GEONUTS

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TABLE OF CONTENTS
General Description .............................................................................. 3 Botany......................................................................................................4 Cultivation and uses ..............................................................................4 Harvesting...............................................................................................5 Nutrition..................................................................................................6 Storage.....................................................................................................6 Quality parameters.................................................................................7 Future Prospects.....................................................................................8 Georgian Hazelnut Market....................................................................8 German Hazelnut Market....................................................................10 Value Chain of German Market..........................................................11 International Trade...............................................................................12 Major exporters.....................................................................................15 Our Suppliers.........................................................................................16 Value Chain............................................................................................17 Price Factors...........................................................................................18 Labeling/Packaging................................................................................19 Shipping arrangements..........................................................................20 Financing method...................................................................................20 The sources of capital.............................................................................20 Business plan...........................................................................................21 Appendix..................................................................................................25 Bibliography............................................................................................

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Hazelnuts
General Description Nut is a general term for the dry seed or fruit of some plants. While a wide variety of dried seeds and fruits are called nuts, only a certain number of them are considered by biologists to be true nuts. Nuts are an important source of nutrition for both humans and wildlife. There are many types of nuts: • • • • • • Walnut butternut hazelnut pistachios oak wingnut

But for exporting we chose hazelnut, because this type is mostly available and harvested in Georgia.

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The Common Hazel (Corylus avellana) is a species of hazel native to Europe and western Asia, from the British Isles south to Iberia, Greece, Turkey and Cyprus, north to central Scandinavia, and east to the central Ural Mountains, the Caucasus, and northwestern Iran. Botany Common hazel is typically a shrub reaching 3-8 m tall, but can reach 15 m. The leaves are deciduous, rounded, 6-12 cm long and across, softly hairy on both surfaces, and with a doubleserrate margin. The flowers are produced very early in spring, before the leaves.Male catkins are pale yellow and 5-12 cm long, while female catkins are very small and largely concealed in the buds with only the bright red 1-3 mm long styles visible. The fruit is a nut, produced in clusters of one to five together, each nut held in a short leafy involucre ('husk') which encloses about three quarters of the nut. The nut is roughly spherical to oval, 15-20 mm long and 12-20 mm broad (larger, up to 25 mm long, in some cultivated selections), yellow-brown with a pale scar at the base. The nut falls out of the involucre when ripe, about 7-8 months after pollination. It is readily distinguished from the closely related Filbert (Corylus maxima) by the short involucre; in the Filbert the nut is fully enclosed by a beak-like involucre longer than the nut.[1] Common hazel is used by a number of species of Lepidoptera as a food plant.[3]

Cultivation and uses Hazelnuts are rich in protein and unsaturated fat. Moreover, they contain significant amounts of thiamine and vitamin B6, as well as smaller amounts of other B vitamins. Additionally, for those persons who need to restrict carbohydrates, 1 cup (237 ml) of hazelnut flour has 20 g of carbohydrates, 12 g fibre, for less than 10 net carbohydrates.[7]

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Common Hazel is cultivated for its nuts in commercial orchards in Europe, Turkey, Iran and Caucasus. The name "hazelnut" applies to the nuts of any of the species of the genus Corylus. This hazelnut or cobnut, the kernel of the seed, is edible and used raw or roasted, or ground into a paste. The seed has a thin, dark brown skin which has a bitter flavour and is sometimes removed before cooking. The top producer of hazelnuts, by a large margin, is Turkey, specifically the Ordu Province. Turkish hazelnut production of 625,000 tonnes accounts for approximately 75% of worldwide production.[9] A large number of seeds are edible by humans and used in cooking, eaten raw, sprouted, or roasted as a snack food, or pressed for oil that is used in cookery and cosmetics

Harvesting Hazel nuts are harvested annually in mid autumn. As autumn comes to a close, the trees drop their nuts and leaves. Most commercial growers wait for the nuts to drop on their own, rather than use equipment to shake them from the tree. There are three primary pieces of equipment used in commercial harvesting; the sweeper, the harvester, and the forklift. The sweeper centralises the material into rows, the harvester lifts and separates the nuts from the debris, and the forklift hauls the nuts away for processing. The sweeper is a low-to-the-ground tractor that makes multiple passes up and down the rows with a 2 m belt attached to the front that sweeps leaves, nuts, and small twigs from left to right, depositing the material in a row as it drives forward. On the rear of the tractor is a powerful blower that pushes material left into the adjacent row with air speeds up to 90 m/s. Careful grooming during the year and patient blowing at harvest can eliminate the need for hand raking around the trunk of the tree where nuts can accumulate. The sweeper will prepare two rows at a time as it goes up and down the rows. After its final pass, all the material on the ground has been deposited in 60 cm wide rows for the harvester to process. It is best to only sweep a few rows 5

ahead of the harvesters at any given time, as the rows are susceptible to moisture and parasites over time.

Nutrition

Nuts in general are very nutritious, providing protein and many essential vitamins, such as A and E, minerals, such as phosphorous and potassium, and fibre. Nuts are also high in carbohydrate and oils, so shouldn't be eaten in excess. Whereas pulses all belong to the legume group of plants, nuts come from a variety of different plant groups, so the nutritional content is more varied too. A brief description of individual varieties is given below, together with the main nutrients they contain. Storage Nuts should be stored in cool, dry conditions in airtight containers away from the light. Because of their high fat content, many of them benefit from storage in the fridge or freezer to deter rancidity. Depending on shape, a distinction is drawn between European hazelnuts or filberts (cobnut, Corylus avellana), which are roundish, and Lambert's nuts (giant filbert, Corylus maxima), which are oblong. Hazelnuts must be clean, tender and fresh to the taste and have a large kernel and a thin shell; they must not taste bitter, sour or rancid. Mixtures of nuts from various years' harvests are 6

inadmissible. Hazelnuts may be kept for approx. 12 months at temperatures of -3 - 0°C [5] (cold storage) and a relative humidity of 65 - 70% [1].

Hazelnut kernels, on the other hand, may be kept for just a few weeks at temperatures of 2 - 8°C and approx. 65% relative humidity. At room temperature there is a risk of the highly fatty kernels turning rancid.

It is very important for the surveyor to ascertain the year of harvest: it must be taken into consideration that the nuts may be mixed with nuts from the previous year's harvest. This possibility must not be disregarded when determining whether or not loss has occurred in transit. Nuts from the previous year's harvest have a tendency to beetle infestation and rancidity.

Quality parameters • diameter • dryness • percentage of damage and injury of heart of hazelnut by insects and other mechanical damages 7

• percentage of underdeveloped heart of hazelnut • percentage of hazelnut heart with unhealthy odor and bitter taste

It’s strictly forbidden to mix the newly and old harvested nuts. Due to the development of foreign laboratories , Georgian hazelnut exporting companies are motivated to check the quality of the product before exportation.

FUTURE PROSPECTS World production has almost doubled in the last two decades. Throughout that period of time Turkey has been the dominant producer and lastest crops indicate that still this country supplies around 75 %. The rest is mainly produced in Italy (15 %), USA (4 %) and Spain (2 %). In the last years, other countries such as Australia, New Zealand, Chile, Poland, etc., hazelnuts are considered a potential new crop. Since 1990, world's production seems to be stabilized 500600.000 in shell, meanwhile consumption round 450-550.000 t in shell. It seems that in coming year's Turkish production could become higher, although cultivation expansion has been restricted, while other productions could remain stable. With respect to the consumption, an annual growth rate of 1 % to 2 % has been estimated for hazelnuts in the near future. It is the result of a larger use in industrial products with hazelnuts considered as another ingredient but not the main one. At the same time, hazelnut, as part of Mediterranean diet, should profit from a beneficial image. Consumption in the United States, Australia and Japan is expected to rise in the future, in the former as a result of promotional efforts made by national producers.

Georgian hazelnut Market

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In recent ten years Georgian nut industry developed significantly. According to the present data the hazelnut production is equal to 35000 tones .In favorable conditions there is 13000 tones of hazelnut hearts. Basically the hazelnut is produced in western part of the Georgia.

95 percent of Georgian hazelnut is successfully exported to the western and eastern European markets ( Italy, France, Germany, Netherlands, Spain, Russia, Ukraine, Baltics). 2005 Georgia exported hazelnuts for 70,3 Mln. $. In 2006 besides the better harvest of hazelnuts Georgia exported only for 56,6 Mln. $. Thus could be explained by dramatic drop in prices. As we mentioned above price leader in hazelnut production is Turkey. Thus Georgian producers only could follow the prices set-up by Turkish producers. To minimize the risks Georgian hazelnut producers should move to the high value added hazelnut production sector. For example hazelnuts roasted and salted, hazelnut pasta and oil. This high value added products, have more stable prices. To produce high value added hazelnut products producers would need to invest in production capacities ( new technological lines ,specialized equipment etc.). Besides Georgian producers should concentrate on marketing efforts to enter the new segments, of the high value added products which usually have very tough competition.

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Production of Georgian hazelnut
Georgia By regions Guria Imereti Samegrelo zemo svaneti others 1.4 1.5 1.2 1.0 0.9 1.1 0.6 2.7 1.1 1998 15.8 3.6 4.1 6.7 1999 16.8 3.8 4.4 7.1 2000 14.2 3.3 3.7 6.0 2001 11.4 2.6 3.0 4.8 2002 13.9 3.6 3.6 5.8 2003 14.8 3.7 3.8 6.2 2004 8.3 2.1 2.1 3.5 2005 16.4 2.9 4.1 6.7 2006 23..5 5.7 3.2 13.5

German Hazelnut Market
We have already mentioned that Germany is one of the biggest producer and exporting country of hazelnut. In this market importer, converters and intermediaries play the major role. Here the tendency of importing the natural hazelnut heart is decreasing, although there is a great demand on the refined hazelnut. The process of importation lasts for the whole year in Germany. There is a relatively high demand on the Easter and Christmas. 70% of imported hazelnut is refined and rest is delivered to the consumers from retailers in the packaged manner. 80% of refined hazelnut is used in the chocolate production, the rest is used to confectionary businesses.

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Germany- Hazelnut Import
2001 Turkey Italy Azerbaijan Spain Georgia France US Holland Other Total import Re-export Net import 73.037 3.937 1.030 1.231 1.068 921 22 2.500 83.746 2.478 81.268 2002 57.319 4.782 2.481 1.954 401 409 1.796 69.142 3.022 66.120 2003 40.706 7.841 1.081 1.867 1.715 30 20 1.452 54.712 3.013 51.699 2004 28.252 10.250 936 1.120 850 1.821 164 2.989 1.496 47.898 2.203 45.695 2005 19.550 8.236 2.716 2.594 1.967 1.269 389 443 483 37.647 1.993 35.654

Value chain of German market

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Importers Supermarkets

Food producers Wholesalers

Retailers

Bars/Restaurants/Hotels

Distributors

Fast food chains Catering

International trade European Union is one of the biggest markets for hazelnut producing countries. Due to its trade potential, import/export infrastructure and high local consumption, the major part of the products goes to Germany (373105 tones) and Netherlands (242050 tones). Price of the Georgian hazelnut is relatively lower than of the Italian and Turkish product. But generally there is stable and high demand on hazelnut. There are many factors that influence the quality and the price of the hazelnut, therefore there are needed some regulations. These are: • SSA (Specific Support Action) Hazelnut Project • Tubitak Research Senter • INC - International Tree Nut Council • CENTIV • ISPA-CNR 12

• PROTECH • RIHSC World Production, 2000/01 Estimate: Total 638,000 tones in-shell

Turkey dominates world hazelnut trade and largely determines world export process. Their largest export market is the EU. Turkey is trying to expand markets in Asia as well as the USA where it is involved in a joint promotion program with US growers to increase US consumption of hazelnuts.

Virtually all of the expected USA production will come from Oregon. US exports will face increased international competition from lower priced Turkish product.

Italy's main export market is the EU. The EU program favoring domestic hazelnut producers has expired and no new support actions have been adopted by the EU for the hazelnut industry.

Hazelnut exports in Spain are expected to decrease and imports to increase as a result of a smaller crop. While there is no support program for tree nuts, the EU does have an improvement plan that is implemented in Spain's hazelnut sector.

Applications: Processed kernels include roasted, sliced, chopped, paste, meal and flour. The confectionery and baking industries are the largest consuming industries.

Imports 2001-2005 Product group: 057 - Fruit and nuts (not including oil nuts), fresh or dried Reporter Value Value Value Value Value 13

2001

2002

2003

2004

2005

United States of America Germany United Kingdom of Great Britain & Northern Ireland France Belgium Netherlands Canada Italy Russian Federation Japan

US$ '000 US$ '000 4,525,94 4,870,694 4 4,007,04 4,020,517 3 2,494,67 2,778,407 2 2,095,97 2,247,489 9 1,532,54 1,801,590 8 1,404,40 1,518,412 2 1,408,63 1,534,536 0 1,203,29 1,342,212 6 673,308 804,986 1,754,28 1,840,941 8

US$ '000 US$ '000 US$ '000 5,260,713 5,762,267 6,385,680 4,872,706 5,693,826 5,635,259 3,249,808 3,829,660 4,234,311 2,870,629 3,282,286 3,399,614 2,365,865 2,837,720 2,960,733 2,208,693 2,265,489 2,854,797 1,729,730 1,940,504 2,219,825 1,855,750 2,046,445 2,186,777 1,123,428 1,551,073 2,112,820 1,921,760 2,138,555 2,104,389

Major exporters

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The major exporting countries are Turkey, Italy , Spain , USA and Greece. The relatively small amount

of Hazelnuts is exporte from France, Romania, Iran, Azerbaijan and Georgia.

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Our suppliers
We choose to buy hazel nut from Guria region , specifically from Ozurgeti , the Tsitelsopeli and Shemokmedi villages. Our coordinator in this villages , who contacted the local people and is aware of the nut business situation in Guria is Lika Megreladze. She has close contact to the local families and we decided that it was better if she negotiated with farmers. In this villages the factor of trust is very important and because of that we chose the person who already has a trust of these people. We buy 20 tonnes of Hazal Nut from the following families ( all of them are farmers from Tsitelsopeli and Shemokmedi Villages): Jujuna Megrelazde Robert Megreladze 16

Mamia Esadze Robinzon Esadze Zaur Esadze Germane Todradze Soso Todradze Bejan Todradze Jondo Dumbadze David Dumbadze Badri Dumbazde Zaur Miminoshvili Vano Miminoshvili Anzor Doborjginidze Giorgi Chxartishvili

The value Chain
The realization of the hazel nut begins in the end of August and the beginning of September and lasts till the end of December. We already contacted Lika Megreladze who negotiated with farmers , all of them agreed to sell us the product but on the following conditions, the payment terms are following: They sell 1 kg. of hazel nut for 1.95 gel. So we should pay farmers 39000 Gel. Farmers are against of any kind of contracts because they never had dealt before with such type of payment forms, almost none of them have the account in the bank and they agree to sell their production only if we give them the money on hand . The person who will give them the money will be Lika Megreladze , because they have trust factor toward her and are sure that she will pay them the correct amount. 17

The major problem associated with the hazel nut production is that after the nuts are picked they should be dried , because if they are not dried they rot and go bad. The nuts should loose 20 – 30 % of their weight in order to understand that they are already dried. Many newly formed Businesses didn’t know that it was necessary to dry the nuts in special machinery and shipped the product with ships . The result was that the nuts rotted and damaged the part of the ship . It was a great cost to the exporters. In order not to face the same problems we contacted Zurab Vashalomidze , who agreed to rent out his building with the drying machinery for 5 months . The cost of the rent is 400 USD for a month. We will place 20 tonnes of hazel nut in this building that is equipped with special machinery. This machinery consists of the two roling plates, on them is installed the large flat material , on this material are placed the nuts . Under it comes the heat and dries the nuts. The material moves from one side to the other. In order to properly dry the production is needed 3 or 4 days. After the hazel nuts are dried , they should be left in this building for some time , before they are shipped to the buyer. We can’t stay there are secure the product for this period ourselves , so we contacted the local people and they agreed to secure our production . We agreed on the 100 USD a Month for each person , there are 2 of them . In this period the security of hazel nut is very important , because the percentage of crimanl increases significantly . For thiefs to steal the nuts is equal to steal the money from bank , because they can sell it the next day and no one will know whose nut is it, it is not car to have numbers in order to recognize who’s car is it. So the realization of the stolen nut is as easy as the realization of your own production. Therefore we need minimum 2 persons who will secure the production. Transportation company ‘’Multi Modal’’ is distributing our company to Germany.

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Our agent keti Sharabidze has contacted our client Tom Bakkelund , Harlem-food company agent. Who has an interest in purchasing Georgian Hazelnut.

The price Factors

The major determinants of the hazelnut price are quality and environmental factors like climate. Last years the major influence of the price change of the hazelnut were buyers and how much were they willing to pay , but this changed this year because there were the great droughts in Turkey and Greece so the great demand was on the Georgian nut . As the demand grew the price raised from 1.80 to 2 .00 Gel in the period of September, October, November and to 4. 15 in December. Another determinant of price is the year period, typically the nut price per kg in autumn is 1.81.95 Gel, but in December because of the new year and other holidays the price raises to 3.95 – to 4.00 Gel. Basically Turkish prices are 4.55 Euro per kg. In order to attract more customers should be minimum by 20 percent lower. Our agent negotiated with our potential client and the price that the client is willing to pay is 4 Euro per Kilogram.

You can see negotiations in the appendix

Labeling/ Packaging We don’t have any label because we are just wholesalers and an intermediary between Gurian farmers and German Company. The farmers advised that we packaged our production in jut sacks , because they are more comfortable, and can contain from 30 to 40 kg nuts. We negotiated with the bread selling shop and they agreed that they will give us 500 sacks made from several layers of craft paper, for discount and each sack will cost us 35 tetri. 19

Shipping arrangements

From incoterms we chose FCA , free carrier terms. We place the goods in the hands of the carrier , the company “Multi Modal service” , and it provides the distribution of our product to the destination – Germany. We negotiated with Mr.Merabishvili and the price of the fright is 4285 Euro. The company “Multi Modal service ” provides the insurance of the Delivery. The delivery terms are – after payment the company provides to deliver the production during the following week. * The proper documents are attached to the project. Because the period of delivery is very short , we do not need to rent ventilized vessel in order to protect our production from damage.

Financing Method

Taking into consideration that we are now beginning to operate in hazelnut market and our main goal is to find wholesalers/ brokers abroad, our offer should sound attractive for them. Mainly attractiveness is reflected in payment methods and we think exactly this will help us differentiate from competitors and attract customers. We decided to offer open account , which is quite risky for us. But in order not to be in loss, we demand 20% in advance and rest in specified time. This 20% exactly matches with our break -even point. In our opinion this is best method, because we have to gain trustworthiness. In order to eliminate risk our buyer should be well established, has a long and favorable payment record, or has been thoroughly checked for creditworthiness.

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The Sources of our Capital

After calculation of the amount of money we need to successfully operate this business, we made a conclusion to take a loan from the Bank. Therefore we provided our business plan to Mr.Irakli Kakabadze , the general Director of the Invest bank. Mr. Kakabadze is in the process of making decision , is it reasonable to give us a loan or not. But as he commented , it is a very prospective business and he liked the idea. Here we provide a shorter example of our Business plan .

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BUSINESS PLAN

GEONUTS
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Description of the Business

Our company ‘ Geonuts ‘ was established on 20.02.2008 In Tbilisi , Georgia. We provide the following product , we buy the hazelnuts from Gurian farmers,(from villages Tsitelsopeli and Shemokmedi) dry it in special machinery, provide security before the shippment and then resell to the German and Swiss Companies. ‘Geonuts’ to become more stable there is needed some time . Because our company is newly formed we don’t have a wide range of contacts in foreign markets. After the time passes we will gain loyalty of the foreign clients and the demand will grow significantly.

our Service/Product 22

Our compnay has a close realtionship with Gurian farmers . They have a trust factor toward our coordinator Lika Megreladze , because she has a long lasting and successful business relationship with them. This has a positive side for our company because the fraud from their side is excluded. There is favourable condition for our business because of the drought in Turkey and Greece the huge part of the demand laid on the Georgian Hazelnut market. Due to the great demand the price of the product has risen substantially in the foreign markets. Our foreign clients will pay us the larger amount of some than in was in the last years.

The Market Condition

Our potential clients are German and Swiss wholesale and confetionary companies. We have a negotiation with Swiss copmany , they are in the process of making decision . It operates in the confetionary segment .

The major factor that there is a great demand on the Georgian hazelnut in the foreign market is that , we provide lower prices and high quality product. Also due to the unfavourable climate conditions in other Hazelnut producing countries the demand has increased in Georgian market.

Competition Our main competitors are the Georgian wholesale companies , that resell the Hazelnuts from Samegrelo and other parts of the Guria . There is also a black market in Guria , that is controlled by the officials with high positions. Our competitors are also the Turkish and Greek wholesale companies .

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But for this year due to the drought in this countries the demand is on the Georgian Hazelnut. The foreign wholesalers contact Georgian farmers and offer higher prices but there is not a large amount that agree to have a business relationships with foreigners, because farmers don’t have trust factor toward them and are unaware of the financial documents . They prefer to deal with Geogian wholesalers.

Location The headquarter of our company is located in Tbilisi , Georgia. It is the property of one of the managers , Irina Sakvarelidze. So we don’t have to pay the rent . It is easier for us to negotiate with foreign clients from Tbilisi. In Guria we rent the building from the local , Zurab Vashalomidze. The building is equipped with the special machinery to dry the nights , the process requires 3 days. Before shippment there is a security there in the building.

Financial Part
We plan to take a loan from the bank. The building in Guria, equipped with drying machinery is not our property and we rent it. Other associated costs are the cost of the security ,electricity and shippment. Detailed : Purchase cost of the 20 tons of Hazelnuts- 39000 Gel. Building /Machinery Security - 2000 Gel. Price of the jet sacks – 500 sacks x 0.35 = 175 Gel. Distribution costs- 9240 Gel Electricity – 500 Gel . 24 - 600 Gel per month x 5 month = 3000 Gel

Total Costs – 53740 Gel.

INCOME STATEMENT

Sales

………………….................................20000 kg X 9.2 Gel .= 184000Gel. ( 39000 Gel.)

Purchase ……………………………………………………………….

Building /Machinery ……………………………………………………….(3000 Gel) Equipment……………………………………………………………………(175 Gel) Security …………………………………………………………………….(2000 Gel) Distribution costs…………………………………………………………..(9240 Gel ) Electricity …………………………………………………………………. ( 500 Gel ) Income Before taxes (25 %)……………………………......…………… (130085 Gel) Net Income ………………………………………………………………...97563.75

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