This document summarizes a meeting of the Food and Beverages Processing Expert Group in Paris on March 4th 2014. It provides an overview of the food and beverages processing sector in South-East Europe, including its characteristics, analysis, and opportunities for development. Key points discussed include the sector's importance for employment, exports, and leveraging the region's natural resources and market access to the EU and CEFTA. Non-tariff barriers to trade were also examined.

1. Next Generation Competitiveness Initiative
First 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
2

3. Presentation overview
1
General characteristics of the SEE food and beverages
processing sector
2
Analysis of the food and beverages processing sector
3
Break-out group discussion
3

4. Presentation overview
1
General characteristics of the SEE food and beverages
processing sector
2
Analysis of the food and beverages processing sector
3
Break-out group discussion
4

6. For discussion:
The food and beverages manufacturing sector is more
• Can food and beverage
evenly distributed across the region than other sectors
processing be considered a
Concentration of food and beverages
manufacturing in CEFTA* (2008-10)
priority vehicle for regional
and rural development?
Concentration of motor vehicles
manufacturing in CEFTA* (2008-10)
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.
Source: OECD (2013), “Industry Concentration and Country Specialisation in CEFTA”, CEFTA Issues Paper 5
Nb: CEFTA includes Moldova as well as the Western Balkan economies.
6

7. Food and beverages processing accounts for a
large share of manufacturing employment
Share of FBP in manufacturing employment
(average 2008-2010)
30%
25%
20%
15%
10%
5%
0%
KOS
SRB
MNE
HRV
BIH
Employment in food and beverage processing (share of total)
ALB
MKD
SEE
7
Source: OECD (2013), “Industry Concentration and Country Specialisation in CEFTA”, CEFTA Issues Paper 5

8. Food and beverages processing contributes more
to total exports in SEE than in the EU
Food and beverages processing exports as % of total exports
(2011)
16%
14%
12%
10%
8%
6%
4%
2%
0%
SRB
MNE
MKD
HRV
Food Products, Beverages and Tobacco
BIH
SEE
ALB
EU
8
Source: OECD (2013), STAN Database – No data available for Kosovo

9. Processed goods account for the largest share of
For discussion:
SEE agro-food exports
• Is there potential to increase
exports of processed goods?
Raw and processed exports as % of total agro-food exports (2011)
100%
80%
60%
40%
20%
0%
MNE
EU
BIH
HRV
Agriculture, Hunting, Forestry and Fishing
SRB
MKD
ALB
Food products, Beverages and Tobacco
9
Source: OECD (2013), STAN Database – No data available for Kosovo

10. The food and beverages sector’s export performance
is also underlined by its high RCAs
Revealed Comparative Advantage (RCA) indices in manufacturing sectors (2009)
SEE (+
Moldova)
Wood and Cork
Textiles, Leather and Footwear
Other Non-Metallic Mineral Products
Food, Beverages and Tobacco
Fabricated Metal Products
Basic Metals
Electrical Machinery and Apparatus n.e.c
Rubber and Plastics Products
Pulp, Paper, Printing and Publishing
Coke, Petroleum Products
Other Transport Equipment
Machinery and Equipment, n.e.c
Chemicals and Chemical Products
Motor Vehicles, Trailers and Semi-Trailers
Pharmaceuticals
Medical, Precision and Optical Instruments
Radio, TV and Communication Equipment
ICT
Office, Accounting and Computing Machinery
3.91
2.29
2.25
1.92
1.68
1.61
1.23
1.16
1.09
1.06
0.92
0.67
0.50
0.29
0.23
0.21
0.20
0.19
0.15
ALB
1.32
8.75
2.33
0.80
2.09
0.93
0.63
0.37
1.00
0.27
0.02
0.11
0.06
0.04
0.05
0.04
0.07
0.07
0.10
BIH
7.50
2.09
1.47
0.97
2.69
1.89
0.56
0.73
1.17
0.92
0.20
0.61
0.40
0.51
0.04
0.10
0.02
0.04
0.02
HRV
5.07
1.45
3.31
1.51
1.71
0.48
1.71
0.63
1.07
2.02
1.96
0.86
0.63
0.27
0.21
0.28
0.34
0.28
0.16
MKD
0.51
5.00
2.24
2.02
0.99
3.77
0.48
0.84
0.32
0.20
0.08
0.30
0.46
0.10
1.34
0.16
0.03
0.06
0.05
MNE
5.54
0.12
0.25
2.08
0.75
8.71
0.07
0.08
0.64
0.42
0.23
0.82
0.09
0.12
0.03
0.03
0.04
0.04
0.04
SRB
2.38
1.66
1.33
2.61
1.48
2.22
1.19
2.33
1.45
0.43
0.45
0.67
0.52
0.32
0.06
0.20
0.20
0.22
0.27
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 total
10
world exports. Here, total exports refer to total manufacturing exports. A RCA > 1 indicates a specialisation in a sector.
Source: Based on OECD STAN Bilateral trade database by industry and end-use category – No data available for Kosovo

11. For discussion:
SEE economies have complementary strengths in
• How can complementarities
food and beverages processing between SEE economies in
food and beverages processing
be leveraged more?
RCA indices in agro-food sub-sectors (2012)
Live animals chiefly for food
Meat and preparations
Dairy products and birds' eggs
Fish, crustacean and molluscs, and preparations
Cereals and cereal preparations
Vegetables and fruit
Sugar, sugar preparations and honey
Coffee, tea, cocoa, spices, and manufactures
Feeding stuff for animals
Beverages
Oil seeds and oleaginous fruit
Crude animal and vegetable materials, nes
Animal oils and fats
Fixed vegetable oils and fats
Animal and vegetable oils and fats and waxes
Fertilizers, manufactured
Animals, live, nes
ALB
0.0
0.3
0.6
3.1
0.2
1.0
0.1
0.1
0.4
0.3
0.0
5.7
0.0
0.3
0.1
0.0
9.2
BIH
0.6
0.8
2.5
0.4
0.7
0.9
3.9
0.7
0.5
0.9
0.0
0.4
0.0
1.7
0.1
0.5
0.9
HRV
4.2
1.0
1.2
2.1
2.0
0.6
5.4
1.1
1.0
2.1
1.2
0.6
0.8
0.2
0.7
7.4
0.4
MKD
0.8
1.2
0.5
0.3
1.3
3.8
0.9
0.7
0.1
4.2
0.2
0.8
0.0
0.7
0.4
0.1
0.8
MNE
0.0
2.4
0.1
0.0
1.4
1.8
0.0
2.3
0.0
11.7
0.0
0.3
5.1
1.2
1.5
0.0
0.1
SRB
4.5
0.7
1.5
0.1
6.7
4.0
5.6
1.5
2.6
3.4
1.0
1.1
0.4
3.1
1.1
1.4
0.7
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.
Source: Based on UN Comtrade – No data available for Kosovo
11

12. Presentation overview
1
General characteristics of the SEE food and beverages
processing sector
2
Analysis of the food and beverages processing sector
3
Break-out group discussion
12

13. Analysis of the food and beverages processing
sector – key elements
2
Analysis of the food and beverages processing sector
Geography and natural resources
Market access to foreign economies
Demand trends
Food and beverages production structure
Productivity and competitive position
13

14. Analysis of the food and beverages processing
sector – key elements
2
Analysis of the food and beverages processing sector
Geography and natural resources
Market access to foreign economies
Demand trends
Food and beverages production structure
Productivity and competitive position
14

15. The SEE region has relatively diverse and unpolluted
For discussion:
• How can the SEE economies
natural resources
reap benefits from their
natural resources?
•
Large areas of
unpolluted or
not intensively
cultivated land
•
Adriatic coastline (Croatia, Montenegro, Bosnia and Herzegovina)
•
Mountainous areas less favourable to agriculture but potentially favourable
to expansion in niche markets (agro-tourism)
•
Diverse natural
resources
Large shares of arable land (Serbia, Croatia)
Diversity in climate, soils and agricultural practices leads to diversified offer
in food and beverages processed goods
•
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
•
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%
15

16. The mild climate in SEE is favourable to agriculture
Climatological station
Average nb of frost-free days
First 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
16

17. Climate change will affect agriculture and food
For discussion:
production in SEE
• What opportunities and
threats does climate change
bring?
Projections of extreme temperatures in Europe (1961 – 2011)
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).
17
Source: European Environment Agency

18. For discussion:
• Is food price fluctuation
Food prices are expected to increase and fluctuate
currently an important issue to
with more frequent extreme weather companies?
events
SEE
• Which instruments are
FAO Food Price Index currently used to control the
risk of price fluctuations?
The FAO Food Price Index is a measure of the monthly change in international prices of a basket of
food commodities.
180
160
140
General trend: Biofuel production, diminishing
food stocks, growing demand in Asia, oil
prices, etc.
120
100
80
60
40
20
Drought in Russia
(summer 2010)
Unfavourable
weather conditions
in major producing
regions, (e.g. drought
in Australia)
0
Deflated Price Index
Sources: FAO (2014), « FAO Food Price Index », FAO
18

19. Geographical proximity to the
market from SEE economies
For discussion:
EU Are SEE food and beverages
• lowers time-tocompanies using their time-tomarket advantage by targeting
Central and Western European
economies?
Road transport to Frankfurt, time in hours (2014)
25
20
15
10
5
0
19
Source: Google Maps

20. Analysis of the food and beverages processing
sector – key elements
2
Analysis of the food and beverages processing sector
Geography and natural resources
Market access to foreign economies
Demand trends
Food and beverages production structure
Productivity and competitive position
20

21. SEE economies have preferential access to the
CEFTA and EU markets
Destination markets for SEE exports
in agricultural products (2011)*
Destination markets for SEE exports in
Food and Beverages Processing (2011)*
World, 7.3
%
World, 17.0
%
CEFTA, 34.
7%
EU, 48.3%
•
•
EU, 43.0%
CEFTA, 49.
6%
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
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.

22. For discussion:
However trade is still constrained by non-tariff barriers, in
• What non tariff barriers does
your firm face when trying to
particular sanitary and phytosanitary measures
export food and beverage
products?
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 Which3export procedures are
• is below out of 5.
most time consuming?
Sanitary and
Technical Barriers
to Trade
1. Transposition of EU
legislation
2. Implementation of
EU legislation
3. Participation in EU
standardisation
Phytosanitary
Measures
1. SPS institutional
framework
3. Framework for SPS
legislation
4. Transposition of
European SPS measures
5. Information and
notification
mechanisms
5. Information and
notification
1. Customs website
2. Enquiry points
3. Involvement of the
trade community
4. Advance rulings
5. Appeals procedures
2. Co-operation among
SPS agencies
4. Institutional
framework for
accreditation
Source: OECD (2014- upcoming)
Administrative Barriers to Trade
6. Fees and charges
7. Documentation
automation and single
window
8. Risk management
and post control audit
9. Customs procedures
and processes
11. Cross-border
agency co-operation
10. Domestic agency
co-operation
22

23. SEE food and beverage exports almost doubled
between 2005 and 2011
SEE food and beverage export trends, USD millions
2000
AAGR SRB:
15.8%
1800
1600
1400
1200
HRV: 4.3%
1000
800
600
MKD: 13.2%
BIH: 15.9%
400
200
MNE: 8.3%
ALB: 13.2%
0
2005
2006
2007
2008
ALB
BIH
HRV
MKD
2009
MNE
2010
SRB
2011
23
Source: OECD STAN Bilateral Trade Database – No data for Kosovo available

24. However, export growth has been slower than growth
in food and beverage exports from the BRICS
BRICS food and beverage exports, USD billions
50
AAGR Brazil: 14.5%
45
40
China: 15%
35
30
25
India: 21.7%
20
15
10
Russia: 18.2%
5
0
South Africa: 7%
2005
Brazil
2006
China
2007
India
2008
2009
Russian Federation
2010
2011
South Africa
24
Source: OECD STAN Bilateral Trade Database

25. Analysis of food and beverages processing sector
– key elements
2
Analysis of the food and beverages processing sector
Geography and natural resources
Market access to foreign economies
Demand trends
Food and beverages production structure
Productivity and competitive position
25

27. The food and beverages sector has been
characterised by strong growth at the regional and
world levels
Growth in SEE exports and world demand (2006-2012)
High growth
Road vehicles
Low growth
Average annual growth in SEE exports
25%
20%
Chemicals
Coke and
petroleum
15%
Paper
products
Electric
machinery
10%
Wood
products Office machines,
5% data processing
equipment
Textiles
and
apparel
0%
-5%
-10%
Machinery
and
equipment
Basic metals
Non-metallic
mineral mfg
0%
-2%
Furniture
Mfg of
metals
Food and
beverages
Rubbers
4% and plastics
2%
6%
8%
10%
Other
transport
equipment
Average annual growth in world imports
Source: based on UNComtrade – NB: The size of the bubbles represents the size of the sectors as measured by total world
exports in 2012.
27

28. SEE has gained market shares in key food and beverages
sub-sectors but growth could be further enhanced
Growth in SEE exports and world demand (2006-2012)
35%
Animal oils and fats Vegetable oils and fats
Average annual growth in SEE exports
30%
Feeding stuff for
animals
25%
How to
move
up?
20%
15%
Oil seeds and
oleaginous fruit
Fertilizers, manufactur
ed
Cereals
Dairies
Vegetables and fruits
Beverages
Meats
10%
5%
Fish products Miscellaneous edible
Sugars
products
0%
0%
-5%
5%
10%
15%
20%
25%
Coffee, tea, cocoa and
spices
-10%
Average annual growth in world imports
Source: based on UNComtrade – NB: The size of the bubbles represents the size of the sectors as measured by total world
exports in 2012.
28

29. Consumer demands are
and healthier products
Changing patterns in food
consumption
•
•
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)
For discussion:
switching towards safer
• Has the food and
beverages processing
sector in the SEE region
a suitable profile to meet
demand changes?
Motives for food choices in SEE
0
1
2
3
4
5
Sensory appeal
Price
Health
Natural content
Convenience
Mood
Familiarity
•
Currently, the demand for organic and healthy
products has been met mostly through
imports from the EU (Grozdanic, 2013)
Weight control
Ethical concern
29
Source: Willer et al., 2013 and Grozdanic, 2013
Source: Focus-Balkans Project, 2011

30. Analysis of food and beverages processing sector
– key elements
2
Analysis of the food and beverages processing sector
Geography and natural resources
Market access to foreign economies
Demand trends
Food and beverages production structure
Productivity and competitive position
30

31. Primary production is highly fragmented and food
processing is dominated by small firms
Average turnover by company in food
and beverages
manufacturing, thousand EUR (2009)
Average farm size, ha/farm (2008)
14
2500
12
2000
10
1500
8
6
1000
4
500
2
0
0
EU27
SRB
BIH
MNE HRV MKD
KOS
ALB
Source: Volk, Tina (2010), “Agriculture in the Western
Balkans Countries”, IAMO
FRA
SRB
ROM
HRV
BGR
MKD
Sources: FAO country briefs, Eurostat and
OECD (2012)
MNE
ALB
31

32. For discussion:
The food retail sector on the other hand is food and
• How can
becoming increasingly concentrated beverages suppliers
increase their bargaining
Selected trends
power?
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
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
•
•
Large retailers take increasing control over production by introducing private
labels
•
Increasing introduction of “private labels” (e.g. Premia/Delta)
Implications on domestic producers
•
•
•
Large retailers prefer to consolidate supplier base
Small domestic producers have limited bargaining power
Products in supermarkets are often imported
32

33. For discussion:
The food and beverages sector has attracted FDI but
• Why is FDI performance
further potential could be exploited
in the food and beverage
Manufacturing turnover by industry
(2009)
Food and
beverages 28%
Food and beverages
Chemicals and chemical products
Textiles, apparel and leather
Other
processing sector rather
poor?
Manufacturing FDI by industry
(2010)
Food and
beverages
15%
The food and
beverages
processing
sector is
underrepresented in
foreign direct
investment
compared to
its share in
total
manufacturing
turnover
Basic and fabricated metals
Coke and refined petroleum products
Non-metallic mineral products
33
Sources: wiiw and OECD

34. Analysis of food and beverages processing sector
2
Analysis of the food and beverages processing sector
Geography and natural resources
Market access to foreign economies
Demand trends
Food and beverages production structure
Productivity and competitive position
34

35. SEE agricultural yields lag behind
For discussion:
• yields
EU What are the main
reasons for lower than
EU-average agricultural
yields in the SEE region?
Average yields as % of EU27 average (2008)
100%
80%
60%
40%
20%
0%
ALB
BIH
HRV
wheat (t/ha)
KSV
MKD
MNE
cow milk (kg/cow)
SRB
35
Source: Volk, Tina (2010), “Agriculture in the Western Balkans Countries”, IAMO

36. However, yields in SEE have
the EU for many products
For discussion:
increased faster can lead to
• What levers than in
further productivity
gains?
Average growth in yields (2006-2011)
7%
6%
5%
4%
3%
2%
1%
0%
Plums and sloes
Apples
-1%
Cherries
Wine
Wheat
Butter, cow milk
Milk, skimmed cowchicken
Meat,
Meat, pig
Maize
-2%
South-East Europe
EU
36
Source: FAO statistics (2013)

37. Price competitiveness varies across products but is
particularly high in fruit production
3000
EU average
3000
USD/tonne
USD/tonne
3500
Producer prices: Pork
Producer prices: Strawberries
2500
2000
1500
2500
2000
1500
1000
1000
500
500
0
0
MKD
SRB
Ukraine
HRV
Ukraine
Spain
Producer prices: Maize
HRV
SRB
MKD
Russia
ALB
Producer prices: Whole milk
USD/tonne
USD/tonne
400
BiH
350
300
250
200
600
500
400
300
150
200
100
100
50
0
0
Ukraine Russia
HRV
SRB
BIH
MKD
ALB
Source: FAO Statistics, 2013 – Figures based on data for 2011
Ukraine
SRB
BIH
MKD
Russia
HRV
ALB
37

38. For discussion:
Despite limited research capacities,what areas are innovations
• In the food and
in food and
beverages sector has innovation potential beverages
processing most important?
• How can the innovative
Limited research in agro-food:
capacity in Serbia
Example fromfood and beverages
• Very low overall R&D expenditures
processing be strengthened?
% Enterprises in the agro-food sector
•
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)
50
that have introduced innovations
40
30
20
10
0
38
Source: Grozdanic, 2013
Source: Survey by the Serbian statistical office

39. Presentation overview
1
General characteristics of the SEE food and beverages
processing sector
2
Analysis of the food and beverages processing sector
3
Break-out group discussion
39

40. SWOT-analysis framework
Example output
Strengths
Weaknesses
•
•
•
•
….
…
…
…
•
•
•
•
….
…
…
…
•
•
•
•
….
…
…
…
•
•
•
•
….
…
…
…
Opportunities
Threats
40

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.
41

42. SWOT-analysis framework
Example output
Strengths
Weaknesses
•
•
•
•
….
…
…
…
•
•
•
•
….
…
…
…
•
•
•
•
….
…
…
…
•
•
•
•
….
…
…
…
Opportunities
Threats
42