Serbia Newsflash Week 6, 2022

Free trade agreement with China on the horizon, the complaints of the milling industry, rising diesel prices hurting farmers, the EIB under fire by environmental organizations for two micro dams, and a new cooperation framework signed with the UN - The week in Serbian agriculture

Aerial view of a cargo ship traveling through the sea
Beeld: ©Venti Views
China is Serbia's second-largest foreign trading partner. In 2021, international trade between the countries was worth $5.3 billion. A new free trade agreement could give a boost to Serbian exports to the country.

Possible Free Trade Agreement with China

During his visit to China last week, Serbian President Mr. Aleksandar Vucic announced a possible free trade agreement (FTA) between the two countries.

In 2021, Serbia’s trade with China amounted to $5.3 billion, making the country the second largest trade partner of Serbia. A possible FTA with China could further boost these numbers, both in volume as well as in the structure of export.

Currently, only the export of copper and agricultural goods have a positive trade balance. In 2019, phytosanitary and veterinary certificates were authorized bilaterally, enabling the export of agricultural products from Serbia to China. Mrs. Tatjana Matic said that all ministries and relevant institutions will have to provide their expert opinion regarding usefulness of such FTA for Serbia. Mr. Aleksandar Markovic, the Director of Budimka, the biggest food processor in central Serbia (see our report about Budimka), states that for the export of their products (jams and juices) the custom rate in China is between 20-30%.

“With a FTA, those custom rates will decrease drastically and will make our products more competitive on the Chinese market, plus it will enable us to increase our production capacities,” points out Mr. Markovic.

Mr. Stefan Pantic, technologist from the winery Stemina says that Chinese consumers prefer red over white wines. Their red wines with red label were well received by Chinese consumers.

An FTA opens the market for domestic products only, which means that products should have more than 50% locally produced ingredients. Professor Predrag Bijelic from the Economic Faculty of Belgrade sees a possible FTA with China as a stimulant for foreign investors in Serbia. “If foreign a investor meets the requirement of having 50% locally sourced raw material in their product, they will be able to export to China under favorable conditions” says the professor.

So far Serbia has similar FTAs with the European Union, CEFTA, EFTA and the Euro-Asian Union.

The milling indsutry is paying the price for the government’s social policy

The Association of the Mill and Bakery Industry of Serbia, and the pasta producers, ZitoUnija , expressed their dissatisfaction because the industrial mills that are members of the association bear all the costs of the Serbian Government's decision to cap the price of flour in small packages of 1 to 5 kg.

The Association stated that other countries have introduced similar measures to protect citizens from increasing prices, claiming that the costs of these measures are borne by the Governments that made such decisions. It was added that their business association has been submitting proposals for solving the problem to the Ministries of Trade and Agriculture for two months now without success.

One of the proposals was to provide industrial mills with monetary compensation for each kilogram of delivered flour in the amount of €0.06/kg, which would be paid monthly based on invoices for the delivered quantities of flour.

The Association notes that the operation of mills are now endangered because they pay for wheat at current market prices, as well as energy and packaging, the price of which have increased two to three times over the past year, while they had to sell their most valuable product, small packages of flour, at capped prices from November 15, 2021. “Producers of small packages of flour are already dipping into deficit, which is why they will not get bank loans and will not be able to buy wheat of this year's crop,” warns the Association.

The high price of diesel can devastate agricultural production

The latest price increase of Euro-diesel at gas stations in Serbia is a consequence of the price fluctuation at the global oil market. Those fluctuations may result in further price increases of diesel on the local market. Higher quality Euro-diesel at gas stations in Serbia costs €1.59 per liter, and experts warn that it could soon cost as much as €1.7/l.

Oil, along with electricity, is one of the factors that influence the costs of production the most, thus any increase in the price of these energy sources usually triggers a wave of price increases of other products and services.

The agriculture industry is very sensitive to the increase of oil prices. "Farmers are among the first to feel the rise in diesel prices, because they need fuel to cultivate arable land, that is, the use of mechanization for the upcoming spring sowing season" agro-economist Vojislav Stanković stated for portal Mr. Stanković points out that the increase in the price of diesel is an additional blow to farmers, after the increase in the price of artificial fertilizers. "Farmers are affected by the increase in price of oil indirectly as well, through the price of artificial fertilizers, the production of which largely depends on oil and gas.

Almost one third of the agricultural production costs relays to oil derivatives and mineral fertilizers," explains Mr. Stanković, who also notes that state subsidies are low and if there is no reaction from the competent authorities, the yield this season could be decimated. “If there is no sufficient use of fertilizes and other agro inputs, the yields will be reduced immensely.

Additional problems can arise if a climate disaster occurs, which will certainly affect the offer at the domestic market, but also the export, says Mr. Stanković, adding that he expects that the government  should react in the coming period, because of the strategic importance of the agriculture sector.

"The energy prices could be the reason for lower yield this year. The government of Serbia has made a few decisions already like crediting the purchase of artificial fertilizers. Also, the government can reduce  the excise tax on fuel intended for agriculture. That would be a good measure - although the budget will be somewhat reduced too, the effects will be more significant," suggests Mr. Stanković who believes that the farmers deserved help and support from the authorities, especially after the excellent results achieved during the pandemic year.

Harvest in a field
Beeld: ©NOC
The price of euro-diesel is currently €1.59 per liter on the Serbian market, and experts warn that it could soon cost as much as €1.7/l. High energy prices are hurting farmers, while the increase of gas prices on the global market has indirect effects too - For example, through the rising prices for fertilizer.

Environmental organizations complain about EIB financing harmful projects in Serbia 

The Rzav Environmental Association from western Serbia and the CEE Bankwatch Network, supported by the World Conservation Organisation WWF Adria, filed a complaint against the European Investment Bank (EIB), whose investment in two micro hydropower plants that caused great damage to the Crni Rzav and Ribnica rivers in Serbia, WWF Adria stated.

The organizations further commented that said projects violate European national legal frameworks and the Council of Europe Convention on the Conservation of European Wildlife and Natural Habitats. The WWF Adria statement added that both plants were interconnected by the so-called bypass, taking water from two rivers.

The EIB finances the project with loans for SMEs and through priority projects of the financial intermediary Credit Agricole Serbia. The plants are located in the area of the Zlatibor Natural Park in Western Serbia. Before their construction, no study had been conducted on assessing the impact on the environment, which allowed the two micro-hydroelectric power plants to destroy 9.2 kilometers of river flow. Adverse impacts with severe consequences for protected species in the area are also noticeable, as evidenced by the hydro-biological research conducted by WWF Adria in 2020. 

Framework for cooperation with UN for sustainable development until 2025 defined

Minister of Foreign Affairs Mr. Nikola Selakovic and the UN Resident Coordinator to Serbia Francoise Jacob signed the “United Nations Framework for Sustainable Development with the Republic of Serbia 2021-2025”. Mr. Selakovic commented that Serbia is a reliable and credible partner to the United Nations, expressing confidence that the constructive and dynamic cooperation between the government of Serbia and the entire UN Team will continue in the future.

The Minister said that the document envisages that by 2025, with the support of the UN and other development partners, Serbia will have made significant progress towards achieving key national development priorities in numerous areas for the benefit of all its citizens. Minister of European Integration Mrs. Jadranka Joksimovic said that “the Cooperation Framework is another proof that the government of Serbia is fully committed to the goals of sustainable development, the Green Agenda, the fight against climate change, and improving the quality of life of all citizens.” The UN Resident Coordinator in Serbia pointed out that the Cooperation Framework is the result of intensive joint work by the UN, the government of Serbia and civil society.