Study on the Effects of the Global Ec onom ic Crisis on the Serbian Agriculture

1. Study on the Effects of the Global EconomicCrisison the Serbian Agriculture Goran Živkov, Andrew Vonnegut, Brankica Obućina, Nenad Popadić

2. Due to the specific nature of the agricultural production, it is hard to eliminate other influences and claim that something is happening because of a single specific factor. However ... • Specifics of the agriculture which make it difficult to define the effects • Production cycle length • Big impact of the weather conditions on the production • Short period of time included by the crisis • Assessment of the global/regional/domestic impact • Lack of certain data (farmers’ income, sales volumes ...) It is important to analyze and notice the trends as soon as possible in order to find an adequate answer on time ...afterwards could be too late

3. Questions to which we want to know the answers • Has the agriculture been affected by the crisis? • Has it been affected more or less than the other sectors? • How long will it last? • What will be the effects of the crisis? • Short-term • Long-term • What should be done to reduce its effects on the agriculture?

4. Effects of the global economic crisis on the Serbian agriculture Has the Serbian agriculture been affected by the global economic crisis?

5. The global crisis impacts Serbian agriculture across two main channels • Incomes decrease in main domestic and export markets, leading to lower demand • Lower demand leads to less production and greater unemployment • Some demand is lost, some shifts to different products 1 Decreased Demand • Low collateral cash businesses, such as importers, are seen as increasingly risky by banks • Buyers in domestic and foreign markets are no longer able to finance the same level of purchases • Foreign banks are retreating from CEE, lowering the amount of financing available to producers 2 Lack of Credit

6. Dosadšnji uspesi u trgovini poljoprivrednim proizvodima Has the Serbian agriculture been affected by the crisis – foreign trade Export constantly grows at the rate significantly higher than import (in million USD) Export has been growing at the average rate of 26% for the last 7 years, and now it is down 15%?

7. Has the Serbian agriculture been affected by the crisis – foreign trade • Total foreign trade of agricultural products in the first quarter of 2009 compared to 2008 has been lowered by18.7% • The export has gone down 15% • The import has been reducedby 22.6% • Unit value of the export has been lowered from 1.04 US$ to 0.53US$ Reduction of import and export in the I quarter of 2008/2009 (in million USD) Unit value of import and export (in USD)

8. Has the Serbian agriculture been affected by the crisis – foreign trade

9. Has the Serbian agriculture been affected by the crisis – foreign trade Comparison graph of Croatian and Serbian agricultural budget

10. Estimates of elasticity show that demand for food is often less subject to impact of income decrease than other products • Elasticity of demandpresents measured change of demand for products due to income increase; higher elasticity means that the consumption increases as the incomes increase, or it decreases as the incomes decrease • Elasticity of most of the foods is significantly lower than the one of other consumer goods, which makes them quite resistant to changes in incomes • Elasticity of the medium income markets(markets of former Yugoslavia, Bulgaria, Romania, Russia) is usually higher than the one at the higher income markets (EU, USA), which shows that demand in the neighboring countries could be reduced more quickly • Elasticity is viewedmore generally here, since there are significant differences within categories; for example. certaindried fruitandstone fruit would be a luxury • Demand for some goods increases as the incomes decrease; such goods are called “inferior goods” Sources: USDA -ERS, (data from 112 countries); Atlantic Economic Journal, feb. 2006; Regmi, Anita, M.S. Deepak, James L. Seale Jr., Jason Bernstein “Analysis of food consumption patterns”; Agra CEAS Consulting “Study of dairy products demand”; Monthly Labor Review; Azzeddine Azzam “Estimates and interpretations of elasticity of demand for food depending on incomes”.

11. Has the Serbian agriculture been affected by the crisis – internal trade • Sugar sales has been reduced by about 20% • Milk purchase in Subotička mlekara is consistant, while in other Imlek dairy plants has been reduced by about 15% according to the company plans • Confectionary industryrecords sales reduction • Sales of fruit and vegetables in the markets • Irregular payments • Reduced consumption

12. Has the Serbian agriculture been affected by the crisis – credit crisis Fall of credit activities in agriculture In total number of credits by about 7.5% compared to August 2008 In total debtwriting off sum by 4.2% Total number of Agricredits Total sum ofAgricredits (mil Euro) SOURCE: Credit Bureau The fall of credit activity is obvious,but it is, in addition to impact of the crisis,also the consequence of waiting on the state measures which have been announced, but not accomplished

13. Has the Serbian agriculture been affected by the crisis – credit crisis Significant fall of newly-approved credits Number of Agricerdits byCommercial Bank ProCredit is the no. 1 bank for Agricredits allocationwith share of 37% In number of new credits by about 28% compared to August 2008 In the total value of 40% Total and unit value of Agricredits allocated by PC Bank (in Euro) Number of Agricreditsby Pro Credit Bank Significant fall of newly-approved credits

14. Has the Serbian agriculture been affected by the crisis – salaries and employment Average salaries without taxes and contributions (in RSD) Number of employed in agriculture andfishing SOURCE: State Employment Office SOURCE: State Office of Statistics Almost 2100 less peopleare employed in agriculture compared to August 2008, andsalaries are reduced by 6% and 15%

15. Effects of the global economic crisis on the Serbian agriculture Has the Serbian agriculture been affected by the crisis? The Serbian agriculture has been affected by the crisis, and it can be seen through indicators such as reduction of demand, credit activities, number of employed and salaries

16. Effects of the global economic crisis on Serbian agriculture What is to be done to reduce the consequences of the crisis?

17. INFORMATION DISSEMINATION Improve the information dissemination in regard to the severeness of the crisis, possible consequences and direct farmers to the possible strategies for reducing its effects

18. INFORMATION DISSEMINATION

19. INFORMATION DISSEMINATION

20. INFORMATION DISSEMINATION • Only small number of texts discusses the subject of crisis • Most of them positively – no consequences, chances .. • The number is growing from month to month • Smaller number of them points out to consequences • Not a single one points out to possible strategies for reducing the effects Improve the information dissemination in regard to the severeness of the crisis, possible consequences and direct farmers to the possible strategies for reducing its effects

21. INFORMATION DISSEMINATION • Support to production and marketing of goods with low or negative elasticity at the larger markets; the products which have not been considered to have sufficient quality for EU market before, now can be demanded • Providing market information • Trade data in order to define market areas which are still growing • ... Improve the information dissemination in regard to the severeness of the crisis, possible consequences and direct farmers to the possible strategies for reducing its effects

22. PROVIDE PREDICTABILITY AND STABILITY IN POLICYAND MARKET • Predictability enables • Foreign and domestic direct investments • Possibility of production planning • Especially in the time of crisis, it is necessary to have stability in the policy and on the market, and that is why the measures should be directed to eleminating all extremes, both the policy and market ones Provide predictability in policy by adoption and presentation of the basic directions of the policy for the upcoming period

23. PROVIDE BUDGET SUPPORT TO AGRICULTURE • It does not seem as the best idea to cut the agricultural budget, especially not so drastically Provide the budget support which will in the time of crisis be able to stop the negative trends and enable farmers to make income, which would provide investments

24. PROVIDE BUDGET SUPPORT TO AGRICULTURE • Support to production and marketing of goods with low or negative elasticity at the larger markets • Support to increasing the demand for inputsin the primary production • Support to the counseling services as the most effective way pricewise to improve the profitability Provide the budget support which will in the time of crisis be able to stop the negative trends and enable farmers to make income, which would provide investments

25. STIMULATECREDITACTIVITIES • Creditsare more needed today than ever • For providing the purchase • For farmers’ investments • For financing the production from sowing to harvesting • It seems as the bad move because the existing turnover credit fund is being destroyed and transffered to the short-term subsidies after the sowing, which have little effect on production Stimulate credit activities in the way to provide the turnover credits for purchasers and investment by farmers, using the subsidized interest rates

26. STIMULATE CREDIT ACTIVITIES • Credit discounts for product purchasers, who would guarantee the purchase and payment upon purchase • Wheat • Raspberries • Credit discountsfor improvement the financing of trade, which would be facilitated by the government (for example,extending deadlines),could provide advantage for Serbian producers • Credit support to producers for improvement of competitiveness • Stimulatingshort-term creditsfor sowing (fallandspring) Stimulate credit activities in the way to provide the turnover credits for purchasers and investment ones for farmers using the subsidized interest rates

27. SLOW DOWN THE FALL OF INVESTMENTS • Every time of crisis is characterized by • Little investment activitiy • Favorable investment arrangements • It seems as the bad move to lower the investment support in the 2009 budget • It seems that support measures for buying tractors may have good effects on the metal industry, but only small ones on the agricultural sector Support farmers who are ready to take credits or invest their own funds in the sector in the time of crisis

28. PROVIDE SECURITY FOR THE MOST VULNERABLE AND FOR THOSE WHO CANNOT OVERCOME THE CRISIS ON THEIR OWN WITH THEIR OWN CAPACITIES • The biggest losers in the crisis will be those who are the most vulnerable • Every time of crisis is characterized by • - Little investment activitiy • - Favorable investment arrangements • It seems as the bad move to cancel the support to the non-commercial farms Provide support to those who do not have the capacity or live in the regions with harder conditions for business and are not able to overcome the crisis without significant consequences

29. ENABLE AS RAPID AND BETTER USAGE OF EU IPARD FUNDS AS POSSIBLE • Donors’funds can be good contribution to domestic funds • Improve the collaboration with donors and create mutual programs which will address the crisis issues • We hope that administration cutbacks will not result in lower administartive capacities for building the support institutions which enable EU funds usage Improve the collaboration with the donors and make it a priority to build the capacities for using the EU funds allocated for agriculture

30. Effects of the global economic crisis on the Serbian agriculture Thank you for your attention!