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| Official Newsletter of the 5th FMCG, Retail & Agribusiness Arena 2014 | November 2014 | No. 02 |

opening ceremony

The AGRO sector has shown toughness and resistance to recession

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he Fifth Conference of the FMCG, Retail & Agribusiness ARENA 2014, under the auspices of the Croatian Ministry of Agriculture and organised by Infoarena and the European Bank for Reconstruction and Development, encompassed 150 participants from 15 countries. The conference is dedicated to relationships in the food sector, the consumer goods sector and trade relations across the region.

"It was important to us that in the working of the conference and the organisation the Ministry of Agriculture was included, since in this way it is easier to achieve cooperation between public and private sectors. This co-operation is necessary for the development of the agro sector over the entire region. It is a dialogue between public and private sectors, taking in third markets, and business in the global market, and of questions to which we need answers," said Tomislav Gavazzi, the director of Infoarena.

The Director of the European Bank for Reconstruction and Development in Croatia, Vedrana Jelušić Kašić, stressed that the EBRD sincerely encourages co-operation between public and private sectors. "We launched an initiative in 2011 “Private Sector Stability Authority”, which provided a response to the food crisis. This crisis began in 2007 and resulted in an increase in food prices.

It is expected that over the next ten years we need to increase food consumption by 60%; it will invest over $80 billion in food production. We believe that the private sector, in collaboration with the public sector through investment, can help to alleviate this gap. In addition, food production must be increased in a sustainable way", opined Vedrana Jelušić Kašić, who remarked that the EBRD in Croatia has invested €3 billion in 160 projects.

Milijan Ždrale, EBRD Director for agro sector in Southeastern Europe, pointed out that many EBRD clients in the region require monitoring during the crisis. “This year, we have witnessed the deepening crisis between

Ukraine and Russia, and a ban on food imports from the EU to Russia, which affected the agro sector, since Russia is the largest importer of agricultural products from the EU. Entrepreneurs in this sector must share experiences and open a dialogue with the public sector”.

“In addition, we have witnessed the consolidation of the retail sector in this region, which has had a considerable impact especially on small and medium sized enterprises. As banks mainly deal with refinancing, the purchase, or reduction of the price or the very few new real investment in this region. However, the agro sector showed great toughness and resistance to recession”, Milijan Ždrale noted. 

<p.02> INTERVIEW

<p.03> INITIATIVE

<p.05> BLACK-SEA

Tihomir Jakovina, Minister of Agriculture

Regional Youth Employment Initiative

Huge potential for the Middle East but there are obstacles

Business Journal â&#x20AC;˘ page 02

Interview: Tihomir Jakovina, Minister of Agriculture, CROATIA

New investment cycle in agriculture is ahead A griculture Minister Tihomir Jakovina shared his thoughts on withdrawing finance for rural development, the possibility of replacing imports with domestic production, the organisation of small producers, as well as the problem of milk producers.

What are the possibilities to withdrawal funding for rural development?

Croatia has at its disposal more than â&#x201A;Ź300 million from the European Fund for Rural Development, which leaves room for a large wave of investment and encourage both the development of agriculture and increase employment in rural areas, together with infrastructure development. The Croatian Program for Rural Development was sent to the European Commission in July, and we are waiting for approval as well as from other EU members. Our strategy is focused on 16 measures through which, with this funding, we can spend the most money as it will be focused on investment. What makes me particularly happy is that we, through individual measures to stimulate

the entry of young people into farming, believe this to be absolutely necessary.

We believe that the Fund for Rural Development is an excellent opportunity to encourage the development of rural areas, and when you count with these funds and â&#x201A;Ź423 million support, it does mean that we are facing a major investment cycle in agriculture. However, to make this happen you need to have projects. The EU requires from us that projects are viable, realistic and fulfil all the conditions announced in the contest. It is therefore necessary that all are better prepared and ready when the tendering starts.

How can we replace imports with domestic production?

Croatian accession to the EU has become a part of the open market, and there are no more markets protected by tariffs and other barriers. The competitiveness of our production is the foundation, and what we are, we must all work together.

We are already, in a number of industries, achieving self-sufficiency, but we still have a problem as we have sales of reduced production, small amounts, with

often high costs, and that is why it often happens that traders resort to imported goods. The buyer or consumer is the one who dictates the prices on the shelf and we must all be aware that at the present time of low purchasing power and poor standards, buyers resort to cheaper imported goods than the higher quality products from local sources. What we do, and what we have to fight, is to encourage the pooling of our manufacturers as that is the only way to have quantity, a better price and ultimately a strong negotiating position for merchants with whom you can negotiate prices, position on the shelf and sales. I think that in some areas Croatian manufacturers have already realised this so we have excellent examples of mergers in co-operatives and clusters in Medimurje or Zagorje and Slavonia; and also lately we are more and more aware that this is a necessity rather than a fiction. As long as the trader can, either in the global market or regional market, obtain products that have lower prices, it will work and it is impossible to stop. (continued on next page)

Business Journal • page 03

Can you say something about the problem of buying small producers products? Can we encourage cooperatives modelled on clusters or ...?

Through measures for rural development will include measures aimed at merging into a producer organisation, and this will be an opportunity to ensure manufacturers are better organised. We do our best to educate them and give them all the information they need to raise funding from EU funds, but they must overcome their fear of association. In Europe, there are excellent examples where co-operative dairies have for example 20,000 or more subcontractors. Such a co-operative has its own management, marketing, sales, and subcontractor manufacturer that, as a shareholder, participates in the management and products, but does not have to think about selling because it has a paid manager. Unfortunately, the resistance that exists in our country is great, and I have to admit that for over 20 years farmers have tended to blame agricultural policy that created the illusion that the small producer can sell goods. Joining the EU, we all became more aware that today food is globally available and the market dictates the price, and any disturbance in the global market has an impact on us.

Can you comment on the latest situation with regard to the production and purchase of milk in the domestic market and the markets of the region?

Milk production and the livestock sector in general are terribly vulnerable to the crisis not only in Croatia, but throughout Europe. We have already spent three years trying to find measures that will help the dairy sector to recover. We recently had an expert round table at which experts from the university and the small producers tried to transfer knowledge and experience from other countries.

The management of the farm today must also work as management and must be seen to reduce all costs and increase production as it is the only way to progress. We have excellent quality milk, but still low production per cow. Also, our dairy farmers entered into dangerous significant investment in modern farms or without land and they still presents a problem since food is expensive, as well as the large amount of surplus milk in the global market – with resultant price falls. We conduct a land policy through which we want state land to be leased to just farmers and we have calculated that they need about 90,000 ha of land.

Also the new model of support that will operate from early 2015, we have placed a special status on milk production and livestock production with additional aid.

These are all relevant measures as we want the sector to recover and survive.

What is the situation for small farmers? Is there help that can be given?

The answer is more or less contained in all my previous answers. For Croatia, the EU has available huge amount of funds that we must, and should know, how to use in the best way. We can no longer talk about small and large any more than about competitive and those less competitive producers. The state no longer has the mechanisms to allocate taxpayers’ money as it did previously in an unorganised manner and without any plan, even if in this way it bought social peace. Today, many manufacturers know and can honestly say that the incentives that were distributed earlier without control or order were the greatest evil for Croatian agriculture. Well, be that as it may, we must look to the future and new developments and I am confident that we will show that as a nation we still have the strength to be even better. 

Regional Youth Employment Initiative

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his April, in beautiful Dubrovnik, through the Advisory Board and the HR BUSINESS ARENA 2014 event, the Youth Employment Initiative was initiated by the INFOARENA Group and by regional companies such as Agrokor, A.T. Kearney, Atlantic group, Bingo, Delta holding, Gorenje, Holding Slovenske elektrarne, IBM Croatia, IEDC-Bled School of Management, MK Group, Nelt grupa, Nestle Adriatics, NIS Gazprom Neft, Nova ljubljanska banka, Podravka, Privredna banka Zagreb, S&T, Styria Croatia, Telenor Montenegro, Telenor Serbia, Vipnet, WiFi and Ernst&Young.. The main purpose of the Initiative is to help young people climb the career ladder. The EU has a programme of continuously working to reduce youth unemployment and increase youth-employment rates across Europe. However, government institutions alone cannot solve this problem – companies must play their part and take an element of responsibility. Hence, the Youth Employment Initiative was initiated

in Dubrovnik during the HR BUSINESS ARENA 2014 event. A large number of companies across the region organise internships to enable undergraduate and graduate students to learn about the real business environment and market conditions. Many regional companies endeavour to support and to be involved with this youth initiative. The main goal of the HR BUSINESS ARENA event is to encourage the signing of the Memorandum of Youth Employment Initiative in the Region on a joint initiative of youth employment throughout the region, as well their

improvement for work through training, internships, and mentoring. The next signing will be in Dubrovnik in March at HR Business Arena 2015. All interested companies can get further information at: carmen.pavic@infoarena.hr. Please feel free to join this initiative, to show you are a socially responsible company, and provide support in a way that best reflects your own business.  Chairman of the Advisory Board: Carmen Majetić Pavić, TAGORAS, Croatia

Business Journal • page 04

INTERNATIONAL CONFERENCE

HR BUSINESS ARENA 2014 23rd – 25th April 2014. Dubrovnik (hotel Dubrovnik Palace), Croatia Organizer: Infoarena Group Initiator: Advisory Board Conferences

Charter „Youth Employment Initiative in the Region” The Charter has been signed by local and regional Adriatic companies’ representatives’ and adopted on 23rd of April 2014 at the HR BUSINESS ARENA 2014 in Dubrovnik.

„Youth Employment Initiative in the Region” resulted from the need for successful integration of young people between the ages of 18 and 30 into the labor market, and Adriatic region companies’ representatives’ wishes to actively contribute to the decrease of youth unemployment in the region.

The EU has been striving to lessen youth unemployment in Europe. Government institutions cannot solve this problem alone – companies are ready to take on their share of responsibility. This is the reason why the Advisory Board HR BUSINESS ARENA 2014 has started the initiative for cooperation among companies of the Adriatic region. On 23rd April, during the conference, a round table on the topic of youth employment has been organized (Hotel Palace, Dubrovnik) and a socially responsible initiative and cooperation among various companied from both private and public sector has been agreed to for the period of the next three years.

Conclusions of the HR BUSINESS ARENA, 23rd April 2014 in Dubrovnik are the following: •

Companies have obliged to, in accordance with their capacities and educational and hiring plans, offer the opportunity for volunteer work for students and other young people, and to recognize such forms of employment

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Founding a committee for coordination and communication with the goal of following the progress of the initiative during the next three years

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Informing the youth of the region on the existing program of employment and education

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Developing the possibility for gaining formal and informal skill though the economic system of the region, and recognizing those skills when applying for employment

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Involving key participants from the public and educational sector that can contribute to the increase of the quality of education at all levels and a better synchronization with labor market needs

All signees of the Charter have signed willingly and thus expressed the wish to cooperate on the Initiative in the next three years.

Business Journal • page 05

Black Sea - Danube Supply Area and link with Mediterranean demand side

Huge potential for the middle east but there are obstacles

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n introduction to the roundtable, moderated by the CEO of MK Group, Miodrag Kostić, was given by Ilija Studen CEO Studen & CO Holding Vienna.

According to Studen, the Mediterranean region and the Middle Eastern market is a market of 400 million people, a population that is very young and characterised by a high level of unemployment. “In this region are huge sources of oil and gas, and equally important is that its market a large importer of food. It has an annual consumption of 300 million tons of food products, mostly imported cereals, sugar and oil. In the forthcoming period to 2030, the region will grow to 700 million, and the need for food will double. On the other side of Europe the population is not growing and demand for food is falling” revealed Studen. He indicated that this region is characterised by political instability that can impede access this market.

“The region imported 150 million tons of grain, of which 61% was wheat, and a very a high proportion of animal food imports has to be imported to ensure the nutrition of livestock - about 72% of cereal imports. As much as 20% of grain is stored in state reserves. Annually in this region spends 25 million tons of oil, of which 75% is imported, 18 million tons of sugar, of which 80% is wasted “he notes. His opinion is that Europe has a number of advantages that can be used to market the region.

“It is interesting that through Turkey we could end food products sold in this market. The Western Balkan countries also have excellent opportunities especially as a number of former students who have studied in Zagreb and Belgrade, have the will to work. However, there are still major barriers established by local governments to control the market, and it is usual is that businessmen complain about businesses as they are accustomed to working under these normal conditions.

For this area it is, impossible to get good quality, if you have not found a good local partner. For example, in Jordan you must have a joint venture in which their entrepreneur has half ownership. What is

Food consumption expected to double by 2050

From: STUDEN&CO Presentation at FMCG Arena 2014 very important to understand is that the structure of retailing is much undeveloped, which can be an opportunity for European trade chains. In any case, it is necessary to have a very high quality team to adapt to the market that in truth has enormous potential” suggests Ilija Studen.

Spomenka Radivojević, director of imports, exports and logistics at Delta Agrar from Serbia says it is true that quantitative exports by companies in Russia increased after the Russian embargo, but due to the devaluation mechanism, it is not accompanied by adequate financial growth. Radivojević pointed out the problem of delivering through the harbour at Constanta, the port where the world’s biggest trade companies have created logistics centres. “Our problem is that we have poor infrastructure getting to that port since the Danube River ports are of small capacity and dependent and the weather” noted Radivojevic.

Nikola Vujacic, general Director, Victoria Group, also pointed to the problem of Constanta, but discovered that the company uses the services at the Port of Bar, and that it is also interested in the port of Rijeka.

Vedran Devčić, Director of the Rijeka port, discovered that large amounts of money invested in the port of Rijeka, as well as that in the Plan for the recent reconstruction of the railway connecting Rijeka with these areas.

Miodrag Kostic, CEO of MK Group, expressed the opinion that Serbia must have three delivery routes.

“One is the port of Constanta where the transport is dependent on weather conditions. The second is towards Bar Harbour, and the third direct to a Rijeka. Simple, so the Croatian and Serbian Governments must sit down and solve the Infrastructure problem. Is it possible that it can not be solved?” asks Kostic. 