As we built a coolstore and already do actual business for more than a month, we would like to share some of our experiences and opinions about the following challenges:
1) start-up stage
2) operational stage
1) Challenges at the start-up stage
Anyone who wants to start a business in Georgia in the sector of fruit and vegetables will face following problems: a) lack of local expertise in modern methods of fruit storage and processing, b) absence of local supplies of critical building materials and equipment.
We would like to give an example of Italy. Italy is a great place to get all kinds of fruit storage and proccessing technologies and the reason is that they have advanced fruit and vegetable sector clustered in different regions. This remindes us of Michael Porter's point that hundreds of regionally concentrated businesses cause sophistication of that particular sector as well as that of their servicing and supplying industries. If we analyse Georgia in this regard, we can easily conclude that because fruit and vegetables sector is not developed, this results in a scarce supply of storage experts, absence of local fruit processing equipment and many other inhibiting factors.
We hope that our own company and other newly started fruit and vegetables companies will create demand for local expertise and that we can get carton boxes, stickers and other stuff from Georgian manufacturers. For this reason we were glad to learn that isothermal panels production was started in Georgia but were unhappy to learn that their prices were more expensive than imported panels. So, some of most critical inputs are either unavailable locally or if available, come at higher costs.
2) Challenges at the operational stage
If problems outlined above can be solved by buying expertise and equipment overseas, problems at operational stage are not solved easily and these challanges will remain for very long time and cause many companies to become uncompetitive and they either have to go upstream which means buying own land and investing in development or they have to survive on very low turnover and accept that they cannot grow.
What we want to talk about is very inefficient supply base: Georgian small growers' efficiency is very low and this means: lower yield of 1st class/export class fruit and higher cost per unit of final ready product. While unlike their European collegues Georgian growers do produce high quality and bigger size kiwifruit without any usage of biostimulants, amount of this type of export class fruit in their total yields is not more than 50%. This means that only 50% of their product is worth exporting/selling and the rest cannot be sold.
What are the reasons? To our observation, there is following main reason: lack of modern kiwifruit (fruit in general) orchard management skills. Thanks to extensive research of scientific institutes and growers themselves, growers in New Zealand have very high yields per hectare and have most of harvest within 1st class. So, there, knowledge is provided and it is also used by their growers. In our country, regretably, we do not hear much about real field trials of different soil management or pruning styles.
Many people in Georgia argue that small sizes of Georgian orchards is the main reason. We only partially agree to this because there are some bigger size orchards and plantations but they are not managed professionally and as a result do not produce larger volumes of export class crop. While there are just couple of kiwifruit orchards with the size of 1ha, there are many hazelnut orchards with 5, 10 and even 100ha but their productivity per 1ha is half or even less of what it should be and this is very strong evidence of improper management which is mostly due to owners' failure to apprecieate modern orchard management concepts.
Actually Georgian hazelnut industry is a good example of inefficiency: top 5 or 6 factories can process all the hazelnut produced by whole of Georgia but in fact there are 50 or so small, medium and large factories and we hear every year that some new guy is entering the market further fragmenting the industry. As a result growers have no problem to sell their crop at high prices and have no incentives to improve their quality and productivity.
More on these subjects in subsequent posts as well. If you found this relevant and of interest, please leave a note or comment.
Contact me at:
Konstantine.Vekua@nergeta.ge
1) start-up stage
2) operational stage
1) Challenges at the start-up stage
Anyone who wants to start a business in Georgia in the sector of fruit and vegetables will face following problems: a) lack of local expertise in modern methods of fruit storage and processing, b) absence of local supplies of critical building materials and equipment.
We would like to give an example of Italy. Italy is a great place to get all kinds of fruit storage and proccessing technologies and the reason is that they have advanced fruit and vegetable sector clustered in different regions. This remindes us of Michael Porter's point that hundreds of regionally concentrated businesses cause sophistication of that particular sector as well as that of their servicing and supplying industries. If we analyse Georgia in this regard, we can easily conclude that because fruit and vegetables sector is not developed, this results in a scarce supply of storage experts, absence of local fruit processing equipment and many other inhibiting factors.
We hope that our own company and other newly started fruit and vegetables companies will create demand for local expertise and that we can get carton boxes, stickers and other stuff from Georgian manufacturers. For this reason we were glad to learn that isothermal panels production was started in Georgia but were unhappy to learn that their prices were more expensive than imported panels. So, some of most critical inputs are either unavailable locally or if available, come at higher costs.
2) Challenges at the operational stage
If problems outlined above can be solved by buying expertise and equipment overseas, problems at operational stage are not solved easily and these challanges will remain for very long time and cause many companies to become uncompetitive and they either have to go upstream which means buying own land and investing in development or they have to survive on very low turnover and accept that they cannot grow.
What we want to talk about is very inefficient supply base: Georgian small growers' efficiency is very low and this means: lower yield of 1st class/export class fruit and higher cost per unit of final ready product. While unlike their European collegues Georgian growers do produce high quality and bigger size kiwifruit without any usage of biostimulants, amount of this type of export class fruit in their total yields is not more than 50%. This means that only 50% of their product is worth exporting/selling and the rest cannot be sold.
What are the reasons? To our observation, there is following main reason: lack of modern kiwifruit (fruit in general) orchard management skills. Thanks to extensive research of scientific institutes and growers themselves, growers in New Zealand have very high yields per hectare and have most of harvest within 1st class. So, there, knowledge is provided and it is also used by their growers. In our country, regretably, we do not hear much about real field trials of different soil management or pruning styles.
Many people in Georgia argue that small sizes of Georgian orchards is the main reason. We only partially agree to this because there are some bigger size orchards and plantations but they are not managed professionally and as a result do not produce larger volumes of export class crop. While there are just couple of kiwifruit orchards with the size of 1ha, there are many hazelnut orchards with 5, 10 and even 100ha but their productivity per 1ha is half or even less of what it should be and this is very strong evidence of improper management which is mostly due to owners' failure to apprecieate modern orchard management concepts.
Actually Georgian hazelnut industry is a good example of inefficiency: top 5 or 6 factories can process all the hazelnut produced by whole of Georgia but in fact there are 50 or so small, medium and large factories and we hear every year that some new guy is entering the market further fragmenting the industry. As a result growers have no problem to sell their crop at high prices and have no incentives to improve their quality and productivity.
More on these subjects in subsequent posts as well. If you found this relevant and of interest, please leave a note or comment.
Contact me at:
Konstantine.Vekua@nergeta.ge
