Draft for discussionAgricultural Strategy – Republic of Serbia
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MINISTRY OF AGRICULTURE,
FORESTRY AND WATER MANAGEMENT
Agricultural strategy
Republic of Serbia
Belgrade, October 2004
Acronyms
AP- Agency for Privatization
CAP – Common Agricultural Policy
EAR –European Agency for Reconstruction
EU – European Union
FAO – Food and Agricultural Organization GATT – General Agreement on Tariff and Trade
GM – Genetic modification
GMO – Genetically modified organisms
ICA - International Cooperative Alliance
LS – Local authority
MCPFE - Ministry Conference of Protection Forest in Europe
MDULS – Ministry of state government and local management
MEOI – Ministry of e foreign economic affairs
MF – Ministry of finance
Ministry – Ministry of Agriculture, Forestry and Water management
MNZŽS – Ministry of Science and Environment Protection
MP – Ministry of Agriculture, Forestry and Water management/ Ministarstvo poljoprivrede, šumarstva i vodoprivrede
MPR – Ministry of Economy
MPRa – Ministry of Justice
MPS – Ministry of Education
MRZSP- Ministry of Labour, Employement and Social politics
MTTU – Ministry of Trade, Turism and Services
MZ – Ministry of Health
NSRS – The Parliament of of Republic of Serbia
OECD – Organisation for Economic Co-operation and Development
IPGRI – International Plant Genetic Resources Institute
PAU – Policy Advisory Unit
JP – Public companies
SAA – Stabilisation and association agreement
SPS – Sanitary Phitosanitary Agreement / Sanitarni i fitosanitarni sporazum
SAP – Stabilisations and associations process
STO – World Trade Organization
VRS – The Government of Republic of Serbia SAA – Stabilisation and association agreement /Ugovor o stabilizaciji i asocijaciji
SPS – Sanitary Phitosanitary Agreement / Sanitarni i fitosanitarni sporazum
SAP – Stabilisations and associations procces / Proces stabizacije i asocijacije
SS – Savetodavna služba
STO – World Trade Organization /Svetska Trgovinska Organizacija
VRS – The Government of Republic of Serbia/Vlada Republike Srbije
CONTENTS
I.Foreword
II.CURRENT ISSUES AND DEFINITION OF OBJECTIVES
II.1.Current issues
II.2.Defining the strategic goals
III.Government role in agriculture in a market economy
IV.AGRICULTURAL STRUCTURE
IV.1.Farm structures
IV.2.Improvement of the farm structures
IV.3.Processing structures
IV.3.1.Overcapacity in the processing sector
IV.4.Land markets
IV.4.1.Lease market
IV.5.An Agricultural Land Agency
IV.5.1.Long term credit for land purchase
IV.5.2.State land
IV.5.3.Farm consolidation
IV.6.Forestry management
IV.7.Water resource management
IV.7.1.Water management unit, Water directorate and Regional services
IV.7.2.Water management companies
IV.7.3.Water recourses management financing
IV.8.Institutions to support the agricultural sector
IV.8.1.The Ministry of Agriculture and Water Management
IV.8.2.Veterinary, phytosanitary and food control
IV.8.3.Research
IV.8.4.Advisory service
IV.8.5.Education
IV.8.6.Agricultural co-operatives
IV.9.Privatisation of Agrokombinats and food processors
IV.9.1.Privatisation approach
V.MARKET DEVELOPEMENT
V.1.IV.1. Price and support policy in Serbia
V.1.1.IV.1.1. Economic environment
V.1.2.Price and support policy in Serbia
VI.Agricultural markets
VI.1.Unofficial, unmonitored channels
VI.2.Lack of scale economies
VI.3.Price and quality differentials
VI.4.Pricing efficiency
VI.5.Lack of competition
VI.6.Insecure contracts
VI.7.Lack of physical facilities and infrastructure
VI.8.The credit market
VI.8.1.Collateral
VI.8.2.Banking sector capacity
VI.8.3.Lease financing
VI.8.4.Micro-finance organisations
VI.8.5.Stimulating the credit market
VII.Rural development
VII.1.Agricultural environmental issues
VII.2.V.1.1. Genetic Resources in Agriculture
VII.3.Organic (ecological) farming
VII.4.Genetically Modified Organisms
VII.5.Appendix 1: Objectives of Serbian agricultural policy
VII.6.Appendix 2: Activities related to Agricultural Strategy – Republic of Serbia
- Foreword
It is time that Serbia had a new agricultural strategy. After fifty years as a planned economy, ten years of international isolation, and the last few years of uncertainty whilst the nation debated in which direction it wished to go next, Serbia is once again moving forward, and its agriculture is about to embark on a transformation unprecedented in its history. This transformation will involve three major elements: completing the transition from socialism to a full market economy; integration with and ultimately accession to the European Union; and a radical restructuring and modernization of the whole agricultural sector.
Building the market economy
Establishing a market economy will have profound implications for the role of government in agriculture, and for the relationship between individual producers and the state. Government will withdraw from many of the functions that it used to perform, such as directing state and socially-owned farms, providing inputs and credit, and operating directly in commodity markets. Many of these activities will be transferred to the private sector, and the remaining state institutions will undergo a radical change in direction. At the same time, government will have to take on or strengthen many new functions necessary to ensure that the market functions well and that private operators have access to the information and resources they need in order to work effectively. This will include the new market information service, much-strengthened systems of agricultural education, training and advice, and a new role in regulating and policing the market to ensure that the conditions exist for free and fair trade and competition.
Section X of this report discusses this changing state role in more detail, whilst discussion of the various institutions to be established or transformed can be found in sections X, Y & Z.
How will this all affect the private operator, the individual farmer or trader trying to make a living in this new market? On the one hand he will have more freedom, and the regulations with which he has to comply will become clearer, more objective, and uniformly applied to everyone in the sector. On the other hand he will no longer be able to rely on government to tell him what to produce, or to buy his produce should it fail to find a market. The farmer will become increasingly an entrepreneur, and his profit or loss will largely depend on the wisdom of his own decisions. For many, this change is a daunting one, and the loss of apparent security a frightening prospect. However, during the last half century farmers in countries around the world have gone through a similar transition and faced similar fears, finally to emerge with an agriculture that is much more efficient, more productive and more profitable than they ever had before. The various measures of assistance and support set out in sections X, Y & Z are intended to help farmers make this transition successfully, and to make Serbian agriculture competitive with any in Europe.
This strategy document is unique in the history of Serbia in that it does not even try to say what farmers should produce. You will find no five-year plan, no target area for crops, nor planned volume of exports – figures predicted in previous strategies with sometimes spectacular inaccuracy]. The final outcomes of production and trade will be the result of individual decisions taken by each of the million farmers and traders who make up Serbia’s agricultural sector and it would be unfair, unrealistic and arrogant for government to attempt to either dictate or predict these decisions. A farmer’s decisions determine the livelihood of himself and his family, and only he has the right and responsibility to make them.
Yet every day farmers approach the Ministry of Agriculture, Forestry and Water Management and ask “What should I produce?” The question is a vital one, one that the farmer himself must answer, but what factors should he take into account when making that decision?
Firstly the farmer must look at himself, at his own interests, abilities, experience. How much time and effort are he and his family prepared to put into running their farm, and into researching and learning new skills? How much risk are they prepared to take, as every new venture is risky, even if ultimately the risk of doing nothing is greater? Only the farmer and his family can answer such questions.
Secondly, the farmer must look at his farm, at the potential of his land, at his resources of buildings and machinery, of livestock and people. He must consider the capital he has available, and the possibilities of increasing it through credit. In answering these questions, the government can and will help, through improved services to agricultural extension to assist the farmer in his analysis, and through increased access to sources of credit for those farmers who are serious about making a profit. Sections X & Y give more details on these two important subjects.
Thirdly, the farmer must look at his market, at what people want to buy, how much they are prepared to pay for it, and what quality they demand. Here price is the greatest barometer, the signal that indicates what is happening in the markets, not only in Serbia but in the whole region or even the world. To run a successful business, the farmer must learn to interpret this barometer as skilfully as he reads the weather, as his fortune depends on both. A whole part of this strategy (sections X to Y) deals with making the markets work more effectively, and the new market information system discussed in section Z will provide farmers with a regular “weather forecast” of the agricultural markets, as well as helping them to interpret the barometer’s rises and falls.
And finally, the farmer will always look at government policy, at the signals his own government is sending through what imports it chooses to tax and what products it chooses to subsidize. Traditionally, governments around the world have used the twin mechanisms of trade policy and domestic support to send clear messages to farmers in a deliberate attempt to steer agricultural production in a way that they, the government, think best. However, after fifty years of dominating world agriculture, this way of thinking and working is now in rapid decline. Agriculture has at last been included in the remit of the World Trade Organization, which Serbia aspires to join, and this has set the clear goal of eliminating all production-increasing subsidies and allowing only those forms of support that have no direct influence on what the farmer chooses to produce.
The European Union’s Common Agricultural Policy, a massive and complex policy that changes direction like a super tanker at sea, is also turning in this direction, steadily moving its prices closer to world market levels and progressively “decoupling” domestic support from the production of any particular commodity. Nine out of the ten chose the latter approach, and by the time Serbia joins the EU, it is unlikely that any other option will be offered.
Therefore the stated goal of this strategy, set out in sections X & Y, is to progressively reform Serbia’s systems of tariff protection and domestic support, so that they have less and less influence on what farmers choose to produce, leaving them free to listen to the needs of the market and respond in the way that is best for their individual situation. In the first phase of this reform, the existing commodity-related subsidies will be phased down and the resources redirected to investments that will make Serbian agriculture more profitable: grants, input subsidies, and credits. Some of this support, such as the credit programme, will be completely production-neutral, sending no signals as to what the farmer should produce, but several of the grants and input subsidies will necessarily apply more to certain commodities than others. All these schemes will be widely publicised and presented in detail on the Ministry’s website, so that farmers have the full information available when making their production decisions.
In the next phase of reform, input subsidies will be scaled down, as is likely to be required for Serbia’s accession to the WTO, and the grant programmes will be increasingly oriented to rural development, in line with trends in the European Union. This will further weaken the link between government support and the farmer’s decision of what to produce.
And in the third phase, leading up to and including accession to the EU, Serbia will prepare for and adopt the support systems of the Common Agricultural Policy as they then apply, which are likely to be centred around a system of flat-rate area payments, linked to various environmental criteria but otherwise unconnected with the farmer’s production decision. This third phase will complete the gradual process of decoupling support from production, so that government policy becomes only a minor factor in the farmer’s choice of what to produce, and agriculture may truly be said to be operating in a free market economy.
Further details of this transition, including targets for the proportion of overall support to be directed to each broad kind of measure, are set out in section X of this strategy document.
Integrating into the European Union
In 1993, the fifteen Member States of the European Union met in Copenhagen to consider the radical changes taking place in Central and Eastern Europe, and to consider the requests already being voiced that the countries so recently freed from communist rule should find a new home within an enlarged European Union. The historic conclusion of that summit was that the EU should be so enlarged, thus reuniting a Europe divided since the Second World War, and that a country’s readiness to join the Union should be measured against clear, objective standards. These standards, which came to be known as the “Copenhagen Criteria”, include some political targets, such as the establishment of democracy, the rule of law, and protection of minority rights, and three economic criteria that apply just as much to agriculture as to any other sector. These three criteria are:
- Creation of a functioning market economy, able to be integrated with the market-based economies of the existing Member States;
- Ability to withstand competition, so that the country’s economies would not be destroyed by a flood of imports once they joined the massive free trade area of the EU;
- Adoption of the entire set of accumulated EU rules and practices, known collectively as the acquis communitaire.
These criteria have remained unchanged since 199X, and comprise the standards against which Serbia must measure up before it will be able to join the European Union.
The first criterion, establishment of a working market economy, has already been discussed above, but the second goal, making that economy able to withstand international competition, is a major challenge for agriculture and hence the subject of large parts of this strategy. Two of the supporting documents, the volume on “Agricultural competitiveness” and the “SWOT analysis” of individual sectors look in detail at this question of competitiveness. They show that Serbia does have a natural comparative advantage in various products which is already leading to competitive success in certain export markets. But all the studies, and the supporting statistical material presented in the book “Serbian Agriculture on her way to EU“ show that in very many areas the productivity, efficiency and quality of Serbia’s agricultural production lags very far behind its EU competitors; to meet this second criterion, radical changes will have to take place affecting almost every aspect of production, processing and marketing. Even before Serbia becomes a member of the European Union, a “Stabilisation and Association Agreement”, already under discussion, will create an interim free trade zone, comprising Serbia, most of her neighbours, and all twenty five Member States of the European Union. Within this free trade zone Serbia will have little, if any, recourse to tariff protection to keep out imports, so it will be essential that domestic agricultural and food products can compete with the EU in both price and quality.
The redirection of domestic support, as described above, will address the medium-term goal of increasing competitiveness by making more funds available for activities that will improve productivity, profitability or quality. Instead of investing in commodity support that allows farmers to continue producing in an inefficient manner, those resources will be redirected to help make farmers more efficient, so that they can compete effectively in the future, even when such support is withdrawn.
Another important goal of government policy will be to raise standards of quality and safety so that Serbia is able to compete on quality as well as price. The goals for the veterinary and phytosanitary sectors, set out in sections X & Y, are all about quality, and many of the grant programmes and other systems of support will have a strong emphasis on product quality and marketing.
As Serbia becomes more exposed to international competition and less controlled by domestic policy, farmers and processors will find that they are more competitive in some areas than others, and the result, through the individual decisions of a million different people, will be some significant changes in the pattern of production. Serbia will increase its production of some commodities whilst others decline. The export of some products will increase and entirely new export markets will be gained, whilst in some areas Serbia may change from being self-sufficient or exporting, to becoming a regular importer of products in which it is not competitive. This will be no failure, but the natural outcome of Serbian producers learning to concentrate their efforts and resources in those things they do best. Indeed, if Serbia manages this transition well, its overall balance of trade in agricultural products should improve markedly.