR Georgia projects has planted corn and maize but the investor’s real plan is pistachios. He has thousands of small trees ready to plant; now they are building the irrigation infrastructure. He is also experimenting with growing Shiraz grape varieties and pistachio trees, these will take 10-15 years to mature, this has never been done in Georgia before. Rashidmanesh, the owner, was born in Iran but left during the Revolution of 1979 and lived in the UK, where he was a banker for many years, now he lives here in Georgia and considers this his home. He’s invested a lot of money building greenhouses, drying facilities, irrigation, eventually he plans to build another 11 factories for agricultural processing.”

On the temporary ban and whether the proposed government-appointed commission would be likely to approve or disapprove of TR Georgia Projects as an investor Khidasheli said:

“It is good what he’s doing, he has not given up when things became tough, he is investing, he is employing people and paying taxes, without him the local municipality budget would be a joke. On the other hand I have 17,000 local people who are angry because they say this was their land and they cannot use it. And this land was sold very cheap, 5 million GEL for 7,500 hectares. Sagarejo has always been our most important grazing lands for livestock —prime agricultural land, this price is nothing. We’re at the point where it’s so cheap we could almost say, ‘the land is free if you have a good business plan and adhere to investment conditions’. This is what the committee will review: is there a plan, will the land be used, under what conditions? etc. In Georgian law we do not have a concept of communal grazing rights, or right of way across private lands. But we cannot continue to deny that this exists in peoples’ minds; the government, foreign investors and local residents cannot continue to be in constant confrontation with each other. When you go to his farm and see what he has created it is beautiful, impressive, but it is also fragile and at risk if you are surrounded by furious neighbours.”

Ferrero Rocher

Agri Georgia is the Georgian subsidiary of Luxembourg-registered chocolate and confectionary company Ferrero Trading Lux S.A. which had a turnover of 7.8 billion euros last year. Ferrero, originally an Italian company, owns hazelnut plantations all over the world and is the second-largest foreign agricultural land owner in Georgia. In 2007, Agri Georgia purchased its first hazelnut plantation near Zugdidi – it currently owns and farms approximately 3,500 hectares.

Impact of the Ban and Land Registration Problems

Ferrero is not immediately affected by the ban as it had already completed an expansion plan in 2011. However, according to an agricultural expert familiar with the company, like TR Georgia projects, the company has been hindered by the lack of a comprehensive national land registry: 30% of the 1,200 hectares of land that Agri Georgia purchased from the Ministry of Economy between 2009 and 2011 were already occupied and being farmed by local farmers, and some of this land included local cemeteries.  Agri Georgia gave these occupied land titles back to the state and purchased an additional 1,200 hectares. The company had to create its own internal land registry, demarcating land boundaries with GPS – a process that took two years.

Social Programs

Since 2011, in conjunction with USAID, Ferrero has been training 3,000 Georgian hazelnut farmers and established the Hazelnut Growers Association of Georgia. Compared to Turkish hazelnuts (Turkey, the largest producer, sets the international market price for hazelnuts), Georgian hazelnuts typically sell for 30-40 per cent less money. According to Vincent Morabito, an agricultural consultant at the Ministry of Agriculture who is employed by USAID, “there are five expert hazelnut agronomists in the world; one of whom is employed by Ferrero. It took two years for us to see results from the training courses, but 2013 was an exceptional year, with a high yield of excellent quality hazelnuts which can be sold by Georgian farmers for a much higher price.”

Indian Farmers in Georgia

Dharamjit Singh Saini, the Director of Crown Immigration Consultancy Services, which advises Indian citizens on visa regulations and setting up businesses abroad, says that India ranks second worldwide in agricultural output. According to Saini, Indian farmers believe 80% of Georgian agricultural land is under utilised by Georgian farmers using existing techniques and that they can help Georgia to modernise and increase output. Those Indian farmers who have come to Georgia, invested substantial amounts of money in developing Georgian agricultural infrastructure he says.

However, because of a perceived lack of cooperation from the new (Georgian Dream) government, Saini says Indian farmers now prefer to move to Armenia and Uzbekistan, where their assistance in helping local farmers has been specifically requested by the Uzbek government, as a result there are now approximately 200 to 250 Indian farmers currently working in Georgia, down from a previous record of 2,000 immigrants.

One farmer from India, Jagpal Singh Sidhu, purchased three hectares of agricultural land in Sagarejo in February 2013. He planted two hectares of corn fields, which he will harvest this year, and another hectare of vines. In total, he estimates that he has invested GEL 10,000, in addition to purchasing the land. In January 2014, Mr Sidhu — who is currently residing in Georgia — applied to the State Services Development Agency for a renewal of his visa but the agency refused, saying that he did not receive a recommendation from the Ministry of Internal Affairs. Without a visa, Mr Sidhu cannot harvest his crops — a potential violation of the right to property guaranteed in the Georgian Constitution (article 21) and the European Convention on Human Rights (protocol 1, article 1). Sidhu is preparing to file a claim against the Georgian government to seek compensation for his financial loss.

Recommendation

The government cannot continue to exclude foreign companies and the finance, skills and training they can bring to the Georgian agricultural sector; it should harness these to its best advantage through a robust land ownership policy. In an article published on 20 February 2014, TI Georgia urged the government to urgently embark on its two election promises:

• to develop a state policy on agricultural land ownership and,

• organize a comprehensive land registration program.

These must protect the rights of existing landowners, facilitate investment in Georgia and promote the sustainable development of the agricultural sector.  

To read more about the June 2013 agricultural ban and the February 2014 legislative amendment which will establish a committee to judge foreigns' applications to purchase agricultural land see: New draft law: Government delays land registration for foreign investors