72011423R00010.Attachment J.1 SOO.docx (1).pdf

ATTACHMENT J.1

PROCUREMENT SENSITIVE - DO NOT CIRCULATE

STATEMENT OF OBJECTIVES

USAID Agricultural Trade Diversification Program

I. PURPOSE

The USAID Agricultural Trade Diversification Program (“Program”) aims to increase Georgian agricultural exports to high value markets, reduce Georgia’s dependence on Russia for agricultural exports, and reduce the environmental footprint of the agriculture sector.

The Program will achieve this through a holistic approach that (i) strengthens linkages between high value, diverse export markets and Georgian agricultural exporters; (ii) catalyzes investments that promote innovation and address barriers across the agricultural market system hindering exports, and; (iii) strengthens the agricultural sector’s climate resilience and reduces its environmental footprint.

II. BACKGROUND

A. General Background and Country Context

Agriculture, particularly export oriented crops, remains an important contributor to Georgia’s

GDP. The sector provides an important safety net for the over 40 percent of Georgia’s population that live in rural areas who use their land to supplement their incomes and their food consumption. However, it is still characterized by fragmented, small-scale farms and commercial farming remains underdeveloped. Despite Georgia’s fertile soil and favorable climatic conditions, modern, high-value agriculture has yet to reach its full potential to contribute to Georgia’s inclusive economic growth.

Like other post-Soviet countries, Georgia has close trade ties to Russia. Agricultural commodities account for three out of the four biggest exports to Russia. Conversely, Georgia remains heavily reliant on imports from Russia and neighboring countries. Given this dependence, Georgia’s agriculture sector is a frequent target of politically motivated embargoes. This history of economic dependence and retaliation has made export diversification a high priority for

Georgian businesses and the Georgian government. Georgia’s agricultural markets have yet to develop broad resilience to shocks in trade with Russia. Coupled with lingering effects from the

COVID-19 pandemic, Russia’s war on Ukraine has increased inflationary pressures on the economy, which are highly visible in increased food costs.

In addition to the significant geopolitical challenges, Georgia’s export-oriented agriculture sector must also adapt to environmentally friendly production and processing, planning for increased climatic variability, and supporting Georgia’s adherence to its international commitments under the EU Association Agreement and its Nationally Determined Contributions to the Paris Agreement. The effects of climate change and increased intensity of climate events have already resulted in significant challenges. The agriculture sector must adapt, while reducing its contributions to carbon emissions and other environmental metrics.

Importantly, there are notable gender gaps and disparities in Georgia’s agriculture sector.

Women have limited access to information, knowledge, land, agricultural inputs, and markets.

The underlying social and cultural factors thwart efforts to create a level playing field for men and women. It is a challenge for women to build and sustain the capacities that are key to overcoming cultural and resource-related barriers.

B. Relationship to the Country Development Cooperation Strategy

The goal of USAID/Georgia’s Country Development Cooperation Strategy (CDCS) 2020-2025 is to strategically partner with Georgia to advance Euro-Atlantic integration and strengthen resilience to malign influence. The Program will contribute to Development Objective 3: Inclusive

High-Value Employment Opportunities Provided through Increased Economic Growth, specifically IR 3.2: Competitiveness of Key Sectors Increased.

III. CONTRACT OBJECTIVES

A. Development Hypothesis

IF we increase and diversify linkages with high-value, strategic markets1, IF we strengthen market systems, creating sufficient modern, sustainable agricultural infrastructure and support services, IF we build the capacity of firms to comply with internationally recognized standards, IF we incentivize the private sector to make strategic investments in export-oriented value chains, and IF we reduce the environmental footprint of Georgia’s agriculture sector, THEN

Georgia will sustainably export fresh and processed foods to diverse, strategic markets while adhering to its international commitments.

B. Description of Objectives

The USAID Agricultural Trade Diversification Program aims to strengthen Georgia’s capacity to sustainably export to diverse, high-value markets, thereby reducing the country’s economic dependence on the Russian market. The Program will support export diversification, strengthen local agricultural market systems, and attract new private investment into the sector. Reducing the environmental footprint, including, but not limited to, reducing greenhouse gas (GHG) emissions, must be integrated into the Program’s approach at all levels. The Program will have two mutually reinforcing objectives:

Objective 1: Linkages strengthened for high-value Georgian agricultural products to reach diverse export markets, thus reducing Georgia’s agricultural export dependence on Russia and deepening Euro-Atlantic integration.

1 Strategic markets exclude Russia, Belarus, and any country that is currently under OFAC sanctions.

https://www.usaid.gov/georgia/cdcs

The Contractor must target agricultural value chains that are currently oriented toward the

Russian market. The Contractor is to provide flexible support that is responsive to the challenges and opportunities associated with an evolving market environment. The Contractor must work to strengthen the capacity of public and private sector actors to engage in export facilitation. The Contractor must also incentivize adoption and sustainable adherence to internationally recognized quality and safety standards so that Georgian agribusinesses are able to enter new markets. The Contractor must identify and support practices, technologies, and strategies that seek to modernize and transform Georgia’s agriculture sector to be climate-resilient and reduce the environmental impact of the agriculture sector.

With the above in mind, the Contractor will also take into account USAID’s Climate Strategy

2022 – 2030 to promote climate resilience and adaptation.2 These efforts must also align with the objectives of Georgia’s 2030 Climate Change Strategy and the updated Nationally

Determined Contributions (NDC) that support the low-carbon development of the agriculture sector.

While the focus of the Program is on increasing exports, the Contractor must also include the flexibility to identify opportunities for increased sales to domestic markets, particularly as they arise due to changes in local consumer preferences and import substitution. The Contractor is also expected to strengthen the capacity of agricultural enterprises and stakeholders in the ecosystem to meet traceability and environmental standards.

The Contractor must also take measures to create a level playing field for men and women participating in agricultural enterprises. The Contractor is expected to work closely with existing and future USAID projects.

Objective 2: Investments catalyzed to strengthen agricultural market systems, support private sector adaptation to climate change, and address systems-level barriers hindering agricultural exports, including infrastructure, processes, quality control, logistics, and capacity.

The Contractor must catalyze additional private sector investment to promote transformative impact on the agricultural market system. The Contractor is expected to prioritize investments designed to alleviate one or more systems-level failures that constrain exports. The Contractor must also pursue investments that reduce GHG emissions, increase efficiency, decrease waste and wasteful practices, and, where possible, reverse climate emissions, and help the Georgian agriculture sector support Georgia’s international climate commitments.

The Contractor must address critical skill gaps in both agriculture and agribusiness. Likewise, the contractor must improve the capacity of government entities, business service providers, and

2 Per the USAID Climate Strategy 2022-2030, climate resilience can be generally defined as the capacity of a system to maintain function in the face of stresses imposed by climate change and to adapt the system to be better prepared for future climate impacts https://www.usaid.gov/policy/climate-strategy associations, both sectoral and cross-cutting, to provide tailored export support services to

Georgian agricultural enterprises.

The Contractor must facilitate access to finance via customized approaches tailored to the needs of agricultural enterprises and sectoral associations. Throughout the Program, the

Contractor must ensure that women are given equitable opportunities to lead or participate in agricultural enterprises, skills training, and other relevant activities.

C. Results and Indicators

Success in achieving the above objectives will be measured in accordance with the following targets:

● $100 million in new agricultural exports going to identified strategic markets3

● $150 million in new annual sales from agribusinesses receiving USG assistance

● $50 million in new private sector investment in the agriculture sector leveraged by USG assistance, of which at least 20% supports adoption of climate innovation.

● 2,000 agribusinesses with improved environmental practices and/or improved climate resilience

The Contractor must address how the Program will work to reach the contractual targets listed above. Beyond the mandatory indicators detailed under section F, offerors may identify and propose additional indicators and targets in their proposal.

IV. ACTIVITY PARAMETERS

A. Coordination with the Government of Georgia, other USAID Activities, and Donors

The Contractor must closely coordinate with the Government of Georgia (GoG), the private sector, other ongoing USAID activities, and other donor-led initiatives to support agricultural development, trade diversification, and environmental footprint reduction efforts in Georgia.

The Contractor must work closely with the Ministry of Environmental Protection and Agriculture

(MEPA), the Ministry of Economy and Sustainable Development (MoESD), and other GoG agencies with a mandate to contribute to agricultural export market diversification and environmental impact reduction. All activities should be aligned with the GoG’s Agriculture

Development Strategy 2021-2027 and Georgia’s 2030 Climate Change Strategy. The Contractor must closely follow agriculture and agribusiness developments in the country, including political priorities, economic trends, and foreign direct investments in order to ensure that Program activities respond to immediate and long-term agriculture and economic development needs.

3 Strategic markets exclude Russia, Belarus, and any country that is currently under OFAC sanctions.

The Contractor must collaborate closely with other USAID programs focused on economic and skills development, including the USAID Resilient Communities Program, USAID Industry-led

Skills Development Program, USAID Economic Governance Program in Georgia, and the USAID

Economic Security Program, among others. Through close coordination, the Contractor should identify opportunities to leverage Program investments and build on the lessons learned from other USAID investments in Georgia.

Agricultural export market development and environmental sustainability are heavily supported by donors in Georgia. The Contractor must leverage these investments, building upon past achievements and incorporating lessons learned, including USAID’s own investments in agriculture such as the USAID Agriculture Program and the Restoring Efficiency to Agriculture

Production Program (REAP). Findings of the USAID Agriculture Program’s Mid-term Evaluation are available here; recommendations from the evaluation should be woven into the design of the USAID Agricultural Trade Diversification Program. The Contractor must ensure the best use of policy changes and legislative reforms, investments, lines of credit, guarantees, technical assistance and other types of support by the European Union (EU), International Fund for

Agriculture Development (IFAD), Food and Agriculture Organization (FAO), European Bank for

Reconstruction and Development (EBRD), European Investment Bank (EIB), Asian Development

Bank (ADB), the World Bank, and the International Financial Corporation (IFC). The Contractor should coordinate closely with the above-mentioned donors, among others, in order to ensure complementarity and avoid duplication of efforts.

B. Grants under Contract (GUC)

The Contractor must allocate no more than $12.5 million of the total budget for Grants under

Contracts (GUC), which should all be directed toward local entities, unless there is an exceptional reason to engage with an international entity. All grants should have a strong justification, including a clear development purpose (e.g., addressing systemic gaps in market systems for the benefit of clusters of businesses rather than individual businesses) and must consider environmental impacts. Grants must require a minimum of 1:1 matching, wherever possible. The Contractor must work with companies, sectoral associations, apex associations, cooperatives, business service providers, or similar entities that form part of Georgia’s agricultural market system and are administratively capable to receive and utilize USAID’s support for the development of the sector. There are no limitations on the geographic coverage in the country. Investments under the GUC component, and especially strong applicants, are expected to be bolstered by linkages to the formal banking sector, including the loan portfolio guarantees with the Development Finance Corporation (DFC), and also linkages with the wider capital market, including potentially direct investment from DFC and/or other IFIs.

C. Private Sector https://dec.usaid.gov/dec/content/Detail_Presto.aspx?vID=47&ctID=ODVhZjk4NWQtM2YyMi00YjRmLTkxNjktZTcxMjM2NDBmY2Uy&rID=NjAxOTc0

As the engine of economic growth, the private sector should drive the implementation of this

Program. In-depth USAID consultations with agricultural enterprises revealed opportunities for private sector-led partnerships and their readiness for co-creating solutions that will unlock investment and access to more diversified and higher value export markets. As such, the

Contractor must act as a facilitator, catalyst, and convener, allowing the private sector to lead the process of identifying constraints and designing solutions. The Contractor’s approach should ensure the realities of the local context are accounted for, instill greater private sector ownership and investment, and strengthen replicability and scalability. The Contractor is expected to proactively and continually engage and collaborate with strategic private sector stakeholders in the delivery of the Program for maximum impact and sustainability. The

Contractor must work with private sector stakeholders to identify market-based approaches that improve Georgia’s potential to diversify fresh and processed food markets.

D. Innovation and Digital Solutions

Opportunities for innovation in agriculture are substantial, and even greater when considering environmental solutions. The Contractor must identify solutions with the potential to have a transformative impact.

Priority should be given to innovations that improve the competitiveness of key export sectors, reduce waste usage, and improve the overall environmental footprint of operations. Due to the level of start-up capital needed for such innovations, investments supporting innovation may be larger than traditional grants. Innovations that introduce, implement, or scale-up digital solutions in agriculture, including but not limited to traceability systems, logistics and supply chain information systems, e-certification and e-commerce solutions, and electronic information sharing mechanisms should be aligned with the objectives of the USAID Digital

Strategy 2020-2024 and with the Principles for Digital Development.4 Any digital solutions should be cognizant of the importance of cybersecurity and should address data privacy in accordance with USAID policies.

E. Gender and Marginalized Populations

The Biden Administration released the National Strategy on Gender Equity and Equality in

October 2021 that adopts an intersectional approach to tackling the barriers and challenges faced by those experiencing compounding forms of bias and discrimination. Investments made under this activity are expected to comply with the spirit of the applicable priorities - economic security, equality, climate change - and intersectional approach. Where possible and appropriate, the Contractor must integrate best practices and approaches described under the applicable priorities of the Strategy. The Contractor must identify gaps in the current analyses of

4 The USAID Digital Strategy 2020-2024 describes USAID’s approach to responsibly integrating digital technologies into development programs and for strengthening country digital ecosystems. The Principles for Digital Development are nine living guidelines for best practices in digital development and are endorsed by USAID and over 300 international organizations.

https://www.whitehouse.gov/wp-content/uploads/2021/10/National-Strategy-on-Gender-Equity-and-Equality.pdf https://www.usaid.gov/sites/default/files/2022-05/USAID_Digital_Strategy.pdf.pdf https://digitalprinciples.org/ gender relations in relevant economic sectors and propose effective ways to address them.

Interventions should be designed on the basis of a rigorous gender analysis and in a way that tackles the identified gaps and challenges while contributing to the advancement of the aforementioned Strategy priorities.

As noted above, women have limited access to information, knowledge, land, inputs, and markets. They do not always have equitable access to opportunities for building and sustaining business and leadership skills that are key to overcoming the social and cultural barriers to their participation. The Contractor must implement activities to benefit and meet the unique needs of marginalized populations, including women, youth, and ethnic minorities, as these pertain to the local context and challenges described above.

F. Adaptive Management

Innovation in fresh and processed food markets is a new and complex area for Georgia and

USAID/Georgia, as is directly integrating those innovations with environmental interventions.

Given this, there are many unknowns that will not be addressed until the Program is in implementation and assessments are undertaken. Further, with the dynamic nature of the private sector and in anticipation of changing market and political conditions, the Contractor must utilize adaptive management practices built around evidence-based decision making, reflection points, tight feedback loops with USAID, and close collaboration with Program stakeholders. In order to maintain relevance, the Contractor must be able to pivot and adapt interventions to capture opportunities and address complexities as they emerge. This may include periodic adjustments to tasks and targets based on performance and learning.

Furthermore, the Contractor must remain agile and open to ideas from potential beneficiaries

(both private and public actors) as a means of safeguarding the innovative nature of the

Program.

G. Integration of Activity Components

The two objectives are interwoven and designed to mutually reinforce one another through a market systems approach that maximizes results across the whole Program. In particular, the

Contractor must implement activities that are designed to make sustainable impacts on both the agricultural supply (Objective 2) and demand-side (Objective 1). Activities must not solely be focused on increasing the capacity of individual businesses, but on their capacity to work together with various stakeholders across value chains. The Contractor must look for opportunities to connect thematic areas across objectives. Public-Private Dialogues should be utilized to facilitate substantive conversations on cross-cutting issues that affect implementation of Program objectives.

H. Sustainability

The Contractor must design and implement interventions to be sustainable beyond the life of the Program. Sustainability can be achieved in many ways and will be buoyed by focusing on the needs of the private sector, engaging the private sector and GoG in the design and implementation of specific interventions, leveraging the benefits of a market-based approach for grants selection, ensuring ownership by local actors, and requiring all grant applicants to write a sustainability plan as part of their proposal. The Contractor must examine the incentives and motivations of key stakeholders in targeted sectors for sustaining interventions and incorporate these findings into intervention designs.

I. Environmental Sustainability and Climate Resilience Considerations

The Biden Administration has set substantial, ambitious targets for reductions in climate-impacting emissions, targeting a 50 percent reduction from 2005 levels in economy-wide net greenhouse gas pollution in 2030, and a net zero carbon economy by 2050. Investments made under this activity are expected to comply with the spirit of these commitments, and, where possible and appropriate, support the development of a cleaner, greener economy. The

Contractor must integrate best practices and approaches from USAID’s Climate Change Strategy across all components. Where possible, interventions should be proposed and designed in a way that accelerates and scales targeted climate actions and catalyzes transformative shifts to net-zero and climate-resilient pathways, thereby contributing to both Strategic Objectives 1 and

2 of the USAID Climate Change Strategy 2022 -2030.

https://www.usaid.gov/sites/default/files/2022-11/USAID-Climate-Strategy-2022-2030.pdf