Agriculture

Bulgaria is renowned for sheep’s milk cheese, oriental tobacco, wine, rose attar (used in perfumery), vegetables, fruit, medicinal herbs, and, particularly, natural yogurt. The temperate climate, abundant arable land, and soil conditions support the farming of both livestock and crops (grains, oilseeds, sugar beets, vegetables, grapes, fruit).

Tobacco is among the most important of Bulgaria’s crops, contributing nearly 20% to the value of agricultural goods. l The principal timber areas are in the Rila, Rhodope, and Balkan Mountains. The fishing industry, which in the 1980s operated a large ocean fleet, is currently depressed.

The agricultural sector was estimated to account for 21% of the GDP in 1999 and to employ 26% of the workforce. Although estimations for the labor force were not available, the%age of the GDP the sector contributed dropped slightly by 2000 to 15%. l Although historically a surplus food producer, Bulgarian agriculture was facing a downturn at the turn of the century. Cropland, livestock population, and yields were declining (limited use of fertilizers, however, has led to cleaner rivers and sea water). Animal feed is imported and its shortage has led to distress slaughtering, the killing of livestock in the face of a shortage of feed. The price of agricultural goods is not rising in line with inflation. Imported subsidized vegetables, fruit, dairy products, and meat from the EU adversely affect local producers. Restitution of collective farmland to private owners has been complicated and considerable collective farm assets were lost in the process. New private holdings are too small and can only be serviced with technical equipment or irrigated if their owners band together, but such efforts are proving slow to develop.

RECOMMENDATIONS

• Land enlargement can be fulfilled through enlargement of land ownership by creating conditions for better effectiveness of agriculture and a new regulation for inheritance, donations, buying and selling and other types of land transactions. The government has other instruments for land enlargement – state fees in cases of property transfer, the appropriate tax policy, financial relieves in case of selling land to the neighboring land leases or land substitution from the State Land Fund and the Municipal Land Fund. It is advisable to stimulate the voluntary enlargement of land per users, regulated by the Bulgarian legislation BG Agriculture.

 Opportunities

• Agriculture has the potential to make Bulgaria again basically self-sufficient in grains, and prospects are excellent for further increases in hard currency earnings from wine and dairy products, particularly cheese.
• Availability of niche for regional products (An example regularly cited is that of Bulgarian green cheese, a unique product for which there is considerable interest abroad but for which there is no legal regulation for production in the country, meaning that producers cannot increase output.) For the foreseeable next, the major players on the Bulgarian agricultural and food markets will still be large firms, including the a lot of internationals that have invested in the country and helped raise the level of technology and capital, boosting output considerably. But Bulgaria’s a lot of smallholders have an increasing role to play. With world food prices on the rise again, and opportunities for tapping into niche markets growing, Bulgaria’s farmers large and small can stand to reap the benefits.

Romania has been a member of the European Union (EU) since 2007 and national legislation concerning biotechnology has been harmonized with the EU legislation soon after the membership. In general, Romania has been supportive of biotechnology. The recent EU opt-out proposals on genetically-engineered (GE) crop cultivation and another on import ignited strong debates at both authority and industry levels regarding Romania’s stance. On cultivation, Romania supported the EU Commission proposal to allow Member States to opt-out of cultivation of EU approved GE crops, based on the belief that Romanian farmers will have access to modern technologies, currently blocked at the EU level.

In 2014 Romanian farmers planted 771 hectares with GE corn, slightly lower than in 2013. The traceability rules and stringent conditions for commodity segregation along the whole chain led to a drastic drop in the area planted with GE corn this year. In 2015 the area estimated to be covered with GE corn is as low as 2.5 hectares.

The grains and oilseed production harvested in Romania covers the volume needed for the livestock and poultry industry, except for soybeans. Soybean production grew in 2014 to reach 200,000 metric tons (MT) and it is projected to rise further, encouraged by support proposed by the Romanian Government. The level of support is 325 EURO/hectare (HA) (about U.S. $ 370) for soybeans, under the conditions that farmers prove they own soybean crushing capacity or sign a contract with a crusher for delivering their soybeans and have also sale contracts (for more details, please read the Oilseeds report. As a result of the higher domestic production, total soybean and soymeal imports dropped in 2014 by 3.6% to 560,000 MT (U.S. $ 316 million), of which soybeans meal totaled 457,000 MT (U.S. $ 259 million). Brazil and Argentina remain the major soybean product suppliers in 2014, followed by the most recent players, Bolivia and Paraguay. The U.S. position on the market as a soybean supplier deteriorated over the past year, but the United States plays a significant role as a soybean seeds supplier.

Field-testing of bioengineered seeds is permitted in Romania. This year field trials will continue solely on plum trees, as part of an earlier permit. In 2015 no import approvals were requested/granted for seeds derived from biotechnology, as companies have submitted no notification to the Competent Authority.

General economic situation

Croatia has a surface of 87,609 km², consisting of 56,542 km² (64.5%) of continental land area and 31,067 km² (35.5%) of territorial sea area. Croatia has a total population of 4,437,460 people. The country was awarded candidate status in 2004. Croatia will join the European Union in 2013 and has been a member of NATO since 2009. Since 2000, the national economy was characterized by economic growth until 2009 when, due to the financial crisis, Croatia recorded negative economic growth. The Croatian macroeconomic environment is stable, reflected in the low inflation rate and confirmed by the long-term credit rating. The country’s national debt remains high at 52.8% of GDP (2012). During the last six years the unemployment rate declined, up until the point of global crisis. In 2012 a total of 333,400 unemployed people were registered in Croatia. The average Croatian HRK/€ exchange rate oscillations have been very low.

From 1993 to 2010, Croatia received foreign direct investments to the total amount of € 24.5 billion. Investments in agriculture and food account for 1.5% of the total investments.

Agriculture

Agriculture has an important role in the labor market as a significant percent of the population earn their income from the agriculture and food sector. However, despite agriculture’s importance it is showing signs of a declining trend. The gross value added of agriculture has decreased to less than 7%. The same trend can be observed for the food processing industry. Croatia suffers from a deficit in the agro-food sector and is currently self-sufficient in only a few agricultural commodities. Two thirds of the land (63%) is classified as agricultural land and forests.

The farming structure consists mainly of small family farms which mostly produce for their own needs. Their share in market production is very low. The largest share is produced by large farms which have been growing at the fastest rate in the last few years. Croatia is almost last in Europe for land irrigation. Only 9,000 ha are irrigated although there is potential for 600,000 ha to be used. With the onset of climate change, Croatian agriculture is now more exposed to droughts.

24,500 people are employed in legal entities involved in agriculture, some 8,500 people are self-employed craftsmen related to agriculture and 32,000 people are employed as farmers. The EU represents the main trading partner prevailing somewhat to the CEFTA parties. Within the CEFTA group, in 2010 a surplus in the trade of € 332 million was achieved, while at the same time a trade deficit of € 907 million was realized with the EU countries.

An average customs rate of 5.5% is applied, while the maximum customs fees are 20% for selected goods. There is no customs duty on exports to the EU for most Croatian goods.

The financial industry in Croatia is well developed and offers specialized products for different agricultural activities, including primary production and processing. The Croatian Bank for Reconstruction and Development (HBOR) operates a loan program with interest rates of 2 – 4% and repayment time frames of up to 12 years. Reduced interest rates of 2% are available to less favorite areas and successful enterprises.

For farmers unable to obtain guarantees, the Croatian Agency for SME (HAMAG) acts as a guarantee for the credit. The maximum amount of credit is 3,500,000 HRK (€ 472,972).

Investors investing at least € 300,000 can benefit from various incentives, such as tax and customs benefits, support for opening new workplaces, support for the training and re-training of employees, support for technology and innovation acitivities (5% of the justified high-tech equipment costs).

The government provides support through a system approximated to the EU and covers direct payments, measures for regulation of the markets and measures for rural development.

Direct payments are paid based on output and per hectare/head. The government and local authorities also subsidize the procurement of certified planting materials.

Farmers benefit from the insurance that the ministry and local authorities participate in the covering of 50% of the insurance costs.

Registered producers and VAT subscribers can also benefit from subsidies for capital investments. The maximum participation of the support goes up to 25% of the total value of the credit or 20% of the total value of the investment. The maximum investment amount is 10,000,000 HRK (€ 1,351,351).

IPARD is a pre-accession program of the EU for the period of 2007 – 2013. The minimum value of eligible investment per project is limited to 33,800 EUR and the total value is limited to 3,000,000 €.

Due to the reform of CAP, most of the agriculture and rural-development related programs end in 2013 and new ones are currently being developed.

Croatia approximated its food safety system and the legal framework with the EU, including a system of formal controls supported by a network of laboratories. HACCP is a mandatory requirement for all food operators. Service providers (implementers and certifiers) for quality assurance standards are readily available and engaged in the fruit sector.

The government participates with subsidies for the costs of implementation and certification of quality assurance, while the local authorities recover up to 50% of the costs for organic standards certification.

Mandarins

Some 50,000 ha are covered with fruit trees predominantly cultivated by private smallholders. In terms of land surface, mandarins account for some 17% of the fruit production.

The production of mandarins has been significantly increasing in the last decade due to the high returns on investments despite the long waiting periods (six – eight years) from planting to full productivity.

The total area where mandarins can be produced accounts for 54,894 ha of arable land with different soil qualities. The largest production is located in the Neretva valley (some 90% of the total production) due to the significantly lower risk of frost damages. Mandarin production is carried out on some 2,000 ha, belonging to some 1,500 farmers. Several legal entities have ventured into mandarin production. The average yield is 34 tons/ha.

A total of 17 varieties of mandarins are grown, offering the distribution of fruits for some two months. Some 15,000 tons of mandarins are consumed in Croatia or some 2 kg/inhabitant/year. The harvest begins in September, somewhat earlier than the main competitors, and lasts for approximately three months which is a comparative advantage for the sector. Croatia exports up to 41,000 tons of mandarins valued up to € 20.7 million. The mandarins are exported in the CEFTA countries, Russia and the EU. The buyout and export of mandarins is regulated by the government. The farm gate price goes up to 4 HRK (€ 0.54), although the average is approximately 3.3 HRK/kg (€ 0.4). The mandarins are exported at € 0.55-0.6 /kg. Average farm gate prices of mandarins in the last decade ranged between 2.39 HRK/kg (€ 0.32) (lowest price in 2006) and 4.63 HRK/kg (€ 0.62) (highest price in 2005).

Public competitions for support for buyout of mandarins are announced by the Ministry of Agriculture. The government co-finances the costs for buyout under the condition that buyers cover the minimum prescribed price. The buyers are obliged to have paid the full value of the fruits prior to applying for the support. The program provides support to the extent of some 36 million HRK (€ 4.86 million) in subsidies. With rulebooks on fruit quality the government prescribes the market quality standards and models of control and inspections.

The demand is rising both on the regional and the EU markets. Recently the mandarins found their way to the Russian market, fostering even higher interest for investments.

The minimum quantities for buyout were revised from 1,000 to 500 tons in order to allow smaller companies to participate in the competition.

Mandarins are a sector which will not be influenced by quotas once Croatia joins the EU. The large producers are heavily dependent on the seasonal workforce for the harvest. The lack of labor has been supplied by workers (Croatian citizens) from Bosnia-Herzegovina. With the legalization of the seasonal work in 2012 the levies for the pickers account for an additional 25% to the wages paid to the pickers. A picker can earn between 200 and 300 HRK (€ 27 and 40) per day. Illegal pickers could also be banned from re-entering the country next year. Certain farmers have introduced new methods by attracting tourists to participate in the mandarin harvest for a day or two.

Investment in primary agricultural production is limited for large plantations due to the fragmentation and private ownership of land. However, the investment potential is significant as there is sufficient land area for the increase of the production. Larger investments are feasible mainly on state owned land or in cooperation with entities already leasing state land. State-owned land is provided to investors through public competitions (on a lease of up to 50 years).

Investments in the buyout and trade sector is preconditioned with the award of appropriate licenses on public competitions organized annually by the Ministry of Agriculture or as joint ventures with companies already involved in the buyout.

There is a good outlook for the Croatian mandarins both in the neighboring (CEFTA countries), as well as the EU and Russian markets. The comparative advantage of ripening some two to three weeks earlier than most of the competitors ensures market opportunities in spite of the booming (world and European) mandarin production and exports.

Croatia is already present on the Russian market which is the largest import market in the world. This market can easily absorb the whole quantity of Croatian mandarins. In addition, the comparative advantage and the proximity are attractive for the second, third and fourth largest markets (Germany, France and the UK).

The traditional CEFTA markets are attractive for the later varieties of mandarins as they do not distinguish much between varieties.

Croatia’s mandarins are sold at a cheaper price compared to Spanish and Moroccan mandarins and a similar price to Italian and Turkish produce but more expensive than Greek mandarins.

The investment cost for the planting of mandarins is some 35,000 HRK/ha (€ 4,400) depending on the level of equipment, not including the actual work for planting and for the land. Land prices for plots suitable for planting of mandarins are about 30,000 €/ha. The initial fruit production is achieved after five years, while full fruit bearing is reached in eight years.

The average yields account for some 35,000 kg per ha, bringing some 100,000 HRK (€ 13,513) profit to the farmer. However, approximately one half of this earning covers costs for the maintenance of the orchards, resulting in net profits of some 1.6 HRK/kg on average (€ 0.21). The return of the investment is estimated to be reached within the third year of yielding.

General economic situation

Albania covers an area of 28,748 km2. Annual rainfalls vary from 1,000 to 2,500 ml. There is a population of 3,182,000 inhabitants. It is estimated that during the transition period around 860,485 Albanians migrated abroad, accounting for some 27.5% of the total population. Albania submitted its application to be an EU candidate country in April 2009.

The Albanian economy has been on a solid path of growth throughout the last decade, achieving a high real growth and low inflation (2% and 3.5%) and a relatively stable exchange rate of the Albanian Lek. GDP per capita was € 6,000/year in 2011 and the absolute poverty rate fell to 12.4%. The unemployment rate remains relatively high at 13.1%. SMEs dominate Albania’s economy representing 99.6% of all registered businesses.

The total amount of FDI between 2000 and 2010 is estimated to be € 3 billion.

Agriculture

Agriculture remains one of the largest and most important sectors. Currently, it contributes around 18% to the total gross value added. A substantial portion of agricultural production remains subsistence-oriented. The farm size in Albania is on average 1.2 ha. Roughly 25% of farms have less than 0.5 ha, 64% have from 0.6 – 2 ha, while 11% of farms have more than 2 ha of land.

The majority of farms (84%) combine crop and livestock farming. The overall number of farms has de-creased by about 14%, while the overall agricultural and food production has slightly increased during the last ten years.

Livestock is the most important agricultural sub-sector, representing 52% of the total value of agricultural production, followed by field crops with around 29%, and then fruit trees with about 15%.

Agricultural land (about 1.12 million ha) covers roughly 39% of the country, of which 584,000 ha (about 52%) is arable land, 123,000 ha is under permanent crops and 415,000 ha (37%) is grassland.

76.5% of arable land is privately owned by rural families and the remaining part (137,000 ha) is state property of which 110,000 ha is low quality and remote while 27,000 ha is available as public land.

The existing infrastructure of irrigation, drainage and flood protection has been designed for around 360,000 ha, ensuring drainage to 280,000 ha, and the reduction of the risk against a river and sea flooding to 130,000 ha.

With 48% of total labor the agricultural sector continues to be one of the most important sectors of the Albanian economy. Around one-third of farming households receive income from remittances.

Lack of loans in the agricultural sector is evident. Few banks are crediting investments in agriculture as part of their portfolios. Micro-credit is not developed in the rural areas and it covers only 10 – 15% of rural families and enterprises. High intrests of micro-credit schemes (24%) distance the banks from the rural areas.

Despite the high share of agriculture in GDP, Albania’s agricultural export performance is weak, with an export/import ratio of 1:10, leading to a trade deficit of about € 531 million. During recent years, the agricultural trade deficit has increased significantly.

The largest Albanian export products are niche market products that require labor-intensive production methods (oleaginous herbs and seeds, frog legs, and fish). The EU is the main trading partner.

Albania has a relatively liberal trade regime for the agricultural and food sector, composed of five tariff levels for most favored nations (MFN): 0, 2, 5, 10 and 15%, respectively, and no tariff-quotas.

Foreign investors willing to operate their business in Albania will benefit from a flat corporate and personal income tax rate of 10%. The “Albania 1 Euro” initiative, aims to grant entry into the market for literally one Euro.

The agriculture and food Sector is supported with direct payments and interest rate subsidies (or credit guarantees) for investment in production technologies, new plantations, breeding animals, equipment, machinery and storage capacities etc.

Food safety and quality is another major challenge, and one of the key factors limiting Albanian agro-food exports to EU countries, causing large trade deficits. Support measures for the organic sector are provided by the Ministry of Agriculture; support per farm is 70,000 ALL/farm (equal to € 500).

Medicinal and aromatic plants

The collection of medicinal and aromatic plants (MAPs) is well developed in Albania. The herbs and spices sector is the biggest in terms of the number of people involved. There are no official statistics on the number of workers involved. However, estimates indicate that some 76,000 people depend on the collection of medicinal and aromatic plants for an important share of their income.

A wide range of MAPs is sold to the international markets mainly as bulk and essential oils. Over 95% of MAPs are wild collections grown all over the country.

Albanian plant life includes roughly 3,200 various medicinal herbs, of which 250 species are harvested for commercial purposes. The most important export items are Sage, Oregano, Juniper, Thyme, Savory and Laurel.

Albania is the third largest exporter of MAPs in Europe, and ranks as the second European country (after Bulgaria) in terms of trade surplus in MAPs. Albania has held a major role in the international trade of MAPs for decades. Today, Albania exports about 8,000 tons of medicinal herbs per year, valued up to € 15 million and accounting for 25% of all agro-food exports. Most important for the sector is sage which accounts for about 50% of all exports, with an estimated volume of 2,000 to 2,500 tons/year with a total export value of almost € 2 million/year.

The main destinations for exported MAPs and essential oils are the USA, Turkey, Germany, Austria, Italy and France. Some fresh herbs are also exported to Switzerland.

85% of the MAPs are spices and herbs which are dried and crudely cleaned (including smaller stems) but not processed further. The remaining 15% of the quantity has lower quality and is crushed or used for ground spices, essential oils or oleo resins. A share of MAPs exports are processed further and then re-exported to other countries.

Albanian MAPs in general have prices significantly lower than those of the rest of the world, to a large extent due to poor post-collection practices (involving sorting, cleaning, varietal purity, phytosanitary conditions, food safety treatments, freshness, moisture level, etc.), that can affect the quality characteristics.

The Albanian government and public institutions show very limited involvement in the MAP sector, despite its importance.

There are 27 herb processing companies which are supplied by the consolidators or gatherers. Large processors have collection agents or branches in selected districts. Herb processing is a relatively small operation sized with processors employing 11 – 20 workers on average. The average turnover is 100 to 500 tons valued at € 0.5 – 1 million/year.

Most processors are small and use traditional, low-level technology. Labor intensive technology and raw materials represent more than half of the total operating costs. These processors are not adapting and investing to stay competitive in the international environment. Medium-sized processing companies (some 5 – 7) and the two largest processors are exporting to different buyers in foreign markets.

Few companies add value to their products through organic certification or through the production of essential oils.

A very limited share of the total production of herbs and spices is cultivated, although it appears that this is changing. Large and medium-sized companies have contract production arrangements with a number of farmers who cultivate limited surface areas. The cultivation of herbs has potential to control (and lower) production costs, the capacity to improve the quality of raw materials and to assure continuous and expanding volumes. Few herbs are in sufficient demand to encourage their widespread commercial cultivation. According to the most recent estimations (2008) there are few hundred hectares with oregano and thyme, and a few tens of hectares with sage and lavender. The total area does not exceed 500 ha. This activity takes place in different seasons of the year. The large operators distribute free seeds to farmers in order to increase production.

15 small, medium and large-sized processing companies produce between 35 and 40 tons of essential oils. All processors use steam distillation annually.

There are about 10 export companies that deal exclusively in herbs. The bulk of the trade enters the EU through a small number of major brokers and trader/importers.

Given that they deal with foodstuffs for export, working conditions are often below what is required by regulations and/or good practices. With the EU approximation Albania will have to tackle this problem, through the introduction of HACCP, at least, in the upper segments of the supply chain.

Large areas of wild medicinal and aromatic plants are being damaged because of improper harvesting practices and a lack of control by institutions. Other problems include environmental damage, diminishing quality due to over picking and the decline of certain species of MAPs.

Investments in cleaning and sterilization facilities are a definite consideration for the preservation of the export.

Investment in the Albanian herb sector should not be considered as an isolated activity in the action of processing. Investors should address supply chain management including: development of market intelligence, quality measures with gatherers and collectors, development of cultivated production and quality and efficiency improvement at the processing level.

Entrance into the Albanian market through branches of larger foreign companies with much larger financial, organizational and technical resources than local competitors is feasible.

For the foreseeable future, the international market will remain the primary target for sales of Albanian MAPs. The sub-sectors grew in both size and efficiency in the last decade and, in parallel, western European nations have almost doubled their imports of MAPs.

The re-export of MAPs is an essential part of business throughout the world. Regional competitors for Albanian exports primarily include Bulgaria and Turkey, and to a smaller degree Serbia and Macedonia.

In addition, competition for the main markets (Germany, the United States, Italy and France) is becoming fiercer.

Due to competition and migration, the medicinal herbs sector is shrinking. In contrast, traders’ margins are already decreased and the share of the final value remains to farmers, who already obtain 20% higher prices compared to 2 – 3 years ago. This trend is expected to counterbalance the loss of labor for wild gathering with mild effect to the collection capacity. However, this has already resulted that sage in high hills and mountain areas is harvested less, while wild MAPs nearer to villages are over-harvested.

General economic situation

Serbia has approximately 7.5 million inhabitants with a territory of 88,361 km2. Serbia is one of Europe’s fastest growing economies, with a GDP gaining nearly 7% on average. GDP per capita is about € 3,230. The inflation target is set in a range between 4 – 8%. Since 2001, Serbia has attracted over € 19.2 billion of inward FDI. The total amount of foreign investment into the agricultural and food sector after 2000 exceeded up to € 0.77 billion.

Agriculture

Agriculture is one of the most important economic activities in Serbia. Approximately 55% of the population lives in rural areas with around one third of the active population relying to some extent on agriculture for a living.

Primary agricultural production accounts for over 10% of the GDP.

Agricultural land covers approximately 5.1 million ha of which about 3.6 million ha is arable land.

Irrigation systems cover an area of about 149,000 ha, with about 30,000 ha currently in use.

The combined number of people employed in agriculture (7%) and in the food processing industry (4.5%) represents approximately 11.5% of the total labor force of 2.1 million people. Around 150,000 workers are employed in agro-processing and agricultural service providers. Food processing enterprises are the largest employer in this specific sector with more than 90,000 employees. Social insurance charges and salary tax amount to roughly 65% of the net salary.

Agricultural exports continue to expand and contribute to 24% of the total exports, making it the only sector with a positive foreign trade balance. The highest value of trade, in the amount of about € 2.5 billion, was reached in 2010 with a surplus of about € 0.92 billion.

The greatest export share from agricultural products is noted in cereals (6.2% of total export) and fruits and vegetables (5.6% of total export). Agriculture participates with 21% in the overall foreign trade.

Average import protection in agriculture for imports will be reduced from the original 23.2 to 3.2%.

The key trade partner for Serbia is the EU. The CEFTA signatories absorb about 43% of agricultural exports. At the same time, the largest volumes of imports originate from the EU. By value of imports, the most important partners of Serbia are Germany, Macedonia, Brazil, Croatia, Italy, the Netherlands, Bosnia-Herzegovina, Ecuador, Hungary and Poland.

Service providers for Quality Assurance Standards are readily available and increasingly engaged in the sector. Organic production is limited but increasing. Food safety and food quality issues are becoming essential prerequisites for the sector. HACCP is a mandatory requirement for all food operators.

The financial industry is relatively well developed, and offers specialized products for different agricultural activities including primary production and processing. The funds for the credits originate from various support credit lines.

State grants are offered for Greenfield and Brownfield investments in all industries, except primary agriculture, the hospitality industry, retail and production of synthetic fibers and coal.

Non-refundable state funds are offered in the range between € 4,000 and € 10,000 per new job. Incentives for employing new workers include a tax reduction for a period of two years. A wide array of incentives is also available at local level. The national program for agriculture comprises of direct incentives (premiums, refunding for inputs, crop insurance, storage costs, introduction of QAS), structural incentives (raising orchards and investments in production and marketing) and market incentives, including export incentives as a return on percentage of the value of exported goods.

Raspberry and blackberry

Berries have been one of Serbia’s main and most valuable export products for generations. By being ranked among the largest global producers, the sub-sector is significant for both national and rural income.

The primary production is massive in regards to the size of the country (with over 80,000 farms). Raspberries and blackberries are the third agricultural export commodity (after grains and sugar).

Serbia is one of the biggest producers of raspberries in the world with an annual production between 65,000 – 100,000 tons, reaching an average of 80,000 tons/year.

Raspberries occupy 65% of all planted berries. The main variety is Willamette (95%). The area for raspberries is some 15,200 ha, with an annual growth of 2.8%. Raspberry yields are between 5.7 and 5.4 tons/ha and are almost exclusively handpicked.

Serbia is one of the biggest producers of blackberries in the world with a production fluctuating around 30,000 tons. The main variety is Cacak Thornfree (75%). The 70,000 raspberry farmers also produce blackberries. Average yields are about 8 t/ha. The berry producers are assisted by an estimated seasonal workforce of 200,000 people. Most of the farmers are professional berry producers.

The majority of the berries grown in Serbia are varieties for processing, grown in open fields using outdated technologies and with relatively low yields.

Direct investment potential in primary agricultural production is limited due to the fragmentation and private ownership of land. Although possible it is feasible mainly on plots of government owned land.

Farming cooperatives of small size farmers can be considered as potential joint-venture partners for foreign investments into modernization and processing. Small farmers need investments required for the modernization of the production process, including the mechanized harvest (where applicable), irrigation, as well as changes in the variety composition. There are no large producers of berries that have not invested in a freezing facility. The procurement of land for berry production is estimated to be up to € 5,000/ha. On average, planting 1 ha costs between € 5,000 – 15,000, depending on the location, variety and investments in drip irrigation and anti-hail nets.

The harvest participates with up to 30% in the farm gate price. In addition, the upkeep costs account for 20 – 25%. On average the farmers profit with some 50% of the farm gate price. The break even return on the investment (land and plantation) is estimated at four to five years from the investment.

There are approximately 250 chilling plants in Serbia, with storage capacities ranging from 100 tons to 10,000 tons. The capacity of the processing industry has already significantly outweighed the primary production output. Serbia is a traditional exporter of fruit for processing, while other countries add value. Much of the sector works with outdated equipment and faces hard times in moving to value-added production and quality assurance standards.

Less than 10% of Serbia’s total raspberry production stays in the country while 40% of the blackberry production is not exported. About 97% of exports of berries are sold to the EU, accounting for 65% of total EU imports. Serbia’s share of the total world raspberry exports is about 45%, the largest of any country. However, in terms of the value, Serbia is third, with a share of 13%. This is mainly due to the low competitiveness and profitability in production and sales. The export prices range from € 0.97/kg to 1.2/kg, following a steady growth trend since 2001.

The largest portion of exports is from processed frozen raspberries, followed by processed frozen blackberries. Exports of individually quick frozen (“rolend”) make some 34% of total raspberry exports, with an average export price of € 1.44/kg. The share of “roland” raspberries has risen steeply in recent years. Roland blackberries reach a 70% share in total blackberry exports, with € 1.30/kg average export price.

Serbia’s frozen retail pack supply chain is small but growing. It is a business direction which did not exist few years ago. There is considerable potential for packing retail packs in Serbia and selling them for a 20% higher price. There is no export of fresh berries, although the prices are several times higher. Serbia exports 17,700 tons of berry juices with an export value of € 16 million. Berry juice concentrates are primarily exported to Germany (1,087 tons) and Austria (1,434 tons), accounting to € 7.5 million or 47% of berry juice exports.

Foreign importers and distributors play a significant part in the berry supply chain. The majority of trade goes through them. The final buyers are supermarkets, hotels, restaurants, catering and processors. Cold stores increasingly sell to end buyers instead of wholesalers.

Serbian exporters do not have good contacts with retail buyers and lack representation and have no means to promote products internationally other than independent company efforts. Most of the processors are too small to become visible in the market and to develop a brand image.

The investment potential in processing is huge, with vast potential markets and little regional competition. 15 Foreign investments in modern processing include the Van Duren freeze-drying facility, which has contributed to the diversification and exports. Facilities which lack turnover capital for autonomous operation are often rented out and, following the short season, are often out of use. Such facilities show an interest for joint ventures with foreign partners aimed towards the modernization of the facility and increase of the capacity and quality of the production.

There is an increasing world supply of frozen raspberries and blackberries, for which the market is stable but the price appears stagnant. Market opportunities exist in selling diversified berry products abroad in retail packs to an unsaturated market. Concentrating on the local, regional and EU market seems to be a good market orientation along with diversification, rather than competing on the global frozen markets. Although the EU is the largest producer of berries in the world (87% of the total production), it is also the largest consumer (Germany and France with 10kg raspberry/inhabitant).

CIS countries also may prove good destinations for retail packed produce in a mid to long term view. Market opportunities for fresh berries appear superior to those for frozen berries both for conventional and organic production. Organic markets, with a margin of 20 – 40% higher than for conventional products, are growing rapidly.

Dried berries, freeze-dried berries, smoothies, purees, concentrates, juices, preserves, and culinary ingredients (seed extracts, powders, etc.), are also a good potential due to the ample supply of cheap raw material. Companies produce a limited quantity of value-added products as technical knowledge is missing.

Chile, China and the United States are competitors for berry production on the global market. Poland and to some extent Bulgaria are competitors in the region.

The investment in the most common capacity IQF tunnels (2,800 kg/hour) vary from € 150,000 for used equipment to € 300,000 for new. Investment into cooling/freezing (+4 to -20 Co ) is evaluated at € 350- 550/m2 , depending on the make and the cooling equipment.

General economic situation

Macedonia is located in the central Balkans. The country covers an area of 25,713 km2 . Its terrain is mostly mountainous, traversed by the Vardar River.

After establishing independence, the Macedonian economy achieved macroeconomic stability in 2000. Positive performances of most economic indicators are signalling economic progress. In the last decade the country experienced faster economic growth than the EU, with growth levels of over 3% and an average annual inflation rate below 3%. The €/ MKD exchange rate has been almost unchanged over the last decade.

The growth has so far not benefited the official unemployment rate that remains above 30% (although actual unemployment is lower due to the informal economy).

Foreign Direct Investments (FDI) have been steadily growing in the last decade. FDIs in the agro and food sector were made in a number of companies from the region. Investments are usually smaller than € 1 million.

In December 2005, the European Council awarded Macedonia its official recognition as an EU candidate state.

Agriculture

Macedonia has a high natural potential for agriculture, in many instances the potential is underused, both in terms of the technology being applied and the value added. However, it has major implications for exports, value added rural development and employment. Agriculture is the third most important economic sector with a share in the overall GDP at around 9.7% for primary production. If agro processing is included, the percentage increases to 16%. The sector is growing by over 10% per year.

Agriculture is an important contributor to foreign trade. The relative share of agro-food exports in the total trade averages 16.9%, whereas the relative share of imports is 12.9%. In 2012, the unweighted average customs rate under the most favored nation treatment for agricultural products was 16.61%, whereas the unweighted average customs rate for industrial products was 6.2%.

Approximately 43.6% of the territory is agricultural land out of which 45.4% is arable land. A significant portion of the territory qualifies as less favorite areas, which are mitigated with the production of high value crops and labor intensive agriculture. About 20% of the land is owned by the state which was leased to some 297 legal entities. Agricultural land under state ownership cannot be sold. However, it may be leased. Rainfall varies from 400 mm in the center and east to 1,400 mm in the west of the country. Out of the total arable agricultural area 123,864 ha are irrigable through 144 irrigation systems.

The small-scale and fragmented nature of farming remains a general characteristic, while the increase in agricultural production is mainly due to a rise in yields over the last decade.

The population tends to have a traditionally deep connection with the rural environment and agricultural production. The sector provides income and employment to approximately 435,500 residents. Around 80% of them are part of some 192,378 farms (1.47 ha on average). An additional 20,000 part-time farmers and significant seasonal employees (particularly in the fruit and vegetable sector) work in the sector.

The agricultural sector has always regionally and locally been viewed as a supplier of raw materials. With the abandonment of centralized planning, agriculture in the country is striving to move away from raw material production and exports, and towards value adding and niche markets. Government policies in most of the profiled countries support such developments.

The financial industry in Macedonia is relatively well developed and offers specialized products for different agricultural activities.

Macedonia uses direct payment schemes according to EU rules. Rural development support is mainly intended for restructuring and modernizing agriculture through investment.

The government has been providing support from the national budget in the last few years (approximately 100 million €/year in 2010 and 2011). 90% was spent for direct payments policies and 10% on co- financing the investments, accounting for some 3% of the national budget. In addition, producers can apply for the pre-accession EU support for rural development IPARD.

The government is subsidizing the insurance of crops for primary agricultural producers with 60% of the insurance cost. To encourage the implementation of safety and quality assurance standards as well as organic production in agricultural production and processing, the government is subsidizing the costs for the certification and implementation of standards and quality control for farmers and processors.

Service providers (implementers and certifiers) for quality assurance standards are readily available Macedonia offers one of the lowest tax regimes in Europe and numerous benefits to investors.

Wine grape and wine sub-sector

Wine grapes constitute the basis upon which the wine industry is built on and are a source for raw materials for the wine industries of neighboring countries.

The total area under vineyard production is 20,700 ha (5% of the arable land). The average annual production is about 265,500 tons of grapes, with an increasing trend. This development is a result of the support provided by the government, accounting for some 1,000 – 2,000 ha per year or an increase of the grape production by 7 – 11% per year. Average yields are 9.7 t/ha, reaching up to 20 t/ha.

28% of the grapes are sold fresh, including: 17,000 tons of table grapes and 14,500, tons of wine grapes.

Climatic conditions are more suitable for red grape varieties, although white varieties are cultivated on more than 50% of the total land area. Macedonia possesses excellent terroir; its combination of soil, climate, sunlight, water and topography is optimal for growing grapes. The country enjoys 220 days of sunshine a year. The temperatures contribute to a characteristic richness of color, flavor and alcohol. The cold winters offer a good recovery time for the vines.

The most common colored wine varieties with a long tradition are Vranec (50%) and Kratosija, and the most common white varieties are Smederevka (60%) and Zilavka. The price of red wine grapes is on average €140 – 200/ton while the white wine grapes cost an average of €100 – 120/ton.

The ample supply of raw materials is produced by thousands of small farmers. Several large companies dominate (up to 1.000 ha.) among the producers. Investment potential in new vineyards is limited due to the fragmentation of land. Investments are feasible mainly on government-owned land as foreign investors can apply for concession of agricultural land.

The large grape producers could be of interest to investors (buying, partnerships connected to investments in modernization of the production or adding value to the raw material through processing). The average markup for wine grapes is some 30% (4 – 5 MKD/kg € 0.08 – 0.09), while the subsidies account for an additional 40% (5 – 6 MKD/kg € 0.9 – 0.1) to the average farm gate price (12 MKD/kg, € 0.2 in 2010). Planting of new vineyards on 1 ha costs some € 7,000 – € 7,500.

The primary sector was designed for a much larger market and therefore the production is able to meet increased demands by the processors. Growth possibilities are evaluated at up to 10% in midterm. Macedonia does not have significant competitors for the production of raw materials from neighboring countries.

Macedonia offers an ample supply of relatively cheap labor for both grape and wine production. The average monthly gross wage is approximately € 346. Seasonal wages are between (€ 6 and € 15/day) depending on the type of operation (pruning, harvesting, loading etc.). No notable lack of workers is evident.

Macedonia has a rich wine tradition and accounted for two thirds of the total wine production in the former Yugoslavia. Wine is nowadays exported both to the EU and the surrounding region. Investments in the last decade have resulted in added value, improved quality, increased quantity and exports. The combined grape and wine production contributes 17 – 20% to the agricultural GDP. Macedonian wines are known on the regional market, although a significant quantity is exported to Germany for blending as bulk.

Tax

Tax Rate, Corporate Income Tax, Corporate tax on retained earnings 10%, Personal Income Tax 10%, Value Added Tax 18%, general tax rate 5%, preferential tax rate, Property Tax 0.1% – 0.2%, Inheritance and Gift Tax 2 – 3% or 4 – 5%, Sales Tax on Real Estate and Rights 2 – 4%.

The total production of wine is some 900,000 hl in 86 registered wineries. The installed capacity of the wine cellars is 2.16 million hl or more than twice the annual wine production. The installed bottling capacity of 650,000 hl remains partly used. The total wine export value ranges from €38.3 to 43.5 million. The value share of bottled wine ranges from 28 to 36%.

With the signature of the Stabilization and Association Agreement (SAA), a duty-free quota of wine export to the EU (consisting of 399,000 hl) was granted. The duty free quota was used with 81%, whereupon the wine in bulk quota was used with 93% and the quota for the export of wine in bottles was used with 22%.

The most important export market is Germany, where the wine is blended and sold in tetra packs at prices ranging from € 0.84 to 1.15/l. The bottled wines are exported at a price ranging from € 1.35 to 1.56/l. The bottled wines at the regional markets fetch higher prices compared to bottled wine exported to EU markets. The second most important destination is the CEFTA countries, out of which Serbia participates with 27% in the total export and Croatia with some 13% of the wine exports.

Wine in Macedonia is produced according to the Wine Law and some wines are registered with PDO/PGI, complying with the relevant regulations of the EU. A strategy for the sub-sector has been developed. The investment potential in the wine industry is significant, however it is feasible only for investors with linkages and experience with market outlets.

Most of the local companies have a chronic lack of turnover capital and weak market outlets. The major strategic challenge for the wine cluster is the substitution of exports in bulk with exports of bottled wines.

The difference in price between bulk and bottled is more than three times, which suggests that there is an opportunity for significant improvement in income generation, if significant quantities of bulk are shifted to bottled wine. Regional exports are almost as high as the EU exports, however they are higher in value per unit sold. Exports to non-EU countries such as the US, Russia and Ukraine are also increasing.

The investment costs for small size wineries (400,000 l on 300 m2) is estimated to be € 0.6 – 0.7 /l of installed capacity, whereas € 400/m2 (€ 0.3/l) are the costs for construction of the facilities and € 0.37/l are the cost for the processing equipment.

Investment opportunities are available as joint ventures, provided to investors with experience and knowledge of the market (preferences and outlets).

The government is supporting the establishment of new, and the improvement of, the existing wineries.

The sub-sector suffers from a lack of turnover capital. The crediting of the end buyers for wine (up to one year) is translated into long delays of payments to producers, further eroding the trust and vertical integration. The lack of qualified enologists is viewed as a constraint for the sector. The lack of promotion on international level is also evident.

Government support is channeled as market incentives, aimed at keeping value added in the country and at easing capital constraints.