Overview of the Food and Processing Sector in South East Europe

Next Generation Competitiveness InitiativeFirst Meeting of the Food and Beverages Processing Expert Group

Paris, March 4th 2014

With the financial assistance of the European Union

2

OVERVIEW OF THE FOOD AND BEVERAGES

PROCESSING SECTOR IN SOUTH-EAST EUROPE

3

Presentation overview

General characteristics of the SEE food and beverages processing sector

Analysis of the food and beverages processing sector

Break-out group discussion

1

2

3

4





1

2

3

5

KOS SRB MNE HRV MKD ALB BIH0%

5%

10%

15%

20%

25%

30%

35%

40%

Share of food and beverages in manufacturing turnover (average

2008-2010)

Turnover in food and beverage processing (share of total)SEEEU (2007)

Food and beverages manufacturing is a major sector across all SEE economies

Source: OECD (2013), “Industry Concentration and Country Specialisation in CEFTA”, CEFTA Issues Paper 5

27%

9%

8%8%

6%

7%

4%

4%

26%

Manufacturing turnover by industry (average 2008-2010)

Food and beveragesBasic metalsFabricated metalsChemicals and chemical productsNon-metallic mineral productsCoke and refined petroleum productsTextiles, apparel and leather

For discussion:• In the light of the share

of food and beverage processing in total manufacturing, what do you think are the prospects for growth in your economy?

6

The food and beverages manufacturing sector is more evenly distributed across the region than other sectors

Concentration of food and beverages manufacturing in

CEFTA* (2008-10)

Source: OECD (2013), “Industry Concentration and Country Specialisation in CEFTA”, CEFTA Issues Paper 5Nb: CEFTA includes Moldova as well as the Western Balkan economies.

The map shows the share of sector turnover in each sub-national region of SEE. The shares do not add up to 100% because Moldova (not shown on this map) is included in the total.

Concentration of motor vehicles manufacturing in CEFTA* (2008-10)

For discussion:• Can food and beverage

processing be considered a priority vehicle for regional and rural development?

7

Food and beverages processing accounts for a large share of manufacturing employment

Source: OECD (2013), “Industry Concentration and Country Specialisation in CEFTA”, CEFTA Issues Paper 5

1 2 3 4 5 6 70%

5%

10%

15%

20%

25%

30%

Share of FBP in manufacturing employment (average 2008-2010)

Employment in food and beverage processing (share of total)SEE

8

Food and beverages processing contributes more to total exports in SEE than in the EU

SRB MNE MKD HRV BIH ALB0%

2%

4%

6%

8%

10%

12%

14%

16%

Food and beverages processing exports as % of total exports (2011)

Food Products, Beverages and Tobacco SEEEU

Source: OECD (2013), STAN Database – No data available for Kosovo

9

Processed goods account for the largest share of SEE agro-food exports

MNE EU BIH HRV SRB MKD ALB0%

20%

40%

60%

80%

100%

Raw and processed exports as % of total agro-food exports (2011)

Agriculture, Hunting, Forestry and Fishing Food products, Beverages and Tobacco

Source: OECD (2013), STAN Database – No data available for Kosovo

For discussion:• Is there potential to

increase exports of processed goods?

The food and beverages sector’s export performance is also underlined by its high RCAs

SEE (+

Moldova) ALB BIH HRV MKD MNE SRBWood and Cork 3.91 1.32 7.50 5.07 0.51 5.54 2.38Textiles, Leather and Footwear 2.29 8.75 2.09 1.45 5.00 0.12 1.66Other Non-Metallic Mineral Products 2.25 2.33 1.47 3.31 2.24 0.25 1.33Food, Beverages and Tobacco 1.92 0.80 0.97 1.51 2.02 2.08 2.61Fabricated Metal Products 1.68 2.09 2.69 1.71 0.99 0.75 1.48Basic Metals 1.61 0.93 1.89 0.48 3.77 8.71 2.22Electrical Machinery and Apparatus n.e.c 1.23 0.63 0.56 1.71 0.48 0.07 1.19Rubber and Plastics Products 1.16 0.37 0.73 0.63 0.84 0.08 2.33Pulp, Paper, Printing and Publishing 1.09 1.00 1.17 1.07 0.32 0.64 1.45Coke, Petroleum Products 1.06 0.27 0.92 2.02 0.20 0.42 0.43Other Transport Equipment 0.92 0.02 0.20 1.96 0.08 0.23 0.45Machinery and Equipment, n.e.c 0.67 0.11 0.61 0.86 0.30 0.82 0.67Chemicals and Chemical Products 0.50 0.06 0.40 0.63 0.46 0.09 0.52Motor Vehicles, Trailers and Semi-Trailers 0.29 0.04 0.51 0.27 0.10 0.12 0.32Pharmaceuticals 0.23 0.05 0.04 0.21 1.34 0.03 0.06Medical, Precision and Optical Instruments 0.21 0.04 0.10 0.28 0.16 0.03 0.20Radio, TV and Communication Equipment 0.20 0.07 0.02 0.34 0.03 0.04 0.20ICT 0.19 0.07 0.04 0.28 0.06 0.04 0.22Office, Accounting and Computing Machinery 0.15 0.10 0.02 0.16 0.05 0.04 0.27

Revealed Comparative Advantage (RCA) indices in manufacturing sectors (2009)

Source: Based on OECD STAN Bilateral trade database by industry and end-use category – No data available for Kosovo

10RCA indices compare the share of a sector’s exports in a country’s total exports with the share of the same sector’s exports in total world exports. Here, total exports refer to total manufacturing exports. A RCA > 1 indicates a specialisation in a sector.

11

SEE economies have complementary strengths in food and beverages processing

ALB BIH HRV MKD MNE SRBLive animals chiefly for food 0.0 0.6 4.2 0.8 0.0 4.5Meat and preparations 0.3 0.8 1.0 1.2 2.4 0.7Dairy products and birds' eggs 0.6 2.5 1.2 0.5 0.1 1.5Fish, crustacean and molluscs, and preparations 3.1 0.4 2.1 0.3 0.0 0.1Cereals and cereal preparations 0.2 0.7 2.0 1.3 1.4 6.7Vegetables and fruit 1.0 0.9 0.6 3.8 1.8 4.0Sugar, sugar preparations and honey 0.1 3.9 5.4 0.9 0.0 5.6Coffee, tea, cocoa, spices, and manufactures 0.1 0.7 1.1 0.7 2.3 1.5Feeding stuff for animals 0.4 0.5 1.0 0.1 0.0 2.6Beverages 0.3 0.9 2.1 4.2 11.7 3.4Oil seeds and oleaginous fruit 0.0 0.0 1.2 0.2 0.0 1.0Crude animal and vegetable materials, nes 5.7 0.4 0.6 0.8 0.3 1.1Animal oils and fats 0.0 0.0 0.8 0.0 5.1 0.4Fixed vegetable oils and fats 0.3 1.7 0.2 0.7 1.2 3.1Animal and vegetable oils and fats and waxes 0.1 0.1 0.7 0.4 1.5 1.1Fertilizers, manufactured 0.0 0.5 7.4 0.1 0.0 1.4Animals, live, nes 9.2 0.9 0.4 0.8 0.1 0.7

RCA indices in agro-food sub-sectors (2012)

Source: Based on UN Comtrade – No data available for Kosovo

RCA indices compare the share of a sector’s exports in a country’s total exports with the share of the same sector’s exports in world exports. For this table, total exports refers to total commodity exports.

For discussion:• How can

complementarities between SEE economies in food and beverages processing be leveraged more?

12





1

2

3

13

Analysis of the food and beverages processing sector – key elements

Geography and natural resources

Market access to foreign economies

Demand trends

Food and beverages production structure

Productivity and competitive position

Analysis of the food and beverages processing sector2

14




Demand trends




15

• Large shares of arable land (Serbia, Croatia)

• Adriatic coastline (Croatia, Montenegro, Bosnia and Herzegovina)

• Mountainous areas less favourable to agriculture but potentially favourable to expansion in niche markets (agro-tourism)

• Diversity in climate, soils and agricultural practices leads to diversified offer in food and beverages processed goods

The SEE region has relatively diverse and unpolluted natural resources

Diverse natural

resources

Large areas of unpolluted or not intensively

cultivated land

Growth in organic

production

• Production and retail structure in SEE with good fit to organic market (e.g. small-scale production, direct selling)

• Some economies with targets for organic production: Croatia aiming to increase share of organic agricultural land to 8% by 2016; FYR Macedonia to 2%

• Limited use of agro-chemicals and mineral fertilizers

• Extensive protected natural areas (e.g. national parks, natural reserves)

• Favourable pre-conditions for organic production and eco-tourism

For discussion:• How can the SEE

economies reap benefits from their natural resources?

16

The mild climate in SEE is favourable to agriculture

Climatological stationAverage nb of frost-free

daysFirst planting date*

Sarajevo, BIH 269 April 12

Tirana, ALB 339 February 9

Skopje, MKD 281 April 8

Belgrade, SRB 307 March 28

Zagreb, HRV 276 April 10

Bucharest, ROM 252 April 16

Sofia, BGR 252 April 10

Ljubljana, SVN 257 April 14

Source: World Bank (2010), Agricultural Sector Policy Notes for Bosnia and Herzegovina* The first planting date is estimated by an algorithm by R.L. Snyder, et al. (2005), based on the assumption that planting is less risky after the first date with 50 percent or less probability of having a frost event

17

Climate change will affect agriculture and food production in SEE

Projections of extreme temperatures in Europe (1961 – 2011)

Source: European Environment Agency

Maps show changes in extreme temperature for two future periods, relative to 1961-1990. Extreme temperatures are represented by the combined number of hot summer (June-August) days (TMAX>35°C) and tropical nights (TMIN>20°C).

For discussion:• What opportunities and

threats does climate change bring?

18

Food prices are expected to increase and fluctuate with more frequent extreme weather events

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

0

20

40

60

80

100

120

140

160

180

FAO Food Price Index

Deflated Price Index

Sources: FAO (2014), « FAO Food Price Index », FAO

Drought in Russia (summer 2010)

Unfavourable weather conditions in major producing regions, (e.g. drought in Australia)

General trend: Biofuel production, diminishing food stocks, growing demand in Asia, oil prices, etc.

The FAO Food Price Index is a measure of the monthly change in international prices of a basket of food commodities.

For discussion:• Is food price fluctuation

currently an important issue to SEE companies?

• Which instruments are currently used to control the risk of price fluctuations?

19

Geographical proximity to the EU lowers time-to-market from SEE economies

Bratis

lava

Zagre

b

Belgr

ade

Sarajev

o

Podg

orica

Sofia

Skopj

e

Prist

ina

Tira

na

Bucar

est

Kiev

Ista

nbul

0

5

10

15

20

25

Road transport to Frankfurt, time in hours (2014)

Source: Google Maps

For discussion:• Are SEE food and

beverages companies using their time-to-market advantage by targeting Central and Western European economies?

20




Demand trends




SEE economies have preferential access to the CEFTA and EU markets

• Trade with CEFTA• Almost all tariffs for agricultural products were removed in CEFTA• Nb- As of its entry in the European Union, Croatia is no longer a

member of CEFTA. • Trade with the EU

• In 2000, the Western Balkans obtained duty-free access for almost all products

• SEE economies are gradually reducing their tariffs on imports from the EU

EU; 43.0%

CEFTA; 49.6%

World; 7.3%

Destination markets for SEE ex-ports in Food and Beverages

Processing (2011)*

CEFTA; 34.7%

EU; 48.3%

World; 17.0%

Destination markets for SEE exports in agricultural products

(2011)*

Source: European Commission (2013), « Bilateral agricultural trade relations », EC. OECD (2013) Statistics* Calculated as percentage of total export sales. Croatia was part of CEFTA in 2011 and is therefore included in the exports to CEFTA.

However trade is still constrained by non-tariff barriers, in particular sanitary and phytosanitary measures

Sanitary and Phytosanitary

Measures

Technical Barriers to Trade

Administrative Barriers to Trade

2. Implementation of EU legislation

1. Transposition of EU legislation

3. Participation in EU standardisation

4. Institutional framework for accreditation

5. Information and notification mechanisms

1. SPS institutional framework

2. Co-operation among SPS agencies

3. Framework for SPS legislation

4. Transposition of European SPS

measures

5. Information and notification

Source: OECD (2014- upcoming)

22

The boxes represent different indicators of the OECD Multilateral Monitoring Framework for non-trade barriers. The boxes in orange represent the dimensions on which the score for CEFTA is below 3 out of 5.

1. Customs website

6. Fees and charges

2. Enquiry points

7. Documentation automation and single window

4. Advance rulings

8. Risk management and post control audit

5. Appeals procedures

9. Customs procedures and

processes

10. Domestic agency co-operation

3. Involvement of the trade

community

11. Cross-border agency co-operation

For discussion:• What non tariff barriers

does your firm face when trying to export food and beverage products?

• Which export procedures are most time consuming?

23

SEE food and beverage exports almost doubled between 2005 and 2011

Source: OECD STAN Bilateral Trade Database – No data for Kosovo available

2005 2006 2007 2008 2009 2010 20110

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2000000

SEE food and beverage export trends, USD millions

ALB BIH HRV MKD MNE SRB

AAGR SRB: 15.8%

ALB: 13.2%

HRV: 4.3%

BIH: 15.9%

MKD: 13.2%

MNE: 8.3%

24

However, export growth has been slower than growth in food and beverage exports from the BRICS

Source: OECD STAN Bilateral Trade Database

2005 2006 2007 2008 2009 2010 20110

5000000

10000000

15000000

20000000

25000000

30000000

35000000

40000000

45000000

50000000

BRICS food and beverage exports, USD billions

Brazil China India Russian Federation South Africa

AAGR Brazil: 14.5%

China: 15%

India: 21.7%

Russia: 18.2%

South Africa: 7%

25

Analysis of food and beverages processing sector – key elements



Demand trends




26

Except for Croatia, food expenditure tends to be lower in SEE than in other European countries

Franc

e

Croat

ia

Germ

any

Uni

ted

Kingd

om

Slove

nia

Slova

kia

Polan

d

Roman

ia

Czech

Rep

ublic

Bosni

a-H

erze

go...

FYR Mac

edon

ia

Hun

gary

Ukr

aine

Bulga

ria -

500

1,000

1,500

2,000

2,500

3,000

3,500

Yearly expenditure on food, USD per person (2012)

Source: United States Department of Agriculture, 2013

For discussion:• How can SEE

companies access markets where spending on food and beverages is higher?

Croatia as high-value market for FBP companies

BiH and FYR Macedonia with large potential for per capita expenditure growth

27

The food and beverages sector has been characterised by strong growth at the regional and world levels

-2% 0% 2% 4% 6% 8% 10%

-5%

0%

5%

10%

15%

20%

25%

Food and beverages

Textiles and

apparel

134381%

Coke and petroleum

Wood products

13926%

Rubbers and plastics

126248%

Mfg of metals

Non-metallic mineral mfg

Machinery and

equipment

Office machines, data processing

equipment

Electricmachinery

Other transport

equipment

Paperproducts

120173%

Average annual growth in world imports

Ave

rag

e an

nu

al g

row

th i

n S

EE

exp

ort

s

Source: based on UNComtrade – NB: The size of the bubbles represents the size of the sectors as measured by total world exports in 2012.

High growth

Low growth

Decrea

sing

MS

Increa

sing

MS

Growth in SEE exports and world demand (2006-2012)

28

SEE has gained market shares in key food and beverages sub-sectors but growth could be further enhanced

0% 5% 10% 15% 20% 25%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

7895219281200%

4635148878700%

7844912607200%

8599626465300%

12598307304300%

2885569730300%

4849285946800%

3308032828800%

3672390036800%

6357446428100%

2399051100200%

242378105200% 3496401780000%

2420569092300%

Growth in SEE exports and world demand (2006-2012)

Average annual growth in world imports

Av

era

ge

an

nu

al g

row

th in

SE

E e

xp

ort

s

Source: based on UNComtrade – NB: The size of the bubbles represents the size of the sectors as measured by total world exports in 2012.

Increasin

g

MS

Decreasin

g

MS

How to move up?

29

Consumer demands are switching towards safer and healthier products

Changing patterns in food consumption

Sensory appeal

Price

Health

Natural content

Convenience

Mood

Familiarity

Weight control

Ethical concern

0 1 2 3 4 5

Motives for food choices in SEE

• In the EU, the market for organic food almost doubled between 2004 (10 bn EUR) and 2011 (19.7 bn EUR). The largest markets for organic products in 2011 were Germany (6.6 bn EUR), France (3.7 bn EUR) and the UK (1.9 bn EUR)

• In SEE, the market for organic food has been expanding but at a slower pace due to weaker purchasing power and more limited awareness of the benefits of organic products (Grozdanic, 2013)

• Currently, the demand for organic and healthy products has been met mostly through imports from the EU (Grozdanic, 2013)

Source: Focus-Balkans Project, 2011Source: Willer et al., 2013 and Grozdanic, 2013

For discussion:• Has the food and

beverages processing sector in the SEE region a suitable profile to meet demand changes?

30

Analysis of food and beverages processing sector – key elements



Demand trends




31

Primary production is highly fragmented and food processing is dominated by small firms

Source: Volk, Tina (2010), “Agriculture in the Western Balkans Countries”, IAMO

Sources: FAO country briefs, Eurostat and OECD (2012)

EU27 SRB BIH MNE HRV MKD KOS ALB0

2

4

6

8

10

12

14

Average farm size, ha/farm (2008)

FRA SRB ROM HRV BGR MKD MNE ALB0

500

1000

1500

2000

2500

Average turnover by company in food and beverages manufacturing,

thousand EUR (2009)

32

The food retail sector on the other hand is becoming increasingly concentrated

Shift in retailing from small shops and grocery stores to supermarkets

Retailers in food and beverages processing characterised by increasing levels of concentration and foreign investment

Large retailers take increasing control over production by introducing private labels

Implications on domestic producers

• Large retailers prefer to consolidate supplier base• Small domestic producers have limited bargaining power• Products in supermarkets are often imported

• Increasing introduction of “private labels” (e.g. Premia/Delta)

• In Croatia, Konzum (Agrokor) accounted for 30% of the food retailing market in 2011

• In Serbia, predominance of DELTA Maxi (now Delhaize Group) in food retailing with a market share of about 22% in 2011

Selected trends

For discussion:• How can food and

beverages suppliers increase their bargaining power?

33

The food and beverages sector has attracted FDI but further potential could be exploited

Manufacturing turnover by industry(2009)

Food and beverages Basic and fabricated metalsChemicals and chemical products Coke and refined petroleum productsTextiles, apparel and leather Non-metallic mineral productsOther

Manufacturing FDI by industry(2010)

Food and beverages 28%

Food and beverages15%

Sources: wiiw and OECD

The food and beverages processing sector is under-represented in foreign direct investment compared to its share in total manufacturing turnover

For discussion:• Why is FDI

performance in the food and beverage processing sector rather poor?

34

Analysis of food and beverages processing sector



Demand trends




35

SEE agricultural yields lag behind EU yields

ALB BIH HRV KSV MKD MNE SRB0%

20%

40%

60%

80%

100%

Average yields as % of EU27 average (2008)

wheat (t/ha) cow milk (kg/cow)

Source: Volk, Tina (2010), “Agriculture in the Western Balkans Countries”, IAMO

For discussion:• What are the main

reasons for lower than EU-average agricultural yields in the SEE region?

36

However, yields in SEE have increased faster than in the EU for many products

Source: FAO statistics (2013)

Plum

s an

d sloe

s

Apple

s

Cherr

ies

Win

e

Whe

at

Butte

r, co

w m

ilk

Milk

, ski

mm

ed c

ow

Mea

t, ch

icke

n

Mea

t, pi

g

Mai

ze

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Average growth in yields (2006-2011)

South-East Europe EU

For discussion:• What levers can lead

to further productivity gains?

37

Price competitiveness varies across products but is particularly high in fruit production

Ukraine

Russia HRV SRB BIH MKD ALB0

50

100

150

200

250

300

350

400Producer prices: Maize

Ukraine HRV SRB MKD Russia ALB0

500

1000

1500

2000

2500

3000

Producer prices: Pork

Ukraine

SRB BIH MKD Russia HRV ALB0

100

200

300

400

500

600Producer prices: Whole milk

Source: FAO Statistics, 2013 – Figures based on data for 2011

MKD BiH SRB Ukraine HRV Spain0

500

1000

1500

2000

2500

3000

3500Producer prices: Strawberries

EU average

US

D/t

onne

US

D/t

onne

US

D/t

onne

US

D/t

onne

38

Despite limited research capacities, the food and beverages sector has innovation potential

Organi-sational

Product/service

Process Marketing0

10

20

30

40

50

% Enterprises in the agro-food sec-tor that have introduced innovations

Limited research in agro-food:• Very low overall R&D

expenditures

• Fragmented public research and often obsolete infrastructure

• Sometimes limited relevance of research for businesses and weak industry-science linkages

But innovation potential:• Several companies have

managed to distinguish themselves through innovation

• Examples: Omega-3 enriched egg in BiH; wine sub-sector which introduced branding and marketing innovations (e.g. Plantaze in Montenegro)

Source: Survey by the Serbian statistical officeSource: Grozdanic, 2013

Example from Serbia

For discussion:• In what areas are

innovations in food and beverages processing most important?

• How can the innovative capacity in food and beverages processing be strengthened?

39





1

2

3

40

SWOT-analysis framework

• ….• …• …• …

• ….• …• …• …

• ….• …• …• …

• ….• …• …• …

Strengths

ThreatsOpportunities

Weaknesses

Example output

41

Instructions for group work

• Please go to the discussion group you have been assigned to (Groups 1 to 5).

• Please assess the strengths, weaknesses, opportunities and threats that characterise the food and beverages processing sector in SEE.

• The results of the discussion should be document on a flip chart.

• Please designate a rapporteur who will be responsible for summarising the results of the discussion.

• You have 40 minutes.

42

SWOT-analysis framework

• ….• …• …• …

• ….• …• …• …

• ….• …• …• …

• ….• …• …• …

Strengths

ThreatsOpportunities

Weaknesses

Example output

Overview of the Food and Processing Sector in South East Europe

News & Politics

Transcript of Overview of the Food and Processing Sector in South East Europe