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Success of Small Poultry Companies Beat Bigger Ones?

Over the past years alarming and heavy problems have appeared in the poultry sector of Georgia, experts assert. Despite serious difficulties, the number of small poultry enterprises has increased on the market.  The Caucasus Business Week (CBW) has inquired what reasons have preconditioned this process.

Sabudara Poultry Enterprise

Sabudara poultry plant is located in Gardabani, the Kvemo Kartli Region. The company head Tamaz Tsiskarishvili noted that the company received 535 000 USD as part of the preferential agro credits  stateprogram in 2014. Thanks to this financial support, the company plans to expand the existing production. Namely, the company has arranged a new refrigerator, increased the output of incubator. Today the company produces monthly 600 000 incubation eggs of various species.

The company sells eggs on domestic and foreign exports markets, including in Armenia and Azerbaijan, he said.

I have entered this business because of the state policy. Without preferential loans, small enterprises could not develop their business, Tsiskarishvili noted and emphasized the existing problems too that, to his words, may suspend development plans. The company planned to  expand the production, but the recent depreciation of the national currency has changed investment plans, he said.

The GEL devaluation started a year ago. Several months ago the exchange rate showed stabilization signs and we set new plans, but the GEL exchange rate has worsened again several days ago and I think about suspending my plans for indefinite periods, Tsiskarishvili noted.

The company bears huge losses because of the national currency devaluation. Total losses exceed 290 000 GEL, he noted. 

LLC Paster

In November 2016 Varia company  will introduce chicken products on the Georgian market. The company also plans to produce eggs.

Mirian Chitadze, head of Paster company, noted that only preferential agro credits program has enabled him to launch this business. Paster company is located in the village of Chala, the Sackhere District, the Imereti Region. The company has taken part in the agro credits program in May 2015 and obtained financial component of 66 000 USD.

There was another reason for entering the market – the segment of fried chicken was unemployed, Chitadze said.

«This segment is not used because of labor-intensive and longterm process. Chicken of our company reaches the production level in 3 months, while other poultry companies grow chickens only up to 1.5 months.  I prefer to wait 3 months and produce high quality chicken», Chitadze said.

Currently, the company supplies products to big restaurant networks such as Taghlaura, Tsiskvili and so on. The company sells chicken in Sachkhere and Chiatura too.

As to plans, the company will launch eggs production in 2-3 months to supply them to Sachkhere and Chiatura districts.

Georgian Poultry Development Association

Zurab Uchumbegashvili, head of the Georgian Poultry Development Association (GPDA), says that small enterprises launched business thanks to only state support programs. At the same time, this state policy stages pressure on major companies. The problem arose after the New Authorities came to power, when the state programs of Produce in Georgia and United Agro Credits Program were inaugurated, he said.

The Government is promoting small entrepreneurship, while major business cannot make use of this situation, because many small enterprises have appeared because of the state policy, he noted.

The problem is serious. In due time the new Authorities issued cheap credits without calculation of expected results. These enterprises do not pass veterinary certification process and phyto-sanitation examination, Uchumbegashvili noted.

Plants spend huge funds on protection of phyto-sanitation and veterinary safety norms, especially those wishing to take ISO certificate, while small companies are not obliged to do the same, Uchumbegashvili said.

“Small companies do not have even a wish to arrange their production due to civilized and European-standard requirements and to protect even the minimal safety conditions. As to national food agency, under the legislation, it only examines similar companies, but gives only recommendations. The law does not entitle the national food safety agency to impose a fine on similar companies or suspend their licenses”, Uchumbegashvili noted.

The situation on the market is quite complicated in this respect, he said. As a result, companies bear losses, as small companies compete with major ones, Uchumbegashvili noted.

“If we do not mention other things, it is categorically banned to use secondhand packing materials. We spend 6-7 GEL  on high quality packing of each box, while the same packing is sold for 1 GEL on the secondhand market. They save 5-6 GEL. Major plants have taken 12% interest rate loans, while small companies serve 3% interest rate loans. This signify they pay low interest rates, they do not have obligations nearly, do not pay extra charges and the prime cost of the product is low naturally. As a result, they manage to compete with us”, Uchumbegashvili noted.

The existing situation has led several major companies to closure, including Algeti Poultry plant, Sachkhere plant. Noste company has slowed down production, because a new company launched operation in neighborhood with far lower liabilities and far cheaper loan.

Kumisi company has also reduced production. Since 2013 the company has not produced hens and currently, produces only eggs. Despite heavy situation on the market, absence of the law on domestic products protection also hinders business activities of major companies. The parliament has not adopted even one law that would alleviate business operation to poultry and egg production companies. The issue is of anti-dumping legislation, Uchumbegashvili said.

«Only one company BiuBiu manages to expand business on the market, because huge funds were invested in the company. An entirely new production cycle was created and this is a very good and encouraging fact. The company has managed to make success thanks to huge financial resources. Booths, permissions need money. Initially, BiuBiu set low prices on  hen. That price was equal to our prime cost. We would need 10-12 million investments to arrange similar cycle. Regretfully, we do not have similar resources», Uchumbegashvili noted.

There is only solution – the Agriculture Ministry must be managed by the field specialist, the GPDA President noted.