#10 BFC Serbia Agriculture Finance Bulletin

07/2016

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10 S e r b i a Agriculture Finance Bulletin Ban on GMO Transit Must Be Lifted Before EU Accession Meat and Dairy Industry Representatives Discuss Recycling Animal Waste Wheat Harvest Estimated at Record 2.89 Million Tons Near Record 800,000 Ton Plum Harvest

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Agriculture Finance Bulletin Edition #10, July 2016

Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5)

Fruit, Grape Vine, and Hop Cultivation to Receive Subsidies .......................................................... 2 Ban on GMO Transit Must Be Lifted Before EU Accession .............................................................. 2 Rural Road Development and Land Consolidation Program Announced........................................ 2 RSD 2.7 Billion Distributed Through Preferential Agri-lending Program ......................................... 2 Milk Import Levy Extended Until End of Year.................................................................................. 3

Foreign Aid ................................................................................................................. 3 6) 7) 8) 9)

Organic Production Increases 65% in 2015 ..................................................................................... 3 Serbia Participates in EU Satellite Farming Program ....................................................................... 3 Meat and Dairy Industry Representatives Discuss Recycling Animal Waste................................... 4 State to Launch IPARD Pre-Financing Program ............................................................................... 4

Private Sector.............................................................................................................. 4 10) 11) 12) 13) 14) 15) 16) 17) 18) 19) 20) 21)

Wheat Harvest Estimated at Record 2.89 Million Tons .................................................................. 4 Near Record 800,000 Ton Plum Harvest ......................................................................................... 5 Chinese Honey Threatening Serbian Exports .................................................................................. 5 Obsolete Machinery Burden on Agricultural Development ............................................................ 5 Leskovac Tomatoes Bought Through Neighboring Country “Google Searches” ............................. 6 Obsolete Machinery Reducing Yields .............................................................................................. 6 Sunflower Farmers Operating at a Loss........................................................................................... 6 Careless Use of Plant Protection Products Causes Concern............................................................ 7 FAO Estimates March Flood Damage at USD 2.8 Million ................................................................ 7 State Will not Manipulate Wheat Prices ......................................................................................... 7 Outbreak of Lumpy Skin Disease in Bujanovac ............................................................................... 7 Cherry Exports Estimated at USD 7 Million ..................................................................................... 8

Note: The Agriculture Finance Bulletin presents a monthly roundup of headlines and news stories related to investments and financing flows to Serbia’s agricultural sector.

This bulletin is prepared by Business & Finance Consulting—a Swiss-based development finance consulting company.

Currently, BFC is implementing “Development of Financial System in Rural Areas in Serbia” programme for KfW. BFC Max-Högger-Strasse 6 CH-8048 Zurich, Switzerland

Phone: +41 44 784 22 22 Fax: +41 44 784 23 23

info@bfconsulting.com www.bfconsulting.com

BFC Agriculture Finance Bulletin

State Initiatives 1)

Fruit, Grape Vine, and Hop Cultivation to Receive Subsidies

July 26th, 2016, http://www.stips.minpolj.gov.rs/sadrzajv/subvencije-za-podizanje-vi%C5%A1egodi%C5%A1njih-zasadavo%C4%87-vinove-loze-i-hmelja

The Ministry of Agriculture called for fruit, grape vine, and hop subsidy applications. Participants will benefit from 40-55% subsidization on seedling procurement, land processing, and chemical soil analyses and fertilization recommendations. The subsidies will total between RSD 100,000-1,200,000. The application deadline is set for August 31.

2)

Ban on GMO Transit Must Be Lifted Before EU Accession

July 14th, 2016, http://www.danas.rs/politika.56.html?news_id=323558

Membership of the World Trade Organization (WTO) is a prerequisite for joining the European Union (EU). Serbia’s nationwide ban on Genetically Modified Organisms (GMOs) is a stumbling-block, however.

While a ban on the sale and cultivation of GMOs is permitted, the WTO requires that members permit transit of the goods through their territory. Allowing the transit of GMOs while banning their cultivation and sale, however, is virtually impossible, according to Minister of Trade Rasim Ljajic. With 90% of Serbians against GMO technologies, the issue is highly sensitive, added Ljajic. The Ministry of Agriculture said a review of the GMO law is not on the agenda, maintaining that the health and safety of the public is paramount. Meanwhile Serbia has largely aligned its trade policies with the EU and WTO. Bilateral agreements over agricultural policy must still be met with the United States and Brazil, however. On July 18, Prime Minister Aleksandar Vucic will travel to Brussels to discuss EU accession chapters 23 and 24.

3)

Rural Road Development and Land Consolidation Program Announced

July 12th, 2016, http://www.mpzzs.gov.rs/potpisani-ugovori-o-revitalizaciji-905-kilometara-atarskih-puteva-u-narednih-120dana/

The Ministry of Agriculture announced a rural road development and land consolidation program. Rural roads will receive RSD 691.6 million in investment, including RSD 304 million from the agriculture budget, said Minister of Agriculture Snezana Bogosavljevic Boskovic, allowing for safer and more efficient goods transportation. Over the coming 120 days, 905 kilometers of rural roads will be developed or upgraded. The Ministry will also contribute RSD 43 million to the consolidation of 12,652 hectares of agricultural land in 5 municipalities, said Boskovic. Rural road development is a prerequisite to land consolidation, allowing a more complex arrangement of arable land, in turn increasing production and cost efficiency, concluded Boskovic.

4)

RSD 2.7 Billion Distributed Through Preferential Agri-lending Program

July 8th, 2016, http://www.agronews.rs/ministarka-poziva-poljoprivrednike-da-konkurisu-za-kredite/

To date this year, RSD 2.7 billion has been distributed through the preferential agricultural lending program, a 45% increase year-on-year, said Minister of Agriculture Snezana Bogosavljevic Boskovic.

More than 2,000 applications have been received over the past two months alone, she added. The Minister urged farmers to continue applying, with loans benefiting from a fixed interest rate of 3%, maturity of 3 years and a grace period of 1 year. The loans are mainly used for the purchase of equipment, according to the Ministry. Dairy subsidies have remained unchanged for two years, with farmers receiving milk premiums, equipment subsidies and RSD 25,000 per dairy cow, according to Boskovic.

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5)

Milk Import Levy Extended Until End of Year

July 5th, 2016, http://www.stips.minpolj.gov.rs/sadrzajv/za-srpskog-seljaka-je-eu-imala-sluha http://www.stips.minpolj.gov.rs/sadrzajv/mlekarima-pola-milijarde-evra-pomo%C4%87i

Following tough negotiations with the European Union (EU), Serbia has nonetheless decided to extend levies on milk imports until at least the end of the year. The EU takes a negative view towards protectionism, with speculation rife it would take retributive action – including a ban on EU imports of Serbian fruit. According to government sources, however, Brussels was sympathetic that a flood of cheap EU milk would destroy the Serbian dairy industry, while acknowledging that the levies did not significantly impact EU exports. The EU recently lifted production quotas on milk. Combined with the ban on exports to Russia, there has been a huge surplus in milk production. To protect domestic production, in June 2015, Serbia introduced an import levy of RSD 10-20 per liter of milk, as well as a RSD 10-30 per kg levy on fermented dairy products.

Meanwhile, the EU announced a EUR 500 million package to help its dairy farmers cope with the crisis – EUR 150 million will be distributed in per-liter subsidies, while the rest will go to member states’ own assistance programs.

Foreign Aid 6)

Organic Production Increases 65% in 2015

July 24th, 2016, http://www.agronews.rs/zasadi-pod-organskom-proizvodnjom-u-2015-povecani-za-oko-65/

In 2015, organic production increased 65% year-on-year, according to Minister of Agriculture Snezana Bogosavljevic Boskovic. Serbia is well suited to organic production, with the state providing subsidies for seedling procurement, cultivation, processing equipment and hail nets. Organic subsidies are on average 40% higher than conventional subsidies, said the Minister.

A EUR 5 million, joint Serbia-Denmark project promoting the cultivation of fruit and berries has provided training to 10,500 participants, as well as subsidizing tractors, creating 800 jobs, said Boskovic.

7)

Serbia Participates in EU Satellite Farming Program

July 18th, 2016, http://subvencije.rs/vesti/precizna-poljoprivreda-apolo-projekat/

The European Union (EU) funded APOLO-EU project – which will provide cheap precision satellite data to small-scale farmers – was launched in May. Farmers will have access to a consultancy service that provides information on crop distribution and yields, as well as irrigation, fertilization and harvest scheduling. The affordable, precision farming guidelines should help improve productivity, cost efficiency and sustainability. While the approach has long been used on large-scale farmers, it is relatively unknown to small-scale farmers. The program will use data from the EU’s Copernicus global environment observation program. Nine partners from 5 countries are involved: the Belgrade Faculty of Civil Engineering, Serbia; DRAXIS Environmental, Spain; Starlab Barcelona, Spain; Technical University of Vienna, Austria; Athens Faculty of Agriculture, Greece; Evenflow Belgium; Agrisat Iberia, Spain; Agricultural Cooperatives Pela, Greece; and the Farmers' Association of the Municipality of Ruma, Serbia.

A lecture on production improvements through satellite imagery was presented by Dr. Dragutin Protic of the Belgrade Faculty of Civil Engineering at the Agriculture Extension Services office in Ruma.

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BFC Agriculture Finance Bulletin

8)

Meat and Dairy Industry Representatives Discuss Recycling Animal Waste

July 8th, 2016, http://www.agronews.rs/mogucnosti-koriscenja-zivotinjskog-otpada/

A meat and milk industry working group gathered in Belgrade under the auspices of a European Bank for Reconstruction and Development (EBRD) and Food and Agriculture Organization (FAO) program promoting public-private policy dialogue between meat and dairy sector stakeholders. An EBRD funded Western Balkan animal waste recycling program was discussed as well as the working group’s recent visit to the East European Dairy Congress in Kiev. At the Congress, the Serbian Chamber of Commerce gave a lecture on food safety crisis communication. The working group also touched on the upcoming publication of sectoral studies and a planned visit to the International Food Fair organized by the Second Dairy Industry Congress of Serbia, said program director Milos Milovanovic.

9)

State to Launch IPARD Pre-Financing Program

July 7th, 2016, http://www.stips.minpolj.gov.rs/sadrzajv/kako-do-evropskih-kredita-za-poljoprivrednike http://www.agrosmart.net/teatar-apsurda/ipard-ili-sejanje-magle.html

State preferential credit lines will be opened to bolster applications to the European Union’s (EU) Instrument for Pre-accession Assistance in Rural Development (IPARD) fund, according to the Ministry of Agriculture. Participants in the IPARD scheme may claim back 50-70% of their project costs. The state preferential lending scheme aims to finance initial investments before they are reclaimed. Banks have expressed interest in the IPARD pre-financing program. IPARD applicants must propose an economically and environmentally sustainable business plan in order to be accepted. Primary producers, processors and rural tourism enterprises may participate.

The European Commission (EC) audited Serbia’s readiness to implement the program in May – its report was not made public, however, warns Agrosmart, an agricultural journal. With a second audit scheduled for the autumn, it is highly uncertain if IPARD will be accredited this year, continued the journal. While the Directorate of Agrarian Payments insists any issues arising from the audits will be rectified, it has yet to address an EC demand for a further 103 staff to implement the program, said the Agrosmart report.

In addition, no concrete details have been given regarding the state IPARD pre-financing program, concluded the report.

Private Sector 10) Wheat Harvest Estimated at Record 2.89 Million Tons July 29th, 2016, http://www.ekapija.com/website/sr/page/1494123/Kinezi-kupuju-sav-vi%C5%A1ak-roda-p%C5%A1enice-uSrbiji? http://www.novosti.rs/vesti/naslovna/ekonomija/aktuelno.239.html:615654-Visak-zita-15-miliona-tona

This year, the wheat harvest is estimated at 2.89 million tons over 595,000 hectares, compared to the 2.4 million tons over 589,000 hectares obtained in 2015, according to the Zitounije Institute in Novi Sad. Yields averaged 5 tons per hectare, compared to 4.1 tons per hectare last year. These are record figures, according to Dr. Srbislav Dencic of the Novi Sad Institute of Field and Vegetable Crops. In the year preceding the 2016 harvest, 789,328 tons of wheat were exported, mainly to Macedonia, Bosnia and Herzegovina, Italy, Albania, Croatia, and Slovenia. In addition, Serbia exported 226,378 tons of wheat flour. China has shown specific interest in buying surplus Serbian wheat, with the country considering financing wheat production in the country up to 20 years in advance, according to Branislav Gulan of the Serbian Academy of Science and Arts (SANU). With current stocks at 300,000 tons, consumption at 120,000 tons per month, and forage and seed requirements at 200,000 tons and 150,000 tons per Page 4

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annum respectively, the export surplus going forward is estimated at 1.44 million tons, according to Gulan.

Farmers are not satisfied with the current price of RSD 15 per kg. The Vojvodina Cooperative Association estimates break-even prices at RSD 22 per kilogram. Farmers requested the government purchase 200,000 tons of wheat at RSD 17 per kg. The request has, so far, been ignored.

11) Near Record 800,000 Ton Plum Harvest July 27th, 2016, http://www.novosti.rs/vesti/naslovna/ekonomija/aktuelno.239.html:617079-Sljiva-rodila-pa-spustila-cenu

This year’s plum harvest is expected at a near record 800,000 tons. Serbia has 49 million plum trees over 244,000 hectares producing on average 600,000 tons of fruit a year. About 80% is made into spirits, 10% is sold as table fruit, while the rest is processed, mainly into jams or juices. The unexpectedly large yield means roughly 90% of the harvest will be distilled into an estimated 35 million liters of plum spirit. Some areas saw unprecedented yields of 30-34 tons per hectare, according to Ivana Glisic of the Cacak Fruit Research Institute. At EUR 0.2 per kilogram, the sale of plum for distillation is cost effective, according to Glisic.

Plums have not yet matured in the more elevated regions of Serbia. While there are roughly 800 “Beauty” table plum trees in Dragacevo, there will be little demand for the fruit when they mature, so the totality will be sold for distillation, according to farmer Milutin Miljković.

12) Chinese Honey Threatening Serbian Exports July 26th, 2016, http://www.ekapija.com/website/sr/page/1502259/Damping-cene-kineskog-med-ugro%C5%BEavaju-srpskep%C4%8Delare-EU-2015-uvezla-80-000-tona-slatkog-nektara-iz-Kine

Chinese honey is threatening Serbian exports. The giant exports 80,000 tons of honey to the European Union (EU) at an average price of EUR 1.60 per kilogram. In comparison, Serbia has an EU export quota of 2,000 tons per year, and the price of its honey is an average three times higher. There are concerns that Chinese honey is being smuggled into Serbia via Bosnia and Herzegovina (BIH). The latter’s beekeepers’ association has claimed that China sells more honey in BIH than its domestic producers combined. Serbian acacia honey is priced between EUR 3.5-3.8 per kg, according to Srbislav Vidojevic of the Serbian Chamber of Commerce’s Beekeeping Group. Due to fierce competition in the EU, an increase in exports is proving difficult. Vidojevic projects that exports will fall.

13) Obsolete Machinery Burden on Agricultural Development July 26th, 2016, http://www.danas.rs/dijalog.46.html?news_id=324219

Obsolete agricultural machinery and the loss of domestic manufacturers are coming at a huge cost for the sector. Machinery imports are estimated at EUR 1 billion a year, according to the Novi Sad Faculty of Agriculture (NSFA). Serbia has roughly 410,000 double-axle tractors, 200,000-300,000 single-axle tractors, 20,000 combine harvesters, 31,000 corn pickers, 11,000 forage harvesters and 2 million units of assorted agricultural equipment. According to a 2012 census, 95-98% is over 10 years old, while 50% is over 15-20 years old. The NSFA estimates 21,000 double-axle tractors, 20,000-30,000 single-axle tractors, 20,000 pedestrian rotary hoes, 850 combine harvesters, 900 corn pickers and 500 forage harvesters need to be introduced yearly. The funds are simply not available. Obsolete machinery reduces productivity, increases fuel and lubricant costs, reduces food quality and is unsafe for the environment and operators alike.

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Machinery rings should be established for the joint purchase and use of machinery, while funds from the sale of domestic machinery manufacturers should be pumped into a new national diesel engine, doubleaxle tractor and combine harvester industry. Export potential is significant, while 10,000 jobs would be created.

14) Leskovac Tomatoes Bought Through Neighboring Country “Google Searches” July 20th, 2016, http://www.politika.rs/sr/clanak/359545/Leskovacki-paradajz-prodat-preko-Gugl-berze

Severe fluctuations in Leskovac tomato prices can be explained, in part, by the growing use of internet searches in local and foreign markets, according to Igor Ristic, agricultural engineer at PSSS Leskovac, an agricultural consultancy. With prices at RSD 60 per kilogram, an increase in temperatures caused greenhouse tomatoes to ripen prematurely, flooding the domestic market and dropping prices to RSD 20-25 per kg. This was reported online by local media, according to Ristic. Importers from surrounding countries scouring the internet for cheap tomatoes snapped up the entire Leskovac surplus in just 5-6 days, said Ristic. In two days alone, 500 tons were exported. In the meantime, prices have increased and Lesckovac tomatoes are exported at RSD 50-60 per kg.

Serbian farmers are not sufficiently exploiting internet based research, marketing and promotion techniques, according to Ristic. Each farmer must have a dedicated website tailored to Google’s search engine, as well as a Facebook page and a Twitter account. At the moment, local farmers are cultivating products without researching the domestic and international markets for demand, said Ristic.

15) Obsolete Machinery Reducing Yields July 20th, 2016, http://www.rtv.rs/sr_lat/ekonomija/aktuelno/zastarela-mehanizacija-smanjuje-prinose_738831.html

The average age of agricultural machinery in Serbia is 20 years, according to some estimates. The yearly harvest loss attributed to machinery inefficiency is 5%, compared to 1% in the European Union (EU).

Meanwhile, at an agricultural machinery fair in Kac, farmers demanded more support from government institutions. Attending the fair, Vojvodina Secretary of Agriculture Vuk Radojevic promised more money for agriculture in the coming year, inviting farmers to use the Vojvodina’s Agricultural Development and Guarantee Fund for the purchase of machinery.

16) Sunflower Farmers Operating at a Loss July 20th, 2016, http://agrovizija.rs/index.php?id=3784

Sunflower prices must be at a minimum RSD 48 per kilogram for farmers to break even – currently, the asking price is roughly RSD 38 per kg, compared to RSD 40 per kg last year. Farmers are operating at a loss, according to President of the farmers’ association “Novoseljanski Paori” Ardeljan Sorin. To avoid what it sees as blackmail from the oil producers’ “cartel”, the Sremska Mitrovica Farmers’ Union has directly secured foreign buyers for sunflower oil, only then negotiating with local processors, according to Union President Zlatan Djuric. In doing so, the Union managed to secure almost RSD 42 per kilogram.

To negotiate favorable prices, sunflower farmers should have a better volume offer by forming cooperatives across Serbia and the European Union (EU), according to agrarian analyst Cedomir Keco.

This requires increased storage capacity and farmers can take advantage of the silo program in Vojvodina, said Keco. This year, sunflower has been cultivated across 180,000 hectares with yields expected at an average of 4 tons per hectare. Farmers using state-of-the-art technology can expect 4.5 tons per ha, according to Sorin.

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17) Careless Use of Plant Protection Products Causes Concern July 18th, 2016, http://www.novosti.rs/vesti/naslovna/ekonomija/aktuelno.239.html:615656-Hrana-na-pijacama-prepunapesticida

Concerns have been raised regarding the careless use of plant protection products, including pesticides and herbicides, leading to increased costs, and harmful levels of residue on consumables. Plant protection producer association SEKPA is working in coordination with the Agricultural Extension Service (AES) to educate farmers, according to its President Dragan Dimitrijevic. The association regularly organizes lectures and seminars throughout the country and distributes brochures demonstrating the safe use and disposal of plant protection products, while the AES sends out representatives to meet farmers. Importers and producers are subject to strict customs and packaging controls, Dimitrijevic points out, however, the SEKPA and AES information campaigns still breed distrust. In the European Union a dedicated card is required for the purchase of plant protection products. This allows for data collection on purchases. The cards are distributed only once background checks have been made. Such as system is far off in Serbia, says Dimitrijevic.

18) FAO Estimates March Flood Damage at USD 2.8 Million July 15th, 2016, http://www.tanjug.rs/full-view.aspx?izb=258115

Flood damage in March this year totaled USD 2.8 million, according to a Food and Agriculture Organization (FAO) report. Of the total, 35% was attributed to physical destruction while 66% was attributed to loss of earnings. Across the 18 municipalities that reported damage, 10,000 hectares of farmland were flooded, affecting 7,121 households and representing 2.62% of total arable land. The FAO expects poverty rates to increase across the affected regions. The report recommends protective, and crisis preparation and response measures, as well as redevelopment programs, while reiterating Serbia’s vulnerability to floods.

19) State Will not Manipulate Wheat Prices July 14th, 2016, http://www.novosti.rs/vesti/naslovna/ekonomija/aktuelno.239.html:615148-Boskovic-Drzava-nece-da-uticena-trziste-zita

Farmers are unhappy with current wheat prices. The state will not intervene directly, however, as prices must be determined by the market, announced Minister of Agriculture Snezana Bogosavljevic Boskovic.

Farmers will have access to public warehouses where wheat can be stored until prices improve, she added at a meeting with farmers, procurers and the Directorate for Commodity Reserves. The quality of this year’s wheat and wheat products will become clear next month, raising the possibility that asking prices will improve, said the Minister. Meanwhile, Minster of Trade Rasi Ljajic said there would be a crackdown on farmers avoiding VAT payments.

20) Outbreak of Lumpy Skin Disease in Bujanovac July 8th, 2016, http://www.mpzzs.gov.rs/obavestenje-o-trenutnoj-situaciji-i-sprovodjenju-mera-za-sprecavanje-sirenjasuzbijanja-i-iskorenjivanja-bolesti-kvrgave-koze-nodularnog-dermatitisa-na-teritoriji-republike-srbije/

An outbreak of Lumpy Skin Disease (LSD) has been declared in the municipality of Bujanovac in Pcinjskog. The Ministry of Agriculture made the announcement on June 7 in accordance with World Organisation for Animal Health (OIE) and European Food Safety Authority (EFSA) procedures. Roughly 400,000 vaccines have been purchased with a further 50,000 coming from European vaccine banks. A surveillance area has been implemented, while the Ministry of Internal Affairs, with the help of the army, has been charged with enforcing a ban on the transportation of suspect cattle within Serbia. So Page 7

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far, 551 cattle have been euthanized, while 4 died from the disease. Farmers received compensation worth RSD 42.1 million. As of July 1, no cases beyond the containment area have been reported.

21) Cherry Exports Estimated at USD 7 Million July 1st, 2016, http://www.stips.minpolj.gov.rs/sadrzajv/od-izvoza-tre%C5%A1nje-sedam-miliona-dolara

This year, cherry exports are estimated to be worth USD 7 million. Cherry production is increasing, with a total of 1.85 million trees and a yield of 28 tons. Cherry farming is attractive, with return on investment estimated at 6 years, while the following 5-6 years provide revenues of EUR 12,000-15,000 per hectare, according to Professor Zoran Keserovic, President of the Fruit Growers’ Association.

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Prepared by Business & Finance Consulting (BFC) www.bfconsulting.com In this bulletin, BFC provides extracts from articles that have been published by others and as a result cannot be held responsible for such content.

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