study on the effects of the global ec onom ic crisis on the serbian agriculture goran Živkov,...

Study on the Effects of the Global Economic Crisis on the Serbian Agriculture

Goran Živkov, Andrew Vonnegut, Brankica Obućina, Nenad Popadić

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

Questions to which we want to know the Questions to which we want to know the answersanswers

• 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?

Has the Serbian agriculture been affected by the global economic crisis?

Effects of the global economic crisis on the Serbian agriculture

The global crisis impacts Serbian agriculture across two main channels

Decreased Demand

Lack of Credit

1

2

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

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

Export constantly grows at the rate significantly higher than import (in million USD)

Dosadšnji uspesi u trgovini poljoprivrednim proizvodima

Export has been growing at the average rate of 26% for the last 7 years, and now it is down 15%?

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

Reduction of import and export in the I quarter of 2008/2009 (in million USD)

Unit value of import and export (in USD)

• Total foreign trade of agricultural products in the first quarter of 2009 compared to 2008 has been lowered by 18.7%

• The export has gone down 15%• The import has been reduced by 22.6%• Unit value of the export has been lowered from 1.04 US$ to 0.53

US$



Export and import in agriculture (USD)

290,085,427

374,750,913330,502,440

388,739,215

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

jan – mar 09 jan – mar 08

Import Export

Comparison graph of Croatian and Serbian agricultural budget


Agricultural budget of Croatia and Serbia

3.3% 3.2%3.0%

3.2%

5.7% 5.8%5.5%

5.1%5.0%

4.1%

4.7%

3.6%3.4%

4.0%

2.7%

2.2%

100,000

250,000

400,000

550,000

700,000

850,000

1,000,000

2004 2005 2006 2007 2008 2008 rebalans 2009 2009 rebalans

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

HR - Agrarni budžet (1000 EUR) RS - Agrarni budžet (1000 EUR)

HR - Učešće u ukupnom (%) RS - Učešće u ukupnom (%)

Estimates of elasticity show that demand for food is often less subject to Estimates of elasticity show that demand for food is often less subject to impact of income decrease than other productsimpact of income decrease than other products

Highest impact

Gourmet food 1.5Recreation 1.25Medical care 1.25

Education 1.05

Less impact

Drinks 0.97Frozen meals 0.9Clothes 0.88Dairy products (medium incomes) 0.71Meat (medium incomes) 0.65Meat products 0.635Fruit/vegetables (medium incomes) 0.53

The least impact

Oils (medium incomes) 0.43Grain (medium incomes) 0.41Cheese 0.32Fruit/vegetables (higher incomes) 0.27Oils (higher incomes) 0.21Butter 0.2Yogurt 0.19Grain (higher incomes) 0.19

Positive impact of income decrease

Fresh milk -0.17Dried fruit and vegetables -0.4Sugar -0.4Pasta -0.41Processed food -0.49Pickled foods, sauces -2.2

Elasticity of demand presents 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

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”.

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 viewed more generally here, since there are significant differences within categories; for example. certain dried fruit and stone fruit would be a luxury

Demand for some goods increases as the incomes decrease; such goods are called “inferior goods”

• 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 industry records sales reduction

• Sales of fruit and vegetables in the markets– Irregular payments– Reduced consumption

Has the Serbian agriculture been affected by the crisis – internal trade

Has the Serbian agriculture been affected by the crisis – – ccredit redit ccririsissis

Fall of credit activities in agricultureIn total number of credits by about 7.5% compared to August 2008In total debt writing off sum by 4.2%

The fall of credit activity is obviousThe fall of credit activity is obvious,, but it is, in addition to impact of the but it is, in addition to impact of the crisis,crisis, also the consequence of waiting on the state measures which have also the consequence of waiting on the state measures which have

been announced, but not accomplishedbeen announced, but not accomplished

SOURCE: Credit Bureau

Total number of Agri credits Total sum of Agri credits (mil Euro)

Has the Serbian agriculture been affected by the crisis – c– credit redit ccririsissis

Number of Agri credits by Pro Credit BankTotal and unit value of Agri credits allocated by PC Bank (in Euro)

Number of Agri cerdits by Commercial Bank

Significant fall of newly-approved credits

Significant fall of newly-Significant fall of newly-approved capproved creditreditss

ProCredit is the no. 1 bank for Agri credits allocation with share of 37%

In number of new credits by about 28% compared to August 2008In the total value of 40%

Average salaries without taxes and contributions (in RSD) Number of employed in agriculture and fishing

SOURCE: State Office of Statistics SOURCE: State Employment Office

Has the Serbian agriculture been affected by the crisis – salaries and – salaries and employmentemployment

Almost Almost 2100 2100 less peopleless people are employed in agriculture compared are employed in agriculture compared to Auto August 2008gust 2008,, a andnd salaries are reduced by salaries are reduced by 6% 6% andand 1 155%%

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


Has the Serbian agriculture been affected by the crisis?

What is to be done to reduce the consequences of the crisis?

Effects of the global economic crisis on Serbian agriculture

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

INFORMATION DISSEMINATION

Total of texts Print Electronic Total texts

on crisisNo

consequencesThere are

consequencesNeutral

December 1115 995 120 8 2 2 4January 1183 1032 151 7 3 0 4February 1735 1427 308 11 8 1 2March 1621 1264 357 15 8 2 5

• 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



• 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• ...



PROVIDE PREDICTABILITY AND STABILITY IN POLICY AND MARKET

Provide predictability in policy by adoption and presentation of the basic directions of the policy for the upcoming period

• 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 BUDGET SUPPORT TO AGRICULTURE

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

Share in the total budget EURA/ha

Index 2008/2009

Croatia 5.1 ~ 750 (560) 89EU 49* ~520 EURA 99

Serbia 2.2 ~ 42 EURA 58

• It does not seem as the best idea to cut the agricultural budget, especially not so drastically

PROVIDE BUDGET SUPPORT TO AGRICULTURE

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

1. Support to production and marketing of goods with low or negative elasticity at the larger markets

2. Support to increasing the demand for inputs in the primary production

3. Support to the counseling services as the most effective way pricewise to improve the profitability

STIMULATE CREDIT ACTIVITIES

Stimulate credit activities in the way to provide the turnover credits for purchasers and investment by farmers, using the subsidized interest rates

• Credits are 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

Stimulate credit activities in the way to provide the turnover credits for purchasers and investment ones for farmers using the subsidized interest rates

• Credit discounts for product purchasers, who would guarantee the purchase and payment upon purchase– Wheat – Raspberries

• Credit discounts for 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• Stimulating short-term credits for sowing (fall and spring)

SLOW DOWN THE FALL OF INVESTMENTS

Support farmers who are ready to take credits or invest their own funds in the sector in the time of crisis

• 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

PROVIDE SECURITY FOR THE MOST VULNERABLE AND FOR THOSE WHO CANNOT OVERCOME THE CRISIS ON THEIR OWN WITH THEIR

OWN CAPACITIES

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

• 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

ENABLE AS RAPID AND BETTER USAGE OF EU IPARD FUNDS AS POSSIBLE

Improve the collaboration with the donors and make it a priority to build the capacities for using the EU funds allocated for agriculture

• 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

Thank you for your attention!


study on the effects of the global ec onom ic crisis on the serbian agriculture goran Živkov,...

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