UNCLAS SECTION 01 OF 02 TBILISI 002938

SIPDIS

SIPDIS

STATE FOR EUR/CARC AND EB/TPP/ABT

E.O. 12958: N/A
TAGS: EINV ECON ETRD PGOV KFIN GG
SUBJECT: GORKONI FRUIT PROCESSING COMPANY: AFTER STALIN,
ANOTHER PRIDE OF GORI



1. Summary. The city of Gori in the Shida Kartli region of
central Georgia prides itself on many things: the birthplace
of Josef Stalin, the home town of current Georgian Defense
Minister Irakli Okruashvili, and host to the country's top
fruit processing factory. Econoff visited the Gorkoni fruit
processing plant on October 3 at the invitation of a Ministry
of Agriculture official. The plant has yet to realize its
high potential, but with little domestic competition, the
company is in no hurry. It relies on government purchases
for a quarter of its revenues, and has developed export
markets in Ukraine, Israel and Germany. End Summary.

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Georgia's Orchard - Unrealized Potential
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2. The Shida Kartli region of Georgia is traditionally known
as "Georgia's Orchard" and supplied fresh produce to the
Russian market during Soviet times. Recently imposed Russian
sanctions and disruption of traditional trade links dictates
reorientation to alternative markets and value-added
production. The high potential for produce processing in the
region remains unrealized, although Tornike Mgaloblishvili, a
Ministry of Agriculture official, told us that a few
factories are under construction and will open soon.


3. For now, Gorkoni, located in Gori, is the only food
processing facility in the entire Shida Kartli region. It
produces fruit and vegetable preserves, juices, jams, and
sauces for domestic consumption and export. The company's
bestseller is a Georgian plum sauce "Tkemali," produced in 12
varieties. Gorkoni's operations are seasonal and in the
high season it has 200 employees. It purchases its inputs of
produce from local farmers. As an employer in Gori, Gorkoni
is unrivaled in size except perhaps by a new military
hospital, which opened on the day of our visit.


4. The factory was privatized in 1994 and is 20 percent
Russian-owned. Twenty-five percent of Gorkoni's output is
for domestic consumption -- almost entirely in the form of
government contracts to supply kindergartens and the
military. The other 75 percent of production is exported to
Israel, Ukraine, and Germany. Gorkoni has established
contacts with Japanese and UK partners for future export
expansion. Despite its partly Russian ownership, Gorkoni has
not targeted the Russian market, and has not felt any major
ill effects because of Russia's ban on agriculture products.


5. Gorkoni's final product is tasty and visually appealing,
but the factory and equipment is very outdated. The only new
addition is a sterilization device, donated by the Ministry
of Agriculture. The factory needs upgrading, especially to
reach its potential, but it has an established brand name in
Georgia and contacts abroad. Its management needs to work
hard to attract investors and partners to renovate the
factory and expand its market. Such value-added agricultural
processing is one of the more promising sectors of the
Georgian economy for foreign investors.

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A Good Judge Makes a Good Businesswoman?
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6. The company's director is a former judge who recently
abandoned her judicial career at the request of government
authorities to direct Gorkoni. (Note: It is likely that some
of Gorkoni's shareholders are government officials who have a
vested interest in its success.) Despite her dedication, the
director lacks management education and experience. The
company takes its government contracts for granted, and has
done little to market its natural and organic products in
domestic stores.

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Gori's Golden Boy Okruashvili
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7. Gori still respects Stalin's cult of personality, and it

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supports the idea of a strong leader. Not surprisingly, Gori
and the Shida Kartli region is a stronghold of Defense
Minister Irakli Okruashvili, who is from the region.
Okruashvili's name in Georgian translates to "Golden Boy."
When we asked Gorkoni's director her opinion about
Okruashvili's promise to be in Tskhinvali for New Year's, her
eyes sparkled and she confidently responded, "We believe in
him! He will be there!"


8. Comment: Gori is one city in Georgia that can be assured
a steady trickle of tourists because of the Stalin Museum and
birthplace. Gorkoni's fruit processing factory is an example
of the kind of business whose potential could be realized
with the help of foreign investment in Georgia.
TEFFT