Food Industry in South-East Europe – Serbia, Croatia, FYR Macedonia
• Automation & Robotics • Industry • South-East European INDUSTRIAL Мarket - issue 2/2016
The food and agricultural sector is one of the very important sectors in South-East Europe, as it significantly contributes to GDP and exports of the countries. However, as most of the countries are also net importers of food and agricultural products, they actively contribute to the large trade balance deficits that they themselves are facing.
At the same time, the food industry is of key importance for contributing to the overall employment in SEE countries, given that generally, unemployment is quite high in these countries, even more so after the global financial crisis of 2007-2008. The strong tendency of rural depopulation in these countries must also be taken into account, as it is leading to some seasonal labour shortages in rural areas and to a certain percentage of uncultivated land.
The Western Balkan Trade Pact established by the EU was extended in October 2010. It stipulates that almost all products from the Western Balkans can be imported customs free. Some of these products even have preferential tariff quotas - products such as wine, baby beef and certain fish products. So far, the import quotas have often not been used entirely. Some SEE countries also have bilateral trade agreements - Serbia with Russia and Kosovo with the US, for example, which also offers opportunities for customs-free export outside the Central European Free Trade Agreement (CEFTA) and the EU.
Some of the most interesting countries for larger investment (>1 million EUR) in the food industry are Serbia and Croatia, followed by FYR Macedonia, states a report conducted by the consulting company GFA Consulting Group. If there is further regulatory environment improvement, Moldova and Bosnia and Herzegovina can also be interesting for larger scale investments. Albania, Montenegro and Kosovo possess only a limited potential for larger investments as most companies in the food sector there are small.
For all SEE countries potential investments can be for mergers and acquisitions, expansion on the domestic and regional market (e.g. new retail markets), expansion of production facilities (cooling, freezing, processing, new production lines), modernization of production facilities (for improvement of productivity, to improve quality, to improve energy efficiency), or simply for logistics, packaging and marketing (e.g. logistic centres, storage, packaging, trucks/vehicles).
Serbia is the largest market in the region with a long tradition in agriculture and a favourable climate. Nowadays, food production is one of the strongest points of the Serbian economy and a great contributor to the socio-economic development of the region and country’s trade balance - food production and food processing account for around 25 and 35 percent of the total Serbian export turnover, respectively. Cereals, raspberries and sugar are the leading export products.
Export of agricultural products is on a constant rise and so is the trade balance that stood close to a billion euros in 2013. Serbia is the biggest exporter of foodstuff among CEFTA countries and the only net exporter. The food processing industry has strongly developed and grown during the years of transition. However, primary production is still very fragmented. Of the approximately 5 million ha of agricultural land, 90% are in private ownership. Agricultural holdings have mostly less than 50 ha of land. Private farms have an average size of < 3 ha.
Meat processing and production
Serbia’s livestock has decreased over the last decade by 15 per cent on average, with lack of investments being one of the main reasons behind. That creates additional investment opportunities to match production capacities with the plenty of opportunity for further development of international placement.
Some major companies in the meat sector are: Carnex, which became part of MK Group in 2011. The company’s revenue for 2011 was 29,5 mln euro. Another meat producer, Matijevic, had a 118 mln euro turnover in 2009, whereas the other major market player, Yuhor, has been active in the market for over a century and is part of Delta M Group since 2004.
Other important companies are Agroziv for poultry meat, Industrija Mesa Topola, the poultry meat producer Topiko from Backa Topla, which was bought in 2007 by Perutnina Group from Slovenia, and Neoplanta from Cenej, a small city in the vicinity of Novi Sad.
Cereals, flour mills, bakeries, edible oil production
Serbia has very pleasant climate conditions for agricultural production and 4,2 million ha of arable land (of the total of 5 million ha agricultural land). Over the last few years, Serbia has established itself as a net exporter of cereals and edible oil. Agricultural products are mostly exported to CEFTA countries, EU and the Russian Fede-ration.
However, most of the field crop production is with low yield, significantly below potential. The leader in primary agricultural production is Delta Agrar, which is a part of Delta M Group, producing field crop, vegetables, fruit and cattle. Other larger primary producers include PKB (Poljoprivredna Korporacija Beograd), PIK Becej, and Mirotin, which trade in and produce cereals, edible oil, milk and milk products.
The flour mills sub-sector accounts for the largest number of producers in the whole food sector. One of the largest companies is Fidelinka, producing and trading cereals, flour and pasta. Other larger flour mills are Zitko, with headquarters in Backa Topola, which was bought by the Serbian company Verano Group, the Zitoprodukt flour mill, bakery, pasta producer and cereals trader, the Danubius flour and pasta producer, and subsidiary of Delta M situated in Novi Sad, as well as the Kikindski Mlin flour mill and pasta producer owned by Agrokor.
The largest bread and bakery producers in Serbia are the group Klas including Belgrade Bakery Industry and Klas company. Second largest bakery is Hleb A.D, Novi Sad. The Serbian oil and fats production is dominated by two major companies - Dijamant and Victoria Oil. Dijamant is the largest edible oil producer and leading producer of margarines, vegetable fats, mayonnaise and delicatessen in Serbia. Croatian Agrokor is its major shareholder. Victoria Oil from Sid is part of the Victoria Group and produces raw and refined oils, protein meals and biodiesel. The company registered over 80 million EUR revenues in 2012.
In the sector of animal food production, two companies are in expansion: Sto posto, an animal food producer and importer of soya cake, and Gebi, which is specialized in import and production of animal food.
Sugar factories, sugar production
Sugar beet is grown and processed in the Vojvodina province in the north of Serbia. Sugar production has increased dramatically over the last ten years and reached almost 500 000 tonnes in the 2010/11 crop year. The main reasons for this recovery are the privatization of the sugar sector and gaining of preferential access to the European Union (EU) market, both of which occurred early in the last decade. Austria is the only other country with a sugar industry the size of that in Serbia. Elsewhere in Central and Southeast Europe, sugar production has either stopped (Bulgaria) or declined sharply (Hungary and Romania).
Some major companies include Sunoko, which invested around 110 million euro in sugar factories in the past ten years and plans new investments of about EUR 20 million. Hellenic Sugar Industry S.A. is a major shareholder in the sugar factories Crvenka (76 million EUR turnover) and Sajkaska (39 million EUR turnover) with a 38,9% of market share.
Other large sugar plants are TE-TO (17,6% market share, 52 million EUR turnover, owned by Italian Finanziaria S.I.I,) and Sugar + (4,4 % market share, 13 million EUR turnover, owned by the Montenegrin company Roksped).
Fruits and vegetable processing and production
Serbia is the world leader in raspberry production. Other key fruits are apples, plums, blackberries and sour cherries (in total around 20 types of fruit). Premium quality of berry fruits are due to optimal climate and soil conditions (results in a higher dry content). More than 300 companies are active in the fruit sub-sector in Serbia. In 2013 Serbia accounted for more than 40% of entire EU production and around 24% of global raspberry production. Vegetables are grown on more than 10% of arable land in Serbia. Vegetable crop production is characterized by small scale production primarily for individual needs.
The largest vegetable production centres are Leskovac, Nis, Aleksinac, Kraljevo, CaCak, Ub, the vicinity of Belgrade and Horgos, as well as some other places in Vojvodina. Ideal climate for vegetable production makes Serbia the main exporter and supplier of the South East Europe. The most popular vegetables produced in Serbia are: paprika (pepper), cabbage, tomato and potato. Major companies are PIK Juzni Banat, which operates with Agromarket d.o.o. Kragujevac as a majority shareholder of the company.
The core business of the company is in growing fruit and grapes on an area of 1830 hectares with strong position in export. The Lucic Group includes several companies, Lucic Prigrevica ad, Kindja Agrar, Panonka, and a vegetables trade company - Sunfoods. Lucic Group is the largest single producer of vegetables and field crops in Serbia with cold storage capacities of 50 000 tons as well as a processing and packaging facilities. Another major player, Fruit Land - Serbia, is a group of merged cooperatives that own modern cold storage plants. Mondi Foods is one of the major European processors of red fruit products. Production capacity is over 6,000 tons of frozen products per year.
Frikom is Serbia`s largest producer and distributor of frozen food - mainly ice cream and frozen fruit and vegetables. The company is owned by Croatian Agrokor Group. The joint-stock company A.D. Prehrambena industrija Aleva Novi Knezevac, a part of the Flory trading group, is a modern food company with over 160 types of various products.
Beer, mineral water, soft drinks
Apatinska pivara AD is today the biggest brewery in Serbia. Its most popular product is Jelen pivo. CVC Capital Partners is the owner of the company. The brewery had revenues of 160 million EUR and has invested over 30 million EUR since its privatization. Carlsberg Serbia with Pivara Celarevo is second in the Serbian beer market. Based on market share, further larger breweries are Pivara MB (Heineken), Efes Serbia (owner of Pancevo brewery and Zajecar brewery) and Beogradska Industrija Piva.
The largest soft drinks producer in Serbia, Coca-Cola, has been operating in the country since 1997. The revenues from Coca-Cola are estimated at 180 million EUR. The company is present in several of the biggest categories, and has a strong brand image, marketing support and excellent distribution to thank for its leading position.
Knjaz Milos, the largest mineral water producer in the country, ranked second in capacity and revenue for this subsector, while Nectar held third position in 2015. Nectar is a leader in production of fruit juice drinks and fruit products in Serbia. Fruvita is another Serbian company which deals with fruit processing and juice production. It is the largest growing company in the soft beverages subsector in Serbia with estimated revenues of 26 million EUR.
The largest producers of coffee are Grand Prom, owned by Slovenian Droga Kolinska, and Doncafe, owned by Israeli Strauss Group. Further significant market shares are taken by the Nestle Group and Kraft Foods.
Confectionary and snacks
Confectionary and snacks is a sub-sector with an overall production of 130,000 tons per year and increasing importance in the food production in Serbia. The sub-sector achieves annual revenues of over 400 million EUR and an export value of 150 million EUR. However, the sub-sector is facing severe competition from the region, mostly from Croatia as well as from Turkey.
Mondelez International Inc led chocolate confectionery in 2015 in Serbia with a retail value share of 17%. The company has its Milka brand’s enormous popularity and excellent distribution to thank for its leading position. This brand was ranked first in 2015 with a 14% retail value share. Some other major companies are Swisslion Takovo, a food and beverages producer producing cocoa cream, fruit juices, baby food, biscuits, waffles and chocolates, as well as alcohol spirits. Soko Stark is one of the largest confectionary producers in the region.
The company is part of Slovenian Droga Kolinska Group. Bambi Banat is one of the oldest chocolate and candy producers in Serbia and an integral part of the DFG. The domestic manufacturer Pionir doo held the leading position in Serbian sugar confectionery in 2015 with a retail value share of 31%. The second-ranked producer in 2015 was Paracinka ad, followed by Kras dd with respective retail value shares of 18% and 11%. Marbo product has a broad product range of snacks from potato chips to nuts. The company is owned by PepsiCo International.
The economic importance of agriculture is still relatively high in Croatia, despite a declining trend in the last few years. The same trend can be observed for the food processing industry. Both sectors play an important role in the labour market as a significant percentage of the population of working age earn their income from agriculture and the food industry.
Croatia has an unfavourable structure of agricultural holdings, with a lot of small family farms (the official average farm size in Croatia is 2,4 ha) and some large agri-businesses. Croatia’s EU accession leads to an increase in production volume for the majority of agricultural products (except for sugar beet, wheat and other cereals) and a decrease in production volume for most food products (except beef, sheep and goat meat).
While after EU accession the prices of many important agricultural and food products drop, the value of production of Croatian agri-food sectors decreases for almost all major branches (except sugar, wool and silk-worm cocoons, plant-based fibres, and beef, sheep and goat meat). In aggregated terms, the values of agri-food production decrease by about 5,4% and 4,1% respectively. The sugar sector remains an exception since the producer price in Croatia increases by about 156%.
Meat processing and production
In the livestock sector, small production units predominate, especially for cattle, pig, sheep, and goat. Poultry production on the other hand is characterized by large-scale production units (for poultry meat and eggs).
There are 196 slaughterhouses in Croatia. A number of slaughterhouses are of international standard. Although the larger processing companies in Croatia fully meet the EU hygiene standards and process products of good quality, competition will arise from higher productivity and lower pricing of competitors. Therefore investments in the meat processing sector are especially anticipated in the field of productivity and expansion/acquisition.
Croatia’s EU accession significantly affects the country’s exports of primary agricultural and food products to the EU. Beef and other meat production are among the sectors which exhibited the greatest positive export growth. The EU accession also led to an increase in production volume for the majority of agricultural products (except for sugar beet, wheat and other cereals) and a decrease in production volume for most food products (except beef, sheep and goat meat). The sector producing beef, sheep and goat meat experiences a positive but small development. Despite a decrease in prices, the value of production increases by about 8 million EUR.
Main players in the Croatian meat processing sector are Ag ro kor holding with its subsidiaries Belje, Pik Vrbovec, and Vupik; Vindija holding with its subsidiaries Ko ka and Vindom, who are market leaders in poultry meat processing; The family owned holdings Gavrilovic and Braca Pivac; and Podravka with the brands Podravka and Danica.
Milk processing and production
The percentage of milk production that is being processed by the dairy industry in Croatia grew from 65% in 2000 to over 80% in 2009. The quality of milk is determined according to the regulation on the quality of fresh milk. The regulation is completely harmonized with the EU regulations.
Information of the Internet platform Agrarmarkt Austria states that Croatia currently has more than 4,500 active milk producers. According to research conducted by the European Milk Board (EMB), of all the milk produced in Croatia roughly 78 percent is for the domestic market and is processed by near 40 dairies. The largest two dairies - Dukat, part of the French group Lactalis, and Vindija - process more than 2/3 of total quantities of processed milk.
Dukat and Vindija have been continuously increasing their turnover in the past years, and have become important regional players with growing export figures and acquisitions in the neighbouring countries. The medium segment of the market is far behind the leaders in terms of turnover: the closest competitor is Meggle.
Cereals, flour mills, bakeries, edible oil production
Cereals dominate crop production in Croatia, accounting for about 65% of total arable land. Overall, cereal production is the most significant area of agriculture in Croatia and corn and wheat are the dominant crops. For both maize and wheat the country is self-sufficient. Croatian farms tend to be smaller and less technologically advanced than many other EU countries, which lessens their competitiveness.
Croatia has an extremely fragmented structure of agricultural holdings with about 63 percent being small family farms (with an average farm size of 2,4 ha) out of the total 190,000 registered farms. Medium sized and large farms (from 20 to 300 hectares), which own about 32 percent of all agricultural land are gaining increased market importance.
The majority of the companies in the sub-sectors cereals, milling, oil seed, animal feed and bakery belong to Agrokor holding or the Osijek based company Zito. Pik Vinkovci and Belje are large agriculture holdings with own production and processing, also supplying Argokor’s animal feed processor Agrokor Trgovina. Agrokor’s Zvijedza is a market leader in margarine and dibble oil.
PKK Valpovo is a large agricultural holding in hand of Zito d.o.o. In bakery, Agrokor is also dominating the production, especially via the bakery Zagrebacke Pekarne. An important player in bakery is Mlinar, a subsidiary of the Skojo Group.
Sugar factories, sugar production
Sugar beet production takes place on around 30,000 ha in Croatia. Local refineries, including Viro, Slardorana, and Kandit, are working on domestic production and supplying other markets including Bosnia and Herzegovina, Montenegro, FYR Macedonia, and Albania and the EU. Change in the sugar sector after the country’s accession into the EU is a key driver of the increased producer price by about 156%. This rise is led by the imposed sugar production quota. As a result, the value of sugar production increases by about 31 million EUR.
Viro Tvornica Secera, the leading company with a turnover of ~ EUR 80 mln in 2009, has increased its export quota to EU by purchasing Sladorana in 2008 to 120,000 tons annually (total Croatian export quota 180,000 tons), but still the domestic market accounts for 50% of the sales. Kandit was a prominent sugar and candy factory in former Yugoslavia. Today, the Kandit group comprises IPK Kandit Inc. for the production of candies and chocolates and the Kandit Premijer Ltd. sugar factory (turnover 2009 ~ EUR 60 mln), now both in hand of Zito in cooperation with other investors.
Fruits and vegetable processing and production
In the fruits and vegetables sector (including grapes), production is characterised by small scale farmers producing primarily for themselves. Fruit and vegetable sector represents about 10% of the gross agricultural output. In general, in both fruit and vegetable sub-sectors a sensitive decreasing of production is recorded. Grapes (table and wine grapes) and potatoes are the most important commodities followed by apples, mandarins, plums and tomatoes.
Processing companies (beside Podravka) depend also on import of raw material since the local production does not provide sufficient quantities for processing. The problems many smaller processors faced in the past was related to utilisation of their capacities due to insufficient raw material supplies resulting in financial problems not allowing any modernisation of the facilities. In the last years a number of processors disappeared from the market or were absorbed by the larger processors.
The most important company in fruit and vegetable processing is Podravka with its brands Prodravka, Vegeta and SMS. Ledo, the Agrokor company specializing in deep frozen products, supplies the supermarkets with all deep frozen ice cream, ready meals, fish and fruit & vegetables. Traditional canning is still done by Eurovoce Zadruga, a cooperation in the north-eastern part of Croatia.
Beer, mineral water, soft drinks
In the beer sector, key companies include Zagrebacka pivovara (market share 42%), Belgian Heineken (owner of Karlovacka Brewery, market share 27%) and Danish Carlsberg (market share 18%).
Croatia’s bottled water market consumption reached 406,5 mln litres in 2007, or almost 90 litres per person, among the highest in the region. The sparkling water holds a market share of over 57%, but has been losing markets share to still water in the past few years. The main brands are Jamnica (Agro kor) and Studena (Podravka).
Soft drinks in Croatia are characterised by well-recognised and strong local brands offered by more than just one company. This has resulted in firm domination by local companies, ranging from two-thirds to three-quarters of volume sales. Local companies saw different results in 2015: some were gaining importance, while others were declining. Bankrupted Dona Trgovina doo was from 2014 resurrected in the form of Dona Napitci doo, keeping brand ownership but relocating manufacturing to Zagreb. In hot drinks, the Croatian company Franck is the number one brand for coffee.
Confectionary, sweets, ice cream
Key players in the Croatian confectionery market include primarily local companies, led by Kras and IPK Kandit. For chocolate production, the top companies on the market are Mars, which held the leading position in chocolate confectionery in 2015 with an overall value share of 20%, Ferrero, finishing close second with a value share of slightly less than 20%, while Kras rounded out the top three with an 18% share.
A steady increase in confectionary imports into Croatia is reported. The usual mix of multinational brands is present in the Croatian market, e.g. Ferrero with a turnover of more than EUR 69 mln, followed by Nestle and Krafts, both present in various sub-sectors in the food market.
Croatia’s lengthy Adriatic coastline creates a significant amount of opportunity for the country to become a leading exporter of fish and seafood, but the fishing industry is beset by difficulties. The global financial crisis has threatened Croatia’s fishing industry and hindered Croatian fish and seafood production.
In marine aquaculture, Croatia produces vast quantities of a limited number of species. The most important marine species produced are seabass (Dicentrarchus labrax) and seabream (Sparus aurata), representing about 66% of the mariculture production volume in 2013. The cultivation of these two species has increased rapidly from a mere 2,500 tonnes in 2001 to 5,200 tonnes in 2010, though it fell back to around 4,500 tonnes in 2012.
The second largest marine species cultivated is the Atlantic bluefin tuna (Thunnus thynnus) which represents on average 25% of the volume of marine aquaculture production. The main processing companies are Adria in Zadar, Sardina, and Cromaris, a merger of three fish processing companies in Zadar. Cromaris is member of the Adris Grou p.
About half of the agricultural land in FYR Macedonia is pasture, 40% cultivatable land, with the remainder being land under permanent crops and meadows. The typical private farm size is 1,4 ha, however there also are some larger agricultural firms leasing land from the state. Vegetables and horticultural products compose the biggest share of agricultural output (28%).
Wine represents about 7% of the agricultural output. the area under cereals shows a downward trend, as imported wheat is often found at lower costs than domestic production. Concerning animal production, pork meat contributes over 40% to total domestic meat production, followed by cattle, sheep, and goat.
Meat and meat products
FYR Macedonia is a net-exporter of lamb meat. However, there was a downward trend in in sheep production between the years 2000-2008 because of a reduction in the fodder base, high fodder prices, and low producer prices for meat, milk and wool. The Macedonian market for cooled and processed meat products was estimated by Euromonitor to have been 10,400 tons with a value of ~57 million EUR in 2009.
The Macedonian beef and veal meat production sector exhibited a growth rate of 20% in 2014 for the first time in eleven years, according to the IndexMundi data portal.
Pekabesko a.d. is the market leader, followed by MIK Sveti Nikole a.d. and Promes. Others are for example Soleta, Rimes, and Mega. All modern, larger meat processors have HACCP and ISO 9001 certification.
Milk processing and production
Milk, almost exclusively cow’s milk, remained the biggest drinking milk category in both retail volume and value volume sales terms. Milk sales reached MKD 5,2 billion in 2015, accounting for a 98% share of drinking milk product sales, with the remaining 2% accounted for by flavoured milk drinks and powdered milk. Only a few new product launches were witnessed within the drinking milk category in 2015, as most dairy manufacturers decided to focus on promoting existing brands and ensuring stable supplies of existing products.
At the processing level, Macedonia has near 85 registered dairies, which are mainly small to medium sized enterprises. Dairies have mostly been taken over by foreign companies, e.g. Swedmilk operates as Sutas Sut Urunleri AS subsidiary since 2012.
Market leaders are Mlekara Bitola AD-IMB with a retail value sales share of 40%, followed by Dukat dd with retail value sales share of 16%. Other prominent players are Ideal Sipka a.d. Zdravje Radovo, Eko Shar, Bucen Kozjak (Imlek/DFG), Rudine, Laktis, and Dairy Stip.
Bakeries, flour mills and edible oil production
Nearly half of the arable land is under cereal crops (i.e. about 200-250,000 ha), where wheat is the dominant crop, followed by barley and maize. Average annual cereal production amounts to ~ 564,000 tons. Sunflower was grown on about 6,000 ha, but there was a significant decrease in production a decade ago. Nowadays, most sunflowers in Macedonia are imported. Some of the largest flour mills are Zito Vardar, and Zito Luks a.d. Larger edible oil producers are Brilijant Oil and Blagoj Gjorev-Kristal.
Fruits and vegetable processing and production
Macedonia is a net exporter of processed and preserved vegetables - processed peppers and other preserved vegetables such as gherkins, cucumbers and mushrooms in particular.
Vegetable production in the country reached around 680-750,000 tons in the 2000-2006 period, of which 160-193,000 tons were potatoes. In 2007, the most significant vegetable production was tomatoes (17%), peppers (19%), cabbage (14%), melons and watermelons (19%) and potatoes (31%). The production takes place in open fields, in heated glass-house (260 ha), and under plastic tunnels with or without heating.
For fruits production, apples accounted for 50-60% of all produce, while the stone fruits (cherries, sour cherries, peaches, apricots and plums) accounted for 35% during the 2000-2006 period. Fruit production is mainly concentrated in the western part of the country, while apple production is predominantly in the Prespa area around Resen.
Larger companies are Vitaminka AD Prilep as well as Bonum, which produces and processes mushrooms and of vegetable products, Vori Ltd., Zora Sped, Agro Komerc, Altra, DI EMGP, Frukta, Makedonija AG, Vipro, DIM Komerc and a number of smaller processing companies.
Agrokor (Croatia) started construction of a wholesale and distribution centre in Strumica for vegetables in autumn 2010, containing cooling chambers, calibrators, packaging halls and a transport system for admission and distribution of 20,000 tons of industrial vegetables.
After beer sales amounted to 94 million litres and around EUR 144 mln in 2009, the global economical crisis hit the country. Beer production recovered in 2014, when total volume sales of brew increased by 2% to reach 69 million litres, a sales performance that brought beer volume sales nearly back to the pre-crisis level of 2008. Total value sales of beer in Macedonia increased by 6% and reached MKD 8,8 billion in 2014.
The biggest market leaders are Pivara Skopje ad with 57% total volume share in 2014, followed Pivara Skoplje ad - a company with a long tradition in Macedonian brew, well-known for its excellent distribution infrastructure nationwide and domestic beer brands.
Keywords: meat processing and production, cereals, flour mills, bakeries, edible oil production, sugar factories, sugar production, fruits and vegetable processing and production, beer, mineral water, soft drinks, confectionary, milk processing and production
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