Agribusiness and Logistics

TBC Herald, Summer 2024

Modern economic life requires maximum integration. Where once a single pair of shoes was sewn by a single household, today's shoe production may consist of 72 manufacturing operations involving manufacturers from many countries. It is known that a food product travels an average of 2,500 km before it reaches your plate. Accordingly, as strong business winds in today's world are blowing, every smart entrepreneur turns his product into a specially prepared windbreak to enter the global markets.

To clarify the issue, consider the production order of one farmer in the Netherlands. Special cassettes made in China, containing mulched material (humus) and used by farmers for greenhouse tomato production, were unloaded for farmers at the port of Rotterdam via the Russia-Belarus-Poland-Germany-Holland railways. 68 kg of production is obtained from one 50-cent seed of high-tech greenhouse tomato in the Netherlands, because the tomato bush grows up to 18 meters. And the produced products are still delivered to the world by means of well-established railways, ports and logistics terminals, and in such an order, the Dutch farmer makes his own contribution to global trade.

Simon Khvariani, who graduated from the Montpellier Higher Agronomic Institute, and in 1894-1896 served in the Transcaucasian Railway Department in Tbilisi, said the following: "How can we restore our fallen farm and create a high agricultural culture? The answer is easy: with European experience, European agronomic science. There are four factors of agricultural production: land, labor, money and knowledge." We did not mention Simon Kvariani by chance. The logistics chain of the agro-industry in Europe is connected with the railways.

If we look at the average land ownership in the Netherlands, it is equal to 27 hectares, that is, one average farmer in the Netherlands owns this much area of ​​farmland. In Sweden, this data is 45 ha, in Latvia - 23 ha, in Switzerland - 18 ha, and in Georgia the data does not exceed 2 ha. The problem is much deeper than it seems at first glance. A Georgian farmer's 2 hectares of land may be located in 9 different places, which is technologically, logistically, and financially unjustified. All this increases the cost of the product and limits competition in pricing.

In addition to the problem of fragmented beds, the agro-industry makes another demand on farmers called cross-fertilization. In the agriculture it is established that, for example, it is not allowed to grow onions next to beans, or tomatoes next to potatoes. In such a time, pests-diseases easily find a favorable environment for spreading. Accordingly, the need to use poison-chemicals increases and costs also increase, which affects the final profit of agribusiness. In addition, failure to consider cross-yielding requirements also affects the quality of soils and waters, as a result of which the long-term sustainability of farming cannot be maintained. At this time, farms divided into small plots of land continue to produce one or another culture without agreeing with each other.

Two more main challenges are significant - knowledge of production specialization zones taking into account natural and climatic conditions and implementation of digital agro-industry. In Georgia, 11 production specialization zones and 3 sub-zones have been established, and not considering this zones requirements prevents the effective formation of the national food basket. What exactly does this mean? Mitrophane Lagidze used berries grown in the Borjomi valley as the raw material for the concentrate in the production of the brand he created. That is adhering to the requirements of the area of ​​specialization. In fact, the soil map of Georgia looks like this: out of 52 types of soil in the world, 49 are in Georgia. Here, the role of digital agro-industry and digital laboratory is only growing.

In Europe, farmers and cooperatives raise investment capital for production through commercial banks and stock exchanges. Then the produced products are supplied to the global markets through commodity exchanges. Such an order has not yet been created in Georgia. On the other hand, in Georgia, different great opportunities are opening up for farmers. For Georgian business, the well-forgotten era of the old and new Silk Road is being born. Georgia is crossed by seven international transit corridors, whose economic interests are connected with more than 80 countries.

These corridors are:

1. Middle trade and transport corridor - from Singapore to the port of Klaipeda, Lithuania;

2. CASCA Corridor - from Kyrgyzstan to the port of Istanbul;

3. Corridor of lapis lazuli - from Afghanistan to the port of Istanbul;

4. Southwest Corridor - from India to Europe via Poti Port;

5. TRACECA, which unites 13 countries in the cargo and passenger transportation program.

6. CAREC - Regional Economic Cooperation of Central Asia, which unites 11 countries together with Georgia;

7. The seventh corridor has not yet been announced and it is the corridor of the future through which Central Asian countries will be connected to the Turkish port of Mersin through the Baku-Tbilisi-Kars railway and from there the cargoes will be directed to Egypt.

The fact is that Georgia is becoming a kind of junction, a gateway for the gathering of these corridors. Transit cargo needs services - packaging, repackaging, insurance, leasing, warehousing, storage, processing, advertising, design and more. It is here that an opportunity is created for the Georgian manufacturer to use the transit arteries to attract raw materials and materials relatively cheaply, to produce products and export them using the same channels. It is significant that in the entire Eastern Europe, Caucasus and Central Asia, Georgia is the only country that has signed free trade agreements with 46 countries. There is no other country with similar capabilities in such a large region.

Setting up proper logistics spaces requires investments, which are not available for farmers with small resources. To create such an opportunity, let's look at the European experience. The European farmer is united in several cooperatives of different specializations. For example, a French farmer who pursues livestock and grain production is united in a cooperative that provides repair of agricultural machinery, that is, technical services; The farmer is also united in the second milk transportation service cooperative; It is also united in the third cooperative, from which it receives the services of a high-tech laboratory; Goats Cooperative - A common large cold storage farm service where farmers assemble their own standardized produce and then this cooperative presents the licensed, standardized and bulk produce for large trade deals, independent exchanges or other digital sales platforms.

In November 2023, the World Bank published a report on the Middle Corridor, according to which the following logistics spaces are recommended:

1) Main economic centers - Tbilisi, Rustavi and Gori, where incoming cargoes are transshipped to their final destination. There will be warehouses where stocks are held, and storage facilities will act as buffers and points for consolidation and deconsolidation in supply chains. With appropriate infrastructure and support, such centers can be transformed into logistics clusters of truck villages;

2) network nodes - Khashuri and Kutaisi. The middle corridor is interconnected with the other corridor by the managed goods. Nodes between corridors can provide the ability to transfer goods from road to rail;

3) Special economic zone, logistics center and industrial park in Poti and separate powerful logistics center in Akhalkalaki.

It is a challenge for farmers to form cooperatives to adopt efficient logistics chains. These will be combined resource dry and cold storage systems around Poti sea and Akhalkalaki railway ports. A strong logistics cooperation will facilitate the delivery and assembly processes for farmers, reducing logistics costs. Cooperating with logistics specialization will provide additional income, as their terminal will serve other transit cargoes in the corridors during the off-peak season. Moreover, the share of logistics in the world GDP is about 12%. In addition, their availability of means of production from global trade will increase.

This year, the World Bank also announced the financing of the Black Sea Green Cable project with 35 million USD. Already this year, the head of the Georgian Railways made a statement about the arrangement of DATA centers in the railway systems. The connection of the Black Sea fiber optic cable and railway DATA centers to the digital agro-industry is a separate subject of discussion.

 

Zurab Maghradze

Doctor of Business Administration