04 BFC Serbia Agriculture Finance Bulletin

01/2016

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4 Serbia Agriculture Finance Bulletin Serbia and Russia Sign Phytosanitary Protocol FAO and EBRD Continue Joint Agricultural Development Projects in Serbia Wheat Crop Totals 2.6 Million tons in 2015 – 1.2 Million tons Exported Import of Mechanically Recovered Meat Banned

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Agriculture Finance Bulletin Edition #4, January 2016

Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5) 6)

RSD 10 Billion in Agricultural Subsidy Back Payments to be Disbursed .......................................... 2 Boskovic Attends Berlin Agriculture Ministers’ Summit.................................................................. 2 Pork Levies Hiked - Butter Levies Lowered...................................................................................... 2 Serbia and Russia Sign Phytosanitary Protocol ............................................................................... 3 Small Farmers May Buy up to 20 Hectares of State-Owned Agricultural Land ............................... 3 Animal Husbandry Laws Harmonized with EU Regulations ............................................................ 3

Foreign Aid ................................................................................................................. 4 7) 8)

EU Fund Worth EUR 175 Million Available to Farmers ................................................................... 4 FAO and EBRD Continue Joint Agricultural Development Projects in Serbia .................................. 4

Private Sector.............................................................................................................. 4 9) 10) 11) 12) 13) 14) 15) 16)

Wheat Crop Totals 2.6 Million tons in 2015 – 1.2 Million tons Exported ....................................... 4 Corn Sees 2nd Highest Demand Over 15 Years ............................................................................... 5 Chinese Company CMEC to Import 50,000 Tons of Serbian Beef ................................................... 5 Subsidy Budget Totals RSD 40 Billion .............................................................................................. 5 Dnevnik: Agro-Sector Would Benefit from a Commodity Futures Exchange .................................. 5 Credit Agricole to Provide Agro-Sector with Loans Tied to Energy-Efficiency ................................ 6 EU Sugar Quota Abolition may Hurt Domestic Producers, says Agro-Association Chief ................ 6 Import of Mechanically Recovered Meat Banned........................................................................... 7

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)

RSD 10 Billion in Agricultural Subsidy Back Payments to be Disbursed

January 20th, 2016, http://www.stips.minpolj.gov.rs/sadrzajv/svi-zahtevi-bi%C4%87e-ispla%C4%87eni

Agriculture subsidies due for 2015 will be paid in three installments: on January 29, February 26 and March 25, 2016, said Minister of Agriculture Snezana Bogosavljevic Boskovic. Payments will be disbursed in order of applications received. About RSD 10 billion has been set aside for the payments, said Boskovic.

Meanwhile, Boskovic reiterated the importance of forming cooperatives, which increase competitiveness through cheaper bulk purchases of raw materials and lower production costs.

2)

Boskovic Attends Berlin Agriculture Ministers’ Summit

January 18th, 2016, http://www.balkans.com/open-news.php?uniquenumber=210033

Minister of Agriculture Snežana Bogosavljevic Boskovic attended the International Green Week Berlin – a food and agriculture fair – followed by the Berlin Agriculture Ministers’ Summit. The latter was attended by agriculture ministers from 59 countries. This year’s summit was headlined “How to feed our cities – agriculture and rural areas in the era of urbanization”. Ministers discussed increasing arable land access, investing in innovation, agro-producer training, and increasing the attractiveness of rural areas through rural economic and social infrastructure development, said Boskovic.

The Minister discussed bilateral cooperation and the organization of World Bee Day – initiated by Serbia and Slovenia – with Slovenian counterpart Dejan Zidan. She met with Hungarian Minister of Agriculture Sandor Fazekas to discuss the latter’s visit to Serbia next month and held talks with Montenegrin Minister of Agriculture Petar Ivanovic regarding rural development and EU integration. Meanwhile, the Iranian Minister of Agriculture Mahmoud Hojjati requested bilateral exchange of phytosanitary expertise. Boskovic also met with German, Austrian and Luxembourger counterparts Christian Schmidt, Andrea Ruprehterom Schmidt and Fernando Etgenom.

3)

Pork Levies Hiked - Butter Levies Lowered

January 13th, 2016, http://www.novosti.rs/vesti/naslovna/ekonomija/aktuelno.239.html:585831-Ostaje-zastita-domacegmleka

Import duties have been increased for cheese, live pigs and pork products and decreased for butter and certain types of cream, according to the Ministry of Agriculture. The levy on butter in up to 1kg packs has been reduced from RSD 125 to RSD 70. Milk producers had objected to a reduction in duties for larger packs, arguing these are used mainly by local confectioneries.

The import duty on live pigs has been raised from RSD 10 to RSD 15 per kilogram. The Ministry plans to raise the levy on pork products by RSD 17.50. Duties on pork products have not been drastically increased due to the lack of quality domestic produce, according to State Secretary of Agriculture Zoran Rajic. However, duties have been increased on canned meat products due to a heavy increase in imports from Montenegro and Macedonia, said Rajic.

The application of import duties should be seen as a short-term measure, warned Rajic, insisting that domestic competiveness must improve through genetic science, technology and efficiency. With limited budgets, government intervention is not sustainable, concluded Rajic.

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4)

Serbia and Russia Sign Phytosanitary Protocol

January 12th, 2016, http://www.agronews.rs/fitosanitarni-protokol-sa-rusijom/

Serbia and Russia have agreed on bilateral phytosanitary standards and controls. The protocol was signed by Serbian Minister of Agriculture Snezana Bogosavljevic Boskovic and the Director of Rosselkhoznadzor – Russia’s Federal Service for Veterinary and Phytosanitary Surveillance – Sergei Dankvert. In light of the on-going growth of agro-trade between the countries, the agreement provides the necessary legal framework for further expansion, according to Boskovic and Dankvert. Traceability measures were introduced, guaranteeing products are Serbian and do not contravene current EU sanctions against Russia, said Dankvert.

Imports of Serbian boiled meat, and hard and soft fat products will be facilitated, while Russia will help with the transit of Serbian products through the EU, according to Dankvert. Both parties have agreed to increase investment in the agro-sector in Serbia in view of further increasing exports to Russia. Serbia exports primarily milk and dairy products to Russia, with the latter interested in increasing imports of fruits and vegetables, according to Boskovic. Agro-trade between the countries totaled USD 312 million in 2014, with Serbia holding a USD 252 million surplus, said Boskovic, adding that Serbia’s total agricultural exports were worth over USD 27 billion. Agriculture exports to Russia increased 15 fold since 2005.

On the domestic front, along with the subsidization program, the Ministry will continue reforms aimed at creating an attractive environment for international investors and support the collectivization of agriculture, said Boskovic.

5)

Small Farmers May Buy up to 20 Hectares of State-Owned Agricultural Land

January 10th, 2016, http://www.dnevnik.rs/ekonomija/paori-od-drzave-mogu-da-kupe-20-hektara

A new law on the sale of state-owned agricultural land has been adopted. Farmers in possession of up to 30 hectares of land may purchase up to 20 hectares of state-owned land. Against collateral, payment may be made in installments over a 10 year period. The land will be sold by local government at auction with approval of the state. The initial price will be at the “market value” determined by the Ministry of Finance. Unless a participant has special pre-emptive rights, the land will be sold to the highest bidder.

Candidates must: be citizens of Serbia; have been resident of the land’s administrative district for at least 5 years; have held an active registered farm for at least 3 years; possess agricultural machinery; and not have sold more than 3 hectares of agricultural land for 3 years. After purchase, the bidder’s total agricultural land may not exceed 40 hectares. Land within 10 kilometers of the border may only be sold with the approval of the government. Land may not be sold or leased for a period of 15 years after purchase.

6)

Animal Husbandry Laws Harmonized with EU Regulations

January 7th, 2016, http://www.agronews.rs/ministarstvo-ribarstvo-uskladiti-sa-eu/

Animal husbandry laws have been amended to comply with certain EU regulations and increase competitiveness, especially where fisheries are concerned, according to the Ministry of Agriculture.

Serbian fish products are at risk of being banned due to incompliance with EU and UN water resource preservation regulations, said the Ministry. Other amendments will ensure breeding procedures improve, increasing productivity, while also allowing Serbian producers to negotiate on quality, rather than mere weight, added the Ministry.

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Foreign Aid 7)

EU Fund Worth EUR 175 Million Available to Farmers

January 22nd, 2016, http://www.stips.minpolj.gov.rs/dow/fondovi-eu-uskoro-dostupni-na%C5%A1im-paorima

Farmers may apply for assistance from the EU’s EUR 175 million Instrument for Pre-Accession Assistance in Rural Development (IPARD) fund by the middle of this year, according to Minister of Agriculture Snezana Bogosavljevic Boskovic. Candidates must hold active farms with solid business plans. Farmers must initially invest their own funds and may then reclaim 60%-70% of the total from the IPARD fund.

The program is set to run until 2020.

8)

FAO and EBRD Continue Joint Agricultural Development Projects in Serbia

January 5th, 2016, http://www.danas.rs/danasrs/ekonomija/aktivnosti_fao_i_ebrd_u_godini_za_nama.4.html?news_id=313923

The UN Food and Agriculture Organization (FAO) and the European Bank for Reconstruction and Development (EBRD) continue to cooperate in agricultural development in Serbia, said FAO International Consultant and FAO-EBRD Serbia Joint Project Coordinator Milos Milovanovic. In 2015, the institutions helped draft laws on public warehouses, pre-harvest financing and cooperatives; mediated between the private and public sectors in the milk and meat industries, and supported an industry delegation to the Anuga fair in Germany; assisted with World Trade Organization (WHO) accession; funded the creation of a Speculation and Finance Registry; and provided macro and micro economic analyses, according to Milovanovic.

Next year, the joint FAO-EBRD program will focus on building institutional capacity as well as strengthening human resources in production, processing and marketing in both the public and private sectors – with special focus on international marketing and increasing exports, said Milovanovic.

Considering Serbia’s size, the 6 joint projects undertaken by the FAO and EBRD in the country amount to the largest agricultural development effort undertaken in all the countries in which the organizations cooperate, according to Milovanovic.

Private Sector 9)

Wheat Crop Totals 2.6 Million tons in 2015 – 1.2 Million tons Exported

January 28th, 2016, http://www.stips.minpolj.gov.rs/sadrzajv/p%C5%A1enice-u-srbiji-10-odsto-vi%C5%A1e-nego-prethodnihgodina

In 2015, the cereal crop totaled 2.9 million tons, of which wheat made up 2.6 million tons. Wheat exports totaled 1.2 million tons, with most of the crop heading to neighboring countries and the rest destined for Africa, and the Middle and Far East, according to Vukosava Skovic, President of the Serbian Grain Fund. Exports in January, 2016, halved, however, due to low prices on the international market, added the President. Another problem that facing Serbian exports is the lack of uniformity in quality, said Skovic. Farmers would benefit from receiving subsidies prior to sowing, rather than after, argues Skovic.

Wheat sowing in January, 2016, covered 600,000 hectares, 10% more than last year, said Skovic, adding that, while 70% was sown in ideal conditions, the rest was done beyond the optimal deadline. Corn, soybean, sunflower, and sugar beet will be sown in spring. Current wheat prices in Serbia are RSD 17.518 per kilogram and RSD 16.5 per kilogram along the Danube, according to Skovic.

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10) Corn Sees 2nd Highest Demand Over 15 Years January 26th, 2016, http://www.stips.minpolj.gov.rs/sadrzajv/kukuruz-ima-najve%C4%87u-stopu-tra%C5%BEnje-u-poslednjih15-godina

Over the past 15 years, corn has seen the second highest demand on the Novi Sad Commodity Exchange, after soybean, said the exchange’s Director Zarko Galetin. Serbia produces 60% of the corn sown in the region. At RSD 16.05 per kilogram, current prices are stable and relatively low, according to Gelatin. Considering that corn can be used as biofuel and has applications in the pharmaceutical industry, demand is likely to increase in the future, concluded Galetin.

11) Chinese Company CMEC to Import 50,000 Tons of Serbian Beef January 19th, 2016, http://www.stips.minpolj.gov.rs/sadrzajv/prvi-ugovori-sa-kompanijom-cmec-krajem-februara

Next month, Chinese distributer CMEC is expected to sign an agreement to import 50,000 tons of beef per year from Kragujevac, Sumadija, announced the Administrative Director of Sumadija District, Damian Srejic.

Contract duration will be 6 years and prices determined intermittently, said Srejic, adding that initial Chinese doubts that the required volumes would be met were dispelled.

12) Subsidy Budget Totals RSD 40 Billion January 18th, 2016, http://www.rts.rs/page/stories/sr/story/13/Ekonomija/2177568/Pravi+se+ra%C4%8Dunica+za+poljoprivredne+subvencije.html

In 2016, the budget for agricultural subsidies will total RSD 40 billion (EUR 324 million) – RSD 1 billion less than last year. Subsidy levels for livestock and milk production will remain the same. However, with RSD 9.5 billion in 2015 subsidies as yet unpaid, there are fears even less will be disbursed this year, said Jovica Jaksic, Chairman of the National Association of farmers.

Per hectare subsidies have yet to be determined, with last year’s figure at RSD 6,000 per hectare. Agroloans will be subsidized to the tune of RSD 800 million, with interest rates between 4%-6%, according to Minister of Agriculture Snezana Bogosavljevic Boskovic. Economist Milan Prostran argues that at least 10% of the total budget should go to agriculture, while it is currently 9 times lower than the EU’s 36% and below the legal limit of 5%. In comparison, Croatia’s agricultural budget was EUR 700 million in 2015, of which EUR 355 million came from the EU, according to Croatia’s Minister of Agriculture Tihomir Jakovina. Serbia received EUR 14 million from the EU, and will have access to a further EUR 175 million through the Instrument for Pre-Accession Assistance in Rural Development (IPARD) fund. Meanwhile the state will double its investment allocation to RSD 3 billion, according to Boskovic, allowing farmers to increase production.

13) Dnevnik: Agro-Sector Would Benefit from a Commodity Futures Exchange January 18th, 2016, http://www.dnevnik.rs/ekonomija/srpski-agrar-izmedju-produktne-i-crne-berze

The agriculture sector in Serbia is currently suffering due to the EU-Serbia Stabilization and Association Agreement (SAA) – which led to the market opening – and the lack of cooperativization and an effective commodity exchange, argues Dnevnik journalist Dejan Urosevic. Serbian products face competition from EU countries where agricultural subsidies are 8 times higher. The agro-sector would benefit from an effective commodity futures trading platform, argues Urosevic. While a commodity exchange exists in Novi Sad, it has been hampered by dated technology and poor regulation– with all four pieces of Page 5

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legislation introduced in the past ten years having failed to create the appropriate conditions, said Urosevic. A futures market has been created effectively in Hungary – also once behind the iron curtain – so it should be possible in Serbia too, concluded Urosevic.

The creation of cooperatives should also be promoted, as it increases rationalization and competitiveness. For example, while Serbia has about 3 million pigs and 200 slaughterhouses, the Netherlands – one of the world’s leading pork producers – has 30 million pigs but only two slaughterhouses, according to Urosevic .

14) Credit Agricole to Provide Agro-Sector with Loans Tied to Energy-Efficiency January 14th, 2016, http://www.agronews.rs/krediti-za-energetsku-efikasnost-u-poljoprivrednoj-proizvodnji/

Credit Agricole is to provide loans towards increasing energy efficiency in the Serbian agriculture sector, according to a statement released by the bank. Loans will begin at EUR 5000 with repayment over up to 60 months and an additional 12 month grace period – 20% in co-financing must be provided by the successful applicant. Funds can be used for the purchase of energy-efficient machines, tools, processing equipment, windows, electronic pumps, solar panels, transport, irrigation, heating and cooling systems.

Candidates must be registered farms, agricultural cooperatives or agri-businesses that receive at least 50% of their income from agricultural production. The loans are being implemented with the cooperation of the Guarantee Fund of Vojvodina.

15) EU Sugar Quota Abolition may Hurt Domestic Producers, says AgroAssociation Chief January 13th, 2016, http://rs.n1info.com/a125862/Biznis/Izvoz-secera.html

In 2017, the EU will abolish quotas on sugar production. As production is likely to increase, this may be bad news for domestic producers, according to Nenad Budimovic, Director of the Chamber of Commerce’s Agriculture Association. To stay competitive, quality should be incentivized – currently, Serbian sugar beet averages 9 units of sucrose compared to 16 units found in EU beets, Budimovic points out.

Export to Russia is another possible solution. Serbia has good agricultural trade ties with Russia; however, a recent protocol signed between the countries excludes beets, said Budimovic. With an import tariff of USD 300 per ton, Serbian sugar beet is not competitive on the Russian market, said the Director, adding that, should the situation change, Serbia could export 200,000 tons to the country.

However, sugar beet production almost halved from 550,000 tons in 2014 to 300,000 tons last year.

Considering domestic demand stands at 180,000 tons and the EU export quota is 181,000 tons, this leaves production short, said Budimovic.

MK Group sugar refinery “Sunoko” have said the quota abolition is likely to reduce EU sugar prices.

However, as Serbian customs measures are still in place, it is unlikely EU sugar will flood the domestic market – the question is whether Serbia will be able to produce enough sugar to meet export demands.

While production is likely to increase by 20%-30% in 2016, subsidies should also be put into place to encourage expansion, according to Sunoko. The 2016 price estimate for sugar beet is EUR 35 per ton, significantly higher than last year.

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16) Import of Mechanically Recovered Meat Banned January 4th, 2016, http://www.politika.rs/sr/clanak/346584/Zabranjen-uvoz-najlosijeg-mesa

As of January 1, the import of Mechanically Recovered Meat (MRM) has been banned. The low quality mixture – obtained using high pressure sieves to remove bone from tissue – is pumped into sausages, salamis, burgers and other ground meat and semi-finished meat products to increase weight cheaply.

Recent years have seen a significant increase in the import of MRM, both from large and small processors.

In 2013, the five largest processors imported MRM worth EUR 13.5 million, according to Politika. The mixture comes mainly from Austria, Spain, Denmark, Hungary and Bosnia and Herzegovina, at a price of roughly RSD 60 per kilogram. Protein quality is typically low, while calcium concentrations are often higher than the legal limit, according to Politika.

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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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