#08 BFC Serbia Agriculture Finance Bulletin

05/2016

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8 Serbia Agriculture Finance Bulletin Serbia Sees Record Agricultural Exports in 2015 EU to Decide on Serbia’s Access to EUR 230 Million in Rural Development Funding Agricultural Exports to Russia increase 17% in First 3 Months of 2016 AT 110,000 tons, Serbia World’s Largest Raspberry Producer

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Agriculture Finance Bulletin Edition #8, May 2016

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

Vojvodina Allocates RSD 25 Million to Sustainable Dairy Farming ................................................. 2 Serbia Sees Record Agricultural Exports in 2015 ............................................................................. 2 Organic Sector to Receive State Incentives ..................................................................................... 2 Testing Laboratories Idle Due to Lack of Funds and Qualified Staff................................................ 3 Serbia Loses USD 500 Million Annually Due to Drought ................................................................. 3 Kragujevac Allocates RSD 9.3 million to Centre for Agricultural and Rural Development .............. 3

Foreign Aid ................................................................................................................. 4 7) 8) 9)

EU to Decide on Serbia’s Access to EUR 230 Million in Rural Development Funding ..................... 4 FAO Delivers 67 tons of EU Funded Corn, Alfalfa and Clover Seed ................................................. 4 FAO and EBRD Host Pre-Harvest Finance Law Seminar in Belgrade ............................................... 4

Private Sector.............................................................................................................. 5 10) 11) 12) 13) 14) 15) 16) 17)

Egg Production Faces Significant Reform Before Exporting to EU .................................................. 5 Expiry of Milk Import Duties May Lead to Annihilation of Domestic Production ........................... 5 Generali Insurance to Employ Crop Drones .................................................................................... 5 Agricultural Exports to Russia increase 17% in First 3 Months of 2016 .......................................... 6 AT 110,000 tons, Serbia World’s Largest Raspberry Producer ........................................................ 6 Toennies to Buy Serbian Meat Producer ......................................................................................... 6 Concern New Law on State Owned Land Damaging Small Farmers ............................................... 7 Fruit and Vegetable Growers Hope to Sell Direct to Retailers ........................................................ 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)

Vojvodina Allocates RSD 25 Million to Sustainable Dairy Farming

May 20th, 2016, http://www.psemr.vojvodina.gov.rs/index.php/item/488-potpisani-ugovori-za-realizaciju-projekataenergetski-odrzivih-farmi-mlecnih-krava

Vojvodina’s Provincial Secretariat for Energy and Mineral Resources has allocated RSD 25 million to 38 dairy farms to improve sustainability, according to Assistant Secretary Zoran Delic. The funds must be used for renewable energy investments. The program closed to new candidates on April 20, having received 54 applications asking for RSD 38 million in funding.

This is the third such program since 2014, said Delic, which aims to improve efficiency in agriculture – Vojvodina’s most significant economic sector. Further sustainability projects – focusing mainly on small farms – will follow throughout the year, added the Secretary.

2)

Serbia Sees Record Agricultural Exports in 2015

May 19th, 2016, http://agrovizija.rs/index.php?id=3272

In 2015, Serbia exported between EUR 2 billion and EUR 2.5 billion in agricultural products, according to Minister of Agriculture Snezana Bogosavljevic Boskovic. Both the total and the trade surplus were the largest ever recorded, with the latter up 12.4% year-on-year. In the first 3 months of 2016, exports totaled EUR 625 million – a 7% increase year-on-year – while agricultural imports decreased 11%, leading to a 28.7% increase in the trade surplus compared to the same period in 2015, said the Minister.

The production of fruits and vegetables, in particular, increased significantly, she added.

In the past 12 months, the Ministry of Agriculture passed 22 laws and 200 rules and regulations, according to Boskovic. One of the most significant is the law on state agricultural land. Improvements have already been seen, claims Boskovic, with many more local governments complying with deadlines to put state owned arable land up for tender.

3)

Organic Sector to Receive State Incentives

May 14th, 2016, http://www.mpzzs.gov.rs/povecanje-povrsina-pod-organskom-proizvodnjom-veliki-potencijal-za-buduci-razvojsrpske-poljoprivrede/

Organic production is one of the most promising agriculture sectors in Serbia and needs to be further developed, said Minister of Agriculture Snezana Bogosavljevic Boskovic at the 83rd International Agriculture Fair in Novi Sad. In 2014, organic cultivation totaled 9,430 hectares – a 14.6% increase compared to 2013 – while organic fruit plantations grew by 48%. During the same period, organic exports increased by 12%, said the Minister.

Only 67 companies are engaged in organic agriculture, however, and there is a need for significant investment in technology and equipment to move the industry forward, said Boskovic. The Ministry of Agriculture will shortly announce measures supporting the sector, she added. Organic producers must also strengthen cooperation to increase volumes, and improve production continuity and quality, said Boskovic.

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4)

Testing Laboratories Idle Due to Lack of Funds and Qualified Staff

May 8th, 2016, http://www.politika.rs/sr/clanak/354513/Nema-para-za-laboratoriju-za-kontrolu-hrane

The state has not invested in food testing laboratories for over five years, and a milk testing facility remains idle despite being fully equipped, according to Politika. Minister of Agriculture Snezana Bogosavljevic Boskovic insists the funds and necessary staff are simply lacking. Following Politika’s enquires, the Directorate for National Laboratories revealed only 12 staff were needed to run the milk testing lab, adding that it remained unmanned due to the maximum legal number of nationwide state employees having been reached.

The European Union (EU), which had already invested EUR 7.8 million in the testing facility, suspended funding in 2011, citing dissatisfaction with progress. According to media reports, the EU complained that Serbia was neglecting the program, and alleged equipment purchased with EU funding could not be located. The government denies the claims. Producers were subsequently forced to use private testing equipment on their farms.

In the meantime, the EU has renewed funding, also investing in a phytosanitary laboratory. The government believes the projects will be completed, while insisting they have no say on future EU funding. A training program for prospective milk laboratory employees is also underway.

5)

Serbia Loses USD 500 Million Annually Due to Drought

May 8th, 2016, http://www.agronews.rs/srbija-gubi-500-mil-usd-godisnje-samo-zbog-susa/

According to recent studies, over the past 25 years, Serbia has lost roughly USD 500 million a year due to drought. Director of the Public Investment Management Office Marko Blagojevic said major investments in the prevention of natural disasters – including flooding, landslides and drought – must be made. The government is investigating possible flood installations in the Kolubara, and South and West Morava basins, according to Blagojevic.

6)

Kragujevac Allocates RSD 9.3 million to Centre for Agricultural and Rural Development

May 5th, 2016, http://www.infokg.rs/info/item/3780-gv-uzeli-od-centra-za-strna-zita-i-sumadija-sajma-dali-centru-zapoljoprivredu

The Kragujevac City Council will allocate RSD 9.3 million in subsidies to the Center for Agricultural and Rural Development. The subsidy will be financed by reducing contributions to the Center for Small Grains and the Fair Sumadija program by a total of RSD 4.65 million, added the Council. Subsequently, the subsidies allocated to the Center for Small Grains and the Fair Sumadija program will total RSD 74.8 million and RSD 70.35 million respectively.

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BFC Agriculture Finance Bulletin

Foreign Aid 7)

EU to Decide on Serbia’s Access to EUR 230 Million in Rural Development Funding

May 21st, 2016, http://www.politika.rs/sr/clanak/355483/Novac-iz-EU-fonda-za-poljoprivredu-tek-od-sledece-godine

The European Commission (EC) will decide whether to grant Serbia access to the European Union’s (EU) Instrument for Pre-accession Assistance in Rural Development (IPARD) II following a visit from May 23 to June 1. The EC will audit Serbia’s readiness to deliver the funds, including checks on its legal framework, technical capacity and administrative resources. A positive response is expected, according to Zarko Radat, Head of the Ministry of Agriculture’s Directorate of Agricultural Payments. If the green light is given, successful applicants will receive payments by January 2017 earliest.

Funds would total EUR 230 million – including EUR 175 from the EU and EUR 55 million from Serbia – and can be used for fruit, vegetable, fish, milk and meat production, improvements to the rural economy, as well as the strengthening of relevant state institutions. Serbia has had the nominal right to IPARD funding since 2013. However, access was blocked due to EC worries regarding administrative staff shortages. The government advertised an additional 103 positions in November, 2015, and an additional 43 in February this year. A further 60 will be advertised in June. In total, the state may add 890 employees.

IPARD may fund between 75-90% of some state programs in the future, according to the Ministry of Agriculture. The EU recently suspended payments to Croatia due to corruption. Serbia should learn from this case, added the Ministry.

8)

FAO Delivers 67 tons of EU Funded Corn, Alfalfa and Clover Seed

May 18th, 2016, http://www.stips.minpolj.gov.rs/sadrzajv/eu-i-fao-poma%C5%BEu-poljoprivrednicima-u-srbiji

As part of the August 2014 flood relief program, the Food and Agriculture Organization (FAO) delivered 67 tons of corn, alfalfa, and red clover seed to 4,500 farmers in 17 municipalities. Farmers can choose which seed to receive, with an estimated 4,500 hectares of land to be sowed. The seed deliveries are sponsored by the European Union (EU) through its Instrument for Pre-accession Assistance (IPA) fund.

Since the flooding, more than EUR 92 million was distributed, with EUR 9.5 million in assistance to small famers. Thus far, the FAO has delivered 2,769 tons of seed, 7,500 tons of fertilizer, 1,800 tons of animal feed, 856 greenhouses, 1,450 cattle, 2 million fruit trees, 956 beehives, and 460 pieces of agricultural machinery. Funds were also allocated to the construction of new homes, the renovation of infrastructure and public institutions and the restoration of non-agricultural economic activities. By the end of the program, 140,000 people are expected to have benefited from the program.

9)

FAO and EBRD Host Pre-Harvest Finance Law Seminar in Belgrade

May 13th, 2016, http://www.agronews.rs/predzetveno-finansiranje-delotvoran-finansijski-instrument/

The Food and Agriculture Organization (FAO) and the European Bank for Reconstruction and Development (EBRD) held a three day seminar regarding the recently adopted law on pre-harvest financing. The first day was attended by banks involved in pre-harvest financing; the second by various state authorities; and the third by farmers and agricultural associations. Each day focused on how the law would affect the attendants, according to Milos Milovanovic, Project Manager at the FAO. Speakers included representatives of Rabobank, a leading multinational agro-financial institution, and Belgrade’s FACTIS consultancy.

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Pre-harvest financing is a simple, safe and effective tool, where farmers provide their future crop as collateral in return for credit, according to Elies Fongers, Project Manager at Rabobank. The FAO and EBRD also assisted with promotion, the creation of by-laws and technical issues.

Private Sector 10) Egg Production Faces Significant Reform Before Exporting to EU May 28th, 2016, http://www.novosti.rs/vesti/naslovna/ekonomija/aktuelno.239.html:607372-Srpska-jaja-ne-mogu-u-Evropu

Serbian eggs are prohibited from entering the European Union (EU) market due to an array of issues.

One of the main barriers is inadequate salmonella testing, according to the Ministry of Agriculture.

While the eggs are tested in compliance with Serbian law, and are exported to CEFTA (Central European Free Trade Agreement) member countries, the analyses do not comply with EU regulations.

Harmonization would involve huge investments, according to the Veterinary Directorate.

Other issues include production methods, transportation and labelling, according to Rade Skoric, President of the Poultry Business Association. Current regulations are outdated, with animal welfare standards – including cage specifications – below the EU requirements, said Skoric. However, domestic producers want new regulations to be delayed, as they would entail significant investment, added Skoric. Serbia exports 30 million eggs annually – mainly to Bosnia and Herzegovina – originating from 800 farms. As its two processing plants remain idle, Serbia imports both egg powder and liquid.

11) Expiry of Milk Import Duties May Lead to Annihilation of Domestic Production May 21st, 2016, http://www.novosti.rs/vesti/naslovna/ekonomija/aktuelno.239.html:606344-Uvozno-mleko-preti-da-unistinase-stocare

The planned June expiry of additional levies on milk and milk product imports introduced in 2015 may lead to the Serbian market being flooded by cheap milk from the European Union (EU), warned Ilija Setka, General Manager of Imlek. With huge milk surpluses in the EU – caused mainly by EU sanctions on Russia and the removal of production quotas – a failure to renew the levies may completely destroy domestic milk production, said Setka. Local production stagnated in 2015, and the number of dairy cows fell. Citing constructive dialogue between the government and the Dairy Farmers’ Association, Setka is nonetheless confident that import duties will be extended. The levies should stay in place until market forces stabilize EU production, believes Setka. However, the price of domestic milk may drop significantly, with local producers hoping to entice clients away from purchasing EU milk, he added.

Imlek sources all 300 million liters of milk it procures annually from cooperatives, including 4,000 family farms, according to Setka.

12) Generali Insurance to Employ Crop Drones May 19th, 2016, http://www.novosti.rs/vesti/naslovna/ekonomija/aktuelno.239.html:606032-Dron-procenjuje-stetu-nanjivama

Generali Insurance Company announced it would use drone technology in conjunction with its agricultural insurance products in Serbia. Drones will increase significantly the transparency, speed and accuracy of before-and-after crop damage assessments, according to Sava Bogicevic, Technical Director at Generali. The technology will also help policy holders determine what preventive measures are best Page 5

BFC Agriculture Finance Bulletin

suited to their particular situation, said Bogicevic. In conjunction with the analysis software, drones will increase the efficiency and reduce the cost of insuring large parcels (over 10 hectares) in particular, as these require a large collection of photographs and heavy information processing, said Bogicevic.

13) Agricultural Exports to Russia increase 17% in First 3 Months of 2016 May 14th, 2016, http://ruserbia.com/economic/4312-serbskij-eksport-v-rossiyu-vyros-na-21

In the first 3 months of 2016, agricultural exports to Russia totaled USD 68.4 million – a 17% increase year-on-year. Apple exports totaled USD 39 million (+ 32.2%); frozen vegetables exports totaled USD 5 million; and cheese exports totaled USD 4.85 million.

During the same period, global exports to Russia totaled USD 181.5 million, a 21% increase year-on-year, while Russia exported USD 409.6 million to Serbia, a 17.8% decrease year-on-year.

14) AT 110,000 tons, Serbia World’s Largest Raspberry Producer May 9th, 2016, http://www.novosti.rs/vesti/naslovna/ekonomija/aktuelno.239.html:604388-Sertic-Srbija-je-svetska-elita-uproizvodnji-maline

At 110,000 tons worth USD 280 million, Serbia is the world’s leading raspberry producer, said Minister of Economy Zeljko Sertic at the 10th International Raspberry Organization (IRO) meeting. The government plans to invest in plantations and processing facilities as well as training programs to ensure maximum efficiency, added Sertic. With help from its Chinese partners, the government hopes to break the British, American and Russian markets, he added. Global production totals 420,000 tons, with Serbia contributing more than a quarter, according to IRO President Antonio Dominguez.

It is difficult to project this year’s raspberry prices, said Dusko Radulovic of the Serbian Cold Storage Association. The price dropped over the past month and a half due to the influx of Chilean raspberry left unsold on the US market, said Radulovic. The 10th IRO meeting gathered 300 manufacturers from 17 countries in Serbia and runs until the 11th of May. Besides Serbia, members include Australia, Bulgaria, Canada, Chile, China, England, France, Hungary, Poland, Scotland and the USA.

15) Toennies to Buy Serbian Meat Producer May 5th, 2016, http://www.agronews.rs/matijevic-tenis-zainteresovan-za-kupovinu-kompanije/

German company Toennies is interested in buying Serbian meat producer Matijevic, said owner Petar Matijevic. The company is worth around EUR 200 million to EUR 250 million, according to Petar. While still undecided whether to sell a majority or minority stake, Petar claims he would be satisfied with EUR 100 million to EUR 150 million.

Following a visit to Serbia in February, Toennies announced it was interested in buying a domestic producer. Owner Clemens Toennies visited Matijevic about a month ago, said Petar. Toennies is Europe’s largest meat producer, raising 17 million pigs and 400,000 cattle annually, with turnover of more than EUR 5 billion.

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16) Concern New Law on State Owned Land Damaging Small Farmers May 3rd, 2016, http://agrovizija.rs/index.php?id=3152

The new law on state owned land is causing concern amongst farmers. Vojislav Malesev, President of the farmers’ association Club 100P, fears the sale of land to large companies and the abolishment of subsidies and incentives will lead to the disappearance of small scale farming in Serbia.

Farmers are concerned regarding German meat processing giant Toennies’ imminent entry into the Serbian market, with many of the largest domestic businesses already appearing on the list of tenants of state owned land, according to agriculture expert Djordje Bugarin. The law is tailored to specific entities, believes Bugarin, adding that it has already caused circumstances for Vojvodina farmers to deteriorate.

Farmers are against the selling of state owned land, according to President of the Central Milk Producers’ Association Sanja Bugarski. They take good care of the land, so why change, she added.

17) Fruit and Vegetable Growers Hope to Sell Direct to Retailers May 3rd, 2016, http://www.agronews.rs/kako-resiti-problem-niskih-otkupnih-cena-voca-i-povrca/

Fruit and vegetable growers facing difficulties due to the low prices offered by middlemen should sell their goods to retail chains, said Secretary of the Serbian Chamber of Commerce’s (PKS) Agriculture Committee Nenad Budimovic. While the quality of domestic fruit and vegetables is very high, investments in technologies must be made in order to meet the wholesale industry’s high standards, he added. The PKS recently organized a meeting between retailer Metro Cash \u0026 Carry and domestic producers, said Budimovic.

Miroslav Curakovic, owner of fruit and vegetable producer Curakovic, said that the company has expanded following cooperation with retail chains. Producers should have access to favorable loans, not only to increase production but to process fresh goods that remain unsold, he added. According to Grocka cherry grower’s spokesman Zoran Brkic, middlemen are blackmailing producers into accepting low prices. PKS could help local growers connect with retailers, both domestically and on the international market, said Brkic.

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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.

The articles do not necessarily reflect the opinions of BFC, its staff, its associates or its partners.

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