ABOUT ONE ASPECT OF STATE SUPPORT FOR FARMS
Authors: Koguashvili Paata , Archvadze Joseph , Chikhladze Nikoloz 
Published: February 2023

Agriculture, despite the relative stabilization of recent years, is still the weakest link in the Georgian economy. This is evidenced by the country's low level of self-sufficiency in many types of agricultural products (for wheat - 22%, for corn – 74%, for vegetables – 61%, for meat - 51%) and its high dependence on imports. In the first 9 months of 2022 alone, the negative balance in foreign trade in agricultural and food products amounted to 385.8 million US dollars, which negatively affects both the macroeconomic state of the economy and the country's exchange rate.

Due to the rise in prices for oil products on the world market, Georgia had to pay USD 440 million more in January-September 2022 compared to the corresponding period last year, of which only less than 1/5 was due to economic growth, and the rest “was a merit” of the rise in oil prices.

The uncultivated land area remains too large (up to 60%), which, along with other reasons, is due to the rise in the cost of material resources for the production of agricultural products (mineral fertilizers, pesticides, agricultural machinery, fuel).

Due to the virtual lack of domestically produced non-ferrous products, the government can only regulate the price of fuel for farmers through the regulation of taxes (excise, VAT).

Many countries follow the practice of returning part or all of the cost of fuel to farmers involved in the implementation of government programs or orders. In some countries, the state fully (Sweden) or partially (USA, Germany, etc.) covers the cost of fuel used for agricultural work.

In our opinion, it is most acceptable for Georgia to subsidize diesel fuel purchased for agricultural work by manipulating indirect taxes (excise, VAT), for which it is necessary to develop a transparent mechanism for its use. An appropriate law should be adopted by the Parliament of Georgia. Appropriate subsidies should be extended exclusively to farmers involved in the relevant state programs (orders), as well as to the production associations created by them - cooperatives.

The excise tax on 1 kg of fuel in Georgia is currently 44 tetri, and on one liter of fuel, respectively, 36.7 tetri. At the same time, if the amount of excise tax per liter of fuel is a constant value, VAT, on the contrary, is a variable value and in each specific case an individual calculation is required.

We consider it lawful that the subsidization was at least 1.50 lari per liter of diesel fuel. At prices for October 2022, one liter of diesel fuel costs 4.10 GEL. To cultivate 5 hectares of arable land, a farmer needs approximately 100 liters of fuel, i.e. fuel worth 410 GEL. By subsidizing 1 liter of fuel in the amount of 1.50 GEL, the farmer can save 150 GEL, buying 100 liters of fuel will cost only 260 GEL (= 410-150), i.e. more than 1/3.

It seems that in order to reduce the cost of agricultural work, the same work should be carried out in other areas (plowing, milling, sowing ...), which are currently estimated at 1,200 lari per hectare of agricultural land.

It seems that in the future the same attitude should be shown in relation not only to fuel, but also to all other types of means of production. For this, the starting point should be the average index of prices for agricultural products for one harvest year, and in this way the average index of price growth for the corresponding means of production is calculated. Both indices should be approved as the basis of price parity between agricultural products and the means for its production (the parity will show how much industrial output or services an agricultural commodity producer can receive per unit of output he produces). Thus, if the increase in prices for agricultural products is 5%, and for inputs for agricultural production - 10%, the difference between them - 5% (= 10% -5%) should be covered by the budget.

Price parity should be established for such strategic products as marketable grain, meat, milk, fruits, citrus fruits and some others. Which provide the country's food security and the processing industry with raw materials.

The adoption of the law "On the establishment and protection of price parity for goods and services necessary for the reproduction of agricultural products" will contribute to the growth of agricultural products and deepen the production specialization of agriculture, increase the efficiency of the agricultural sector, increase its share in the national economy, motivate life and work in the countryside , reduce the migration of people from rural areas to cities or abroad and, last but not least, reduce the current high dependence on imports in the food supply of the population of Georgia.