02 June 2007

Taming Serbia's wild raspberries

By Eric Jansson
Published by Financial Times, 30 May 2007

The refrigerated trucks come under cover of darkness, rolling through the little valleys of central Serbia’s fertile fruit-growing region, around the farming town of Arilje. In June and July, when the raspberry harvest comes in, thousands of private smallholders rush to sell their freezer-friendly Willamette berries to the highest bidder. Many cut deals with the pirate truckers who pay in cash, load up at night and leave by morning, local industry experts say.

Some growers benefit financially from these on-the-spot deals, although the pirates are notorious for pricing high and then paying low. But the losers are many. Growers lose the security of guaranteed contracts, legitimate traders lose predictable supply, and the state loses revenue in unpaid fees and evaded taxes.

The biggest loser is Serbian agriculture as a whole. Once the world’s largest exporter of frozen raspberries, Serbia now ranks third, according to the Serbian Chamber of Commerce.

Mira Bojovic, deputy general manager at Zemljoradnicka Zadruga Arilje (ZZ Arilje), the region’s largest farmers’ co-operative, speaks of “chaos in the market”. Piracy is just one symptom, not the cause, of broader problems faced by Serbia’s farmers, who toil in a “legal vacuum” created by unfinished economic reforms.

ZZ Arilje is a prime example. The co-operative boasts impressive capacity, with more than 3,000 smallholders in its membership. In a good year, it can produce and export 8,000 tonnes of raspberries, about 9 per cent of Serbia’s raspberry exports. But in 2006 it exported just 6,000 tonnes, due directly to colder weather and indirectly to market woes.

A big difficulty is access to credit. Legislative reforms introduced since 2000 have not taken into account the existence of co-operatives such as ZZ Arilje, a complex private, member-owned agricultural organisation that pre-dated Serbia’s communist-era collective farms. “Ownership transformation” is thus an urgent need, Mrs Bojovic says. “The capital of the co-operative is not legally defined yet, so we are not in a position to take advantage of state loans.”

Meanwhile, the market has been flooded with new companies over the past two years – small-scale cold storage and trading companies formed by individuals specifically to take advantage of state loans with fixed 2 per cent annual interest and built-in grace periods for late payment. The commercial credit available to ZZ Arilje is much more expensive with interest rates of about 2 per cent a month and no grace period. This means that new entrants can operate comfortably with much smaller profit margins than market leaders can afford.

Under such circumstances, ZZ Arilje’s members, none of whom farms more than two hectares, are increasingly tempted to sell shares of their harvest to small traders. Such defections sap the co-operative’s efficiency, to the detriment of its member-growers.

While domestic market competition is flourishing, such imbalances have become a drag on Serbian raspberries’ international competitiveness, says Petar Radosavljevic, general director of Malina Produkt, a large cold storer and exporter.

Local demand for Serbian raspberries has been driven up sharply by the many new cold stores and traders, while harvest volume and international demand grow less quickly. Consequently, local wholesale buyers last year paid up to €0.80 per kilogramme. By contrast, competitors in Chile, another important raspberry growing country, paid just €0.50 per kilogramme, Mr Radosavljevic says.

One way to restore Serbia’s international berry clout, the big exporters say, is to diversify into blackberries while adding value, for example, with flashy packaging and branding. Another way is to complete economic reforms and establish a better legislative basis for fairer domestic competition. Slobodan Milosavljevic, Serbia’s new agriculture minister, may do just that. He carries pro-market credentials as a cabinet veteran from the country’s first reform government under Zoran Djindjic, following the pro-democracy putsch in 2000.

“Serbia desperately needs economic reforms to be continued and finished in the next few years,” Mr Milosavljevic says. Part of this work will be closing legal vacuums such as the one in which ZZ Arilje is stuck. But to do this, the government must address in finer detail Serbia’s most fundamental and sensitive post-socialist reform issue – how to define and protect private ownership in law. It will not be easy.

No comments: