03 BFC Serbia Agriculture Finance Bulletin

12/2015

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3 Serbia Agriculture Finance Bulletin Agricultural Exports to Russia Total USD 312 Million Turkey to Invest in Serbian Agriculture 2,691 Agricultural Cooperatives – Revenues of RSD 58.9 Billion in 2013 At 1,750 Heads, Sheep Husbandry Underdeveloped

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Agriculture Finance Bulletin Edition #3, December 2015

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

Agricultural Exports to Russia Total USD 312 Million ...................................................................... 2 Agriculture Budget to Total RSD 40.6 Billion in 2016 ...................................................................... 2 Fiscal Council: Agriculture Subsidies to Decrease by Half ............................................................... 2 Accession to WTO Requires Amendment of GMO Law................................................................... 3 Turkey to Invest in Serbian Agriculture ........................................................................................... 3

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

EBRD Invests EUR 100 Million in Agriculture Sector ....................................................................... 3 EU Funds 6 Million Classic Swine Fever Vaccinations ..................................................................... 4 EU Funded Agricultural Land Management Project “a Success”..................................................... 4

Private Sector.............................................................................................................. 5 9) 10) 11) 12) 13) 14) 15) 16) 17) 18) 19) 20) 21)

Pork Exports to Russia and CEFTA Members More Likely than EU ................................................. 5 2,691 Agricultural Cooperatives – Revenues of RSD 58.9 Billion in 2013 ....................................... 5 USD 13 Million Plant Processes 3,000 tons of Fruit and Vegetables for Export.............................. 5 Organic Cultivation Just Under 10,000 Hectares ............................................................................. 5 Markets Left Untapped due to Poor Agriculture Policies................................................................ 6 Agriculture Sector Suffers EUR 5 Billion Loss Due to Climate Change ............................................ 6 Dairy Product Output Increases 7.1% – Per-Cow Milk Volume Decreases ..................................... 6 At 1,750 Heads, Sheep Husbandry Underdeveloped ...................................................................... 7 MK Group Buys PIK Bečej for EUR 45.5 Million ............................................................................... 7 State Assistance should not Promote Specific Agro-Industries....................................................... 7 Raspberry and Blackberry Development Hampered by Procurer Discretion.................................. 7 Agriculture Development Conference Held in Belgrade ................................................................. 8 “Serbian-Arab Friendship” Company to Provide Interest Free Loans for the Purchase of Sheep and Goats......................................................................................................................................... 8 22) Fragmented, Archaic Production Leads to Reliance on Imports ..................................................... 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)

Agricultural Exports to Russia Total USD 312 Million

December 16th, 2015, http://www.mpzzs.gov.rs/nj-e-cepurin-u-poseti-ministru-bogosavljevic-boskovic/

In 2014, Serbia exported agricultural goods worth USD 312 million to Russia, with USD 60 million’s worth coming the other way, amounting to a trade surplus of USD 252 million, said Minister of Agriculture Snezhana Bogosavljević Bosković during a meeting with Russian Ambassador Alexander Chepurin.

Agricultural trade between the two countries increased by a factor of 12 from 2005 to 2014, with exports to, and imports from, Russia increasing by a factor of 17 and 7, respectively.

Both parties noted there is room for further increasing trade. Bosković met with counterpart Nikolaevich Tkacova at the Golden Autumn Agro-Industrial Fair in Russia this October to discuss increasing the number of Serbian agribusinesses permitted to export to Russia and harmonizing certification standards for veterinary medicine and herbs. To date, 55 Serbian agribusinesses have received permission to export to Russia.

2)

Agriculture Budget to Total RSD 40.6 Billion in 2016

December 10th, 2015, http://www.stips.minpolj.gov.rs/sadrzajv/planiran-bud%C5%BEet-ministarstva-poljoprivrede-406milijardi-dinara

The Ministry of Agriculture’s budget will total RSD 40.6 billion in 2016, a RSD 1 billion decrease year-onyear, according to Assistant Minister of Agriculture Dragoje Pavlović. Of the total, RSD 5.3 billion is earmarked for the environment, while the rest will be allocated to agriculture, forestry and water management. European aid contributed RSD 1.7 billion to the budget, a slight increase year-on-year, said Pavlović.

About RSD 28 billion will be distributed in the form of subsidies; while some of the funds will be allocated to Ministry organs – such as the Veterinary Directorate and the Forest Fund – 87% will go to agriculture, said Pavlović. Apart from environment subsidies, which have increased by RSD 100 million to RSD 1.9 billion, subsidization levels remain the same as last year, added Pavlović. The remaining 13% percent will be spent on salaries and other costs.

Pressed on Fiscal Council reports that subsidies would be cut in half, Deputy Minister of Agriculture Nanad Katanić said he would not speculate on numbers, adding that the Ministry must spend within its means.

3)

Fiscal Council: Agriculture Subsidies to Decrease by Half

December 9th, 2015, http://www.novosti.rs/vesti/naslovna/ekonomija/aktuelno.239.html:580516-Subvencije-3000-dinara-pohektaru

In 2016, due to amendments to the agricultural land law, subsidies will be reduced by half – an RSD 8 billion decrease year-on-year – amounting to less than RSD 3,000 per hectare, said Vladimir Vuckovic, member of the Fiscal Council.

While it is premature to talk about their effects, the amendments only apply to subsidies per hectare, according to Minister of Agriculture Snezana Bogosavljević Bosković. With applications exceeding the subsidy budget for 2016, the Ministry has secured an additional RSD 9.7 billion from the IMF, said Page 2

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Bosković, adding that milk subsidies will remain at RSD 7 per liter. Next year’ budget distribution has already been finalized and requirements must be respected, concluded Bosković.

Since it affects the smallest, most vulnerable farms, it is inappropriate to make such amendments without public consultation, according to Professor Miladin Sevarlić, an adviser at the Institute of Economics. The changes will lead to the destruction of small farms in favor of large investors and agribusinesses, said Sevarlić, adding that changing subsidy levels yearly by special government acts is inconsistent with the agricultural policies of the EU.

4)

Accession to WTO Requires Amendment of GMO Law

December 8th, 2015, http://inserbia.info/today/2015/12/serbia-must-amend-its-gmo-law-because-it-does-not-comply-withwto/

While Serbia has met 90% of accession conditions, its genetically modified organism (GMO) laws do not comply with World Trade Organization (WTO) rules, according to Assistant Minister of Trade Bojana Todorovic.

Since the WTO’s accession rules are non-negotiable, the GMO law must be amended, said Todorovic, who is also Deputy Head of the Chapter 30 Work Group in charge of negotiating accession to the organization.

5)

Turkey to Invest in Serbian Agriculture

December 7th, 2015, http://www.balkans.com/open-news.php?uniquenumber=209292

Turkey is interested in investing in Serbian agriculture and tourism, said Turkish Minister of Foreign Affairs Meylut Cavusoglu during a meeting with Serbian Prime Minister Aleksandar Vucic.

Cavusoglu praised Serbia for facilitating business for Turkish enterprises and suggested holding a business forum during the upcoming visit of Turkish Prime Minister Ahmet Davutoglu. Serbia is now a prime tourist destination for Turkish citizens, added Cavusoglu.

Foreign Aid 6)

EBRD Invests EUR 100 Million in Agriculture Sector

December 17th, 2015, http://www.agronews.rs/srbija-jedna-od-najtraktivnijih-za-agrobiznis-u-regionu/

Serbia has one of the most attractive agribusiness sectors in the region, according to the European Bank for Reconstruction and Development’s (EBRD) Director of Central and Eastern European Agribusiness Sectors Miljan Ždrale. The bank aims to develop agriproduct retail and improve energy efficiency and resource management in the sector, said the Director. Next year, EBRD will launch preferential agrilending in partnership with commercial banks. At EUR 335 million, the country has received one of the bank’s highest levels of investment since 2011, said Ždrale. In 2015, EBRD invested EUR 100 million, with beneficiaries including food companies Bambi, Knjaz Milos and Imlek. Serbia is one of few European countries to produce enough non-GMO products to cater to specialized diets, said Ždrale, adding that, at only 9% of GDP, agriculture has room for development.

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Ždrale made the remarks at the FMCG Retail Agribusiness Premium Brunch conference in Belgrade. The conference – organized by EBRD and Infoarena in cooperation with the IFC, World Bank and FAO – aims to promote the region’s food industry internationally according to Infoarena Director Tomislav Gavač.

Serbia has the greatest number of large agribusiness in the region, with 45% existing for more than 10 years already, said the Director of Bisnode, Petar Miljkovic. The Serbian sugar industry has shown that it remains strong and competitive even when sugar prices dropped, added Director of MG Group’s “Sunoko”, Ljubisa Radenkovic. With global demand increasing, there is scope for development, said Radenkovic. Vice President of Delta Holding Mary Desivojevic Cvetkovic called for the introduction of technological innovations and skilled personnel.

7)

EU Funds 6 Million Classic Swine Fever Vaccinations

December 9th, 2015, http://www.stips.minpolj.gov.rs/sadrzajv/od-1-januara-sveobuhvatna-vakcinacija-svinja

The European Union (EU) has funded 6 million doses of classic swine fever vaccination in a bid to eradicate the disease in Serbia. The vaccinations are to be administered free of charge. Meanwhile, Serbia has pledged to further strengthen veterinary inspection and monitoring.

The country must be declared “classic swine fever free” before engaging in live pig and pork product trade with the EU. The measures were announced at the National Conference, organized by the Veterinary Administration and attended by an EU delegation.

8)

EU Funded Agricultural Land Management Project “a Success”

December 1st, 2015, http://www.agronews.rs/zavrsen-projekat-unapredenja-efikasnog-upravljanja-zemljistem/

The 3-year, EUR 3.88 million Rural Development and Efficient Land Management project has succeeded in building the foundations for efficient management of agricultural land in Serbia, it was concluded at the project’s closing conference. Implemented by the German Agency for International Cooperation (GIZ), the project received EUR 2.78 million through the EU’s Instrument for Pre-Accession Assistance (IPA) 2010 Programme and EUR 1 million from the German government – Serbia contributed EUR 100,000.

The project aimed to increase efficiency through the consolidation of fragmented agricultural land owned by the state. A new information system was installed, increasing efficiency and transparency, and allowing the effective leasing. More than 5,000 hectares were consolidated through 7 pilot projects located mainly in the southern and eastern parts of the country. Land plot sizes increased between 42% and 200%, leading to increased production and profits for farmers. The main institutional beneficiaries include the Ministry of Agriculture, the Geodetic Authority and the Standing Conference of Towns and Municipalities.

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Private Sector 9)

Pork Exports to Russia and CEFTA Members More Likely than EU

December 24th, 2015, http://www.stips.minpolj.gov.rs/sadrzajv/srpska-svinjetina-lak%C5%A1e-do-rusije

The classical swine fever vaccination program is likely to come to an end next year. As the EU has surplus pork, however, Serbia has little chance of exporting its products to the block, according to Vojislav Stankovic, an agricultural expert. The Russian market, along with Central European Free Trade Agreement (CEFTA) members Macedonia and Montenegro, are a better bet, added Stankovic. Serbia produces 280,000 tons of pork a year, according to the expert.

10) 2,691 Agricultural Cooperatives – Revenues of RSD 58.9 Billion in 2013 December 24th, 2015, http://www.dnevnik.rs/ekonomija/zadruge-daleko-od-pravog-zadrugarstva

At 2,691 farms, agricultural cooperatives make up 65% of cooperatives registered in Serbia (4,117). Of the total, 1,466 agricultural cooperatives are active, while 79 are undergoing bankruptcy proceedings and a further 74 are in liquidation. At RSD 58.9 billion, agricultural cooperatives made up 68% of total cooperative sector revenue in 2013 (RSD 85.4 billion), while employing 3,793 people – or 80.6% of total cooperative sector employees.

11) USD 13 Million Plant Processes 3,000 tons of Fruit and Vegetables for Export December 24th, 2015, http://www.novosti.rs/vesti/srbija.73.html:582877-Suse-voce-prave-dolare

In 2004, Chicago, USA, based Van Drunen Farms (VDF) set up a USD 13 million fruit and vegetable processing plant in Banatski Karadjordjevo, Serbia. To date, this remains one of the largest American investments in the country. The company was the first to use lyophilization, or freeze-drying, in Serbia.

Fruit and vegetables are dried from frozen, significantly reducing damage and retaining nutritional value. As the technique is expensive, it is used mainly on high-value raw materials, according to Nenad Arsenov, Director General of VDF Europe. The plant produces 3,000 tons of fruit and vegetables yearly, worth USD 6 million – mainly strawberries, raspberries, cherries, sweet corn, peas, green beans, cauliflower and broccoli. About 20% of output is organic. Due to the products’ high prices, 90% is exported to the US, the rest going to Britain, Germany, Switzerland and Russia.

While 20% of its cherries and raspberries are sourced in Serbia, the company imports most of its fruit from Poland, Greece and Belgium and almost all of its vegetables from Hungary. Serbia lacks the food safety standards required to export to the US and Europe, according to Arsenov, with problems arising from pesticide use in particular. All products are sent to Germany for analysis. VDF Europe would like to use Serbian produce; however, international standards must be met beforehand, concludes Arsenov.

12) Organic Cultivation Just Under 10,000 Hectares December 22nd, 2015, http://www.agronews.rs/organski-proizvodi-u-srbiji-na-manje-od-10-000-hektara/

In 2014, organic cultivation in Serbia totaled 9,548 hectares, while organic animal husbandry totaled 2,557 cattle, 1,285 sheep and 36 pigs – 76 organic products were sold on the domestic market, mainly fruits and vegetables. During the same period, Slovenia and Croatia saw a 10% increase in the number of organic producers. Organic cultivation surpasses 1 million hectares in Spain, Italy, France and Germany Page 5

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and totals 10.3 million hectares, or 5.3% or arable land, across the European Union (EU). The most widely produced organic crops were cereals and fodder. On average, organic farming renders higher returns than standard farming, according to EU statistics.

13) Markets Left Untapped due to Poor Agriculture Policies December 21st, 2015, http://www.novosti.rs/vesti/naslovna/ekonomija/aktuelno.239.html:582431-Moze-li-nase-jagnje-do-Kine

Serbia should be looking to export meat products to China; however, with the country not even able to meet its 8,000 ton baby beef EU export quota, this is but a dream, according to agriculture economics professor and advisor to the Institute of Economics Miladin Sevarlić. Distance in not the only problem – with poor agriculture policies and subsidization programs, the domestic meat industry simply cannot compete, added the professor. Only three companies currently have the necessary certificates and quality standards to export to China, according to the Ministry of Agriculture. Due an insufficient technological development and knowhow, vast highland areas – where there is great potential for rearing cattle – are left empty, said Secretary of the Agriculture Committee of Vojvodine, Đorđe Bugarin.

Serbia produced 73,000 tons of beef in 2014, amounting to roughly 200,000 heads, according to the Ministry of Agriculture. With 40 industrial slaughterhouses located across the country, capacity is at 1 million heads. Beef production volume ranks 3rd, behind pork and poultry.

14) Agriculture Sector Suffers EUR 5 Billion Loss Due to Climate Change December 20th, 2015, http://inserbia.info/today/2015/12/serbia-agriculture-sector-among-hardest-hit-by-climate-change/

Agriculture is one of the sectors most affected by climate change, with extreme climatic conditions causing over EUR 5 billion in losses since 2000, according to the Minister of Agriculture Snezana Bogosavljevic Bosković. Drought and high temperatures account for more than 70% of the total loss.

Serbia has faced several disasters since 2000, including the drought of 2012 and the floods of 2014.

Serbia is obliged to curb greenhouse gas emissions to 9.8% below 1990 levels by 2030, said Bosković.

15) Dairy Product Output Increases 7.1% – Per-Cow Milk Volume Decreases December 18th, 2015, http://www.agronews.rs/nastavlja-se-pad-proizvodnje-mleka-u-srbiji/

Dairy product output saw a year-on-year increase of 7.1% in the first 10 months of 2015, according to the Dairy Industry Group, an arm of the Chamber of Commerce. While total output increased, production of most individual product types decreased, with pasteurized milk down 4.7%, sterilized milk down 8.6% and powdered milk and butter both down 10%. Hard, semi-hard, fresh and melted cheeses saw small decreases while production of cheese spreads, soft cheeses and yoghurts saw an increase in output. Sour milk and yoghurts with added fruit saw large increases – up to 400%, according to the Group.

Milk production per cow declined; considering the dairy sector’s contribution to agricultural output, this is a worrying trend, according to the Dairy Industry Group. Since dairy exports are subject to stringent food safety requirements, a Council of Dairy Technology that deals with international standards and technological solutions will be established, announced the Group.

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16) At 1,750 Heads, Sheep Husbandry Underdeveloped December 17th, 2015, http://www.stips.minpolj.gov.rs/sadrzajv/nerazvijeno-ov%C4%8Darstvo-i-kozarstvo

Despite abundant pastureland, at 1,750 heads, sheep are amongst the least farmed in Serbia, according to Aleksandar Milovanovic of the Novi Sad Institute of Veterinary Medicine. In contrast, a few decades ago, sheep numbers were equal to those in France, said Milovanovic. The same can be said of goats, with husbandry of both animals having great potential in Serbia, should an effective national strategy be devised, concluded Milovanovic.

17) MK Group Buys PIK Bečej for EUR 45.5 Million December 17th, 2015, http://www.agronews.rs/mk-group-kupila-pik-becej-za-455-miliona-evra/

After providing a bank guarantee of EUR 17.1 million, grain and sugar beet producer MK Group bought producer and processor PIK Bečej for EUR 45.5 million at public auction. Matijevic was the only other bidder. MK Group plans to expand the company and introduce European standards, according to Director John Purar.

PIK Bečej owns 29,748 pigs, 3395 cattle, 371 sheep, 74 horses and 56 hectares of orchards. The company also exports canned vegetables to Ukraine, Belarus, Turkey, Croatia, and Bosnia and Herzegovina. PIK Bečej was one of the largest agriculture producers and processors in former Yugoslavia.

18) State Assistance should not Promote Specific Agro-Industries December 16th, 2015, http://www.agronews.rs/kako-investirati-u-poljoprivredu/

Food and Agriculture Organization (FAO) research shows farmers and agribusinesses make informed investment decisions, with private investment 3 times higher than public – in light of dwindling agriculture budgets, Serbia should focus on providing support measures that do not interfere with market forces and business strategies, according to Milos Milovanovic, International Consultant at the FAO and coordinator of joint FAO-European Bank for Reconstruction and Development (EBRD) projects in Serbia.

The few remaining production-specific subsidies should be abandoned – for example the per-liter milk subsidy, said Milovanovic. This does not mean that the dairy industry should not receive state assistance, simply that support measures should not directly support a specific type of agro-industry.

This is necessary to bring state programs in line with the EU’s common agricultural policy, concluded Milovanovic.

19) Raspberry and Blackberry Development Hampered by Procurer Discretion December 15th, 2015, http://www.stips.minpolj.gov.rs/sadrzajv/ma%C4%8Dva-u-planu-i-hladnja%C4%8D-za-vo%C4%87e

The development of raspberry and blackberry production is hampered due to buyers making quality judgements and fixing prices in mid harvest, as well as late payments for purchases, according to the newly formed Association of Mačve Raspberry and Blackberry Producers.

During the association’s inaugural meeting, members discussed building a cold storage facility allowing sales to be deferred when prices are unacceptably low.

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20) Agriculture Development Conference Held in Belgrade December 15th, 2015, http://www.agronews.rs/zasto-agrar-nije-srpska-sansa-razvoja/

A conference on the development of Serbian agriculture, organized by Newsweek and National Geographic, was held in Belgrade. Firstly, there must be continuous investment in technology and knowhow; secondly, there must be a significant strengthening of state support programs and subsidization; and finally, loan interest rates must be brought down, with those in Serbia at 5%-9%, compared to 1.5%-3% in Europe, said Director of Global Seed Sasha Vitosević.

Subsidization should be viewed as an investment, with the Netherlands – hardly larger than Vojvodina – seeing agriculture revenues of EUR 65-70 billion a year, according to Radovan Pejanovic, Professor at Novi Sad University. Serbia lost 100,000 small farms last year, with a further 600,000 threatened – without state-backed introduction of modern technology and knowhow, even the 5,000-15,000 large farms under threat, according to Miladin sevarlić, President of the Serbian Association of Agricultural Economists. The extension services of Croatia are 4 times larger, while those of Slovenia are 10 times larger, estimates sevarlić. Assistance from the EU’s Instrument for Pre-Accession Rural Development (IPARD) fund has been reduced from EUR 174 to EUR 145 million due to staff shortages in the Ministry of Agriculture, according to sevarlić.

The EU Stabilisation and Association Agreements (SAA), the Central European Free Trade Agreement (CEFTA), and the Russia-Serbia free trade agreement were also discussed at the conference.

21) “Serbian-Arab Friendship” Company to Provide Interest Free Loans for the Purchase of Sheep and Goats December 3rd, 2015, http://subvencije.rs/vesti/dsap-beskamatni-krediti-za-nabavku-osnovnog-stada-u-ovcarstvu-i-kozarstvu/

The “Serbian-Arab Friendship” company will disburse interest free loans to farmers for the purchase of sheep and goats throughout 2016.

Beneficiaries will receive between EUR 10,000 and EUR 50,000 and must export the animals to Arab countries. Loan maturity is 6 years, with a grace period of 24 months.

22) Fragmented, Archaic Production Leads to Reliance on Imports December 2nd, 2015, http://www.agronews.rs/zasto-uvozimo-ono-sto-proizvodimo/

While Serbia has the potential to meet domestic agriproduct demand, producers are small and fragmented, leading supermarkets to search for satisfactory consistency in provision, packaging, quality, quantity and pricing in foreign markets, according to Milos Milovanovic, International Consultant at the Food and Agriculture Organization (FAO) and coordinator of joint FAO-European Bank of Reconstruction and Development (EBRD) projects in Serbia.

To increase competitiveness, the state must shift from per-hectare subsidization – which has questionable results – to investing in cold storage facilities, dryers, power grids, anti-frost systems, irrigation systems, hail nets and production technologies, according to Milovanovic. Local producers must form cooperatives, unions and associations, improving rationalization and providing consistent quality, quantity, pricing and packaging, added Milovanovic. The state, retail chains, producers and processors must promote consumer awareness of quality domestic produce. These methods have proven track records, according to Milovanovic. Finally, the EU’s EUR 175 million Instrument for PreAccession (IPA) fund – with an additional EUR 175 million in state co-financing – must be made available to domestic producers and processors as quickly as possible.

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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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