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«Internal Report for FAO SEU/REU, Budapest Prepared by Inge Gaerke and Thomas MothPoulsen September 2011 Abstract As a follow up to the review of ...»

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Potential and Challenges for Investments

in the Anchovy Fish Industry in Georgia

Internal Report for FAO SEU/REU, Budapest

Prepared by Inge Gaerke and Thomas MothPoulsen

September 2011


As a follow up to the review of Fishery and aquaculture development potentials, the Fishery

Officer and Investment Officer, SEU, went to Tbilisi and Poti in order to meet with

representatives of the fishing industry and with representatives of commercial banks (BOG,

TBC, ProCredit), of SEAF/GRDF (MCC funded), and of the Ministry of Energy and Natural Resources (which is now responsible for marine fishery). Further, fishery experts, retail traders and a former USAID consultant were met.

The purpose of the meetings was to analyze possible investment potential and associated risks in the marine fishery sector and to raise awareness about this sector among banks. Georgia has an extraordinary valuable resource of high quality Anchovy close to landings in Poti.

However, the quota for anchovy catching is not yet fully used, partly due to the situation that the major part of the Georgian fishing fleet is not modernized. A significant part of the marine resource is caught by Turkish vessels hired by the Georgian companies holding licenses to fish anchovy. Most of the fresh anchovy and processed fish meal is then exported to Turkey, which has better marketing opportunities, in particular to the EU.

Main results of the mission are:

1. Awareness about possibilities for investment in fishery industry is raised among representatives of banks.

2. An update on the situation of anchovy fishing and processing has been made (see the Back to Office Report and this document).

3. An exchange on priorities of potential FAO support has taken place (e.g. potential support in the field of EU export certification, and potential training for fishing companies and loan officers of banks in the field of fishery.)

Basic figures:

Quota for Georgian anchovy fishing: 70-80,000- tons Annual Catch (according to statistics): 25-40,000 tons Sale anchovy to Georgian market: ~3-5,000 tons Export fish and fish products (incl. anchovy and others) ~6-20,000 tons (of which ~5-19,000 tons to Turkey) Import fish and fish products ~15-40,000 tons ii




1 Introduction

1.1 Background on the mission

1.2 Previous FAO activities

1.3 Background on Anchovy Fishing

2 Overview on worldwide and on Turkish anchovy production

2.1 World anchovy production

2.2 Anchovy fishing in Turkey

2.3 World Fishmeal and fish oil production

3 Marine Fishery in Georgia

3.1 Introduction

3.2 Quota and Licenses

3.3 Production and Processing in Georgia (Marine Fishery)

3.4 Consumption in Georgia

3.5 Import and Export of Fish and Fish Products

3.6 Prices

4 Companies, business risks and investment plans

4.1 License holders

4.2 Other (small-scale) fishing companies

5 Financing Side

6 Conclusion

Annex 1: Georgian Exports and Imports of Fish and Fishery Products

Annex 2: Quota, license holders and other fishermen in Georgia

Annex 3 Schedule of the mission 12-16 September 2011

Annex 4: Sources of Information

–  –  –

Table 1: World Anchovy Production (in 1000 tons) incl. production in Turkey and Georgia 8 Table 2: Distribution of fisheries fleet in Turkey according to vessel size (2009) 8

–  –  –

Table 6: Fish and Fish Product(s) Exports from Georgia to Turkey in 2007-2009 14 Table 7: Wholesale prices for fresh and processed anchovies (2010/2011 season) 14

–  –  –

ARD Agriculture and Rural Development CEEC Central and Eastern European Countries e.g. for example EBRD European Bank for Reconstruction and Development EC European Commission EU European Union EUR Euro FAO Food and Agricultural Organization of the United Nations GEL Georgian Lari GRDF Georgian Rural Development Fund IFAD International Fund for Agricultural Development Incl. including Intern. International JICA Japan International Cooperation Agency KfW Kreditanstalt fuer Wiederaufbau (today KfW Bankengruppe) kg Kilogram MCC Millennium Challenge Corporation MDB Multilateral Development Banks MT Metric ton N.B. Nota Bene NGO Non-governmental organization REU Regional Office for Europe and Central Asia SEAF Small Enterprise Assistance Fund SEU Subregional Office for Central and Eastern Europe SMEs Small and Medium Enterprises TA Technical Assistance TCP Technical Cooperation Program UN United Nations UNDP United Nations Development Program USA United States of America USD United States Dollars WB World Bank

v1 Introduction

1.1 Background on the mission In an FAO report “Review of Fisheries and Aquaculture Development Potentials in Georgia” (2010), the issue was raised that investments in the fish industry should be supported. Based on this, a joint mission by the fishery officer and investment officer of SEU has been carried out (a) to update the information on the current situation, (b) to analyze current potential and obstacles at banks and other funding organizations with regard to investments in the fishery sector, and (c) to raise awareness about the marine fishery potential.

Upon arrival of the new investment officer of FAO Subregional Office for Central and Eastern Europe (SEU) in summer 2011, representatives of development banks (EBRD, KfW) 1 and commercial banks in Georgia have been contacted in order to assess what may be the potential and challenges regarding lending to the fish industry. During the first exchange with representatives of commercial banks it became clear that there is not a general resistance to lend to the fish industry. There is rather a lack of information on this subsector. Further, SEAF (managing the Georgia Rural Development Project (GRDF) of the Millennium Challenge Corporation (MCC)) was contacted, as SEAF had provided loan and equity finance to one of the license holders for Black Sea fishing to co-finance investments in three modern vessels.

Based on the preliminary information, a joint mission of the SEU fishery expert and the SEU investment officer was carried out in order to assess the situation in more detail. Both representatives of the fish industry and representatives of commercial banks have been interviewed during a mission to Georgia from 12-16 September 2011.

1.2 Previous FAO activities

Previous activities by FAO in the fisheries sector have been:

1. From Nov 2003 - Oct 2005, FAO implemented the TCP project TCP/GEO/2904 “Strengthening the Capacity of the Department of Fisheries to Support Fisheries Sector Rehabilitation”. The project resulted in a comprehensive report (FAO Fisheries

Circular No. 1007) including:

(1) Review of current status of Fisheries Resources and Utilization in Georgia, (2) Master Plan for Fishery Sector development in Georgia (2005-2020) and (3) Action Plan for Fishery Sector Management and Development in Georgia (2005Follow-up mission by FAO in 2009, and training measures in various fields;

3. Elaboration of a report “Review of Fisheries and Aquaculture Development Potentials in Georgia” in 2010.

There is an upcoming Georgian Agricultural Finance Facility (GAFF) of EBRD and of KfW which provides specific credit lines to local commercial banks for on-lending to the agricultural sector. Therefore, banks potentially cooperating with GAFF have specifically been contacted.

1.3 Background on Anchovy Fishing Anchovy2 are small herrings belonging to the pelagic species. Anchovy are usually smaller than 15 cm.

The main species of anchovy3 are:

 Anchoveta (Engraulis ringens)  European Anchovy (Engraulis encrasicolus)  Japanese Anchovy (Engraulis Japonicus).

 Others: Argentinean Anchovy, South African Anchovy, Pacific Anchovy, Californian Anchovy European anchovy is well appreciated in Southern Europe, in particular in Italy, Spain and France4. Further, anchovies consumption is important in Turkey.

The products for human consumption are: fresh anchovy (e.g. for tapas, antipasti), frozen anchovy, salted anchovy, semi-conserved, marinated or in form of a pasta (e.g. inside olives).

Salted anchovy are also used to prepare semi-conserved anchovy.

The animal feed products are in form of meal or oil (fish meal, fish oil) or dried or semiconserved (for cats and dogs). The world demand for fish meal and fish oil is increasing, as it is used as basis for fish feed production for aquaculture.

Most common types of industrial scale vessels are purse seiners, trawlers, hybrid trawler/seiners, and carrier vessels (according to DENIZ et al (2011)).

2 Overview on worldwide and on Turkish anchovy production

2.1 World anchovy production According to FAO/Globefish (2011), the world anchovy production amounts to about 10-15 million tons per year (for the period 2001-2009). Largest producers are Peru and Chile, followed by Turkey and China 5.

Turkey has an annual anchovy production of approximately 0.5-1 million tons annually6.

Compared to Turkey, Georgia is a small producer with about 20,000 to 55,000 tons per year.

–  –  –

Source: Own compilation based on FAO/Globefish (2010) World imports of anchovy (all species, except fish meal and fish oil) grew from about 20.5 thousand tons (USD 30 million) in 1976 to about 137.3 thousand tons (USD 400 million) in 2005, of which 29% as semi-conserved, 28% fresh or frozen, followed by salted anchovy.

According to the OECD-FAO Agricultural Outlook 2011-2020 (www.agri-outlook.org), fish prices (capture, aquaculture and trade) will increase over the medium term. With the growing price of fish meal and the high price of other feeds, the spread between the price of farmed and wild fish will grow over the medium term.

2.2 Anchovy fishing in Turkey The main regional competitor of Georgia for anchovy fishing is Turkey. In Turkey, the fishing sector is relatively well developed.

More than 70% of Turkish sea fish production comes from the Black Sea (approximately 63% from the Eastern Black Sea Region and 10% from the Western Black Sea Region). 50-60% of Turkish marine fish productions comes from anchovies.

The number of fishing boats issued with license was about 17 thousand for marine fishing (2009)7, of which about 6 thousand in the Black Sea. New Licenses have not been issued for the marine vessels since 2002 in order to reduce catch stress on stocks. 85% of the fisheries fleet is consisted of the vessels smaller than 10 meter.

Table 2: Distribution of fisheries fleet in Turkey according to vessel size (2009) 0.5-5.9 8-9.9 10- 12- 15- 20- 30-49.9 50+ TOTAL Length of vessel (m) 11.9 14.9 19.9 29.9

–  –  –

In 2009, there are 141,677 licenses issued to real persons for fishing in seas. In 2009, there are 141,677 licenses issued to real persons for fishing in seas. (DENIZ et al. (2011).

Black Sea Source: TURKSTAT, in: DENIZ et al (2011) 2.3 World Fishmeal and fish oil production According to www.iffo.net (retrieved September 2011), worldwide annual fishmeal and fish oil production has remained fairly stable for the last 20 years reflecting the overall stability of global pelagic fish landings except during El Nino years.

Fig. 1. Global fishmeal and fish oil production 1963 – 2009 (in 1000 tons)

–  –  –

In 2009, the industry's estimated global fishmeal production was 4.83 million tons and the global production of fish oil is estimated at about 1.01 million tons. Now, the demand is expected to increase according to IFFO.

Looking at fish meal prices (CIF prices of Peru Fish meal/pellets 65% protein, in USD;), they increased from about USD 500/ton (September 2001) to about USD 1300/ton (September

2006) and further to about USD 1600/ton (September 2010).8 Source: www.indesmundi.com/commodities/?comodity=fish-meal&months=360. Retrieved September 2011 3 Marine Fishery in Georgia

3.1 Introduction Since the last mission of the fishery expert in February 2009, the marine fishery sector has shown some dynamics and developments. One of the six major licence holders to catch anchovy has purchased 3 large Turkish purse-seiners with support from SEAF/GRDF in form of a USD 2.5 million loan and USD 0.5 million equity finance. Other companies have invested in fish meal processing. There are now three fish meal factories in operation, one in construction, and one in planning.

The quota for anchovy fishing has been increased from 60,000 tons/season (2009/10 season) to 70,000 (2010/11 season) and 80,000 (2011/12 season) respectively.

3.2 Quota and Licenses There is a Law of Georgia on Licenses and Permission (2005) which includes arrangement of commercial fishing. Licenses for sea fish quota for a ten year period have been auctioned in

20069. Six companies have acquired licenses (see next chapter). The quota had been increased from originally 60,000 tons anchovy to 70,000 tons (2010/11), and is further increased to 80,000 tons anchovy for the coming season (2011/12). Further, 10% of the quota has been provided to the Georgian (small-scale) fishery companies.

The licences were issued for 10 years in 2006, thus being valid until 2016. There is a chance that licences will be prolonged beyond 2016. The administration of marine fishery has been moved to the Ministry of Energy and Natural Resources. They are also responsible for the licenses.

Responsibilities within the government structure have changed. The current distribution of

responsibilities regarding fisheries are:

 Ministry of Energy and Natural Resources(including Agency for Natural Resource Management): Marine Fishery (Quota, Licenses, Rule of fish catching, inspection);

 Ministry of Environment: Biodiversity, Data collection, Monitoring;

 Ministry of Agriculture: Aquaculture (theoretically/as they do not have aquaculture experts);

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