2021 February-March Analysis

Agritourism support bill gives hope to struggling industry

Agritourism is one of Georgia’s most interesting offerings, yet it has received little targeted support in recent years, and the Covid-19 pandemic has hit the sector hard.

While some agritourist facilities have managed to stay open and have been able to attract local travelers to a degree, this has not made up for the downturn in foreign travelers.

However, a recent bill passed in its first reading in October 2020 aims to extend targeted assistance to the sector, and give a fresh start to the tourist season once Georgia’s doors reopen to welcome foreigners.

The bill aims to create a legal framework within which the government can interact with agritourism businesses, shore up food safety, offer tax benefits to incentivize the development of rural businesses and promote the sector through marketing campaigns.

If the bill passes, agritourism facilities will be exempt from both income and employment tax if they have annual turnover of less than 200,000 GEL. In addition to the tax incentives, the state will promote agritourism by developing and implementing projects and programs to support the sector, including state subsidies and infrastructure projects. Preferential credit resources and grants will also be made available.

The draft law was prepared by the Georgian Farmers’ Association in the framework of the UN Women project “Joint Action for Women’s Economic Empowerment (JAWE)” together with the Committee on Agrarian Affairs of the Parliament of Georgia.

The members of the working group on the draft law believe that the development of agritourism will contribute to the diversification of rural economic activities and increase the income of the rural population.

Nazi Dakishvili, the owner of Nazy’s Guest Hhouse in the village of Jokolo in the Pankisi Gorge, welcomes the legal regulation of agritourism, which she believes will help make their work more organized, increase awareness about their offerings, and improve the quality of services of agritourist facilities.

Before the pandemic, foreign tourists would often visit Nazy’s Guest House to taste traditional Kist [a Chechen sub-ethnos] dishes. Years ago, Dakishvili abandoned her promising career as a lawyer and set out on a challenging journey of popularizing tourism in the Pankisi Gorge, located in the Tusheti mountains of Kakheti region, frequently referred to as the cradle of wine.

Today, she owns a family guesthouse that can accommodate thirteen guests and tries to surprise her guests with local cuisine and nature.

UN Women representative Ana Pashalishvili says one of the goals of the bill is to strengthen the capacity of the rural population, increase their economic inclusion, and facilitate employment.

“All parts of the current version of the bill are important for achieving this goal. The easing of the tax regime is crucial, but it is also very important to raise awareness and ensure quality [of agritourism]. It is based on the broad experience of European countries and is fully adapted to the Georgian reality,” said Pashalishvili.

The idea of the law emerged in 2018 in the Tuscany region of Italy, during the “Joint Action for Women’s Economic Empowerment (JAWE)” project, among whose participants were Georgian women entrepreneurs involved in agritourism.

“A few years ago, Italy was facing the same challenge as Georgia – namely, large portions of the population, especially young people, were migrating from the countryside to urban areas, resulting in an unbalanced urbanization of the economy. They wanted to pass a law that would stop these processes, and even incentivize the population to return to the villages of Tuscany,” said Natia Ninikelashvili, project manager of the Georgian Farmers’ Association.

“This inspired us, and now we have this bill that has identified agritourism as a separate niche, equipping it with certain advantages to motivate locals to get involved in this business.”

Geostat data show that more than 50% of the total value-added economic activity created in the country is generated in Tbilisi, which indicates a high level of urbanization and concentration of the Georgian economy. In addition, as of January 1, 2020, 41% of Georgia’s population lives in rural areas and 75% of them are ‘self-employed,’, mainly in the agricultural sector. Besides, agriculture is characterized by low productivity: in 2019, 38.1% of the labor force was employed in agriculture, while the share of the sector in terms of GDP only amounted to 7.1%.

The bill reads that to obtain the status of an agritourist facility, a person must have an agritourism farm and be able to carry out tourism activities on the farm – for example, one could offer tourists experiences such as milking cows, picking vegetables, and culinary activities. At the same time, it is also mandatory that at least 70% of the employees be locals.

Lost Ridge Inn, Brewery & Ranch is a boutique hotel in the village of Kedel, near Sighnaghi, with vineyards, a horse ranch and brewery. The nine-room hotel is a traditional Kiziki-style stone structure that was converted into rooms after the conservation of the old Kiziki huts. Guests are treated to dishes made by local farmers.

Ia Tabagari, the co-founder of Lost Ridge Inn, Brewery & Ranch, says that if her business falls under the definition provided by the bill, she will be one of the first to register her business as an agritourist facility after the law takes effect.

“We don’t have the luxury of many laws in the tourism industry; we have not had a sector-specific law before, so this bill is new for us. I don’t want everyone in the tourist sector to claim they’re an agritourist facility, so it’s quite important who will monitor the enforcement of the law,” Tabagari noted.

The ISET Policy Institute has also confirmed the expediency of the bill, but mentioned that one of the main challenges facing the bill is the risk that tax benefits might be abused by tourist facilities whose main activity is tourism instead of agriculture.

The research forecasts some 115 agritourist facilities to register in the first year after the enactment of the bill. The projected annual growth rate for the agritourism sector is 7.42% for 2020-2027.

According to the same study and taking into account the tax benefits described in the bill, an agro-tourism facility with a turnover of up to GEL 200,000 will save an average of GEL 2,667 in taxes per year within the first ten years of registration under the tax benefits offered by the state.

Dakishvili believes that regional segmentation should be taken into account while granting the agritourism status in order for the project to be fair. She also hopes that small and large agritourist facilities will not enjoy the same tax benefits.

“An agritourism facility in Pankisi, where tourists are scarce, and a wine cellar in central Kakheti, rich with tourists, cannot enjoy the same benefits,” Dakishvili said.

Mariam Jorjadze, is Director of the Biological Farming Association Elkana, an organization implementing the Rural Tourism Network project, which involves more than 200 family guesthouses from nine regions of Georgia in order to offer guests comfortable accommodation, local agricultural products, good wine, and the opportunity to learn more about Georgian culture and traditions. Jorjadze believes that the adoption of the law on agritourism is premature. In her opinion, first, the foundational law on tourism, the Law of Georgia on Tourism and Resorts, should be improved, she says, which ideally should include agritourism issues.

Moreover, Jorjadze is not in favor of selectively exempting certain groups from taxes, especially for a long period. Per the bill, in order for an agritourism facility to enjoy the proposed benefits, it must be registered in the farmers’ register, the register of economic activities, the National Food Agency, and also submit documentation to the Revenue Service annually. “This requires a lot of effort from an owner of an agritourism facility, and I don’t think it will interest them,” Jorjadze noted.

Ninikelashvili disagrees with Jorjadze, explaining that regulations are necessary for a transparent economy.

“Today, some people run a hotel without registering it anywhere. This is not a good trend both in terms of business and the state. Registration and granting of status are very important in terms of a transparent economy,” Ninikelashvili said.

The troubled tourism sector, which is particularly affected by the crisis and post-crisis situation caused by the COVID-19 pandemic, requires effort and the development of alternative measures.

Owners of agritourism facilities unanimously note that the bill will help popularize agritourism facilities and increase tourist flows following the COVID-19 pandemic.

Natia Mskhiladze, the founder of Agro Stop platform, has been promoting the traditional Georgian way of life, cultural landscape, unique products and dishes typical to various regions of the country for over a year. Agro Stop has filmed more than 30 agritourism facilities across the country and, together with foreign ambassadors, has explored the farm-to-table or garden-to-table principle of hospitality.

“After the shooting of each new agritourism facility, we become even more convinced of the need to raise awareness about them and deliver the information to the broader public, which could become their new guests,” said Mskhiladze.

Tabagari says that, even after the COVID-19 pandemic, the tourism sector does not expect a rapid start of mass tours.

Instead, there is expected to be demand for family and couples visits. “Studies from different countries show that tourists name agritourism facilities as the safest [tourist activities], so it is likely that the demand for such places will increase,” Tabagari explained.

International experts also say that despite the ability to quickly restore/regenerate tourism, in the next two years countries will likely focus on promoting domestic and regional tourism. Therefore, the members of the working group on the bill think that the adoption of the proposed law on agritourism will allow them to step forward in this direction.

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