Ministry of Agriculture, Forestry and Water Management of Montenegro Ministry of Tourism of Montenegro

Transcription

1 Rev. 1 - DECEMBER 2010 Ministry of Agriculture, Forestry and Water Management of Montenegro Ministry of Tourism of Montenegro Sustainable Development of the Dairy Industry in Montenegro Dairy Sector Analysis

2 Rev. 1 - DECEMBER 2010 Ministry of Agriculture, Forestry and Water Management of Montenegro Ministry of Tourism of Montenegro Sustainable Development of the Dairy Industry in Montenegro Dairy Sector Analysis Prepared by Signature Date Ivana Glišević December 2010 Flavio M. Lecciso December 2010 Lorenzo Facco December 2010 Verified by Signature Date Gianluca Cassulo December 2010 Paola Rentocchini December 2010 Approved by Signature Date Marco G. Cremonini December 2010 Rev. Description Prepared by Verified by Approved by Date 0 Issue for Comments P.Beltrami/FML/LFA GIC/PAR MGC June Final Issue I.Glišević/FML/LFA GIC/PAR MGC December 2010 All rights, including translation, reserved. No part of this document may be disclosed to any third party, for purposes other than the original, without written consent of D'Appolonia/DFS Engineering.

3 TABLE OF CONTENTS Page LIST OF TABLES III LIST OF FIGURES IV LIST OF ACRONYMS V 1 INTRODUCTION SCOPE OF THE DOCUMENT DOCUMENT ORGANIZATION 2 2 BACKGROUND AND KEY FIGURES SECTOR OVERVIEW INFORMATION AVAILABLE Literature Originated by National Institutions Literature produced by Technical Assistance Projects 7 3 PRODUCERS AND FARMERS NUMBER OF LIVESTOCK AND FARMS PRODUCTIVITY AND GENETIC ANIMAL HEALTH ANIMAL NUTRITION 17 4 PROCESSING INDUSTRIES PROCESSED PRODUCT QUALITY SYSTEM ENVIRONMENTAL IMPACT 24 5 NATIONAL POLICIES AND REGULATION OVERVIEW OF THE DAIRY SECTOR NATIONAL REGULATION Law on Agriculture and Rural Development Food Safety Law Veterinary Law Proposal Law on Livestock Farming OVERVIEW OF THE NATIONAL POLICIES ON THE DAIRY SECTOR Milk Production Collection and Processing Distribution AGROBUDGET Agrobudget Composition Annual AgroBudget Uncovered Issues 46 6 MARKET AND TRADE PRIMARY PRODUCTION PROCESSED PRODUCTS MARKET COSTS AND REVENUES TRENDS BUSINESS BREAKEVEN POINT DEFINITION 51 Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. i

4 TABLE OF CONTENTS (Continuation) Page 6.6 BENCHMARKING WITH EU SITUATION 53 7 LEVEL OF ATTAINMENT OF RELEVANT EU STANDARDS EU LEGISLATION OVERVIEW Regulation (EC) 178/ Hygiene Package Regulation EC 882/ ANALYSIS OF THE COMPLIANCE BETWEEN EU AND NATIONAL REGULATIONS Responsibility of Food Business Operators and Implementation of HACCP-based Procedures Registration Food Production or Processing Industries Health and Temperature Requirements for Raw Milk Hygiene Requirements for Milk Production Holdings and Staff Criteria for Raw Milk Temperature and Heat Treatment Requirements for Dairy Products Wrapping, Packaging, Labelling and Identification Marking of Dairy Products Official Controls ROLE OF MILK PROCESSING FACTORIES CONCERNING FOOD SAFETY FINAL REMARKS 66 8 PAST TRENDS AND FUTURE DEVELOPMENT IN TERMS OF INVESTMENTS INVESTMENTS AT FARM LEVEL Present Population and Farms Structure Future Development of Animal Population and Farm Size Present Level of Investment Future Investment Need INVESTMENTS AT INDUSTRIAL LEVEL 78 9 POTENTIALS AND NEEDS OF THE SECTOR PRODUCTION PROCESSING DISTRIBUTION AND MARKET SECTOR FINANCING MILK PRODUCTION SECTOR FINANCING MILK PROCESSING TECHNICAL ASSISTANCE IDENTIFICATION OF TRAINING NEEDS IN THE SECTORS OUTCOMES FINAL REMARKS ON THE SECTOR POTENTIAL IPA SUPPORT TO MONTENEGRIN AGRO FOOD SECTOR Axis I Improving Market Efficiency and Implementation of Community Standards Axis II Preparatory Actions for Implementation of the Agrienvironmental Measures and Local Rural Development Strategies Axis III Development of the Rural Economy 92 REFERENCES 1 Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. ii

5 Tables No. LIST OF TABLES Page Table 3.1: Number of Livestock (CoA, 2010) 9 Table 3.2: Best Farms and Breeds 13 Table 3.3: Best Cow and Lactation 14 Table 3.4: Breed in Table 3.5: Average Productivity by Region (2009) on LSS Sample 15 Table 3.6: Evolution of Standard Lactation by Breed (MY(Kg)) 16 Table 3.7: Classification of Raw Milk Samples according to Somatic Cells Count 17 Table 4.1: Collected Milk Year (l at 4% Fat Content) 19 Table 4.2: Milk processed 20 Table 4.3: Plant Characteristics 21 Table 4.4: Animal Presence and processing Capacity by Municipality (Central Region) 22 Table 4.5: Animal Presence and processing Capacity by Municipality (NE Region) 22 Table 4.6: Animal Presence and processing Capacity by Municipality (Northern Region) 23 Table 4.7: Animal Presence and processing Capacity by Municipality (Coastal Region) 23 Table 4.8: Classification of Raw Milk Samples according to Bacteria Cells Count 23 Table 5.1: NP total Budget (NP for Food Production and Rural Development) (k ) 41 Table 5.2: Axis 2 Evolution (k ) 41 Table 5.3: Direct Payments 42 Table 5.4: Market Stabilisation Measures 42 Table 5.5: Rural Development Measures 43 Table 5.6: Rural Development Measures 43 Table 5.7: Social Transfers to Rural Population 44 Table 5.8: Social Transfers to Rural Population 44 Table 5.9: Improving in Quality of Life and Diversification of Activities 45 Table 5.10: Support to General Services in Agriculture 45 Table 6.1: Operational Costs and Raw Material 47 Table 6.2: Industrial Products available in the Local Market 49 Table 6.3: Operational Costs 50 Table 6.4: Selling Prices (Producers Distributor) for Industrial Products 50 Table 6.5: Cheese Price Recorded During Interview 50 Table 6.6: Breakeven Point Simulation 52 Table 6.7: Net income in Livestock Farm in EU ( ) 53 Table 6.8: Price of Milk at Farm Gate ( per 100 lt) in different EU Countries 54 Table 7.1: Raw Milk Criteria 58 Table 8.1: Change of the Farm Size in the Period Table 8.2: Scenario based on the last two Years Trend 72 Table 8.3: Reduction in Animal Population 73 Table 8.4: Scenario based on the last three Years Trend 73 Table 8.5: Reduction in Animal Population 74 Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. iii

6 LIST OF TABLES (Continuation) Tables No. Page Table 8.6: Sector Evolution ( ): Final Results 74 Table 8.7: Rural Development Measures Directly or Indirectly meant to Support Dairies 75 Table 8.8: Investment need under Scenario 1 and 2 76 Table 8.9: Inner capability to Generate Investment 77 Table 8.10: Inner Capability to Generate Investment 77 Table 8.11: Selling Prices (Producers Distributor) for Industrial Products 79 Table 8.12: Cheese Price recorded during Interview 79 Table 9.1: SWOT Analysis - Production 81 Table 9.2: SWOT Analysis Collection and Processing 82 Table 9.3: SWOT Analysis Distribution and market 82 Table 9.4: SWOT Analysis Sector Financing - Production 83 Table 9.5: SWOT Analysis Sector Financing Processing 83 Table 9.6: SWOT Analysis Technical Assistance 84 Table 10.1: Matter of Training 86 Table 10.2: Support to General Services in Agriculture 86 Figure No. LIST OF FIGURES Page Figure 3.1: Territorial Distribution of Animal Population: Bovine 10 Figure 3.2: Farm Size Evolution 12 Figure 3.3: Change in the Number by Size 13 Figure 4.1: Processed Milk 21 Figure 6.1: Dairies Milk Collection Basins 48 Figure 6.2: Example of Local Industrial Products Available on the Market 49 Figure 6.3: Unbranded Cheese Sold in Small Shops or in Supermarket 49 Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. iv

7 LIST OF ACRONYMS ADEM Agency for Development of Export and Markets AP Action Plan CAP Common Agricultural Policy DIS Decentralized Implementation System EAFRD European Agricultural Fund for Rural Development EP European Partnership GDP Gross Domestic Product HACCP Hazard Analysis and Critical Control Point IPA Instrument for Pre Accession Assistance IPARD Instrument for Pre-Accession Assistance in Rural Development LSS Livestock Selection Service MIPD Multi-Annual Indicative Planning Document NGO Non Governmental Organization NP National Programme for Food Production and Rural Development NPI National Programme for Integration NSSD National Strategy for Sustainable Development SAA Stabilization and Association Agreement SEI Secretariat for European Integration SMEs Small and Medium Enterprises SWOT Strengths, Weaknesses, Opportunities, Threats Analysis UHT Ultra High Temperature WACC Weighted Average Cost of Capital CoA Census of Agriculture First Results Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. v

8 SUSTAINABLE DEVELOPMENT OF THE DAIRY INDUSTRY IN MONTENEGRO DAIRY SECTOR ANALYSIS 1 INTRODUCTION Montenegro should move away from a traditional system of subsidizing particular agricultural inputs and outputs, and develop a more holistic approach to supporting rural development. In particular, in line with recent developments in the EU Common Agricultural Policy (CAP), Montenegro s agricultural support programs should be increasingly decoupled from production and focus more on support for measures aimed at encouraging rural development and enhancing the competitiveness of the agricultural sector; improvements in land use and the management of natural resources for environmental values are also necessary. To this aim technical, political and financial actions should be coordinated to ensure stability to the population and positive development perspectives to young generations bearing in mind that the biggest challenge will be to couple social and economic policies in order to guarantee: sufficient source of income to small farms often ran by elderly people; support to medium sized farms in order to reach an economically sustainable scale of activities. In this framework a detailed proposal for the sustainable development of the dairy industry in Montenegro, as a pilot project for the enhancement of the food industry and the introduction of sustainable agriculture practices in Montenegro, was approved by the Steering Committee held on February 9th, The main project objective is the application of integrated approach and techniques for the sustainable management of the dairy products supply chain. A pilot scale development model has been considered a suitable attempt to study measures and actions to be put in place at a specific local level in order to meet the above mentioned ambitious objective thus allowing, at the same time, to clearly show the way to the Public Authorities for an easy implementation in other areas of Montenegro too. During the activities it was requested by the Montenegrin beneficiary to partially modify the original scope of work and, although it was not among the tasks assigned to the Italian team of experts, to develop a sector analysis comparing Montenegro dairy sector to EU standards; the analysis is aimed at paving the way to the preparation of a Dairy Sector Study compliant with the EU requirements for the access to IPARD funding. 1.1 SCOPE OF THE DOCUMENT Taking into account the approximation path of Montenegro toward the European Union, in the future farmers and dairy operators will have to adhere to EC regulations on food safety, environment and animal welfare. New EU regulations and Law on Food Safety will require that producers, even domestic processors are registered and adhere to food safety regulations. This would favor entrepreneurial producers, but would also disqualify many small producers who process for DFS (Montenegro) Engineering, Moskovska br Podgorica, Montenegro Phone/Fax: dfs@t-com.me D'APPOLONIA S.p.A. Via San Nazaro, Genova, Italy Phone: Fax: dappolonia@dappolonia.it - Web Site:

9 own consumption and sell their small surpluses (Luxembourg Agency for Development Cooperation, 2009). Bringing green market infrastructure for dairy products to Food Safety Law standards will help to create outlets for local on-form processed products also for times when the Food Safety law and EC regulations will be fully implemented. Support to on-farm processors also for quality assurance and certification will not only serve the traditional customers but also ensure that production and sales will not be terminated due to non-adherence to new and stricter laws and regulations (Luxembourg Agency for Development Cooperation, 2009). Financial support to implement actions aimed at the approximation to EU standards is granted by the Community s Instrument for Pre Accession Assistance (IPA) for the period IPA s beneficiary countries are divided into two categories, depending on their status as either candidate countries under the accession process or potential candidate countries under the stabilization and association process; Montenegro, as a potential candidate country under the stabilization and association (SAA) process, is then supported by IPA. Once Montenegro will reach the status of candidate country, additional support to the rural development will come from IPARD funds, that support should target primary production of milk and processing sector too. This policy, funded by the EU, will become increasingly important in encouraging economic developments in rural areas, where agricultural income and employment decline over time. Programmes in this area could also support the development of new income sources in regions where milk production declines due to dairy policy and/or market changes. As aforementioned the final outcome of the document will be a set of recommendations related with each level of the supply chain suitable to support the government in the preparation of the National Sector study required in order to activate the IPARD funding; the actions proposed as well as the tools identified in order to follow the recommendations will be potentially able to attract the IPA funds allocated within the MIPD to 2011 and to address the priorities for future multi annual planning of IPA funds with specific reference to rural development policies including IPARD. 1.2 DOCUMENT ORGANIZATION The scope of the present document is to support the government in the preparation of the National Sector Study required in order to activate the IPARD funding. Several meetings were held in order to define the scope of work and the needs of Montenegrin side and to identify the proper structure of the document which was agreed to be developed according to the terms of reference issued by the EU for the preparation of sectoral studies to be submitted to DG AGRI for financing under the IPARD scheme. Specifically the document is organized as follows: in Section 2 are presented the background and the key figures of the dairy sector: this section includes a description of the current situation in the sector in general terms; Section 3 describes the structure of the sector by providing a quantitative and qualitative description of the producers addressing: the number of producers, size of holdings or operations, geographical distribution in the country, level of product quality, etc; Section 4 provides a quantitative and qualitative description of the processing industry addressing: the number of units; size of units; geographical distribution in the country; level of product quality; availability of adequate supplies of raw materials taking into account quantity, quality, affordable prices, delivery costs; etc; Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 2

10 in Section 5 are described the governmental policies affecting the sector; in Section 6 is depicted the actual situation of the national market and trade sector; Section 7 focuses in particular on the areas of quality, hygiene, and food safety at farm and processing level and their compliance with the EU Standards; past trends and future developments in terms of investment are presented in Section 8: in this section is presented the analyses of the investment climate of the sector; in Section 9 are identified the potentials and needs of the sector taking into account EU accession and the ultimate goal of preparing the sector for participation in the EU market; Section 10 contains an overview of the potential training needs in the sector; the final remarks on the sector and the possible interventions suitable for IPARD funding are presented in Section 11. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 3

11 2 BACKGROUND AND KEY FIGURES 2.1 SECTOR OVERVIEW Montenegro has a large rural community, whose potential in terms of contribution to the Country s economic growth is presently not effectively exploited. At the moment livestock production is the largest contributor to Montenegro's agricultural economy and its role becomes even more important due to the fact that the ruminant breeding (above all cattle and sheep) normally uses the less productive areas, such as permanent grassland, significantly diffused over the total agricultural land of the Country. Despite the fact that farming in livestock is a major source of livelihood due to the incomes connected with the meat industry, the dairy sector is still not properly developed. A significant indicator of the current level of development of the dairy sector is represented by the milk production data over the last few years; in fact, it must be noted that, historically, milk processing industry (dairy) in Montenegro absorbed only a small part of the primary milk production (estimates are about 10 or 15%) with the largest percentage of milk is used for feeding calves because it can be sold at high prices avoiding, in addition, the collecting difficulties; the remaining quantities of milk are processed in different sorts of autochthonous milk products such as different types of cheeses, skorup and kajmak in households and are used for self-consumption or for sale. Traditionally, the leading destination for milk products was represented by green markets and direct sales. The evolution of medium and large scale distribution, hotels and tourism development, future empowerment of specific sanitary rules as well as EU legislation on the matter are putting pressure on the sector encouraging a fast evolution toward higher quality standards. Foreign competitors will increase pressure on prices especially for simple and unbranded products. Evolution in customers tastes will also affect consumption trends; in particular, the tourist flow (over 1 Million over a national population of less than 700,000 inhabitants) might constitute the stronger force behind sector and subsector evolution. In the process of the market liberalization the sector appears weak with domestic producers threatened by foreign competitors and with large distribution chains tempted to follow suppliers with higher quality, better prices and larger portfolio of products. Simplified distribution and supply chains (fewer bigger distributors and fewer bigger suppliers) might wipe out any efforts to prevent drastic reduction in the number of players (farmers and processing industries), traditional products and, above all, reasons to remain in rural areas. Whether it is true that specialization is already ongoing, it must be noted that transition from subsistence agriculture to economically sustainable one should be smooth especially in a situation like Montenegro where alternative source of income are not abundant and natural resources management and exploitation are based on a stable presence of families in rural areas. Until now dairy activities (farming and milk processing) are in general the main reasons preventing massive migration towards the coast and the capital; all these considered future investment in alternative tourism and multipurpose farming will be possible only if dairy sector is protected, return is safeguarded and the environment remains properly managed. In this framework the National Strategy for the Sustainable Development (NSSD) states that the rural development and the provision of adequate living standard for the rural population, must be promoted, among other actions, by the promotion of traditional and sustainable Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 4

12 production technologies, as well as maintenance of aesthetic and tourism development functions of landscapes in agricultural areas and the diversification of economic activities and sources of revenues in rural areas. Policy sector should be coupled with social policy with reference to schools in rural areas, women and children living conditions and access to information and connection with the rest of the world. Particular emphasis is also needed concerning the dual role of subsidies and support to private financing. While subsidies are important as contribution to expenses related to annual production cycles, it is mandatory to foresee ad-hoc financial instruments which can cope with the features on agricultural activities all over the world: low return, long term repayment, low risk. Banking sector, private investment and public support are three pillars to be combined to ensure sufficient financial resources to a sector which is already undertaking a massive restructuring whose results should be a professional group of producers, sharing added value along the chain and capable to resist to the international competition thanks to specialized production and tailor-made distribution. The sustainable development of the dairy sector will be the result of a holistic approach which is the one adopted for the development of the present document. Agriculture, tourism, environment, social policy, legal framework will be touched. Montenegro is than due to develop quickly compared to the same sector in other countries. The delay reflected by micro farm structure and traditional production method implies inefficiency at production level and problems in generating sufficient income for families involved. The model towards which small and medium size farms evolves is a multitask activity whereby milk, calves, fruit and vegetables production, hospitality will be mixed to guarantee sufficient outcomes. Social policy concerning schools and housing in remote areas as well as retirement support must be part of a national strategy meant to find equilibrium within a fastevolving socio-economic situation. This might constitute a challenge for the national government, all national players, foreign donors and the EU. Coordination of actions under a common view and proper funding are needed to ensure effective use of resources and results. 2.2 INFORMATION AVAILABLE The sector suffers unfortunately of an incomplete data collection and management system which do not allow shooting pictures and understanding evolution regularly and at national scale. The only available data are the first results of the Census of Agriculture 2010 (CoA), issued by Montenegro Statistical Office on July the 22 nd Animal location and movement across the territory, production and productivity, import, export, birth, death are not recorded on a regular basis; only the extrapolation of data from independent sources of information and field analysis permit crosschecking scattered information. In order to set up a robust baseline priority has been given to information generated by LSS, agro-budget support scheme, and veterinary service. In particular LSS data can be considered a sample of data regularly recorded since years. Governmental experts and technicians provide assistance to all range of farmers by means of offices spread across the Country. In this framework long lasting cooperation with farmers and veterinaries, involvement in subsidising mechanism and actual contribution to development has created significant mutual trust and the data gathered by LSS about productivity, genetic pool, average farms size and evolution can be used to simulate national trend. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 5

13 Government has created an interest in recording and declaring data with the introduction of the agrobudget support scheme, which consists in subsidies for transportation, delivery and processing and can be considered extremely important to trace data about milk processing. In particular, data about amount of milk processed, average size of herds delivering to factories, geographic concentration of processing, overall milk production chain value can be deducted analysing data already available for several years. Companies interrupting the activities and sustainability of each processing station can also derived by the set of data available. Last but not least, the veterinary service whose scope is to reach all productive animals due to be mandatorily controlled annually, shot an annual picture to size and evolution of the national herd in terms of cows and heifers. Animal number and their distribution on the territory can be used to compare animal presence to processing capacity and degree of specialisation of different geographic area Literature Originated by National Institutions In addition to sources listed above, literature originated by national institutions constitutes the most important sources of information about sector situation, features and support policies. In particular the following documents are worth deepest consideration: National Programme for Food Production and Rural Development (NP); Annual Report 2008 issued by the Biotechnical Faculty of Podgorica; Assessment of the Competitiveness of the Dairy Food Chain in Montenegro February 2009 ; Census of Agriculture First Results, issued by Montenegro Statistical Office on July the 22 nd The NP issued by the Ministry of Agriculture, Forestry and Water Management explains the legal framework, the strategy and the measures enforced for the development of the sector and the rural economy. The NP report represents a financial plan for the years with a detail about its composition and foresees the creation of a payment agency. Four are the main components (axis) taken into account by the NP: market price development; measures for rural development; support to general services in agriculture; social transfer to rural population. It is worth underlining that although valid for 5 years, the NP is split into: annual regulation; annual agro-budget concerning the execution of measures for agricultural policies; annual report on realization of the NP. Subsidies awarded trough the agro budget are a reliable way to collect information about farming activities as well as industrial ones. In fact, being most of the subsidies related to practical operation connected to land cultivation, animal breeding and milk processing their release is based on evidences which become a batch of information suitable for extrapolation. For example, incentives to milk processing allows recording exact the quantity of milk reaching the factories. The Annual Report prepared and published every year by the Biotechnical faculty of Podgorica, describes the activities of the six regional services of the Livestock Selection Service (LSS) and contains statistics about animals assisted by the service. Although not all animals in the country are assisted by the service and earmarked, the approximately 13,800 Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 6

14 heads recorded can be considered a meaningful sample of Montenegrin population. With reference to the analysis carried out the most important statistics recorded in the document resulted to be: productivity by breeds-age-and lactation; distribution of animals within farms; trends at regional level; results achieved by the LSS. The first results of the CoA represent are based on a detailed survey performed between June 7 th and June 21 st 2010., the published results show the present occupational situation with specific reference to family agricultural holdings and provide a comparative analysis with the data from the National Census of Population, Households and Dwellings carried out in Specifically the document describes the main parameters concerning number of family in agriculture, number of livestock and land use. The data has been collected by the enumerators selected by the Agency for Selection and Payment (ASA Institute) and trained by the Statistical Office of Montenegro Monstat who prepared methodology and questionnaires Literature produced by Technical Assistance Projects Several donors have attempted to describe the sector, its features and its potential for exploitation. These efforts, produced in 2008 and 2009, have contributed to the collection and elaboration of data partially generated by the above-listed public institutions and partially collected in the market. At least three of them are worth consideration: Dairy Sector Survey and Sustainable Development Road Map (D Appolonia, 2009); Mednem II Dairy Sector Policy and Strategy for Montenegro (Luxembourg Agency for Development Cooperation, 2009); the Evaluation of Domestic export opportunities for the Republic of Montenegro s dairy sector presented by ADEM (Agency for Development of Export Markets) to United States Department of Agriculture (February 2008). The Mednem (Luxembourg Agency for Development Cooperation, 2009) combines available data with findings of 5 different field surveys carried out between December 200 and June 2009 by an international expert hired by Mednem. Several data were gathered from the same institutions contacted and visited by our international team of experts and most of the attention was paid to the North-Eastern part of Montenegro. The work is remarkable for the amount of first-hand information collected within the distribution system (small shops), consumers and small farms. Particularly interesting is also the attempt to provide an economic dimension of the sector in the North Eastern part of the country. The findings of this study will help the whole Montenegro in developing a competitive dairy sector, generating income for producers and processors and providing healthy and wholesome dairy products to consumers. The reports identified as main objectives for the dairy sector: providing a stable and acceptable supply of safe and wholesome dairy products; increasing the competitiveness of agro-food producers (farmers, processors and trade); practicing sustainable resource management; providing decent living standards for rural population. The listed objectives are in line with the objectives of the NP The Evaluation of Domestic export opportunities for the Republic of Montenegro s dairy sector presented by Agency for Development of Export and Markets (ADEM) in February Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 7

15 describes facts and figures of dairy factories and cheese makers and particularly the role of tourism as a driving force for dairy sector development is stressed. It also describes roles and activities of three interesting associations: montenegrin hotelers association; farmers association in Berane; Agro-industry specialist association of Niksić. The analysis of the whole set of documents revealed that, in general, the annual report, the Mednem report and the competitiveness assessment tend to reach similar conclusion especially in terms of strengths and weaknesses of the sector. They are in fact basically based on the same set of information and are developed by a restricted pool of experts most of them pertaining to national technical assistance services. The evaluation of domestic export opportunities, investigates in three different directions: industrial processing, role of association and tourism impact. The three documents represent a valid reference for an insight on the sector development and confirm the need for a multidisciplinary approach. The Dairy Sector Survey and Sustainable Development Road Map, prepared by D Appolonia within the framework of the project Sustainable development of the Dairy industry in Montenegro, tackles the sector from several points of view: production, processing, distribution, technical assistance and sector financing using field data gathered both at national and regional level. In fact, considering the specific situation of the Northeastern part of the country (Berane and surrounding municipalities) and having verified that the local situation is representative of the national ones, suggest a set of pilot actions for the short and long term solution of specific problems like genetics, nutrition, access to credit and product marketing and distribution. The study is the starting point of the present analyses of sector perspectives. Carried out by a team of national and international experts introduces important consideration about economic thresholds based on market segmentation (cheese versus fresh products) and rules governing the relations between farmers and processing industries as far as added value and joint investment sharing is concerned. The methodology applied responds to a bottom-up approach having as starting point the interviews of farmers, veterinaries, agronomists, animal feed producers, dairy factories, cheese and milk distributors, quality control authorities, animal inspection and health authorities, certification bodies and accreditation agency. In the proposed actions, further to the economic aspects, social issues have been considered; in particular, expectations of young generations and their social integration in the national and international community are also accounted; considerations on environmental conditions and their contribution to the economic and social development of the area are as well included. All the mentioned documents in this Section report of a fragmented production, lack of know-how and in general, lack of awareness on the perspectives of the sector. This is probably the result of a shortage of information over a situation which is quickly evolving. In fact, while from the years , situation evolved steadily toward an increase in production and animals number stabilization, Years 2008 and 2009 saw drastic changes on the samples regularly observed (LSS groups of animals). Liquidity shortage in the market, as a consequence of the international economic crisis, competition with foreign suppliers, delayed payments to farmers and problems faced by two of the main dairies (Podgorica and Zora) can be considered elements adding pressure to an economic sector already featured by fragile structure. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 8

16 3 PRODUCERS AND FARMERS In order to develop considerations concerning present situation and trends of producers and farmers, two national documents have been taken into account as references: the Census of Agriculture (CoA); the Annual Report On this basis the following information are presented in the section: number of livestock and farms; animal productivity; size; evolution of farms. 3.1 NUMBER OF LIVESTOCK AND FARMS Primary production is strongly conditioned by three features among them related: animal population; farms size; breed Animal Population Animal population is normally the main element to be considered when attempting to size the sector and its value. The recently issued CoA provides information about the animal population but no records are available about age structure, mortality, fertility and growth rate. As such, figures reported by the CoA, supported by the data provided by the local veterinary services, can be considered indicative but subject to seasonal fluctuations. In the CoA, the total number of bovines is reported to be 83,015, total number of goats 35,140 and the total number of sheeps 227,264. The distribution of the animal population in the municipalities of Montenegro, gouped according with their geographical position, is presented in Table 3.1. Table 3.1: Number of Livestock (CoA, 2010) Municipality Bovine Sheep Goats Coastal Area Bar 1,666 3,106 2,335 Budva Herceg Novi ,165 Kotor Tivat Ulcinj 2,610 6, Sub Total 5,235 12,067 5,400 Central area Cetinje 5,138 3,372 3,246 Danilovgrad 2,488 10,277 2,920 Niksic 9,841 27,656 6,904 Podgorica 5,783 15,548 5,948 Sub Total 23,250 56,853 19,018 Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 9

17 Municipality Bovine Sheep Goats Northern area Kolasin 2,131 8,585 1,112 Mojkovac 2,459 4, Pljevlja 10,454 30,655 1,136 Pluzine 3,296 16,328 1,103 Savnik 2,521 16, Zabljak 2,002 6, Sub Total 22,863 83,554 4,689 North-Eastern Area Andrijevica 2,007 4, Berane 6,628 18,062 2,204 Bijelo Polje 13,755 31,891 1,834 Plav 3,692 11, Rozaje 5,585 8, Sub Total 31,667 74,790 6,033 As outlined in the table above, Central Montenegro is the area with the biggest presence of goats.while the other region are characterized by lower values approximately consolidated to a quarter of the central area one. Concerning bovines the North-East area seems to be the most vocated area with 31,667 animals while the Coastal area shows a presence of only 5,235 animals. Finally the presence of sheeps in the coastal area, as per the bovines, is the lowest one with 12,067 animals, while the North and North-East area hold the largest number of them with peak upper than 80 thousand animals. Largest producers, biggest dairies and concentration of activities can be measured comparing data on milk processing, cows productivity and breed presence. Nevertheless, municipalities spread over Northern part of the country are still hosting a large number of animals with the exception of goats. The distribution in the territory is presented in Figure 3.1, Figure 3.2 and Figure 3.3. Figure 3.1: Territorial Distribution of Animal Population: Bovine Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 10

18 Figure 3.2: Territorial Distribution of Animal Population: Sheep Figure 3.1 clearly shows that Northeast- region is the Montenegro most vocated area concerning bovine farms. With the exception of coastal area, that holds a little number of animals, the other two areas hold a significative number of animals having a good potential of improvement of the sector. As shown in the Figure 3.2 the Coastal area has not a great potential for sheep farming and pastures while the Northern and North-Eastern part of Montenegro, due to the morphology of the territory present a good capacity in terms of animals presence and above all in terms of potential increasing of the sector. Figure 3.3: Territorial Distribution of Animal Population: Goat Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 11

19 Goat presence and spreading in the territory is mainly concentrated in the central area, the other three areas seem to be not so suitable towards this species breeding Farm Size Farm size impact on primary production is directly related to the following aspects: professional attitude of the farmers; profitability and cash generation; stability in the business. The definition of the average size of Montenegrin farms is based on the data provided by the LSS; according to LSS sampling and analysis the average Montenegrin farms host 4.2 cows. It must be noted that the Annual Report 2008 indicated also a difference in farm size between North Eastern part and the rest of the country: cow breeding farms have a bigger average size in the central region of the country reaching its highest value in Niksić (9 cows/farm). This sample represents the most significant source of information about the evolution of the national population composition and productivity. Within this sample, farms size has evolved significantly in the period with a decrease in the number of farms with five or less animal (- 900 units) and an increase in the number of farms with 6 or more animals (+ 258 units). The farm size evolution is presented in Figure 3.2. As shown in Figure 3.3 the cluster with the highest percentage growth is represented by farms with 15 or more animals which have grown six times from 9 to 55 units. Furthermore it must be noted that the decrease in animal number corresponds to the decrease of the number of farms with less than five animals. This might suggest that an important share of the microfarms with an average size of less than three units. The most important information made available by the report are hence trend in animal population, the number of farms growing in size and the number of farms which decided to stop activities. Particularly important appears to be the trend set in the last two or three years (see Figure 3.3); as showed the last two years have seen the most rapid evolution in particular the overall number of cows in small farms and the number of farms itself are reduced, furthermore the animals are being concentrated in larger herd. Farms Size Evolution Up to 5 heads with 6 or more heads Number of farms 4'000 3'500 3'000 2'500 2'000 1'500 1' Years Figure 3.2: Farm Size Evolution Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 12

20 Change in the farm number by size ( ) variation Multiplier 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0,0 up to from 11 to15 Number of animals more than 15 Figure 3.3: Change in the Number by Size 3.2 PRODUCTIVITY AND GENETIC Milk production is scattered all across the country with significant differences in the distribution of breed and their average productivity. The first results of the Census of Agriculture 2010 present only the main parameters concerning number of family in agriculture, number of livestock and land use. The data concerning bovines, goats and sheeps are not dynamic data, for this reason it was necessary referring to such dynamic data provided by LSS that report besides absolute numbers also information concerning farm s size, evolution, races and so on. The breed is determining animal productivity in terms of milk (l/lactation), commercial value of calves, resistance to stress and diseases and indirectly, farm specialization. In fact, highlyproductive breed like Holstein are strongly preferred to Brown Swiss by farms intending to achieve high production and Simmental are normally chosen by double attitude (milk/meat) farms while local breed can be considered inherited from a traditional farming which does not allow neither milk nor meat specialization. As shown in Table 3.2 the best national results have been obtained with Holstein, followed by Brown and Simmental. Table 3.2: Best Farms and Breeds Farm MY(Kg) (No. of lactations at farm) Municipality Holstein Brajovic Ranka 9, Danilovgrad Knezevic Slobodan 8, Danilovgrad Osmailic Milovan 8,017 7 Berane Brown Radulovic Radomir 8,598 5 Podgorica Zindovic Velibor 7,682 3 Pljevlja Dunmic Slavko 7,506 3 Niksic Simmental Dragnic Svetlana 6,048 4 Niksic Kostic Aleksa 6, Niksic Despotovic Rados 6,851 2 Pljevlja Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 13

21 Data presented in Table 3.2 demonstrate that Holstein has the highest genetic potential in terms of milk productivity (this is well known all over the world) but also that farm specialization is already occurring with larger herds preferring Holstein and smaller herds preferring Brown and Simmental for the milk and meat attitude. Brown raised by specialized farms can reach very high productivity demonstrating the double effect of genetic and professional management (see Brajovic Ranka in both Table 3.2 and Table 3.3) as such clear indication comes also from the ratio age-productivity. Table 3.3: Best Cow and Lactation Farm MY(Kg) (No. of progressive lactations) Municipality Holstein Brajovic Ranka 11,250 3 Danilovgrad Knezevic Slobodan 11,976 5 Danilovgrad Brajovic Ranka 11,948 3 Berane Brown Brajovic Ranka 10,644 3 Danilovgrad Radulovic Radomir 9,827 4 Podgorica Radulovic Radomir 9,933 7 Podgorica Simmental Topalovic Jovan 7,960 5 Pljevlja Ranitovic Blagoje 7,713 4 Niksic Kostic Aleksa 7,421 1 Pljevlja While Holstein perform regularly better between 2 nd and 3 rd lactation, other breed have demonstrated being less regular reaching, in one case (Despotovic Rados in Pljevlia) the best performance at the end of the 9 th lactation though, the vast majority of animal, is kept productive until 6 th lactation. Significant are the differences in the distribution of the 4 breeds on the territory: LSS regional centres report of higher concentration of Brown and Simmental in Bijelo Polje and Berane. This certainly impact on the average productivity/of farms in the different regions and is probably related to the importance of calves and their commercial value in the economy of small and micro farms; Holstein is the leading breed in Bar, Podgorica and Niksić. connected to specialisation on milk production in medium to large herds. Their concentration is higher around the biggest dairies demonstrating the role of an efficient collection and processing system in ensuring specialisation and growth; significant is also the number of crosses (33.5 %) in the overall population. This implies in fact stronger animals suitable to stressful situation but less productive herds. Their average lactation reaches, in 2008, 4,162 l against 6,103 l of Holstein. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 14

22 Table 3.4: Breed in 2009 Regional centre 2009 Breed Bar PG Nikšić Berane B.Polje Pljevlja Total Brown No ,252 3,220 % Holstein No , ,808 % Simmental No ,443 % Regional centre 2009 Breed Bar PG Nikšić Berane B.Polje Pljevlja Total Tir. Gray Crosses Busha No % No , ,495 % No % No. 1,492 2,146 2,109 3,000 2,156 2,500 13,403 % As a general consideration it must be noted that most likely the best animals (in terms of productivity) are being introduced in farms whose level of specialization and productivity has grown constantly during the considered period while smaller farms are still relying on double attitude breeds and crosses. In addition, surrounding conditions like availability of food, processing industries and roads, can impact on the regional productivity. Considering that Holstein is the most productive breed, its highest concentration is recorded in Niksić where brewery grain is distributed to farmer for animal feeding, it is no surprise to discover that the region has the highest productivity while Berane and Bijelo Polje have the lowest. Table 3.5 shows that on a sample of 1,622 animals the average lactation is reported to be 5,407 kg with meaningful differences among territories. Specialization of farmers in Niksić is facilitated by the presence of two milk factories, at least one animal feed producers and convenient infrastructures (roads). This demonstrates that results in line with EU productivity are possible where productive factors are combined properly: genetic, nutrition, infrastructures and market. Table 3.5: Average Productivity by Region (2009) on LSS Sample Region No. of lactations MY (kg) Podgorica 367 6,309 Nikšić 467 6,685 Berane 304 4,035 Bijelo Polje 204 3,923 Pljevlja 280 4,662 Average 5,407 Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 15

23 Annual Report 2008 indicates some differences between North Eastern part and the rest of the country, with largest average size in Niksić (9 animals/farm) and 2.3 animals/farm in Bijelo Polje. In general, it is possible stating that all breeds, and so the entire population followed by LSS has improved significantly over the last period in terms of productivity (see Table 3.6). Table 3.6: Evolution of Standard Lactation by Breed (MY(Kg) % Holstein 3,938 4,570 4,726 5,203 5,724 5,825 6, Brown 3,420 3,817 3,894 4,423 4,504 4,488 4, Simmental 3,104 3,881 3,637 4,190 4,438 4,206 4, Crosses 3,309 3,846 3,725 4,267 4,282 3,935 4, Average 3,535 4,143 4,180 4,753 5,114 4,999 5, However it is difficult stating whether productivity upgrading has occurred throughout the whole population; what can be certainly stated is that an extension of technical assistance and the effort of private entrepreneurs would made these data and trends repeatable. It must be noted that statistic could not be found about goat and sheep milk production. In some cases farmers report having switched from cows to either goats or sheep as a consequence of financial problems. The two species are probably considered more resistant and less sensitive to nutrition stress. National statistics report an annual national production (2006 last data available) of around 170,000 t with an average productivity of 2.13 t/animal. Based on this information, it can be assumed that the majority of animals is still composed of crosses with little productivity and almost no technical assistance. In fact, 2.13 t/animal represent around 70 % of the productivity reported for crosses in 2002 (before technical assistance was delivered). An updated information on milk production would allow reaching credible figures about average productivity. Comparing LSS results with aside samples taken from national statistic it is possible stating that although the number of small farms and the number of animals as well might be reduced; technical assistance coupled with private investment might significantly compensate the risk for milk future shortage. Genetic pool and good breeding practices will determine the population productive potential. 3.3 ANIMAL HEALTH To ensure animals health all animals are visited regularly, in particular the Veterinary service carry out on a yearly routinely base controls about TBC, Brucellosis, Leucosis and mastitis. The most commonly reported diseases are mastitis, food diseases and low fertility. The two main causes for these diseases are certainly bad hygiene and poor nutrition. This situation is confirmed by the averagely poor quality of raw milk which both in number of somatic cell and bacteria exceed in two third of the cases the best quality. Distances and changes in subsidies system can also have a negative impact on the overall status of animal health. Aside of the national veterinary service control, each sample of blood or milk should be brought to the laboratory by the private veterinary at the cost of the farmer. It must be noted that in 2009 subsidies for laboratory activities to identify the bacteria responsible for mastitis were re-directed to other scopes, as a direct impact to this change the number of analysis dropped from 10,000 to 800 per year; similar initiative might force Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 16

24 veterinary to intervene with large spectrum antibiotic which are normally more expensive and in the long terms might create resistances. In addition mastitis reflects immediately on the possibility to produce and to distribute milk and so impact on the overall production of the farm and the area. Additional negative element noticed are the problem claimed by private veterinaries regarding distances, delayed payments and animal nutrition though none of the interviewed provide assistance on the matter. If somatic cell is taken as a parameter to measure animal health in general, data presented in Table 3.7 demonstrate that, within the years, little achievement has been reached in terms of sanitary improvement of raw milk samples with ratio among categories practically unvaried in 5 years. In fact, as shown in Table 3.7 almost 28 % of samples collected in 2006 contain more than 600,000 cells which in literature it is equivalent to 10 % of the production lost in animal diseases (see Table 3.7). Table 3.7: Classification of Raw Milk Samples according to Somatic Cells Count Class Range % 2003 % 2004 % 2005 % 2006 % 2007 % 2008 Extra 0 200, I 200, , II 400, , III More than 600, Therefore it can be stated that hygiene at stabs and during milking activities represent probably the area with most of the potential for improvement; to this aim new and more efficient stabs, milking mechanization and proper veterinary monitoring should be supported. 3.4 ANIMAL NUTRITION Nutrition is probably one of the weakest points in the milk production chain in Montenegro. In the country there are no nutritionists available and neither the public veterinary service, nor the private ones appear capable to provide sufficient advices on animal feeding. Although climate conditions appear suitable for the production of most of the fodder needed, it seems that self production is not fully exploited. In the summer animal are either free to graze in open spaces or supplied with fresh grass. In winter, most of them are fed with hay originated mainly from natural grass (graminaceous spp). High-protein plants like soy beans or peas are unknown, Alfa Alfa is used in small quantities and its exploitation is done ignoring good agricultural practices. In particular, it seems the plant is cut when animals need it and not when plant has it maximum content of sugar and proteins. Corn silage is tested at pilot scale projects though its potential is known internationally and locally. Little is done to differentiate the diet on the basis of productivity and lactation stage. Concentrates are distributed mainly by dairies and occasional dealers without the support o nutritionists. Interesting results are obtained using trebs (brewery grain - beer industry byproduct) whose high content in sugar significantly increase the productivity of cows around Niksić. Although there is a market for hay, trebs and concentrate, it is likely that farmers do not use them regularly as a consequence of liquidity shortage. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 17

25 The animal feed industry is struggling because of competition with Serbian and Slovenia producers and most of the activity is actually related to distribution of foreign products. Magna Vita, a local animal feed producer operating in Niksić, stopped the production in summer A stronger production of local fodder is envisaged with silage of different species strengthen, cultivation of high-protein crops and its mechanization constitute the basis for a sustainable expansion of dairy sector both in terms of quantity and cost savings. Corn silage has been successfully tested and is being promoted but mechanization of operations and concrete platforms construction are necessary to favor its wide application. Each farm could be easily equipped with its platform whose dimension is related to the number of animals to feed. Similarly, the use of dried alfa alfa could be encouraged. As in the case of Italy, while production might occur in vocated flat of hilly areas, its artificial drying and pelletization would allow easy storage and transportation. Not necessarily all farms should adopt the required technology but private entrepreneurship should be encouraged to facilitate the establishment of small and medium companies specialized in this activity. The two practices would immediately grant better and cheaper nutrition with positive impact on amount of milk produced. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 18

26 4 PROCESSING INDUSTRIES Milk processing industries has been analyzed taking into account: the data produced by the dairy laboratory which analyses the milk samples at the entrance of the plant; the subsidy scheme of the agro-budget which reward milk processors under different scheme. This can give sufficiently accurate information about number of factories, volume of intake and quality of the milk. It must be noted that these data do not cover all anonymous cheese makers who regularly or irregularly produce and informally sell milk at green markets or directly to restaurants and shops. On the basis of the interviews carried out with local entrepreneurs active in the field of milk collection and processing, and of the first results of CoA the following elements can be highlighted: very cautious approach toward expansion is a common feature of the entrepreneurs behavior; none of the entrepreneur appears desperately keen on acquiring new markets or expanding the production; growth for internal lines of action is the common way of thinking. This attitude is probably determined by the difficult access to credit and the difficulties in securing a significant quantity of good quality milk in a short term; the following sections describe dairy sector by structure of industry and volume of milk processed. 4.1 PROCESSED PRODUCT As described in the previous section, the Census of Agriculture 2010 does not reports information concerning the main parameters of processed products. Also in this case it was necessary making reference to the data provided by LSS. The monthly amount of milk collected between 2004 and 2009 by processing industries is shown in Table 4.1 and as clearly reported the trend is slightly increasing. Table 4.1: Collected Milk Year (l at 4% Fat Content) Month Jan 1,472,501 1,425,394 1,428,873 1,692,251 1,690,337 1,685,715 Feb 1,408,323 1,258,712 1,426,239 1,458,484 1,645,493 1,549,445 Mar 1,473,030 1,450,475 1,508,111 1,513,317 1,734,685 1,606,528 Apr 1,583,653 1,722,819 1,606,409 1,619,166 1,904,198 1,678,957 May 1,844,294 2,109,250 1,933,039 1,768,680 2,167,454 1,833,521 Jun 1,847,312 2,133,027 1,970,552 1,786,765 2,219,614 1,912,642 Jul 1,780,131 1,785,917 2,038,842 1,912,084 2,250,509 2,100,805 Aug 1,847,464 2,360,257 2,453,345 1,834,069 2,282,193 2,151,974 Sep 1,630,492 2,092,040 2,161,651 1,664,740 2,084,230 1,958,418 Oct 1,513,740 1,758,206 2,061,546 1,813,028 2,065,756 1,883,457 Nov 1,453,478 1,642,814 1,802,430 1,736,069 1,931,462 1,921,280 Dec 1,453,478 1,671,377 1,670,558 1,679,078 1,854,321 1,764,380 Total (4%fat) 19,307,896 21,410,288 22,061,595 20,477,731 23,830,252 22,047,122 Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 19

27 As shown in Table 4.1, the total amount of milk processed by these factories increased by around 20% between 2005 and 2008, then it decreased by around 1.8 Ml in 2009 year. The net balance is however positive with an increase of 2.7 Ml It should be also noted that while fifteen factories are reported operational in 2005 year, in 2008 total figure amounted to 18 factories while 2009 saw one of them stopping its activities in April. In terms of processing performance six factories cover 75% of the processing with Nika, Srna and Simsic responsible for processing more than 50% and ZZ Kooperativa, Dinosa Bubuli and Doo San Nicola the remaining 25 % see Table 4.2. Table 4.2: Milk processed Milk factory Amount (l) % over total Mljekara PG 1 318, ''Mljekara NIKA'' 3,489, 'Srna'' 3,935, ZZ ''Kooperativa'' 1,782, Mljekara ''Zora'' 1,649, Šimšić Montmilk 4,587, 'Arena Milk'' 582, Mljekara ''Žir'' 281, ZZ ''Čevo'' 371, ZZ Cijevna 151, Doo ''Amiprom'' 590, AD ''Krisma-mlik'' 71, Doo ''San Nikola'' 1,227, Vulaš-Čevo 575, Rm Komerc 770, Dinoša-Bubulj 1,472, Bajički pištet 176, S-Modus-Proplanak 10, Total 22,047, As clearly showed in Figure 4.1 the processed milk in Montenegro could be split in 4 macro areas. Although the Central area this area does not represent the most intensive one in terms of bovines (see Figure 3.1) this area represent the biggest one in terms of milk processed capacity,. On the other hands the Northeast area is characterized by a little capacity in terms of processing industries but at the same time this is the biggest region in terms of bovines presence. 1 Factory closed in April 2009 Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 20

28 Figure 4.1: Processed Milk Visits carried out by D Appolonia in 2009 in three factories report regularly a potential processing capacity exceeding the amount processed as showed in Table 4.3. Table 4.3: Plant Characteristics Plant Capacity (t/day) Technology Notes Zora 40 UHT The plant work around 2 h/day (6-7 t/day) Ami Prom 7 Pasteurisation 2 t/day are processed Srna 12 Pasteurisation 4.2 t/day processed Amount of milk processed by bigger factories appears to be slightly growing within the years; Srna for example moved from 3,357,436 l in 2005 to 3,935,266 l in 2009 year; in the same period, Simsic increased from 3,205,960 l to 4,587,394 l and Nika from 2,163,599 l to 3,489,744 l. The big milk factories have a clear role in aggregating production as they represent the main players in promoting specialisation among farmers. In fact, through them animal health, nutrition, access to credit and transfer of know-how occurred successfully. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 21

29 Based on the data presented above some trends appear to be consolidated in the milk collection and processing sector: number of associate producers is being reduced by aging of the farmers and research of alternatives to animal breeding; degree of integration between producers and industry is increasing with more attention to quality and stability in the relations. First and more important element of aggregation is regularity in payments. Supply of animal feed and cows of high genealogy follows immediately afterward; productivity per head is increasing while number of cows per farms remains unchanged; companies tend to differentiate their products trough re-branding, alternative productions (i.e. Feta cheese in being studied together with the Turkish Ayran); expansion in processing capacity is at the moment out of consideration given the shortage of milk; companies in good economic conditions are planning their expansion in the common understanding that there is sufficient space for everybody and each player is needed to guarantee stability to the production system. Competition is more on quality and reliability of the supply than prices. Geographically, processing is spread unevenly across the country. In general largest processing capability is decoupled by animal population. Table 4.4: Animal Presence and processing Capacity by Municipality (Central Region) Milk Milk % over NAME Animals Animal % over total Processed (l) total Cetinje 1,123, , Danilovgrad 4,587, , Niksic 7,435, , Podgorica 1,942, , Subtotal 15,090, , Regional Total National 22,047,122 83,015 Table 4.5: Animal Presence and processing Capacity by Municipality (NE Region) NAME Processed % over total Animals % over total Berane 1,649, , closed Bijelo Polje 352, , Rožaje 590, , Subtotal regional 2,593, , Total National 22,047,122 83,015 Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 22

30 Table 4.6: Animal Presence and processing Capacity by Municipality (Northern Region) NAME Processed % over total Animals % over total Pljevlja 2,553, , Total National 22,047,122 83,015 Table 4.7: Animal Presence and processing Capacity by Municipality (Coastal Region) NAME Processed % over total Animals % over total Ulcinj 1,810, , Total National 22,047,122 83,015 Central region is processing the vast majority of milk (68.4 %) while it hosts only about 28 % of the population. On the contrary, NE part of the country, processes 11.8 % of the milk with 31.3 % of productive animal hosted in the area. 4.2 QUALITY SYSTEM Quality system is composed of mandatory and voluntary actions. Milk is regularly monitored at arrival at processing stations, at departure before entering the commercial flow by governmental institutions and laboratory. Analyses are carried out regularly to assess product quality and to award premium. In particular somatic cells and bacteria count are monitored regularly and can be used as quality indicators. Data reported in Table 4.8 show a substantial stable quality within the years though a significant percentage of milk reaches high level of contamination most probably because of bad hygienic conditions at factory level. At farm level, situation appears still conditioned by unfit stabs which determine product contamination. Table 4.8: Classification of Raw Milk Samples according to Bacteria Cells Count Class Range % 2008 % 2007 % 2006 % 2005 % 2004 % 2003 Extra 0 200, I 200, million II 1 million 4.5 millions III More than 4.5 millions At voluntary level Srna and Ami Prom are HACCP certified. The latter is mainly investing on this aspect and is receiving the assistance of two national experts on the issue. Milk samples are regularly analyzed before being processed and distributed. Some problems are reported by Srna concerning the milk purchased from Zora. Contract with the specialized microbiology laboratory (veterinary service) are ongoing for continuous monitoring of quality. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 23

31 The number of HACCP certified companies is not sufficient to guarantee an extension of quality and hygiene concept to farmers on a large scale. This field of activities represents one of the most challenging considering the large number of farmers to involve and their distribution in the field. Processing industries should be pivotal in the process as their connection with farmers occurs daily and their action can be extended to quality premium payment. The traceability concept, the data information system to link product, distribution and producers, mandatory within the EU and the related assumption of responsibility by each player along the dairy chain is far from being projected and implemented. None of the processing companies, neither the large distribution, nor small and medium retailer have implemented any recall system to prevent safety risk. For a sector whose future could be tied to the possibility to distribute along short chains (farm/dairy/consumer) products like cheese and yogurt it is important to guarantee the consumer an efficient prevention (HACCP), quality monitoring system (laboratory analysis and product recall system (traceability). At the moment, only laboratory analyses appear to be sufficiently developed. The other two fields should be scope of a major effort. 4.3 ENVIRONMENTAL IMPACT Dairy industry can impact on the environment as any other human activity. In general, at primary production level, major concerns are related to large number of animals in limited areas which might pose a problem of animal waste management, exploitation of natural resources, water and soil contamination, nitrogen run off. Though Montenegro breeding is featured by small scale farms scattered across large areas, and as such cannot be considered an heavy-impacting sector, it is worth paying attention to the sector evolution and the risk of micro sources of contamination. If animal waste is not managed correctly and water leakage is not prevented, surface water (streams and rivers) could be contaminated. Organic matter, bacteria, antibiotics would be spread downstream deteriorating environmental conditions. Good agricultural practices like storage of solid and liquid waste in ad-hoc basins during the winter and distribution on the fields in spring and summer have been already applied in similar contexts and would be sufficient to minimize such a risk. At industrial level the problem might be related to waste water management Major impact appears to be the release of waste water into rivers and basins. Although certainly rich in organic matter and detergents (plants need to be washed everyday at the end of any production cycle) none of the companies is equipped with water treatment plants or abatements systems. Srna said to be in the process to invest in an end-of-pipe plant for water stocking and treatment. Such a kind of investments should be encouraged to comply with existing EU legislation on water protection Energy efficiency should also be studied. At farm level, wood appears to be the major source of energy to secure domestic heating while electricity is used to operate with milking machines and refrigerators. If farms would develop in size, solar systems might be encouraged to generate hot water and electricity and integrate existing supply. At industrial level, most companies are using diesel to generate heat and steam while combined source of energy (biomasses and gas) are already technically available and potentially suitable. Given the large surface available on factories roofs, integration of hydrocarbons with solar systems could also be considered. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 24

32 5 NATIONAL POLICIES AND REGULATION 5.1 OVERVIEW OF THE DAIRY SECTOR NATIONAL REGULATION The main regulation at national level for the montenegrin dairy sector are: law on agriculture and rural development; food safety law; veterinary law; law on livestock farming, which is currently a proposal under approval. The following sections summarize the main contents specifically concerning the dairy sector of the above listed laws Law on Agriculture and Rural Development The Law on Agriculture and Rural Development governs the development of agriculture and rural areas, sets the objectives and measures of the national agricultural policy, the instruments for the support in agriculture and the eligibility requirements for the potential beneficiaries and identifies the organizations and supplementary activities in agriculture. The Law requires the Food Production and Rural Development Strategy to lay down (for a period of 10 years) the long term directions of the Agricultural Policy. Specifically the Agricultural Policy aims at: promoting the sustainable management of agricultural resource for the preservation of the environment; ensuring a stable supply of safe food affordable in terms of quality and price; improving the life standard of the rural population and rural development in general, with preservation of traditional values; strengthening the competitiveness of food producers. The Agricultural Policy is implemented through the National Program of Food Production and Rural Development (adopted for 5 years) which includes short-term and medium-term objectives of agriculture policy development, types of measures and programs, expected results as well as approximate amounts and sources of financial means necessary for implementation of agricultural policy measures. The measures defined by the Strategy and the National Programme are implemented through the Agro-budget, established every year by the Government. The Law requires the creation of the Council for Agriculture and Rural Development, including representatives of the Ministry, public bodies and other relevant stakeholders, to oversee the implementation of the Strategy, the National Program, the Agrobudget and to perform other important tasks (e.g. the draft of legislation) related to agriculture and rural development. The Law also defines a set of agricultural policy measures to fulfil the objectives of the Agricultural Policy and to be implemented through the Agro-budget (see Section 5): market-price policy, including: market stabilisation measures, direct payments to agricultural holdings; rural development policy, including: measures for strengthening the competitiveness of food producers, Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 25

33 measures for sustainable agricultural resources management, measures for improving the quality of life and development (diversification) of economic activities in rural areas, leader projects for rural development; activities of public interest; social transfers to family agricultural holdings. The Law sets up principles for the management of incentives to agriculture and rural development. It specifies that incentives must be implemented by an Agency of which the Law defines the technical and administrative tasks incentives a holder of an agriculture holding registered at the register of agricultural holdings. The Law also indicates which the procedures to obtain the incentives are and specifies the obligation of the holder beneficiary of the incentives. The Law regulates producer organisations, the conditions they should respect for their establishment, the need to be recognised by the Ministry and registered in the Register of Producers Organisations. The Law also specifies the topics which require further detailed regulation to be issued by the Ministry, namely: quality and marking of agricultural products and food; higher quality products; producer specification; organic agriculture product; integrated agriculture product; traditional product guaranteed; products with protected designation of origin and geographic indication; good agriculture practices; trade in agricultural products and food and from a family agricultural holding; supplementary activities of a family agricultural holding. Moreover, the Law lists the type of activities in the field of agriculture and rural development which has a public interest such as extension activities, professional activities in livestock production, training and education of human resources, etc. The Law also specifies how to establish the Register of Entities and of agricultural holdings. Finally, the Law on Agriculture and Rural Development lays down the inspection rules for the enforcement of the law and the regulations adopted on its basis; it specifies that such inspections should be carried out by agricultural inspectors, veterinary inspectors, phytosanitary inspectors, and sanitary inspectors and it defines what the inspectors should check and monitor; in particular, concerning food of animal origin, the Law requires that the safety of food of animal origin is supervised by veterinary inspectors that respond to the veterinary authority. Veterinary inspectors are entitled to: check control systems established by food and feed operators, records and derived results; inspect facilities, surrounding, premises, equipment and means of transport; take samples (if necessary); control method of declaration, marking, presentation and advertising; control the implementation of HACCP-based procedures and check compliance with hygiene rules. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 26

34 5.1.2 Food Safety Law The Food safety law provides the regulation to ensure the highest level of protection of human life, health and consumer interest. In order to achieve these objectives, the Food Safety Law defines a set of requirements for production and circulation of safe food; the requirements have to be applied to all stages of production and circulation of food and cover food of animal origin, food of plant origin, composite food containing products of plant origin and processed products of animal origin and other food. The Food Safety Law identifies as responsible authorities in the area of food and feed security: the Ministry of Agriculture; the Ministry of Health; the authority responsible for veterinary matters; the authority responsible for phytosanitary matters. The Law also lists the responsibilities for each authority such as the adoption of annual control plan, plan for managing emergency situations in the area of safety of food and feed and clearly states how such responsibilities are divided among them. It also assesses which regulations the Ministry of Agriculture and the Ministry of Health should adopt and provides for the creation of a National Council for the Assessment of Food Safety in charge of monitoring and assessing food and feed safety. A fundamental step implemented with the present law is the establishment of general principles related to food and feed security, these principles can be summarized as follows: principle of risk analysis, requiring: risk assessment to be carried out by the Food Council, risk management plan to be developed according to the result of the risk assessment, risk communication between the Food Council, the Authorities responsible for the risk assessment, other stakeholders, and consumers; precautionary principle according to which responsible authorities should adopt temporary risk management measures under certain conditions; principle of transparency (communication to the public); principle of participation of the Public in case of adoption and implementation of measures related to food and feed security; principle of protection of consumers interests through adequate information provided by labelling and marking of food, instructions and other documents. The Law defines the necessary requirements to determine food and feed safety and the cases in which they must be considered unsafe. In case food and feed are unsafe, the competent authorities may prohibit their circulation. According to the present Law, the food labels, the information about and food and feed contents and the advertising activities about food and feed products must not mislead the consumer or animal keeper and the Ministry of Health and the Ministry of Agriculture should further regulate that in separate regulations. Furthermore the Law requires that the materials, packaging and other items in contact with food or feed are produced following good manufacture and hygiene practices, according to rules that should be further issued by the Ministry of Health and the Ministry of Agriculture. Concerning particular category of food (quick frozen food, diet food, novel food, genetically modified food and feed) and water the Law refers to detailed requirements which should be provided by further regulation of the Ministry of Health and the Ministry of Agriculture. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 27

35 The main part of the Law deals with: the responsibilities of feed and food business operators specifying their obligations and liability for damages caused by food or feed, as well as the traceability of food and feed, raw materials, incorporated substances, at all stages of production and circulation. It must be noted that further regulation to better define requirements for traceability should be put into force; general hygiene requirements during the primary production, the transportation, storage and handling of primary products, the transportation of animals and of primary products of plant origin, fish and hunting game as well as some specific requirements: the Laws leaves to the Ministry to lay down detailed conditions and the manner of complying with those requirements. It goes on prescribing that food or feed business operators must establish, maintain and apply procedures based on Hazard Analysis and Critical Control Points (HACCP) principles, for which detailed rules should be established in further regulation issue by Ministry of Agriculture and the Ministry of Health. Moreover, those food business operators that apply traditional methods should produce in facilities fulfilling the prescribed requirements by the Ministry of Agriculture and the Ministry of Health. The Law sets also the general obligations in the food and feed trade with regard to international trade, import and export and specifies general rules on sampling and laboratory examinations methods to be carried out by authorized laboratories accredited and listed on the Official Gazette of Montenegro. With this regard the Law requires the administrative authorities to submit to the Government the reports on implementation of the control plan and the monitoring plan of food safety by the 31st of March of each year. Moreover, the Law foresees that the Ministry of Agriculture and the Ministry of Health respectively adopt programmes of monitoring and food safety. Finally, the Law entitles inspectors to supervise the implementation and respect of the Law and of the regulations issued for sanitary, veterinary and phytosanitary control and details their powers and the administrative measures and actions that they can undertake in case of non respect of the Law and regulation provisions Veterinary Law The Veterinary Law defines rights and obligations of animal owners and other legal persons and governs a number of areas related to animal health and veterinary actions. The Law requires prevention of the occurrence of animal diseases and control and eradication of them. Concerning prevention, the owner of the animals has the obligation to protect animal against infectious diseases and zoo noses. Persons breeding or producing products of animal origin or coming into direct contact with animals, foodstuffs, raw material, products or waste must have the elementary knowledge of infectious animal diseases, prevention of their occurrence, communicability to humans, and of regulations in the area. In addition the Law lists the mandatory general preventive measures to be carried out by owners of animals (ensuring suitable hygienic conditions, minimum of veterinary requirements, health suitability of foodstuffs and veterinary-sanitary conditions, etc), and by other legal persons (training of animal owners and other persons on fundamental knowledge of veterinary medicine, registering and identification of animals, immunoprophylaxis and chemoprophylaxis..). In particular this last set of measures should be implemented according to the Operative Program of Animal Health Protection and other programs of animal health protection issued by the Ministry. The Law also specifies what is covered by veterinary control (e.g. animals, raw materials, animal feed, water, devices). Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 28

36 Regarding control and eradication, the Law calls for immediate notification by the animal owner to the veterinary inspector of an outbreak of an infectious animal disease and for the application of other safety measures (separate healthy animals from those suspected to be sick, prevent entry of unauthorized persons into the establishment, keep the dead animal until a veterinarian arrives..). Moreover, it requires a certain set of measures to be taken by the veterinarian and, if the presence of the infectious disease is established, those to be ordered by the Ministry. The Veterinary Law establishes the preventive veterinary measures which require that the animals, properly marked, are accompanied by an animal health certificate. In the same view, products in trade must be accompanied by a prescribed veterinary certificate or attestation and a diseased or injured animal may be conveyed to a slaughterhouse only if accompanied by a veterinary referral, whose content and way to be issued should be laid down by the Ministry. It must be noted that the Law requires further regulation to be approved by the Ministry in order to set detailed conditions for marking and certification. Other preventive measures are established as follows: national trade in animal, foodstuffs, raw materials, products, and waste is allowed under veterinary check at the place of origin and if their identification and traceability are ensured. Moreover, the general rules for the transport of the animals are set up; the breeding, keeping and trade in animals, slaughter of animals, production, trade, storage and distribution of products, foodstuffs and raw materials of animal origin and other related activities must be done only in establishments that are compliant with further regulation to be adopted by the Ministry concerning equipment, design, veterinary-sanitary and other requirements, depending on the type of the activity. Moreover, for specific activities, Hazard and Critical Control Points Analysis (HCCAP) Programme, and Good Manufacturing Practice (GMP) Programme must be provided and implemented by expert personnel. Furthermore, companies, entrepreneurs and holdings must implement all the measures and internal control necessary to ensure that animals, foodstuffs of animal origin and feed do not contain unauthorized residues (e.g. unauthorised substances or products). The Ministry is required to adopt a yearly Residue Monitoring Plan including measures of systematic control of residues in animals, foodstuffs and animal feed. The Law also prescribes the measures to be taken in case it is suspected and established that animals were treated with unauthorised substances or products. Finally, the animal feed must be produced, stored and traded in suitable hygienic conditions, accompanied by a veterinary certificate or other relevant documents; owner of the establishment for rearing of breeding animals must systematically monitor the health status and reproductive ability of breeding animals, and of acquisition, production, storage, and marketing of animal semen, ova and fertilized ova, in compliance with the prescribed conditions, and the minimum conditions for preservation of the fertilization ability; preventive measures should be adopted to protect vital environment from consequences from breeding, production, processing and trade in animals, foodstuffs, etc. Moreover, the handling and burying of animal carcasses as well as waste are regulated. As stated in the Law all those provisions are to be further detailed by other regulations to be adopted by the Ministry. The law regulates also other aspects of the protection of animal welfare with particular focus on: the mandatory scope of animal health protection, for which the Ministry might adopt separate programme on each measure; Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 29

37 animals health protection financing, fees and expenses whose amount, method for calculation and collecting should be laid down by the Ministry; legal persons in veterinary field, specifying that a legal or natural persons must meet certain conditions to carry out veterinarian activities and in order to receive a licence to carry them out. They might take different organisation form (e.g. Veterinary dispensary, Veterinary clinic, Livestock veterinary centre for reproduction and artificial insemination, National veterinary institute and Veterinary Chamber). professional training for veterinarians and veterinary technicians; registers, records, databases and information system to be kept by those carrying out veterinarian activities; special authority of the Ministry that may restrict or prohibit cross border movements of persons in case of potential spread of animal infectious diseases from other countries; surveillance activities, establishing that veterinary inspectors are authorised to carry out a certain number of monitoring, examination and control activity according to the Law, their obligation and the measures that they have the power to take. More in depth, veterinary inspectors are entitled to: examine animals and order measures for the prevention of outbreak of infectious diseases, monitor and control the implementation of the Operational Program and carry out activities according to national programmes such as the Residue Monitoring Program, monitor and control efficiency and harmfulness of veterinary medicinal products, take samples, control issuing of veterinary certificates and referral forms; the penalty provisions in case of non respect of the Law Proposal Law on Livestock Farming The Law on livestock farming is presently a proposal not yet in force. If confirmed in its organization and contents the Law will govern: methods and conditions for farming domestic animals; method of adoption and implementation of breeding-selection program; preservation of genetic variability and genetic reserve of domestic animals; trade in breeding animals and genetic material; rights and obligations of entities in livestock farming; education and research; penalty provisions; supervision, to be carried out by agricultural inspectors. Specifically the law states that: Farming Methods must be compliant to the regulations governing protection and animal health and welfare, conventional and environmentally friendly; the Ministry is required to lay down regulations on the conditions for classification of agricultural holdings, and farming method and procedures; Farming Facilities and Equipment must be appropriate and meet prescribed zoo-technical conditions; the Ministry is required to lay down in a regulation the detailed conditions on facilities and for farming specific species of domestic animals; in addition the Law Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 30

38 outlines the zoo-technical procedures to be followed by breeders, who should be trained according with a programme defined and organized by the Ministry; the Ministry is required to lay down a separate regulation defining physic-chemical characteristics of nutrition of domestic animals with safe and quality feed; Products of animal origin (including fresh milk) should comply with the regulations on quality of products of animal origin. In order to support the breeding-selection program the Law specifies that these activities should be carried out according to thee Breeding selection programme adopted by the Government for a five-year period and implemented trough the Agro-budget; all breeding animals compliant with certain conditions, to be detailed in further regulation by the Ministry, should be listed in the The Herd book which should also include complete or incomplete pedigree for breeding animals, recognition of new breeds and lines of domestic animals; all these topics have to be detailed by further regulation to be issued by the Ministry. Furthermore the Law defines: the conditions for use and placing on the market of sperm of domestic animals, ova and embryos, asking for further regulation by the Ministry to set more detailed conditions to be met; principles for genetic manipulations and transgenic domestic animals as well as for carrying out molecular-genetic tests; the control of the performance of domestic animals and the evaluation of breeding value, to be further detailed in a regulation by the Ministry; the centre for reproduction and artificial insemination, to be further detailed by separate regulation of the Ministry. Other important sections of the Veterinary Law concern the following: preservation of genetic variability and genetic reserve of domestic animals, specifically regarding: preservation of genetic reserves, whose scope, method and procedure of ensuring and preservation should be detailed by further regulation of the Ministry, biological diversity in livestock farming, that should be implemented by an authorised institution according to the 5 year programme on preservation of genetic resources in livestock farming adopted by the Government, autochthonous breeds, that being part of the national biological heritage should be under the special protection of the state and registered in the register of autochthonous breeds. The Law requires further regulation for breeding and trade in autochthonous breeds and contents and method of keeping the register of autochthonous breeds; trade in breeding animals and genetic material; in particular the Law states that breeding animals can be traded only if animals are identified as prescribed and if accompanied by adequate zoo-technical documentation while genetic material trade is allowed if carried out by legal person using compliant facilities, equipment and qualified staff (to be further defined by Ministry regulation) and if genetic material is identified in a prescribed manner and accompanied by adequate zoo-technical documentation. It must also be noted that concerning rules for import and export, the Law recalls further regulation on conditions to be met by breeding animals and genetic material which should be issued by Ministry; rights and obligations of entities in livestock farming, and in particular: the definition of the activities of public interest in livestock farming whose more detailed conditions Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 31

39 should be separately regulated by the Ministry; the conditions for recognition for breeder organisation; education and research. In particular concerning research, the Ministry should finance/cofinance research projects and research infrastructure in the field of livestock farming through the Agro-budget. supervision, to be carried out by agricultural inspectors and penalty provisions. 5.2 OVERVIEW OF THE NATIONAL POLICIES ON THE DAIRY SECTOR The most important strategy of Montenegro for the agricultural sector and, more specific, for the dairy sector is contained in the National Program for Food Production and Rural Development of This document was published in the range of the Strategy on food production and rural development of 2006 and represents the elaboration of the Strategy in the field of defining and implementing the agricultural policy: it means that the Strategy defines the national priorities while the National Program sets out the selection and definition of the measures. The Program is valid for the period and was done in accordance with the National Program for EU Integration, adopted by the Government in June The aim of the NP is to support the development of agriculture and rural areas, with a special emphasis on adjustment of the agricultural policy and its implementation with the EU requirements. It must be noted that the implementation of the NP is carried out through an annual decree on implementation of agricultural policy which is named Annual Agro-budget. Taking into account the overall industry structure, including the supply chain of milk and dairy products (Figure 2.1), the overview and analysis of the national policy on the dairy sector has been distributed across the main constituents of the national sector, namely: milk production; milk processing; milk distribution. The following sections report the analysis of the measures foreseen by the national policies for each system constituent Milk Production The policies affecting the milk production sector has been analyzed taking account the following aspects of the production chain: productivity; animals health; nutrition; genetic improvement; cost and revenues; quality system; environmental impact; entrepreneurs and farmers Productivity The measures concerning the productivity foreseen by the national policies consist in: direct payment; Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 32

40 measures for improving competitiveness of agro-food sector. The direct payments are aimed at supporting: livestock production, through premiums per head of cows and heifers, sheep and goats (above the minimum number) and slaughter premium for adult cattle with a minimum weight. The law which introduced this system of direct payments is the Law on Provision and Allocation of Founds for Enhancement of rural development (Official Gazette of RM, n. 11/90 and 24/92); dairy production for market, through a premium per litre of delivered milk in diary respecting a minimum quantity. This measure is foreseen also by the Law on Agriculture and Rural Development and is implemented through the Agro-budget. In this contest it is important to mention the World Bank Project of 2008 which was aimed, among the other objectives, at supporting programs for the establishment of an EU compatible system of direct payments to producers. The measures foreseen by the national policies in order to improve competitiveness of agrofood sector are: investments in agricultural equipment and mechanization, through the co-financing of the costs of the equipments with public and, in the future through IPARD funds: this measure was partly implemented through the World Bank Project above mentioned, which was aimed at creating a modern food safety system through a series of investments in food safety infrastructure; land operations, in particular projects to sort out water issues, but till now no projects has been still implemented Animal Health National policies concerning the animal health are implemented granting support to general services in agriculture, with specific reference to the implementation of: phyto-sanitary measures, which means the implementation of Program for plant s health protection. This Program consists in a set actions aimed at: hindering of pest invasion, health supervision of seed production, report-forecast service and pest suppression, monitoring of pests, defining status of quarantine pests, monitoring program of residue sources for plant protection, monitoring program of residue sources for plant protection, monitoring program for source usage of plant nutrition; veterinary measures, which means full implementation of Operative Program for Animal s Health Protection which prescribes diagnostic researches and immunoprophylactic, zoosanitary and biosafety measures for obtaining animal s health protection, monitoring of epizootiological situation, monitoring of residuals, monitoring of zoonosis, plan for using tools and conditions for measures conduction. It must be noted that in order to regulate the issues relating to animal health, the Government enacted the Law on Identification and Registration of Animals (Official gazette of RM. N. 48/07), which regulates the methods and procedures of identification and registration of domestic animals, as well as the registration of households breeding livestock (see Section 5.1); furthermore a very important law in the field of animal health is the Veterinary Law (see Section 5.1), which refers to the infectious animal diseases; to the preventive veterinary measures (in particular it requires that the animals are accompanied by an animal health certificate); to the protection of animal welfare, to the legal persons in veterinary field; to the professional training for veterinarians and veterinary technicians; to the registers, records, Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 33

41 databases and information systems for veterinarian activities; to the special authority of the Ministry; to the surveillance activities and to the penalty provisions. Noteworthy in this contest is the ADT/GFA Consulting Group Project (August February 2011) aimed at establishing an integrated animal identification and registration system (I&R) and a veterinary surveillance network (Veterinary Information System) and creating a computerized register of sheep and goat holdings in line with the EU standards. Moreover, the National Program for Integration of Montenegro into the EU (NPI) has foreseen the creation of a Hygiene Package which should contain a set of rulebook covering different aspects concerning food safety and animals health Animal Nutrition The issue of animal nutrition could be considered as part of the phyto-sanitary measures (see Section ) already mentioned for the animal health. Moreover the Food Safety Law sets general principles related to feed security and the requirements to determine feed safety, in order to ensure the highest level of protection of human life and health and consumer interest. Finally draft of Law on livestock farming sets that the domestic animals should be fed with safe and quality feed Genetic Improvement The national policy concerning the genetic improvement of the breeds is based on: measures aimed at supporting to general services in agriculture and specifically the livestock breeding improvement; support to the public services for livestock production; The improvement of livestock breeding is pursued financing the program to support the purchase of semen for artificial insemination of cows and quality male breeding animals and exhibitions of breeding animals. It must be noted that, between 2006 and 2009, the Food and Agriculture Organization (FAO) implemented a project which provided technical support to farmers for the acquisition of specific knowledge and organized also a specific training on animal selection and artificial insemination. Measures to support the public services for livestock production essentially consists in: financing the Program on preservation and sustainable utilization of genetic sources in animal husbandry; supporting the work of Livestock Selection Service on the realization of breeding and selection programs in animal husbandry; supporting the Centre for animal husbandry in programs for protection of endangered breeds (bank of genes) and verifying the results. The draft of law on livestock farming (see Section 5.1.4) foresees a method of adoption and implementation of breeding-selection program, which defines also some aspects on animal reproduction, and measures for the preservation of genetic variability and genetic reserves of domestic animals. Related to this topic is also important to mention again the Veterinary Law, according to which the owner of the establishment for rearing of breeding animals must systematically monitor not only the health status but also the reproductive ability of breeding animals and of acquisition, production, storage, and marketing of animal semen, ova and fertilized ova and the minimum conditions for preservation of the fertilization ability. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 34

42 Costs and Revenues Business costs such as animal feeding, workers and veterinary and operational revenues are controlled with market stabilization measures consisting in the risk management in agriculture, in particular financing the part of insurance costs and financing help in case of natural and other disasters. Thus through a provision in the so called Agrobudget, described in the following Section 5.3, which has been adopted every year. Risk management support in agriculture consists of: co-financing of costs of insurance against crop and livestock damage (up to 50% of the total insurance amount); reimbursement for damage caused by wild animals; financial support to agricultural producers in case of damage from weather elements and other significant damage (damage from natural disasters that are not covered by insurance, the amount of reimbursement can be at maximum 20% of the damage caused). In exceptional situations, for particular individual damage that have long-term and harmful consequences for individual holdings, damage is reimbursed according to the level of the actual damage done, based on a report produced by the Agricultural Inspectorate Quality System Quality system is governed by the national policies granting support to regular control and improvement of quality and agricultural products, primary through functioning of laboratories for quality control and supporting the equipment of the laboratories that are involved in regular control of agricultural products. A very important project which was implemented on this topic is the European Commission and the Delegation of the European Commission s one, which has started in 2010 and will end in The overall project objective is to provide support to the food safety services and in particular: harmonization of the national legislation with the UE standards in the field of food safety; capacity building of institutions in charge of food safety controls; capacity building of laboratories as regards food safety analyses; building the administrative capacity of the National Council for Food Safety Assessment; improving the exchange of information of food safety issues among competent institution. On the issue of quality, the NPI stated that the Regulation Criteria and Methods of Definition of the Purchase Price of Raw Milk should have been amended by introducing new parameters and applying more rigorous minimum criteria for classification of milk into quality grades (to approximate the system to the strict standards applied in the EU), but till now no news parameters have been still implemented. In the range of quality in the production phase, also the Law on Food Safety sets some general and specific hygiene requirements. Furthermore, producing and circulating food can be realized only in facilities registered to the register of approved facilities Environmental and Social Impact It is possible to consider the aspect of the environmental and social impact as related to the measures of investment in agricultural equipment and mechanization, analyzed in Section ; this is due to the fact that, if resources are invested for equipment and mechanization, the impact on the environment is normally positive. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 35

43 The agricultural holdings receive support in the form of co-financing the costs of supplying the equipment for farm mechanisation, in order to improve production technology in different agricultural sectors, except in bee-keeping. The maximum participation of public funds is 30% of the investment value. The support of up to 40% can be provided for the holdings in less favoured areas or for young farmers; if both of these conditions are fulfilled, the support amounts could be up to 50%. The Veterinary Law contains a provision on the environment protection. The law implies the adoption of preventive measures to protect vital environment from consequences from breeding, production, processing and trade in animals, foodstuffs, etc. It regulates also the handling and burying of animal carcasses as well as waste. As concerning the social impact of agriculture, the National Program for Food Production and Rural development foresees the implementation of the following measure: subsidies introduced through the agrobudget for less favoured areas which make up the additional expenses and/or lost revenues of agricultural holdings compared to the limitations for production in certain area. The payments are given per hectare or, in the transition period, per livestock units; incentives for social transfer, introduced with the Law on Agriculture and Rural Development Entrepreneurs and Family The policy affecting the entrepreneurs are mainly directed to: sustainable management of natural resources; improvement of the quality of life and diversification of economic activities in rural areas; Social transfers to rural population. In the above mentioned framework subsidies are given to the agricultural holdings practicing transhumance at least two months in a year. They are in the form of payments per livestock unit and they cover the additional costs and/or the loss in the income of agricultural holdings due to the extensive system of production. This subsidy has been introduced through the Agro-budget. In addition soma quotas of subsidies are meant to: education and research specifically: financing the programs and co-financing the investments to improve conditions of training in existing high agricultural schools and scholarships for deficit personnel, supporting scientific, research and development agricultural projects and preparation of economic analyses for the needs of agricultural policy; pension rent, for one member of the holdings in case he/she lives in the village and is engaged in agriculture and has no other social incomes Collection and Processing The analysis of the policies affecting the milk collection and processing sector has been organized taking into account the following aspects: collection and processing facilities; costs and revenues, including normal operational costs such as: raw milk, packaging, transportation, man power, selling prices for industrial products and cheese; Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 36

44 quality system; environmental impact; entrepreneurs active in the milk collection and processing Milk Collection and Processing Facilities The measures concerning the milk collection and processing facilities foreseen by the national policies consist in: direct payment; measures for improving competitiveness of agro-food sector. Direct payment are aimed at strengthening milk collection network by co-financing the collection costs on the basis of amount of delivered milk, with payment of /lt; as already mentioned in Section 5.2.1, the World Bank Project supported programs to establish systems of direct payment to producers. In order to improve the competitiveness of agro-food sector the national policies provide investments to cofinance: livestock farm building facilities, supplying the necessary equipment and livestock and enabling improvements in production technology; processing of animal products, granting support to micro, small and medium enterprises for the processing and marketing of existing products as well as in the development of new products, processes and technologies; processing on family holdings with investments on family farms in processing animal and plant products as well as for the development of new products, processes and technologies. As regards to the last two points, the FAO project provided technical support to farmers (training, demonstrations of new techniques and technologies, etc.) to improve the skills of the farmers in processing animal products and consequently increase their incomes Costs and Revenues The operational costs of a milk collection and processing facility are related with: raw milk; packaging; transportation; man power; The revenues of the facility depend on the selling prices for industrial products and cheese. To support the facilities in affording the operational costs and improve revenues the national policies foresee direct payment to cofinance the expenses of purchasing and record keeping in the slaughterhouses. Specifically the measure provide a payment per head of cattle slaughtered, introduced through the Law on Provision and Allocation of Founds for Enhancement of rural development (Official Gazette of RM, n. 11/90 and 24/92). The measure is implemented in the form of payments per head of cattle that weighs not less than 240 kg. The amount of support per slaughtered head is 20. The beneficiaries could be all of registered slaughtering establishments that collect and slaughter cattle from Montenegrin farmers. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 37

45 Quality System The quality system is supported at a national level by measures for improving competitiveness of agro-food sector which aim at improving the quality of agro-food production and products through the support for the introduction of systems of quality control, quality schemes and for the participation of farmers in registered quality schemes. This aid is in the form of a standardized payment per agricultural holding and support is given for: introduction and certification of quality management system and foot safety (it refers to HACCP programme integrated with quality management system and amounts up to 50% of total introduction and certification costs to the amount of maximum per applicant); upgrade and modernisation of traditional production in small facilities (it is given as cofinancing, based on a proposed action plan and amounts to a maximum per project.); involving agricultural producers in registered quality schemes, it is given for the first 5 years from the day of entering the scheme. As for this topic the Food Safety Law prescribes that food or feed business operators must establish, maintain and apply procedures based on Hazard Analysis and Critical Control Points (HACCP) principles Environmental Impact It is possible to consider the issue of the environmental impact of the collection and processing of the milk in the dairy industry as related to the measures of investment in livestock farms and in the processing of animal products, which were already mentioned in this document. This is due to the fact that, if resources are invested in this field, especially to improve the technologies used in the processes, there is a positive effect on the environment. Assistance is primarily given for investments in livestock farm building: building of facilities; supplying necessary equipment; supplying breeding for livestock. The projects should enable considerable improvements and in fulfilling of the EU standards in livestock farms. The reconstruction of existing farms and the building of new farms are supported. The support is provided in the form of cofinancing the costs of the construction material, equipment, breeding livestock, as well as by covering the costs of construction works on reconstruction of existing and building of new facilities. The maximum participation of public funds is 30% of the investment value. The support could be up to 40% of the total amount for the holdings in less favoured areas or for young farmers; if both of these conditions are fulfilled, the support amounts could be up to 50% Entrepreneurs The entrepreneurs active in the milk collection and processing are supported with national policies measures aimed at improving competitiveness of agro-food sector through the enhancement of the producer organizations. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 38

46 These measures provide support, in the form of annual grants, for setting up and operating producer organizations. In particular the support goes to the formation expenses and for the administrative expenses. Very important in achieving this goal is the project of the German Cooperative and Raiffeisen Confederation - DGRV, which was implemented in the period between 2003 and The project s scope was the strengthening of the cooperative entrepreneurship in agriculture, through the integration of the producer s interests on market basis. In particular it was aimed at laying the grounds for the creation of the first pilot cheese-producer cooperative in the dairy sector on the territory of four municipality (Podgorica, Cetinje, Danilovgrad and Berane) Distribution The distribution of dairy products has a crucial role in the generation of the revenues for the whole dairy sector. The Government efforts to support the distribution sector can be summarized as follows: investments in storage, packing and processing of plant products: this measure consists in the support of investments in logistics for purchasing, storing, processing, packing and marketing of the products as well as for investments for the development of new products, processes and technologies; promotion and information activities: this means support to different promotional campaigns, such as: organization and participation in local and international fairs, exhibitions and other events, advertising through different communication channels, the campaigns made in Montenegro and informative and educational activities for consumers. The advantage is given to the promotional and informative activities for the registered quality schemes. The support is given in the form of co-financing on the basis of the submitted activity programme. The beneficiaries could be natural and legal persons engaged in production and processing of agricultural products, local communities, non-governmental organisations. Concerning the distribution process, another measure foreseen by the National Program for Food Production and Rural Development is related to the improvement of the infrastructure system to make distribution faster and more efficient. Finally the Food Safety Law has introduced some requirements related to the distribution of the products: materials, packaging and other item in contact with food must be produced following good manufacture and hygiene practices and hygiene requirements must be fulfilled during the transportation, storage and handling of primary products. The National Program for Food Production and Rural Development contains also some measures which are not directly connected to the dairy sector but, if implemented, can have some effects on it, these measures are aimed at the sustainable management of natural resources: preservation of genetic resources in agriculture: a subsidy is given for livestock farming and plant production that are included in the Action Plan for preservation and sustainable utilization of genetic resources in agriculture; organic production: a subsidy is given for the organic production in any agricultural segment, so also for the livestock animals. Further support is provided to general services in agriculture; specifically the national policies finance the programs of the Extension Services and of the Livestock Selection Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 39

47 Service, which are responsible above all of giving advices for the production processes and of the training of farmers for submitting applications for direct payments and for fulfilling the EU standards. In this respect, noteworthy are the efforts made in the range of the previous projects of FAO ( ), committed in the organization of trainings and seminars for producers. Also the NPI foresees some middle-term priorities which are part of the agricultural strategy, in particular: the establishment of the Integrated Administration and Control System, for the registration of all holdings, farms, animals and land parcels for the purpose of support payments: the creation of a Farm Data Network; the building of a Paying Agency to implement the direct payments for animal and crops and other support measures for the food and rural development sector. The construction of the Paying Agency was supported by a World Bank Project, through the use of part of the funds which were assigned for the programs of support of a Rural Development Unit and of a system of direct payments to producers. 5.3 AGROBUDGET Agrobudget Composition As outlined in Section 5.2 the government policy is totally focused on the future accession of Montenegro into the EU. The very peculiar structure of the dairy sector is considered and tackled, together with the rural development, trough an ad-hoc plan of subsidies and support measures which goes under the name of Agro-budget. Annually, the amount of resources made available by the government and donors is fixed together with rules for assignment, mechanism for application and payment method. Five are the main components of each annual budget: market price policy measures to subsidize farmers within their activities; rural development; general services, mainly technical assistance and quality control services; social transfer to rural population covering social aspects relatd to rural leaving like population ageing and retirement; technical and administrative support to programme implementation. Among the different rural activities and beneficiaries the dairy sector is the central beneficiary of the Governmental policy and action.. Priorities can be summarised as follows: increase animal productivity; increase milk collection and processing; comply with EU legislation in terms of food safety requirements; ensure public technical assistance; ensure quality monitoring. The National Plan for rural development (see Table 5.1) foresees a growing amount of resources to be allocated until Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 40

48 Table 5.1: NP total Budget (NP for Food Production and Rural Development) (k ) Total Ministry Other sources Total 19,830 22,751 25,679 28,614 35, ,156 11, ,656 Among the axis, No. 2 of the Agro budget can be considered the most important for dairy. Main measures covered by this part of the budget are: Investments in agriculture and equipment; Investment in livestock farms; Restructuring of permanent crop plantations and horticulture; Investment in processing of animal products; Investment in storage, packing, and processing of plant products. Axis 2 evolution in the future is reported in the following Table 5.2. Table 5.2: Axis 2 Evolution (k ) Total Ministry Other sources Total 4,736 5,458 6,180 6,903 7,652 30,902 5,220 36,122 All considerations concerning investments are referred to Axis Annual AgroBudget 2010 Each annual Agro budget is split in a set of axis and measuers for intervention. The following are the actions directly or indirectly acting on the dairy sector in 2010: market price policy measures: 5,082,841; rural development: 4,742,800; general services: 3,906,958; social transfer to rural population: 2,920,000; Technical and administrative support to programme implementation: 876,278. As outlined above the annual agro budget grant financial support related to all the sensitive issues like animal breeding, genetic improvement, animal feed production, milk collection at dairies and milk processing both at dairies and family household, technical assistance, quality and monitoring system, changes in social rural structure. For 2010 the sector can count on approximately 16.7 M spread across different axis and actions. The analysis of the measures included on each agro-budget axis is presented in the following sections Market Price Policy Measures Within market price policy measures the most significant is direct support to farmers fixed in 4,312,341. These measures are related to partially solve the chronicle shortage of cash affecting the agricultural. A significant difference is to be underlined when Montenegro is compared to other countries: land is hardly considered an asset by commercial bank and discounted invoice (the system used by banks to release short-term financing against documented credit) is not applied. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 41

49 As such, farmers are affected by difficult access to money. Irregular and delayed payments reported to occur regularly on one side and regular expenditures for veterinary, milk transportation and other inputs create a stable liquidity problems. Subsidies scheme, presented in Table 5.3, intervene to overcome short-term need for liquidity. Table 5.3: Direct Payments Programme Title Amount, % Direct support to livestock production 1,954, Support to dairy production for market 1,155, Support to strengthening of milk collection network 627, Support to collecting and slaughter of cattle 60, Direct support to crop production 395, Support to tobacco production 120, TOTAL DIRECT PAYMENTS (1.1) 4,312, All measures but support to tobacco production see livestock breeders direct beneficiaries. Particularly important is the support to milk collection network as, as outlined previously, processing industries are often located far for primary production. In order to ensure market stabilization and resolve a seasonally unbalanced supply of agricultural products, as well as to repair damage to agricultural crops, livestock and other resources, especially the impact of bad weather conditions on crops and damage caused by attacks of large wild animals on livestock, livestock breeders have available Market Stabilisation Measures within Agrobudget. These measures, as part of Market Price Policy Measures, with overall amount of 540,000, are allocated through two programmes presented in Table 5.4. Table 5.4: Market Stabilisation Measures Programme title Amount, % Market intervention programme 330, Risk management in agriculture 210, TOTAL MARKET STABILISATION MEASURES (1.3) 540, In circumstances of an underdeveloped market infrastructure, producers are not able to solve on their own the problems relating to the pronounced seasonal character of production, which has a negative effect on their survival and professional development. Through the measure Market intervention programme some of seasonal surpluses of agricultural products, primarily fresh fruit and vegetables, lamb, milk and dairy products, can be marketed in the form of support in food to certain socially vulnerable population categories. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 42

50 Improving Competitiveness To improve competitiveness of the sector, a set of measures in support of structural strengthening are included in axis 1. The measure detail and the related amount allocated is presented in Table 5.5. Table 5.5: Rural Development Measures Axis 1: Measures for improving competitiveness of agriculture Programme Title Amount, % Support to investments in agricultural equipment and mechanization 450, Support to investments in livestock farms 450, Support to setting-up of perennial crop plantations 610, Support to construction and equipping of greenhouses 180, Support to investments related to land policy 200, Support to investments in processing of animal products 500, Support to investments in storage, packing and processing of plant products 330, Support to investments in processing on family holdings 60, Support to producers' organizations 130, Improving the quality of products 215, Promotion of agricultural products 85, TOTAL AXIS 1 3,210, All but fund for greenhouses construction can be meant to support investments in the dairy sector. To be clarified whether support to investment in storage and processing of plant products can imply silage. Rural Development Measures through Axis 2 aim to ensure sustainable management of natural resources, with allocation of 852, Programmes of Axis 2, presented in Table 5.6, enable producers to achieve, inter alia, preservation and sustainable use of endangered autochthonous and local breeds of livestock, increase of the agricultural products quality and preservation of traditional products. Table 5.6: Rural Development Measures Axis 2: Measures for sustainable management of natural resources Programme title Amount, % Preservation of genetic resources in agriculture 57, Organic farming 350, Sustainable use of mountain pastures 445, TOTAL AXIS 2 852, Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 43

51 Preservation of genetic resources in agriculture, as one of three measures for sustainable management of natural resources, intends to support livestock farming in following area: rearing of the buša breed of cattle; the zetska žuja, sora, pivska pramenka and ljaba in sheep breeding; the domestic Balkan goat. In order to provide support to farmers in production of traditional products (different types of cheeses, kajmak and other kinds of dairy products, lamb and other types of meat, etc.), Agrobudget includes measure Sustainable use of mountain pastures. This measure intends to support usage of mountain pastures, including katuni (summer pastures), which represent a special value that contributes to the preservation of local biodiversity (specific flora and fauna, use of adapted local breeds) and has a special economic importance Social Transfer Ageing of rural population, lack of suitable employment alternatives, poverty, women shortage in rural areas are some of the elements conditioning the possibility for most Montenegrin to remain in rural area. The axis n. 4 of the agro - budget tackles the problem as detailed below (see Table 5.7). Table 5.7: Social Transfers to Rural Population Programme Title Amount, % Old age allowance programme 2,920, An abstract illustrating the features of the measure included is presented in Table 5.8 to provide an idea of eligible persons, number of beneficiaries and amount received monthly. Table 5.8: Social Transfers to Rural Population 4.1 Old Age Allowance Programme Reasons for implementation Objectives Measure description and eligibility criteria Beneficiaries There are many rural households in Montenegro whose members used to be engaged in agriculture as their main occupation, but because of specific features of the social policy, they were not able to exercise the right to a regular pension. Moreover, those households are still engaged in agriculture and thus keep alive many remote villages that are threatened by depopulation or even abandonment. With a special form of social policy old-age allowance, the state supports holders of agricultural holdings. fight against poverty in rural areas, improving the quality of life in villages and providing adequate living conditions. Old-age allowance is provided to one spouse, in case he/she lives in rural areas and is engaged in agriculture and has no other social allowances. Men above the age of 65 and women above 60 are eligible for this allowance. Holders of agricultural holdings: men above 65 and women above 60 who have no other income and who are engaged in agriculture. Payment Cash payments through the Post of Montenegro, on behalf and for the Ministry method Implementation January - December 2010 Components Amount, Financial Plan Funds for payment of old-age allowances 5965 beneficiaries (40 per beneficiary per month), 2,860,800 Distribution costs. 59,200 Total 2,920,000 Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 44

52 In addition to old age allowance, axis 3, referring to measures for improving quality standard and diversification of activities is also moving into the direction of a social support as detailed in the Table 5.9. Table 5.9: Improving in Quality of Life and Diversification of Activities Axis 3: Measures for improving the quality of life and diversification of economic activities in rural areas Diversification of economic activities in rural areas 60, Revitalisation and development of rural areas and construction of rural infrastructure 620, TOTAL AXIS 3 680, If recent trends about number of farms and their restructuring is confirmed, several thousand farmers might leave their activity creating a twofold problem of elderly social support and youth employment. Present measures appear not sufficient to overcome future scenarios. Farms evolution is considered a priority area to be monitored constantly and carefully to avoid social impact like migration of poverty Public Assistance Technical assistance is the element demonstrating the willingness of the government to bridge the gap separating the rural area from its modernisation. Transfer of modern practices is extremely difficult in a country with low population density, ageing and difficult accessibility of farmers. The public service is the tool for instructing farmers on technical and managerial aspects, for facilitating access to subsidies and for monitoring implementation of any effort. Results achieved by the LSS on the sample of animals followed confirm the strategic importance of providing services to this sector. It is worth noticing that the public technical assistance service is the only one, together with the private veterinaries, available for farmers. Private sector is practically not existing neither at level of farmers nor at the level of processing and distribution. Most of the know-how comes from abroad. Table 5.10: Support to General Services in Agriculture Programme Title Amount, % Education, research and analytical work 130, Livestock breeding improvement programme 245, Programme of professional and extension services for livestock production 631, Programme of professional services for plant production 60, Programme of extension services in plant production 622, Programme of quality control measures 90, Programme of phyto-sanitary measures 220, Operational Programme for Animal Health Protection 1,906, TOTAL SUPPORT TO SERVICES IN AGRICULTURE 3,906, Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 45

53 As outlined in Table 5.10 all measures target directly or indirectly the dairy sector. To achieve results similar to those reached by animals and farmers followed by LSS, it is probably important to strengthen and support further this axis Uncovered Issues Based on the analysis of the annual Agro Budget 2010 three main areas of intervention appear to be worth the attention of the national legislator: leverage effect of governamental measures on bank financing to private sector; conditions for access to credit (interest rate, collateral and repayment period); private sector role in technical assistance. As far as the first issue is concerned it is important to recall that national subsidies and support scheme will probably not be sufficient to cover the need of investment of a sector whose development is seriously delayed. In fact, only part of the investment is generally covered by public funds while the rest is to be generated by the private investor. The role of bank is very important to secure additional financing but at the moment no mechanism appears in place to join public funds to bank and private entrepreneur financing. Most of the public funds is granted at the end of the investment. Such a mechanism has only a limited impact in generating new investments as it intervene on investors which are by themselves able to find the necessary resources. The second issue is mainly related to the fact that banks require high interest rates collateral and short term repayment. This is not reflecting the need of a sector whose main asset is the farm, its land, its livestock and its workforce and whose return on the investment is generally not a profit but an income sufficient to repay input. Part of public resources should be direct to lower interest rate, create mutually supportive scheme for collaterals and to extend repayment periods. Last but not least, dairy sector appears isolated from the rest of the community. Private sector initiative in the sector of technical assistance, quality, safety, marketing should be encouraged to allow a stronger interaction between the economic community and farmers. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 46

54 6 MARKET AND TRADE Farmers and industries are selling their products to the market. Raw milk is mainly sold by farmers to dairies. In some cases, when milk is not enough to motivate transportation or payment are delayed farmers, decide to process milk and sell cheese directly. On the other side industries are regularly buying from farmers the milk which is normally stored for one or two days in refrigerated collecting stations. Products are cheese, yogurt, kajmak and increasingly different items. Features of both primary and industrial products trade are reported in the sections below. 6.1 PRIMARY PRODUCTION From a general point of view outputs of the primary production are milk and young animals while inputs for production are animal feed (hay, concentrates, trebs), work force and veterinary service. It should be noted that most of the farmers interviewed did not have a clear idea and record of farms costs. Cost structure is pretty simple as in the majority of cases operational costs are related to animal feeding, workers and veterinary. On the basis of data gathered during field visits, operational and raw material costs for the production can be summarized as shown in Table 6.1. Table 6.1: Operational Costs and Raw Material Input Cost ( ) Notes Hay /t Delivered in small bales or bulk Concentrates /t Delivered in 20 and 40 lts sacks Trebs 20 /t Transportation cost excluded. In Berane the final cost is reported to be 72 /t with 50 /t cost for transportation Worker /month 72 /month is the social cost veterinary /animal Data produced by Kastratovic in 1 year on a group of 13 animals While costs for raw materials purchased in the market is known, production cost for milk or meat is unknown as supply of input or services is not monitored. For cows, LSS report a cost estimation ranging between 0.25 and 0.30 /l. For goats milk production cost is reported to be 0.60 /l. Information on market price for milk is more homogeneous. Dairy factory pay cow milk an average on /l. Goat milk is paid up to 1.5 /l. For sheep milk prices were not found. In addition, farmers and dairies are entitled to receive governmental subsidies for collection, and processing Milk supply to dairies is not governed by binding contract. This can be considered a limit especially toward banks when and if credit might be sought. In Italy for example, bank credit to farms is granted on the basis of existing contract with dairy factories and volume of milk delivered. A meaningful integration to farms revenue is related to lambs and calves trading. The first are reported to be sold to local abattoir for 100 when they reach 35 kg. The second (calves) are reported to be sold at up to 450 when of good genealogy (information provided by private veterinary). On this regard, the genealogy of bull used for insemination appears a determining factor. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 47

55 6.2 PROCESSED PRODUCTS MARKET Milk processing system has a great influence on the collection mechanism since the milk harvest scheduling varies depending of the process the milk will undergo. Two different milk processing systems are adopted in the surveyed dairies: pasteurization; UHT treatment. Pasteurized milk is subject to daily collection while milk to be treated under UHT system (Zora dairy) is collected every second day from the harvest of the milk. All dairies integrate the collection service of their vehicles with private players whose activity is however strongly conditioned by the level of governmental subsidies dedicated to milk transportation and delivery. When delay or reduction of subsides payment determines problems and low profitability of the activity it impacts reducing the number of vehicle circulating with immediate effect on the amount of milk harvested. As shown in Figure 6.1 each dairy reach generally an area of 10 km radius but recent problems faced by two dairies Zora and Podgorica have contributed to purchase and withdraw milk from further distances. Figure 6.1: Dairies Milk Collection Basins In particular several producers initially conferring to Zora are nowadays supplying dairy in Danilovgrad or Niksić which lays some 2 hours away by truck. This results in an additional cost, paid by the farm, equivalent to the national incentive for milk production 0.05 /l. Most of the processing technology seen is relatively new as none of the company visited has more than 10 years of operating life. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 48

56 Processing capacity installed by the three dairies Ami Prom, Srna and Zora exceed at least twice the one actually used. The present volumes processed by each dairies and the processing potential is presented in Table 4.3. In addition to dairies, part of the milk is processed by cheese makers either for short term (in case of exceeding quantity) or in normal operation regime. Only one cheese producer buys milk from his neighbors but only for cow. Products available in the local market are listed in and Table 6.2 presented in Figure 6.2. Table 6.2: Industrial Products available in the Local Market Product Notes Packaging UHT milk Only from Zora 1 lt in combi-box Pasteurized milk From different dairies 1/lt or 1 lt in pet bottles Yogurt From different dairies 180 grs or 1 lt PET bottles Goat cheese From different cheese makers either labelled o unlabelled Several Cow cheese From different cheese makers either labelled o unlabelled Several Sheep cheese From different cheese makers either labelled o unlabelled Several Figure 6.2: Example of Local Industrial Products Available on the Market While milk and yogurt are normally branded, cheese is often distributed under vacuum or in plastic containers without any label or indication (see Figure 6.3). Figure 6.3: Unbranded Cheese Sold in Small Shops or in Supermarket Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 49

57 6.3 COSTS AND REVENUES A rough estimation of costs and revenue is very difficult as it depends on several aspects related to production and management. In the attempt to provide at least some information about operational costs, selling prices of industrial products and cheese have been collected and summarized in the following tables. Table 6.3: Operational Costs Input Cost Notes Raw milk /lt Quality parameters like fat and protein contents are normally considered as criteria to differentiate price Packaging /lt Combi-block at Zora 0.07 /lt Pet bottles at Srna Transportation /lt It varies significantly with the distance Manpower /month It varies according to the degree of specialisation Table 6.4: Selling Prices (Producers Distributor) for Industrial Products Products price Notes UHT milk 0.65 /lt Zora selling price to large distribution chain Voli Pasteurized milk 0.55 /lt Selling price declared by Srna Pasteurized 0.65 /lt Declared by Ami Prom and sold in northern Montenegro area yogurt Pasteurized 0.83 /lt Declared by Srna and sold in southern part of the country yogurt Sterilized yogurt 0.78 /lt Declared by Zora Table 6.5: Cheese Price Recorded During Interview Products Price Notes Cows cheese Cow cheese Cow cheese Goat cheese Goat cheese Goat cheese Sheep cheese 3 /kg 5 /kg From milk processed when milk factory do not pay it or is exceeding family needs. Sold to intermediaries (dealers) at farms unlabelled. Retail price 7-8 /kg Milk processed by average size cheese makers sold to intermediaries. Retail price 7-8 /Kg 7 /kg Bubuli in its shop in Podgorica. Labelled 14 /kg Bubuli for fresh cheese sold to hotels. Labelled 18 /kg Bubuli for 3-months old cheese to hotels. Labelled 8 /kg 4 /kg Osmailoivijc 7 days old to restaurants in Podgorica (unlabelled). Delivered by car. Danilo Korac to dealers (final price for consumer reported to be 7 ). Product purchased at farm unlabelled As shown in the tables above, cheese prices are subject to much higher fluctuations; most evident difference in prices occurs between unlabelled and labeled product and between direct delivery to final consumer and selling to dealers at the farm. The first is justified by the acknowledgement of quality and familiarity with the producer (the vast majority are Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 50

58 unknown to the consumer) while the second by the distribution costs related to direct distribution (over two hours driving to reach Podgorica or the coast). 6.4 TRENDS In the market related to collection and processing some trends appear to be consolidated: stringent legislation on food safety brought in by the EU accession, will force the whole system to upgrade. Product labeling, responsibility along the food chain, traceability of data will impose to dairies and primary producers a tough agenda. Dairies will be called to guarantee customers on behalf of the distribution system and at the same time extend quality system to all milk suppliers. Small size factories need t be supported in this process; number of associate producers is being reduced through selection of farmers on the basis of their productivity and regular supply; degree of integration between producers and industry is increasing with more attention to quality and stability in the relations. First and more important element of aggregation is regularity in payments. Supply of animal feed and cows of high genealogy follows immediately afterward; productivity per head is increasing while number of cows per farms remains hard to change because of liquidity shortage: companies tend to differentiate their products through re-branding, alternative productions (i.e. Feta cheese in being studied together with the Turkish Ayran); expansion in processing capacity is at the moment out of consideration given the shortage of milk; companies in good economic conditions (Srna, Ami Prom) are planning their expansion in the common understanding that there is sufficient market for everybody and each player is needed to guarantee stability to the production system; competition is more on quality, quantity and reliability of the supply than prices. Foreign competitors might pose a problem to the national sector is distribution system evolves toward large scale. In this case big, single suppliers will be preferred to small fragmented ones. 6.5 BUSINESS BREAKEVEN POINT DEFINITION As anticipated, the sustainability of the dairy sector is related to its capability to produce sufficient income to maintain companies and people working in the sector where the minimum sufficient level of income is defined as what needed to maintain workers and their families. In this context the weakest ring of the chain appears to be the farmer or milk producers. In fact, the small number of animals owned and their low productivity are limiting the possibility to generate sufficient income for the family. Even when value is added to the production through milk processing, the benefits for the farmers are nowadays particularly limited. In order to figure out the indicative minimum number of animals required to reach the breakeven point with an indicative family budget of 6,000 /y (minimum sufficient income) a simple numeric simulation has been preformed. The options considered in the simulation are: producers selling raw milk to dairies (raw milk); milk price equivalent to subsidy; Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 51

59 producers processing milk at the farm and selling it to the dealers (wholesale); producers processing at the farm and selling it retail at two different prices reported during the site survey (retail Option 1and retail Option 2). In addition the following values have to be assumed in order to carry out the simulation: cheese production ratio = 7 [Lt Milk/Kg Cheese]; cow productivity = 36,000 [lt/lactation] (equivalent to 12 lt/d reported by Zora and Ami Prom); two different milk production costs = 0.25 /lt (Scenario 1), 0.30 /lt (Scenario 2). The main outcomes of the simulation with reference to the scenarios outlined above are presented in the following Table 6.6. Product Table 6.6: Breakeven Point Simulation SCENARIO 1 PRODUCTION COST = 0.25 /lt Prices /lt Milk value /lt Valueprod cost /lt Lt to generate 6,000 Cows Required Income ( /cow) Raw Milk , Cheese sold wholesale , Cheese sold Retail - Option , ,671 SCENARIO 2 PRODUCTION COST = 0.30 /lt Milk , Cheese sold wholesale , Cheese sold to retail Option , ,491 In both scenarios, primary producers reach sustainability only when the number of productive animals exceed 10 heads and reaches 16 animals. This data is comparable to figure reported in par 6.6 where EU 27 recorded an annual income per animal of 334 considering that Montenegro milk price (included subsidies) is higher than the rest of Europe Theoretically, if processing is carried out at farms and cheese sold directly, the number of animal needed to reach a sustainable threshold could be reduced. This purely theoretical exercise could become realistic only when and if farmers would decide to establish collective processing plants, transform their product and share costs and revenue. There is however a bottom of around 4 productive animals below which production will never be economically sustainable. The fact that farms below 5 animal are being reduced at a fast pace is indicative of their unsuitable scale (see Section 7). Though not considered, it is clear that animals with higher productivity might reduce the herds size granting however sufficient income to family. Pressure on wholesale milk price could determine a lower gross margin and as such, a need for larger groups of animals. This trend soon affect Montenegro and bring local producers to situations similar to those faced by farmers in EU where, despite of the growth in herds, most of the producers are facing problems because of low profitability. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 52

60 To resist international competition, milk processing toward wider number of products and distribution mechanism between farmers and dairies and cheese makers should be strongly encouraged. 6.6 BENCHMARKING WITH EU SITUATION The comparison between Montenegro and the rest of EU country can be based on different parameters. Those chosen within this scope of work are: farms size; animal productivity; milk price at factory level; production costs; trends. In 2007 Europe (27 countries) had 3,330,000 cattle raising farms: about 80% of them are located in 8 countries namely Romania 33%, Poland 21%, France 7%, Germany 5% Italy, Bulgaria, Spain and Lituania with 4%. The number of animals is reported to be 86 Million with 80% of the population leaving in 7 countries (France, Germany, England, Italy, Ireland and Spain and Poland). The trend on animals and farms number is negative with farms decreasing 11% each two years and animal decreasing 8% on the time range considered. Like in Montenegro, farms reduction is faster than animal reduction which let assume that a concentration process in still ongoing. Smaller farms are still being shut down while others are probably expanding decreasing more quickly with number of animals decreasing as well but Italy is the only country where ratio n: farms 2000/ n. farm 2007 remain practically unchanged. Poland, Holland and Luxemburg are the countries where the number of animal in increasing. Average size of herds within EU 27 is 26 animals/farm with a pool of countries beyond 100 animals (Lux 133, NL 110, UK 104, CZ 101 and DK 101), 9 countries with average ranging from 92 (BE) and 44 (It), Austria, Poland and Rumania respectively 26, 8 and 3. Montenegro with its average population/farm of around 3 to 4 animals would fall within the categories of Poland and Romania where a large number of animals is still leaving in small farms. In Table 6.7 is reported an important indicator, the annual net income per farm (source Eurostat elaborated by Veneto Agricoltura statistic studies ). Table 6.7: Net income in Livestock Farm in EU ( ) Country Average size Annual net income ( ) Income ( /cow) EU , NL , BE 92 41, Ita 44 22, PL 8 1, The table shows that annual net income grows with the size of the farm. Particularly interesting is the income/animal ratio which grows with herds size but were Italy leads the list of EU countries despite of the size (medium). To explain such a situation it is worth showing the difference in prices for milk paid at farm level (see Table 6.8, source CLAL:it ). Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 53

61 Table 6.8: Price of Milk at Farm Gate ( per 100 lt) in different EU Countries year Lombardy Bayern Rhone Alpes Bulgaria Poland Czech Rep. Sloval rep. Romania Hungary ,48 35,11 33,48 29,94 30,34 33,79 32,52 23,79 32, ,3 25,27 27,14 25,37 22,19 23,24 21,08 21,3 21,87 difference -7,18-9,84-6,34-4,57-8,15-10,55-11,44-2,49-10,86 variation % Italy has recorded for two years in a row the highest milk price at farm gate in Europe. It price fluctuated also less than in countries like Germany /southern Germany is taken as benchmark) and the rest of EU countries expect for Romania and Bulgaria, where the price is the lowest among the countries considered. The reason for such performances is tied to the fact that Italian milk is mainly addressed to high quality cheese production (DOP cheese) like Parmesan and Grana padano. Their price ranges in the area of 6 /kg (9 months ageing) against the /kg of German Gouda and Edamer and/or the Polish Edamski. Rulebooks for DOP production prevents the impact of milk import from Eastern Europe keeping remuneration of farmers less affected Montenegro has a productive structure similar to Romania and Poland but is still able to pay to its farmers higher prices than the rest of Europe. Concentration of animals in larger farms is ongoing but evolution should be toward medium-size farms directing their milk to added value processing. Montenegro initiative toward strengthening of cheese production in connection with landmark is envisaged. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 54

62 7 LEVEL OF ATTAINMENT OF RELEVANT EU STANDARDS 7.1 EU LEGISLATION OVERVIEW The EU has adopted a wide number of regulations aiming to protect human health and consumers interests concerning food. With regards to the dairy sector, the main ones that Montenegro should refer to are: Regulation (EC) 178/2002 laying down the general principles and requirements of food law; Hygiene Package including three Regulations: Regulation (EC) 852/2004 on the hygiene of foodstuffs, Regulation (EC) 853/2004 laying down specific hygiene rules for food of animal origin, and Regulation (EC) 854/2004 putting in place a Community framework for official controls on products of animal origin intended for human consumption; Regulation (EC) 882/2004 on official controls performed to ensure the verification of compliance with feed and food law, animal health and animal welfare rules. Regulation 178/2002 lays down general principles regarding all kind of food, while Regulation 852/2004 focuses on hygiene requirements for food and Regulation (EC) 853/2004 on hygiene requirements for food of animal origin. Regulations 854/2004 and 882/2004 fixed rules on official controls Regulation (EC) 178/2002 Furthermore Regulation (EC) 178/2002 set the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety. This Regulation also provides the basis for the assurance of a high level of protection of human health and consumers' interest in relation to food, laying down the general principles governing food and feed in general, and food and feed safety in particular. It applies to all stages of the production, processing and distribution of food and feed. The general principles it establishes are: risk analysis, risk assessment and risk management; precautionary principle, according to which if the possibility of harmful effects on health is identified but scientific uncertainty persists, provisional risk management measure may be adopted; protection of the interests of consumers and information of consumers; transparency, implying open and transparent public consultation when preparation, evaluation and revision of food law take place, and information of the general public on nature of the risk to health and the measures subsequently taken in case food or feed are suspected to be harmful for human or animal health. The Regulation also fixes rules on import and export of food and feed into and from the Community by setting the safety requirements for food that is to be considered unsafe if injurious to health and unfit for human consumption. In the same way, feed is to be considered unsafe if it has an adverse effect on human or animal health and if it makes the food derived from food-producing animals unsafe for human consumption. The Regulation also adds that labelling, advertising and presentation of food or feed are not to be misleading for consumers. It specifies that food and feed business operators are responsible for food and feed suitability and security, while Member States are to ensure the enforcement of food law requirements by setting up a system of official controls and other appropriate activities (e.g. public communication on food and feed safety and risk, monitoring activities covering all Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 55

63 stages of production, processing and distribution, etc.). Responsibilities of food and feed business operators are also detailed. The Regulation then fixes the principle of traceability of food, feed, food-producing animals to be established at all stages of production, processing and distribution. In this sense, food and feed business operators should be able to identify any person from whom they have been supplied with a food, a feed, a food-producing animal, and they should have in place systems and procedures to identify the other businesses to which their products have been supplied. The Regulation also establishes the European Food Safety Authority whose mission is to provide scientific advice and scientific and technical support for the Community's legislation and policies in all fields with a direct or indirect impact on food and feed safety. Moreover, the Regulation institutes a rapid alert system for the notification of a direct or indirect risk to human health deriving from food or feed as a network. This network is managed by the Commission and involves the Member States, the Commission and the European Food Safety Authority. Under the rapid alert system, members of the network should notify the Commission of any information on the existence of a serious direct or indirect risk to human health deriving from food or feed, so that the Commission transmits it to the other members of the network. The Regulation sets the emergency measures that the Commission should take under certain conditions in case it is evident that food or feed originating in the Community or imported from a third country is likely to constitute a serious risk to human health, animal health or the environment. It also calls on the Commission to draw up a general plan for crisis management in the field of the safety of food and feed, in case of situations of risk that could not be solved by measures already in place. The plan specifies the practical procedures necessary to manage a crisis. In certain cases, the Commission might also set up a crisis unit Hygiene Package The so called Hygiene Package groups the EU laws on food hygiene, laying down general measures for the production of all food and specific rules for some categories of food; among them stand milk and dairy products. The Hygiene Package includes three Regulations: Regulation (EC) No 852/2004 on the hygiene of foodstuffs; Regulation (EC) No 853/2004 laying down specific hygiene rules for food of animal origin in order to guarantee a high level of food safety and public health; Regulation (EC) No 854/2004 putting in place a Community framework for official controls on products of animal origin intended for human consumption and laying down specific rules for fresh meat, bivalve molluscs, milk and milk products. Therefore, Montenegro s reference concerning hygiene rules related to the dairy sector is represented by these three Regulations Regulation (EC) No 852/2004 Regulation (EC) No 852/2004 lays down general rules for food business operators on the hygiene of foodstuffs. The Regulation considers food business operators primarily responsible for food safety and for ensuring food safety throughout the food chain, starting with primary production. Moreover, it stresses the importance of maintaining the cold chain. The Regulation asks for the implementation of procedures based on the HACCP principles. It then considers necessary to establish microbiological criteria and temperature control requirements based on a scientific risk assessment and to ensure that imported foods are of the same or equivalent hygiene standard as food produced in the Community. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 56

64 More in depth, concerning HACCP, the Regulations prescribes that business operators put in place, implement and maintain procedures based on the HACCP principles and namely: identifying any hazards that must be prevented, eliminated or reduced to acceptable levels; identifying the critical control points at the step or steps at which control is essential to prevent or eliminate a hazard or to reduce it to acceptable levels; establishing critical limits at critical control points which separate acceptability from unacceptability for the prevention, elimination or reduction of identified hazards; establishing and implementing effective monitoring procedures at critical control points; establishing corrective actions when monitoring indicates that a critical control point is not under control; establishing procedures, which shall be carried out regularly, to verify that the previous measures are working effectively; establishing documents and records commensurate with the nature and size of the food business to demonstrate the effective application of the measures Regulation (EC) No 853/2004 Regulation (EC) No 853/2004 lays down specific rules on the hygiene of food of animal origin for food business operators. It specifies that those products can be placed on the market, only if they have been prepared and handled exclusively in establishments approved and registered by the competent authority. This does not apply to primary production, transport operations, the storage of products not requiring temperature-controlled storage conditions, or other retail operations not included in the Regulation. The Regulation then requires health marks to be applied in certain cases and according to the other regulation part of the Hygiene Package, Regulation EC No 854/2004. It also rules the application of identification marks. Concerning importing of food of animal origin, it lays down conditions to be respected by the product and the establishment where it was produced that must be located in a third country from which imports of that product are permitted. The Regulation then sets specific requirements concerning several products of animal origin in its annex III. Specifically, chapter IX is dedicated to Raw Milk and Dairy Products and looks at: raw milk; dairy products; wrapping and packaging; labelling; identification marking. The regulation sets the health requirements concerning raw milk which must come from animals in good health, not showing symptoms of any diseases communicable to humans through milk, not presenting any udder wound that might affect the milk, to which no unauthorised substances or products have been administered and that have not undergone illegal treatment. Specific provisions regarding brucellosis and tuberculosis are also provided. If raw milk does not comply with those provisions, it must not be used for human consumption and infected animals must be effectively isolated so as not having an adverse impact on other animals milk. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 57

65 Reference requirement concerning the hygiene of milk production holdings are also established with specific reference to: premises and equipment, to be located and constructed so as avoid any contamination of milk, protected against vermin, adequately separated from premises where animals are housed, easy to clean, disinfected and maintained in a sound condition, using washable and non-toxic materials. Moreover, containers and tanks used for the transport of raw milk must be cleaned and disinfected in an appropriate manner before re-use and at least once a day; milking, collection and transport. Milking must be carried out in hygienic conditions. Immediately after milking, milk must be held in a clean place designed and equipped to avoid contamination, cooled immediately to not more than 8 C in the case of daily collection, or not more than 6 C if collection is not daily. The cold chain must be maintained during transport and at the arrival to the establishment of destination its temperature must not be more than 10 C. These temperature requirements do not have to be respected in case the milk is processed within 2 hours or a higher temperature is necessary and authorised by the competent authority for technological reasons related to the manufacture of certain dairy products; staff; must wear clean cloths and maintain a high degree of personal cleanliness and must have access to facilities closed to the milking place to wash hands and arms. The criteria set for raw milk are presented in the following Table: Table 7.1: Raw Milk Criteria Raw Milk Origin Plate count at 30 C (per ml) Somatic Cell Count (per ml) Cow 100, ,000 Other Species 1,500,000 N.D. Moreover, the Regulation specifies that food business operators cannot put on the market raw milk that contains antibiotic residues in a quantity exceeding the allowed levels. Concerning dairy products, the Regulation fixes requirements on: temperature; milk must be quickly cooled to not more than 6 C and kept at that temperature until processed, unless processing begins immediately after milking, or within 4 hours of acceptance at the processing establishment, or the competent authority authorises a higher temperature for technological reasons related to the manufacture of certain dairy products; heat treatment, that must respect the procedures developed in accordance with the HACCP principles and comply with any requirements that the competent authority may impose in this regard when approving establishments or carrying out checks; criteria for raw cows milk. Food business operators manufacturing dairy products must initiate procedure to ensure that raw cows' milk used to prepare dairy products has a plate count at 30ºC of less than 300,000 per ml and processed cows' milk used to prepare dairy products has a plate count at 30ºC of less than 100,000 per ml. Sealing procedures for wrapping and packaging are defined by the regulation as well as what the label must show and what the identification mark should indicate. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 58

66 Regulation (EC) No 854/2004 The third Regulation included in the Hygiene Package is Regulation EC 854/2004 laying down specific rules for the organisation of official controls on products of animal origin intended for human consumption. First of all, the Regulation requires that the national competent authority carries out control on establishments for their approval; each Member State is required to maintain up-to-date lists on approved establishments (to which the competent authority attributes an approval number). The Regulation then specifies that controls are to be carried out by the national competent authority to verify food business operators' compliance with the prescribed requirements. Official controls include: audit on good hygiene practices and HACCP-based applications. More in depth, the audit should verify that food business operators apply practices such as: checks on food-chain information, the design and maintenance of premises and equipment, pre-operational, operational and post-operational hygiene, personal hygiene, training in hygiene and in work procedures, pest control, water quality, temperature control, controls on food entering and leaving the establishment and any accompanying documentation; audits on HACCP-based applications should verify that food business operators apply such procedures continuously and properly, and that those procedures guarantee that products of animal origin: comply with prescribed microbiological criteria, comply with Community legislation on residues, contaminants and prohibited substances, do not contain physical hazards; verification of compliance with rules concerning the application of identification marks. The Regulation requires to the competent authority, when carrying out auditing tasks to: assess the performance of staff and staff activities; verify records; take samples for laboratory analysis (if necessary); document the elements taken into account and the findings of the audit. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 59

67 Strictly concerning Raw Milk and Dairy Products, Annex IV of the Regulation defines which types of control should be carried out on: milk production holdings with particular reference to animals on milk production, with regard to the health status of the animals and the use of veterinary medicinal products, and the respect of hygiene requirements in these holdings; raw milk upon collection, to verify compliance with the standards applying to raw milk (see above, Regulation EC 853/2004). In case of not compliance and not correction of the situation, delivery of raw milk from the production holding is to be suspended or to be submitted to certain requirements Regulation EC 882/2004 Regulation EC 882/2004 regards official controls performed to ensure the verification of compliance with feed and food law, animal health and animal welfare rules Regulation (EC) 882/2004 supplements Community legislation on food hygiene with regard to official controls on foodstuffs and feeding stuffs. More in depth, it lays down general rules for the performance of official controls to verify compliance with rules related to: prevention, elimination or reduction to acceptable levels of risks too humans and animals; guarantee of fair practices in feed and food trade and protection of consumer interests. Member States are to ensure regular official controls on a risk basis and with appropriate frequency, without prior warning (apart from certain cases), and at any stages of production, processing and distribution of feed or food and of animals and animal products. In this sense, Member States are to designate a competent authority to carry out those official controls. Competent authorities must present certain characteristics and carry out certain tasks ensuring impartiality, quality and consistency of official controls. Their work should be internally and externally audited. Some of their tasks might be delegated to other control bodies under certain conditions. Staff performing official controls must be properly trained. In particular the training should cover: different control techniques, such as auditing, sampling and inspection; control procedures; feed and food law; the different stages of production, processing and distribution, and the possible risks for human health, and where appropriate for the health of animals and plants and for the environment; assessment of non-compliance with feed and food law; hazards in animal, feed and food production; the evaluation of the application of HACCP procedures;; management systems such as quality assurance programmes that feed and food businesses operate and their assessment; official certification systems; contingency arrangements for emergencies; legal proceedings and implications of official controls; examination of written, documentary material and other records, including those related to proficiency testing, accreditation and risk assessment, which may be relevant to the assessment of compliance with feed or food law; Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 60

68 any other area, including animal health and animal welfare, necessary to ensure that official controls are carried out in accordance with the Regulation. The competent authority should work in a transparent manner providing the public with access to information with the respect of professional secrecy on certain matters. It should also: put in place documented procedures for its staff to carry out official controls; put in place verification procedures of its official controls; provide reports on its official controls. Member States are to establish the legislation necessary to ensure that competent authorities are able to carry out their tasks. The control activities performed could be monitoring, surveillance, verification, audit, inspection, sampling and analysis. In particular, sampling and analysis should comply with EU regulation or other relevant international rules and be carried out in official laboratory previously designated by the competent authority and compliant with EU standards (EN ISO/IEC 17025, EN 45002, EN 45003). Method of analysis should respect a set of criteria fixed in annex III of the Regulation (accuracy; applicability-matrix and concentration range; limit of detection; limit of determination; precision; repeatability; reproducibility; recovery; selectivity; sensitivity; linearity; measurement uncertainty; other criteria that may be selected as required) and in accordance with international Protocols. When feed or food is found to pose a serious risk to humans or animals either directly or through the environment, Member States should implement operational contingency plans previously drawn up and specifying: the administrative authorities to be engaged; their powers and responsibilities; channels and procedures for sharing information between the relevant parties. The Regulation sets obligations for official controls on feed and food from third countries. In case those feed and food coming from third countries do not comply with feed or food law, the competent authority is to place them under official detention and take a number of measures (destruction, special treatment to bring the feed or food into line with the requirements of Community law or to process it in any other suitable manner for purposes other than animal or human consumption, re-dispatched outside the Community, and other measures). The Regulations also looks at the Community reference laboratories for food and feed established under community law (the one for milk and milk products is located in France). Their role is: to provide national reference laboratories with details of analytical methods and coordinate their application; to coordinate practical arrangements needed to apply new analytical methods and to inform national reference laboratories; to train staff from national reference laboratories as well as experts from developing countries. Member States are required to designate national reference laboratories (one or more for each Community reference laboratory). In case official controls on feed and food are to be acted in more than one Member State, their competent authorities must provide administrative assistance to each other and their communication should be facilitated by liaison bodies designated by Member States. The Regulation requires that each Member State prepares a single integrated multi-annual national control plan, with general information on the structure and organisation of the systems of feed and food control, and of Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 61

69 animal health and animal welfare control. More in depth, the control plan should indicate the following: strategic objectives and its subsequent prioritisation of controls and allocation of resources; risk categorisation of the activities; designation of competent authorities, their tasks and their resources; general organisation and management of official controls; systems applied to different sectors and coordination between the different services of competent authorities responsible for official controls in these sectors; delegation of tasks to control bodies (where appropriate); method to ensure compliance with a competent authority requirements; training of staff performing official controls; documented procedures for carrying official controls and their verification; organisation and operation of contingency plans for animal or food-borne disease emergencies, feed and food contamination incidents and other human health risks; organisation of cooperation and mutual assistance. The European Commission carries out general and specific audits in Member States through its experts, in cooperation with Member States' competent authorities, and on a regular basis. The Commission carries out audits also in third countries. The Regulation indicates the actions that the competent authority may take in case it finds a situation of non-compliance. It also requires Member States to lay down rules for imposing sanctions in case of infringement of feed and food law and other Community provisions relating to the protection of animal health and welfare. 7.2 ANALYSIS OF THE COMPLIANCE BETWEEN EU AND NATIONAL REGULATIONS The EU sets a number of requirements that milk and dairy products must be compliant with in order to be deemed safe for human consumption and therefore be placed on the market. A comparative analysis between the EU regulation and the national one is presented in the following sections with specific reference to the rules concerning: responsibility of food business operators and implementation of HACCP-based procedures; registration of food production and processing activities; health and temperature requirements for raw milk; hygiene requirements for milk production holdings and staff; criteria for raw milk; temperature and heat treatment requirements for dairy products; wrapping, packaging and labelling and Identification Marking of dairy products; official controls Responsibility of Food Business Operators and Implementation of HACCPbased Procedures According to EU law, food business operators are primarily responsible for food safety and for ensuring food safety throughout the food chain, starting with primary production. It is Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 62

70 also the case for Montenegrin law: the Law on Food Safety prescribes that food or feed business operators are responsible for safety of food or feed at all stages of production and circulation. EU Law requires food business operators the implementation of procedures based on HACCP principles: identifying any hazards that must be prevented, eliminated or reduced to acceptable levels; identifying the critical control points at the step or steps at which control is essential to prevent or eliminate a hazard or to reduce it to acceptable levels; establishing critical limits at critical control points which separate acceptability from unacceptability for the prevention, elimination or reduction of identified hazards; establishing and implementing effective monitoring procedures at critical control points; establishing corrective actions when monitoring indicates that a critical control point is not under control; establishing procedures, which shall be carried out regularly, to verify that the previous measures are working effectively; establishing documents and records commensurate with the nature and size of the food business to demonstrate the effective application of the measures. Montenegrin Food Safety Law and the Rule Book on hygiene requirements for food of animal or plant origin ask for the execution of the same principles. It must be noticed that the Food Safety Law also calls for further regulation to be issued in order to detail rules for the establishment, maintenance and implementation of HACCP-based procedures Registration Food Production or Processing Industries According to EU law, food of animal origin and therefore milk and dairy products can be placed on the market, only if they have been prepared and handled exclusively in establishments approved and registered by the national competent authority. In Montenegro, the Food Safety Law provides for the production and circulation of food or feed only in facilities registered to the register of approved facilities. The Law specifies that, in the case of facilities producing and circulating milk and dairy products, the register should be kept by the authority responsible for veterinary matters. The National Strategy for EU Integration (NIP) lists among the short term priorities of Montenegro in the field of food safety the development of a register of the farms Health and Temperature Requirements for Raw Milk EU law requires that raw milk comes from animals in good health, not showing symptoms of any diseases communicable to humans through milk, not presenting any udder wound that might affect the milk and to which no unauthorised substances or products have been administered and that have not undergone illegal treatment. In this view, the Food Safety Law of Montenegro prescribes that food is to be deemed unsafe if it derives from diseased animals, while the Veterinary Law lists some special preventive measures that should be carried out against zoonoses and among them the enforcement of veterinary checks and controls of animals. For a product of animal origin to be traded, it also requires the issuance of a certificate or attestation of the product showing that the place of origin was checked and no transmissible diseases were detected. EU law requires that immediately after milking, milk is cooled to no more than 8 C in the case of daily collection, or not more than 6 C if collection is not daily. The cold chain must be Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 63

71 maintained during transport and at the arrival to the establishment of destination its temperature must not be more than 10 C. Montenegrin law does not give specific indications on those aspects Hygiene Requirements for Milk Production Holdings and Staff EU law requires proper and hygienic premises and equipment. So does Montenegro s Rule Book on hygiene requirements for food of animal or plant origin setting high and detailed hygiene requirements for premises and equipment for food of animal origin production and handling. EU law prescribes that staff performing milking and/or handling raw milk use suitable clothing and maintain a high degree of personal cleanliness. Montenegro s Rule Book on hygiene requirements for food of animal or plant origin fixes detailed hygiene rules for staff working in establishments for production and trade of food of animal origins and also milk and dairy products Criteria for Raw Milk EU law fixes criteria for raw milk from cows and namely related to plate count at 30 C per ml and somatic cell count per ml, as well as for raw milk from other species related to plate count at 30 C per ml. It also prohibits that raw milk presenting antibiotic residues exceeding the allowed levels. Concerning criteria for raw milk (plate count at 30 C per ml and somatic cell count per ml) Montenegrin law does not give any indication on the subject, while regarding residues, on the basis of its veterinary law, two Rule Books were approved: the Rule Book on Monitoring of Residues in Animals, Food of Animal Origin and Animal Feed; the Rule Book on Maximum Permitted Concentration of Residues of Pharmacologically Active Substances from Veterinary Medicines in the Food of Animal Origin. Furthermore EU law requires that food business operators manufacturing dairy products initiate procedure to ensure that: raw cows' milk used to prepare dairy products has a plate count at 30ºC of less than per ml; processed cows' milk used to prepare dairy products has a plate count at 30ºC of less than per ml. Montenegrin law does not give any indication on those aspects Temperature and Heat Treatment Requirements for Dairy Products EU law provides for milk to be quickly cooled to not more than 6 C and kept at that temperature until processed upon acceptance at a processing establishment (temperature could be higher if processing begins immediately after milking, or within 4 hours of acceptance at the processing establishment). Montenegrin law does not provide specific indication on those aspects. EU law prescribes that heat treatment respects the procedures developed in accordance with the HACCP principles and comply with any requirements that the competent authority may impose in this regard when approving establishments or carrying out checks. Montenegrin law does not give specific indication on that Wrapping, Packaging, Labelling and Identification Marking of Dairy Products Concerning dairy products, EU law requires that consumer packages are sealed immediately after filling in the establishment where the last heat treatment of liquid dairy products takes place, by means of sealing devices that prevent contamination. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 64

72 Montenegrin law provides general indications in the Food Safety Law and in the Rule Book on hygiene requirements for food of animal or plant origin. Moreover, the NIP lists the issuance by the Ministry of Health of a Regulation on the Requirements for Packaging Products, Materials and Objects that are in Contact with Food among the mid-term priorities of Montenegro in the field of food safety. EU Law requires that in case of raw milk intended for direct human consumption, the label must indicate "raw milk", while in case of products made with raw milk, the manufacturing process for which does not include any heat treatment or any physical or chemical treatment, the words "made with raw milk". Montenegrin law provides general indication on labelling in its food safety law; the NPI lists as a mid-term priority the issuance of a Regulation on the More Detailed Requirements for Declarations, Labelling, Presentation and Advertising by the Ministry of Health. According to EU law, the identification mark may include a reference to where on the wrapping or packaging the approval number of the establishment is indicated, while in the case of the reusable bottles, the identification mark may indicate only the initials of the consigning country and the approval number of the establishment Official Controls EU law requires that EU Member States national competent authorities verify food business operators' compliance with prescribed requirements on hygiene and food safety. Such controls should include audit on good hygiene practices and on HACCP-based applications and verification of compliance with rules concerning the use of identification marks. The competent authority should carry out those controls by assessing the performance of staff and staff activities, verifying records, taking samples for laboratory analysis, and documenting the elements taken into account and the findings of the audit. Strictly concerning raw milk and dairy products, the health status of the animals from which the milk comes, the use of veterinary medicinal products as well as the respect of the hygiene requirements in the milk production holdings should be checked. Moreover, controls should look at the requirements prescribed by relevant EU regulations: temperature, criteria for raw milk, heat treatment, wrapping and packaging, labelling, identification marking (Regulation (EC) 853/2004). In this view, the Food Safety Law of Montenegro prescribes that veterinary inspectors conduct supervision of safety of food of animal origin and foresees a certain number of aspects that should be checked and among them good hygiene practices and HACCP-based procedures. It also sets rules for taking food and feed samples, for authorised laboratories and for reference laboratories. The Veterinary Law goes in the same direction, defining the authority of veterinary inspectors. 7.3 ROLE OF MILK PROCESSING FACTORIES CONCERNING FOOD SAFETY The factories processing milk are the strongest force behind a sector quality and safety improvement. Their need to be reliable toward a distribution system called to guarantee customers about food safety becomes a stimulus to demand continuous improvement of raw material. Milk factories are due to analyze their milk both incoming and outgoing. Selection of farmers on the basis of their capability to guarantee constantly safe milk, their contribution to farmer technical upgrading and incentives to quality are creating the condition to extend HACCP measures from distribution to production. The process in ongoing though not yet ready for certification. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 65

73 Quality concepts about hygienic measures to prevent contamination are effectively promoted by dairy factories in the process to adopt HACCP certification. Nationally, two dairy factories are said HACCP certified and one (Ami Prom) is in the process to obtain it. The extension of the quality system in enforced through a strengthening of relation with suppliers by mean of regular payments, supply of animals and animal feed. Milk prices are also differentiated by quality on the base of number of cells and protein and fat content. One NGO (Monte Organica) is supported by national budget to supplies technical assistance for organic certification. The National accreditation body is working to be internationally recognized and to accredit first public laboratories and then private certification. No foreign certification body is officially registered in Montenegro and at the moment certificates are neither nationally nor internationally accredited. No farmers producing cheese have adopted HACCP. Only two farmers are reported to have organic certification though not accredited (data from Monte Organica). Attainment of quality standards is strictly connected to the possibility for the sector to grow by size of farmers and their professional level. These two aspects are certainly related to the possibility for the farmers to access credit and information and know-how effectively 7.4 FINAL REMARKS Fragmentation of production and economic problems faced by the sector have certainly delayed attainment of relevant EU standards. Food safety measures, health risk prevention, animal living standards, hygienic conditions in processing areas are in most of the cases still far from being achieved when and if tackled. The government is putting all its efforts in creating and developing a legal and operation framework whose main players in this effort are: the national accreditation body; national laboratory system; certification bodies; industries; farmers. The public quality control and prevention system laboratories appear well equipped as a result of international donations and national efforts. Control analyses are carried out both on imported food and national production. In 2008, around 50 samples of cheese produced nationally by small processor were found positive to microbiological tests (mainly E.coli). Private dairies are regularly and voluntarily checking the quality of their milk both at arrival and at departure by mean of contract with the national laboratories system. Environmental monitoring programme report a generally clean environment in all rural areas. Legislation on animal manure management at farm level is not developed. Evidences about milk quality confirm a steady situation with microbiological quality remaining unchanged in the last 5 years. Unfortunately data about somatic cell and bacteria count, confirm that still most of the milk is produced by stressed animal leaving in unfit environment. Accreditation of national accreditation bodies and a significant investment to support quality and quality certification is needed. The Law on Food Safety and the Veterinary Law have provided Montenegro with the basis to develop secondary legislation to comply with EU law in the dairy sector. Some of the steps to be further taken for compliance are represented by: the full implementation of the Food Safety Law and of the Veterinary Law; Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 66

74 the full implementation of the secondary law and the Rule Books (e.g. the Rule Book on hygiene requirements for food of animal or plant origin) adopted on the basis of the Food Safety Law and of the Veterinary Law; the setting up by the veterinary authority of Montenegro of a complete and up-to-date register of establishments of food production or treatment; the adoption of further regulation to detail the application of HACCP principles; the adoption of secondary legislation in order to enforce EU standards for raw milk and dairy products concerning temperature requirements and criteria for raw milk; the implementation of proper wrapping and packaging, application of labels, and marks application to enhance consumers information and protection; the warrantee of traceability of food products and also of the animal from which food origins. Concerning the performance of official controls in order to verify the respect of the Food Safety Law, the Veterinary Law and other related Montenegrin regulations in line with EU law, the following actions should be taken: official controls should be carried out with appropriate frequency and, concerning the dairy sector, with particular focus on the health of the animal from which the milk comes, the hygiene conditions of the milk production holdings, the application of HACCP-based procedures, the respect of temperature requirements, and the observance of the criteria for raw milk; staff performing official controls should be properly trained with training covering the topics specified in Regulation EC 882/2004 (see previous paragraph); documented procedures for staff carrying out official controls should be put in place (e.g. manual for the control of the application of HACCP procedures); sampling and analysis should comply with EU regulation (Regulation EC 854/2004 and Regulation EC 882/2004) or other relevant international rules and be carried out in official laboratory; official laboratories should respect relevant standards, i.e. EN ISO/IEC 17025, EN 45002, EN and be properly equipped and its staff appropriately trained; methods of analysis should respect criteria fixed by Regulation EC 882/2004 in its annex III and by international Protocols. The analysis shows that Montenegro has set up some regulations whose implementation will ensure conformity with EU law. Montenegro will need to put in place detailed regulation based on the existing primary law to ensure the respect of specific standards related to milk and dairy products and provide for effective controls on their safety and suitability for human consumption. This will require training of necessary staff. In this respect, some of the project donors executed in the last years or to be executed will contribute to take those steps. The project Food Safety System Development IPA 2008 financed by the European Commission and started in May 2010 will in fact contribute to support the food safety services and in particular: harmonize the national legislation with the EU standards in the field of food safety; enable capacity building of institutions in charge of food safety control; enable capacity building of laboratories as regards food safety analyses; build the administrative capacity of the National Council for Food Safety Assessment; Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 67

75 improve the exchange of information on food safety issues among competent institutions. These objectives will allow Montenegrin dairy sector to get closer to EU standards by working on the legislative issue on one hand and on the enhancement of official controls on the other. The project Identification and Registration (I&R) Phase II, IPA 2007, financed by the European Commission and implemented by ADT Projekt/GFA Consulting Group. It started in August 2009 and it will end in February The project aims to establish an integrated animal identification and registration system (I&R) and veterinary surveillance network (Veterinary Information System) as well as to create a computerised register of sheep and goat holdings in line with EU standards. The expected result of the project is to link and set up a single veterinary system, which will make possible monitoring and having an insight into the health status of every tagged animal, monitoring of infectious animal diseases, monitoring in the field of veterinary public health, veterinary control and supervision. As a consequence, also the controls on animals from which milk and dairy products come will be enhanced with greater guarantee of those products safety. In May 2009 the project Assistance to Farmers in Mountain Areas of Kosovo and Montenegro, financed by Luxembourg and implemented by FAO came to an end. Started in 2006, the main objective of the project was to increase income in livestock holdings. In this view, it provided technical support to farmers through numerous activities; among them there was the provision of winter trainings to enhance farmers education. Some of particular relevance for the dairy sector was: Milk and Milk Hygiene, Animal Health, and Nutrition of Domestic Animals, held in Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 68

76 8 PAST TRENDS AND FUTURE DEVELOPMENT IN TERMS OF INVESTMENTS Table 3.5 shows that on a sample of 1,622 animals the average lactation is reported to be 5,407 kg with meaningful differences among territories. Specialization of farmers in Niksic is facilitated by the presence of two milk factories, at least one animal feed producers and convenient infrastructures (roads). This demonstrates that results in line with EU productivity are possible where productive factors are combined limited and irregular cash flow generation; lack of data about costs, revenue and accountability in general; generally low return of their investment; medium to long term repayment time of their investments, while the investors actions are normally characterized by: regular and stable cash flow generation; higher level of accountability and control; medium to high return on the investment; short to medium term repayment time. Despite of these clear differences, Montenegro financing market has tools for industries but lacks ad-hoc financing mechanism for farmers. In the dairy sector four main categories of financing solution are available: governmental subsidies (agro-budget) specifically meant for farming activities; micro-finance, often used by farmers in case of liquidity shortage; Small Medium Enterprises (SMEs) development, which does not support directly the farms but can be used by dairy factories; bank financing which is normally utilized by medium size companies only. Despite of the demand of milk and dairy products, which exceeds the national offer, farmers are chronically affected by scarce liquidity because payments are delayed and credit is granted with serious limitations and high interest rates. Therefore, being short term-financing extremely difficult to be achieved and expensive, investments are often postponed. The agro-budget is the main source of finance, though most of the time, contribution is granted only in front of evidences that the investment has been completed and paid. This mechanism safeguard against irregularities but cannot be considered an incentive to investment as it is granted only to farmers which have already secured sufficient financial resources. In addition subsidies are not coupled to bank financing and as such their impact is limited. Accordingly, a few actions should be encouraged to solve related problems: short term liquidity: introduction of discounted invoice system especially were large distribution chains are involved and can guarantee cash flow generation; access to credit: introduction of mutual guarantee scheme both for farmers and SMEs coupled with a higher integration public- private funds. Tools being studied like credit insurance and mutually guarantee funds might results extremely beneficial especially if their implementation will start in the near future. Simple measures like short term financing based on invoices discounting or other systems taken by similar situation in Italy should be studied and agreed upon between financial operators. Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 69

77 Suitable financial mechanism to support and the strengthen the agricultural sector and, more specifically, the dairy supply chain are presented in Appendix A; in the following section an overview of the past trends and the potential future developments of the investment in the sector is presented and analyzed. 8.1 INVESTMENTS AT FARM LEVEL To assess the need for investment in the dairy sector at primary production level two are the steps to undertake: 1) foresee sector evolution in terms of farms size and animal number 2) to assess the present level of investment and possible evolution Statistic are not available about kind and size of investments occurred. Once more the main source of data is the group of farms assisted by the LSS. On a sample of around 3,500 farms the number of farms with 6 or more animals has grown in all its categories with medium-size farms (over 15 animals) registering the highest growth rate (600% over a period of 9 years). Microfarms, less than 5 animals are decreasing in number at an average rate of around 3% per year if the entire period in concerned but at a much faster pace if the last two or three years are taken into consideration. It should be noted that the higher is the number of animals the higher is the growth rate measured. In fact, if farm with 6 animals have grown only 12% in number, farms with between 10 to 15 animals have grow 168% while herds with more than 15 animals have grown 6 times. This trend corresponds to the principle that bigger herds can invest more and grow more. Trends recorded with this herd will be used to simulate sector development in the future as detailed in Section Present Population and Farms Structure Attention should be paid about basic data to use and assumption to apply to develop the models to foresee sector development in Montenegro. Within the scope of the present work (to assess investment need) the main data taken into consideration are: number of cows and heifers monitored by the veterinary service in the year 2008 (71,717) as the biggest and most updated inventory on productive animals; average size of farms at national level is 4.2 animal/farm (LSS statistics); Number of farms in the country (71,717/4,2 = 17,160) at the end of 2009 (data about 2009 was not available at the time simulation is carried out) composition of sample followed by LSS in terms of animal number (13,403 in 2009) and percentage of farms per each size (see Table 8.1); evolution in farms size in the last two, three and nine years. It is assumed that the group of farmers followed by the LSS and their evolution represent a meaningful sample, LSS sample is the only complete set of data for which a dynamic evolution is available, in addition the Veterinary Service supply annual data about visited animals. Table 8.1 allows estimating, at national level: N. of farms which have invested in recent years, N. of farms which gave up production N. of farm that will invest and give up in the medium term (5 years). Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 70

78 Table 8.1: Change of the Farm Size in the Period Variation N. of heads (cow) no. % no. % no. % no. % no. % no. % no. % no. % no. % No % 2009/2001 Up to 5 3, , , , , , , , , , , , , to > With 6 and more Farms in total 3, , , , , , , , , Heads in total Avg. heads per farm 11,665 13,031 13,281 13,845 14,113 14,016 14,125 13,846 13,403 1, Ministry of Agriculture, Forestry and Water Management of Montenegro Pag. 71