CHALLENGES FACED BY THE AGRO-FOOD SECTOR IN THE REPUBLIC OF MACEDONIA REGARDING ITS INTEGRATION IN THE EU MARKETS. Dragi Dimitrievski *, Ana Kotevska

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1 CHALLENGES FACED BY THE AGRO-FOOD SECTOR IN THE REPUBLIC OF MACEDONIA REGARDING ITS INTEGRATION IN THE EU MARKETS Dragi Dimitrievski *, Ana Kotevska 1 Introduction The Republic of Macedonia is situated in the southern part of the Balkan Peninsula. It has a total surface of 25,713 км² and a total population of about 2.04 million. The Republic of Macedonia declared its independence from the former SFRY on 8 th September It is a parliamentary democratic country, with established institutions of legislative (parliament), executive (government) and judicial authority (judicial system) and with a division of the authority between them. Head of the state there is the president who is elected every 5 years. This paper presents the conditions of the agricultural sector in the period However, other development aspects in the period from 1991 until today are also addressed. The paper is mostly focused on the surrounding in which the farm production takes place, the trade of agricultural and food products, and the agricultural policy and its approximation towards the common agricultural policy (CAP) of the EU, all in the light of the acquired candidate status and the expected start of negotiations for full EU membership. The constraints met during the preparation of this paper arise firstly from the lack of relevant data, both in size and in quality (a statistical system that is still not harmonized with EUROSTAT), as well as an incompletely established informative system within the frameworks of the Ministry of Agriculture, Forestry and Water Economy (MAFWE), especially in the agricultural policy analysis section and the policy measures sistematization. In order to overcome these constraints, several sources were used for the needs of this paper, such as reports, publications and unpublished data from the State Statistical Office, studies and other references stated in the bibliography at the end of this paper. 2 The situation in the agricultural sector and rural areas 2.1 The macroeconomic environment The Republic of Macedonia is a small Western Balkan country which is still considered as a country in transition. The Gross Domestic Product (GDP) is about 4 billion US$ or 2 thousand US$ per capita, taken as an average in the period from 2000 until The intention of the Macedonian economy is integrate into the international market. In view of that, the Republic of Macedonia was officially accepted as a member of the World Trade Organization (WTO) in April In addition, the country has signed a number of free trade agreements with different countries from the region as a step towards strengthening the regional integration and cooperation. In 2001 the Republic of Macedonia signed a Stabilization and Association Agreement with the EU, which provided an opportunity for more intensive access to the EU market. Finally, in December 2005, Macedonia became a candidate country for EU membership. There were radical political changes which took place on the territory of former Yugoslavia that affected the economy of the Republic of Macedonia in the last 20 years. Additionally, the Macedonian economy suffered from the UN sanctions to Serbia, and from the Greek * Faculty of Agriculture and Food Skopje, Department for Economics and Organization in Agriculture. Blv. Aleksandar Makedonski bb. Skopje, Republic of Macedonia. ddragi@zf.ukim.edu.mk

2 economic embargo, related to the bilateral name problem. In this period ( ), the GDP fell by more than 30%. In 1994, the government embarked a program for stabilization and structural adjustment, with assistance from the IMF and the World Bank. The privatization process and the banking system reform were a valuable step in creating a freemarket economy. In 2001 there was a conflict, which additionally influenced the economy that had a rapid economic growth decrease (table 1). The Political dialog and the Ohrid agreement set up political issues and there was an economic growth which started in 2003 and continued in 2006 (3%). However, the high rate of unemployment (36%) influenced a more progressive development. The inflation rate declined, and in 2006 it reached the value of 2.2%. 2.2 Agricultural situation There are heterogeneous natural conditions and land structure in the Republic of Macedonia. It is situated between and northern geographic latitude and eastern geographic longitude of and As to these geographic parameters, the Republic of Macedonia is situated in the southern part of the moderate zone and is bordered by the subtropical zone where almost all the crops can be successfully produced according to their requirements. The Republic of Macedonia is mainly under the influence of 3 (three) climate types: continental, mountain and the Mediterranean climate. The climate indicators, especially the drought, the early autumn and late spring ice, are also limitation factors in regards to the intensiveness and the range of crops. Out of the total area of the Republic of Macedonia, the agricultural area takes up km 2 or 47.64%. Out of the total agricultural area, 35.84% are arable area (tab. 2). There have been great changes, mostly decreasing, of the arable area in the last then years in the Republic of Macedonia. Thus, the size of arable land in the period decreased from nearly 500 thousand ha, to 439 thousand ha in 2006 (tab. 2), while the meadows and pastures have increased from 692 up to 747 thousand ha. Nearly half of the arable land is under cereal crops, where wheat is the dominant crop with nearly 108 thousand ha. Vine-growing is present on about 25 thousand ha, orchards on about 15 thousand ha, vegetable production of 50 thousand ha and tobacco on about 24 thousand ha. The agriculture has been very significant for the national economy of the Republic of Macedonia. Besides the many policies and economic problems, that were previously stated, this sector has indicated an important flexibility, and for this period it has contributed significantly to the social and economic stability. The agriculture has a share of about 12% in the GDP, two thirds of which are covered by crop production and the remainder by livestock production. The total share of the agri-food sector, coupled with the food industry, accounts for approximately 16% of the GDP. The share of the labour force in agriculture, in relation to the total labour force is noteworthy, representing about 20%. This significant share of the labour force in agriculture indicates the agricultural character of the Republic of Macedonia. It should be noted that in many rural areas there is a hidden labour force, such as the agricultural overpopulation, which largely worsens the situation in the sector. On the other side, in some rural areas there is a lack of labour force, especially qualified one, while a large part of the agricultural areas and the other production resources and potentials remain unused i.e. abandoned. The closing down of many industrial facilities contributed to the high number of labour force in agriculture since a large part of the workers returned to agriculture in order for them to provide for existence.

3 Major sectors - trends of principal crop and livestock products Crop production The crop production is represented by the four principal groups: cereals, industrial (including fodder) crops, fruit (including grapes) and vegetables (including potatoes). After the independence of the Republic of Macedonia, the planted areas were decreased for all crops. In 2000 the declining trend stopped, and in the period of there were not any large deviations in the share of planted areas per crop groups. (table 3). The general production trends in this sub-sector are positive, but at the largest part of the crops, the yields are low and lower than the EU average, especially with regards to the cereals and industrial crops. The cereal crops do not satisfy the domestic demands, even though they have strategic significance and are the most present crops. Wheat is the dominant cereal that takes up more than half of the total planted area with cereal crops; it is followed by barley with approximately 24% and maize by around 17% of the total arable land. Barley and maize are mostly used as feed, but also a large part of wheat is used as feed, especially in the family farms. There is an average annual production of cereal crops of about 564 thousand tons with an average yield of all cereal crops of about 2.8 tons/ha, which is significantly lower in comparison to the yields in EU (5 tons/ha). This is due to several reasons, among which are the following: usage of uncertified low-yielding seeding material, unsuitable application of agro-technical measures, climatic factors, especially lack of or inadequate usage of irrigation when droughts occur, outdated machinery, low usage of agro-chemical materials etc. There are slight differences among the achieved yields from farm enterprises and family farms. The industrial crops (including fodder crops) take up approximately 10% of the arable lands. As the most significant industrial crop, tobacco takes up 1/3 of these areas, and alfalfa, as the most present fodder crop, is present on approximately the same area. Tobacco has a long tradition and is a strategic product for Macedonia, mostly because of its social aspects (engages a significant labor force in the rural areas and in specific production regions). Also, tobacco is one of the main export products. There was an average tobacco production of about 23 thousand tons, for the period In the period , sunflower was grown on about 6 thousand ha, but it had a significant decrease in This crop had a significant decrease in the past, i.e. before the independence it was grown on about 30 thousand ha. There was a significant decrease of sugar beet whose trend is continuing as a result of the inadequate policy, the low prices and import of unrefined sugar, which can also be stated for sunflower. The vegetable production is located in the southern part of the country around the towns of Strumica, Gevgelija and Valandovo (where there are favorable natural conditions, mostly due to the Mediterranean climate influence), as well as in the surrounding of Kumanovo and Skopje (where there is moderate Mediterranean climate). This sub-sector is one of the most significant in the Macedonian agriculture. The production takes place in the open field; on 260 ha in heated glass-houses; and under plastic tunnels with or without heating. The vegetable production in glass houses is highly profitable because of its early harvest in January (one month before the neighboring countries) and because of its high prices until April/May. In the period , the planted area with vegetables accounted for about 50 thousand ha annually, and the production of vegetables of about 680,000 tons. The potato, on average, accounts for 13.5 thousand ha and it has an annual production of between 160 and 193 thousand tons. Significant share of the total area planted with vegetables falls to peppers and watermelons having a share of about 15%, beans with a share of 14%, tomatoes with a share of 13%, cabbage and onion with around 7% and garlic with 2%. In terms of the

4 quantities produced, watermelons take up 20%, tomatoes 18%, and peppers 17% of the total vegetables production. Fruit growing and vine growing are sub-sectors of significant potential, which is not sufficiently used. In the period , the orchards took up 15 thousand ha, while the vineyards took up 25 thousand ha. In this period, the average total production of fruit accounted for 125 thousand tons, out of which apples accounted for 60%, while the stone fruits (cherries, sour cherries, peaches, apricots and plums) accounted for 35%. The areas planted with orchards indicate a decreasing trend since the end of the 1980s (500 ha annually, on average) and aging of the plantations. The main reason is the lack of investments as a result of the transformation of the former state-owned sector (whose plantation accounted for about 50%) and the loss of the traditional Yugoslavian markets. Also, the domestic fruit processing industry is small and underdeveloped (with outdated technologies) and there are not any markets for its products. Vine-growing is a significant sub-sector for Macedonia, especially in combination with the wine production which has major export significance. Vine growing is probably the most important and most strategic industry in the field of plant production, since together with the wine production it contributes to about 17%-20% of the agricultural share in GDP. Wine takes lead in the export of beverages, and it is the second most significant product, after tobacco, in relation to the export value of the agricultural products. In the last 10 years, there has been a decreasing trend of the areas planted with grapes (from about 30 thousand ha before 1995, to 24.3 thousand in 2006). There was an annual average production of about 230 thousand tons (out of which, around 65 thousand tons or 28% belong to table grapes), in the period The average yields are about 9 tons/ha. Livestock production There has been a decreasing trend of livestock production in the last decade. The number of livestock has decreased, while the yields, although still comparatively low, are constantly increasing. The Republic of Macedonia greatly depends on the imported feed, maize, proteins and vegetable fats as well as complete fodder mixtures or additions (combination of proteins or proteins, minerals and vitamins). The livestock of the Republic of Macedonia includes around 260,000 head of cattle, 1.2 million of sheep, 150,000 goats, 65,000 horses and 160,000 pigs. There are more than 2.4 millions of poultry and about 70,000 beehives. They produce each year about 200 million litres of milk, 38,000 tons of meat, 2,500 tons of wool, some 340 million eggs and more than 950 tons of honey. In the last decade the cattle, sheep and poultry industries show a decline, while the pig industry has grown substantially. The largest decline has been in the sheep and poultry industries. About 90% of the capacities in of livestock belong to the private sector. The total number of cattle in the period is approximately 260,000. With regard to the breeds present at large dairy farms, Holstein Frisian is predominant, but in the smaller private farms the diversity of breeds is far greater, and besides the above mentioned Holstein Frisian, the indigenous breed of Busha can also be found. The total pig population slightly decreased from 204 thousands in 2000 to 155 thousands in In 2006, the total number of pigs was 167 thousand. The main reason for the decline of this sub-sector is the high feed costs caused by the high dependence on imported feed which has high tariff rates. The predominant pig breeds are the Landraces (Belgian, Danish, Swedish and German) as well as the large Yorkshire and Durok. The enterprise sector accounts for

5 approximately 39 % of the total pig population, while the private farmers account for 61% or having on average 4-5 fattening pigs and 1-3 sows for breeding. Sheep production in Macedonia has a long tradition and is supported by favorable natural condition (the flocks are raised in ecologically clean zones, and the pastures take up more than half of the total agricultural land). Sheep production, i.e., the export of lamb meat significantly contributes to the agricultural export. There are about 1.24 million sheep owned by some 20,000 farmers. Most lambs are born in February and are slaughtered early in April/May. After weaning, the sheep are milked for cheese production. Pramenka and Pramenka-crossbred sheep are the dominant breeds. There are more than 2.4 million poultry, most of which (2 million or 83%) are laying hens, producing some 355 million eggs. About 68% of total number of poultry is owned by individual agricultural holdings. Production of poultry meat is at an initial phase Agricultural prices The market prices for agricultural products are monitored through three types of surveys at the State Statistical Office, following an established methodology. The data are gathered on a daily basis, in particular on a so-called market day on selected marketplaces. In that way, the data from each marketplace are gathered 4-5 times per month, and after processing, they are presented on a monthly basis. In this paper, the average prices are calculated on an annual basis, indirectly as a quotient of the total value of the purchase in denars divided by the purchased quantities indicated in kilograms, and later the price is calculated in Euros, according to the average exchange rate of the Euro. The prices of livestock are provided for live weight. This calculation in certain years does not hold up for certain products, which is probably a result of mistakes of the quantities and the value of the purchase, so that in these cases there was a correction of the price based on monthly publications for the prices and the expert interpretation. The prices refer to the period , having in mind that the last published data are provided for For this period, it can be said that with the mild fluctuation, the prices maintain certain stability with exception to 2005 when the prices of all the products had a significant decrease, except for the sunflower, tobacco, pig meat and sheep meat. One of the reasons is the intensified liberalization of the market, as obliged by the WTO membership. There was a variation of the price of wheat ranging from 163 to 173 /t, in the period , while in 2005 it decreased to 142 /t. The price for maize in the Republic of Macedonia for the last period varied from 133 to 158 /t, with a significant decrease in 2005 to 117 /t. The sunflower indicated a trend of price increase from about 180 /t to 208 /t in 2004, while in 2002 it decreased to 162 /t. The sugar beet, in the initial years of the reference period, had a stabile price of about 38 /t, and increased significantly in 2004 (nearly 50 /t), and then decreased in 2005 to 41 /t. There was an increase of the price of potato form 166 /t in 2000 up to 222 /t in Again, there was a decrease of the price in 2005 to 175 /t. There were fluctuations of the price of grapes around the average of about 180 /t, with a decrease in 2005 to 155 /t. The average price of tobacco in the presented period indicates similar tendencies to the price of the sunflower, and it was maintained on a level between almost 1700 and 2300 /t, having a drastic decrease in 2003, when the price reached 1327 /t. Larger fluctuations of prices in the livestock sub-sector appear in relation to meat, whereas milk and eggs reveal a larger price stability (Table 5). The largest deviations in the calculations for the price estimates appear with the prices of beef and pork and these prices should be analysed with caution in separate years. However, according to the comparisons between several sources and the calculations made for this paper, one can safely state that the

6 price for beef during the period of analysis averaged at 1100 /t live weight (as was reached according to the calculations for the year 2004), whereas, the price of one ton of pork (live weight) was an average of The price of sheep meat reveals a larger stability and the calculations show the actual price, which, in the period , shows an uptrend from 1819 /t in 2000 to 2295 /t in The price of eggs for the period of analysis varies between 57 and 63 per 1000 eggs, with a larger deviation in the year 2002, when the price almost reached 77. The price of milk during this period amounted to an average of 280 /t, whereas in 2005 there was a significant reduction in the price, to 254 /t Main characteristics of the farm structure The farm structure in the Republic of Macedonia is represented by the agricultural companies (mostly originating from former state-owned holdings) and the family farms. The family farms own or lease around 80% of the arable land, whereas the remaining 20% are in the ownership of the state and have been leased by the agricultural companies. The pastures are mostly owned by the state and are run by a public enterprise. The privatization process did not include the state agricultural lands, which were managed by the public enterprises and agro-combines. The reason for this was that the agricultural land has been defined by law as goods of special interest, by which the state keeps the right to this asset. There has been a reduction in the effective utilization of the agricultural land in the Republic of Macedonia due to the problem of its parceling out and fragmentation, which arise from the previous constraints to the land ownership (land maximum), inheritance rules, as well as the long history of informal relations on the land market. Around farming households have been registered in the census of 1994; these cultivate approximately ha with an average size of the individual farms of 2.5 to 2.8 hectares, with parcels from ha and with a mixed production structure. The largest share belongs to holdings with size ranging from 1 to 3 ha (Table 6). Certain activities in the past (legal restrictions of the land market), have not contributed to the land consolidation. It is considered that the number of farming households has been growing continuously and has risen to around from the last census carried out, whereas the average size of the family farms has decreased to approximately ha. However, in spite of such small property and fragmentation, and according to certain researches, it appears that in the past the small family farms realized better production and larger profitability than expected, despite the negative institutional circumstances they were faced with during the transition period. Contrary to this, the large state-owned enterprises (privatized and non-privatized) were less productive and non-profitable despite the institutional privileges they were provided with. This was a result of the significantly high total costs per hectare, higher operational costs, maintenance, insurance and interest payment. The official statistical data on the production and yield per farm structure support these conclusions, provided that one takes into account the fact that almost 80% of the total agricultural production has been produced by the family farms. Nevertheless, recent years reveal that there has been a mild uptrend in the production index of the agricultural companies. This has been a result of the completion of the transformation process, i.e. the privatization and beginning of the market-oriented production strategies and organizational strengthening Main characteristics of rural areas There are no relevant data that are necessary for the complete socio-economic characterization of the rural areas in the Republic of Macedonia. No clear definition exists on the rural areas, nor on the classification based on population density, a procedure which is in

7 progress and is intensely being developed due to the needs of the IPARD plan and the use of the IPARD funds. In legal sense, three acts refer to the rural environment in general: the Law on territorial organization of local self-government of 2004, that defines the towns and villages; the Law on local self-government of 2002 that, despite all the rest, regulates: the competences of the municipalities for spatial planning, protection of nature and the environment, local economic development, running the local economic policy, participation in the establishment and development of the local network of institutions, municipal activities, culture preservation of the cultural heritage, sports and recreation, education, health and social protection. Furthermore, the Law on encouraging of the development of underdeveloped areas of 1994, is also relevant and is in relation to the guidance of the policies of the less-favoured areas (LFA), a law that has up to now provided the criteria to determine three types of specific regions and rural centers. According to the existing Decision for determination of the economically underdeveloped areas of 2006, 64% of the total number of villages in Macedonia are suitable for support within the above mentioned Law of The total number of rural centers is 113 (20 of which also hold the status of specific regions). The total number of villages having the specific regions status is 1,005. These are divided into mountain villages (51%), fully undeveloped villages (33%) and bordering villages (15%). In the framework of the relevant Decision, around 69% of the national territory and around 17% of the total population have been covered. However, the criteria for determining the economically underdeveloped areas are unreliable, since some of the Macedonian villages with a high rate of migration, insufficient public services and economic infrastructure have not gained the status of extremely undeveloped villages, and vice versa. 2.3 Agricultural trade During the period , the agricultural trade has been stable, with agricultural exports accounting for 15.4%-18.8% of the total exports, and agricultural imports accounting for 12.4%-14.9% of the total imports (Table 7). In relation to the overall trade, traditional markets in the Western Balkan s counties are much more important for the agricultural products, accounting for around 50% of the exports and around 30% of the imports. As a result of the Stabilization and Association Agreement and Macedonia becoming a candidate country for EU membership, the EU share in the agricultural trade notes an uptrend of both agricultural imports and exports. The further liberalizations and conclusion of a range of free trade agreements with different countries from the region, the membership in CEFTA, and so on, represent a step towards the strengthening of the regional integration and cooperation. The liberalization and integration of these markets will result in an increased competitiveness for Macedonian exports, and, at the same time, it will increase the competitiveness from the imports on the domestic market. Tobacco, beverages (wine, spirits and mineral water), meat (mostly lamb), and fruit and vegetables account for 70-80% of all agricultural exports. As global demand recovers, and trade liberalization and market integration proceed, the traditional markets for agricultural products will become increasingly competitive. Macedonian exporters will need to improve product quality and reliability if they are to retain and increase their market share. A negative trade balance, varying between 53 and 125 million and displaying an uptrend, has been realized in the trade exchange of agricultural food products during the entire period (Table 7).

8 2.4 Agricultural policies The Republic of Macedonia has begun building its own agrarian policy after it became an independent country. Previously, it was a part of the former agrarian policy of SFRY. A starting feature of the Macedonian agrarian policy is that it has inherited the principles and measures of the former policy. In general, it is based on the "market-price" activities, which, basically, treat market interventions through tariff protections and trade limitations and the subsidies for the prices of certain agricultural products. This type of approach, along with the low budget of MAFWE (around 1% of the budget of the Republic of Macedonia), is further increasing the problems of this sector; where discontent, especially on part of the producers, has been growing. The discontent is especially obvious with the family farms; these were placed in a subordinate position in relation to the large agricultural companies (agrocombinates, agricultural holdings and cooperatives) during the entire period. Certain starting steps in redefining these conditions have been taken by the preparing the strategy for the agricultural development in 1996, the year when the following goals of the agrarian development were set: Complete and enhanced utilization of the existing land and of the present and future irrigation systems; More even and thorough utilization of the production resources and of the workforce throughout the year; Production structured to meet the market demand; Achievement of the best possible turnover of funds engaged in the production process, and of the technological needs of specific crops (rotation of crops, agro-techniques etc.); A complete utilization of by-products in farming and livestock production; Keeping pace with development trends in the developed countries. The goals of the agrarian development set in this manner, do not reflect the actual needs of a longer period of time, due to the changes arising during the period of transformation of the property-legal relations (the privatization of the public sector), the beginning of the process of integration of the Republic of Macedonia towards WTO and EU. Thus, in 2001, a new strategy for the agricultural development until 2005 was prepared. This strategy defines the goals of the development, consistently with the goals of the National Strategy for Economic Development of the Republic of Macedonia. In this regard, the following goals for the agricultural development were set: Better use of the human and natural resources and their preserving (population density, agricultural lands, waters, etc.), of medium intensity and oriented towards a constant increase of the competitiveness of the agricultural production; A complete satisfaction of the domestic demand with a low price but quality food, and the export of fresh agricultural products and their processed and preserved products through the food industry; Providing a better and more stable economic and social status of the agricultural producers, a guaranteed parity income for the above-average producers and higher level of employment for the young population. The goals of the agricultural development set in this manner are approaching the market logic and preparation of the Macedonian agricultural producers towards gradual but complete market liberalization. The signing of the Association and Stabilization Agreement with the EU and the approaching of the Republic of Macedonia to full membership of WTO, are causing the increase of the competitiveness of the domestic market and the necessity to redefine the goals of the

9 agricultural policy. Thus, MAFWE defined the new goals for the agricultural development in 2002, which is confirmed by the latest strategy of the year 2007: Strengthening of the competitive ability of the Macedonian agriculture on the integrated regional markets of the European Union and South-East Europe by introducing measures for increasing the efficiency of the agricultural production, processing and marketing; Building appropriate, effective public and private institutions; Improving the agricultural income; Ensuring that the consumers have access to safe and healthy food; Optimum usage of the limited resources of land, forests and water in an ecologically sustainable manner; Building sustainable rural communities for rural development. MAFWE is responsible for: the formulation and implementation of agricultural policy and related strategies, the drafting of legislation, the planning and administration of governmentfunded programs and investments, including bilateral and international programs, and providing monitoring, inspection and regulatory services. Further responsibilities for food safety and water resource management are shared with other ministries, although the allocations of responsibility lack clarity and consistency. MAFWE is not directly responsible for agricultural extension, research or agricultural industry. In accordance with the Decision of the Government of the Republic of Macedonia of 2006, MAFWE has been appointed as a Regulatory Body for the rural development, eventhough, the partial programs for the development of the rural areas are carried out via the Ministry of Local Government, the Ministry of Transport and Communications, the Ministry of Environment and Spatial Planning and other state institutions. In accordance with the data from MAFWE of 2005, the total public costs of the agricultural sector amounted to 28.3 million for that year, i.e. 1,7% of the total government budget, which is rather low in comparison with the 12% income realized by agriculture in the national economy, and the number of people living in rural areas (around 40%). The total increase of budget costs of MAFWE amounted to 23.7 million in the year For the year 2007, MAFWE is planning an additional budget increase up to 34 million. In relation to the planning of future support funds for agriculture and rural development, the Government is projecting funds totaling 210 million euro for the period with the following dynamics: 40 million euro for the year 2008, 70 million euro for the year 2009 and 100 million euro for the year The increased subsidies and the implementation of the national measures for rural development and the co-financing of the IPARD measures, will be facing the gradual implementation of the principles and measures of the Common Agricultural Policy (CAP) of the EU and the harmonization of the Macedonian agricultural policy with EU s CAP. During the last period, the measures for the agricultural support were mainly from the marketprice policy group (Table 11): subsidies for the produced quantities of selected products (wheat, milk, lamb meat), establishing a guarantee price for more important products (wheat and tobacco), interventional buy-out on part of the Stock Reserves Bureau (wheat and tobacco), customs protection (estimated at 28% ad valorem equivalent in 2002). Certain shifts of the measures of the agricultural policy in the direction of the gradual acceptance of the measures of EU s CAP were performed in the year 2004 by the introduction of a support based on the payment per area sown and the number of cattle heads.

10 During the entire period, the measures of the group of general services were a part of the agricultural policy. Extension services are mainly provided by the National Extension Agency, which are publicly funded advisory services. It performs agriculture-related services, tailored to the needs of the family farms. Currently, the Agency funding is provided completely from the state budget without additional earned incomes, which is sufficient only to cover the salaries and basic operational costs. Professional services consist of measures for genetic improvement, breeding control, selection and seed production, services provided by different institutions. The agricultural research system consists of 5 research institutes, plus the Faculty of Agriculture and Food in Skopje and the Faculty of Biotechnology in Bitola. The research is funded via the Ministry of Science and Education with around 2.2 million. MAFWE has no formal responsibility for the agricultural research, although it is consulted on major issues and can fund specific research projects. More intensive structural and rural development measures were established in 2004 (farm investment support). In the MAFWE support programmes, investments support in vineyards and orchards were projected for approximately of 740 /ha. Rural development policy, as a second pillar of the agricultural policy within MAFWE, was established in 2006 with a total budget of 45 million denars (around 730,000 ). The measures were directed towards increasing the competitiveness (investments at the farm). 3 Main problems and key challenges of the agro-food sector concerning its adaptation to the European market conditions In June 2007, the Macedonian government accepted the National Agriculture and Rural Development Strategy (NARDS) for the period According to this Strategy, agriculture and rural development became the key pre-accession elements for the Republic of Macedonia s approach towards EU. The goal of the National Agriculture and Rural Development Strategy (NARDS) is to contribute to the reaching of the Strategic aim stated in the National Strategy for Economic Development , which states the following: increasing the international competitiveness of the country that is necessary for a sustainable economic growth and a higher level of employment In order to reach the above said strategic aim, the strategic policy should include five major issues in the period : Increase in the sector s competitiveness; Reaching quality and safety of food; Reaching a sustainable resources management; Improvement of the living conditions in the rural areas and Reforms of the regulatory and institutional framework. The measures for the direct payment shall represent the basic instrument of the national policy for the agricultural support. They shall consist of direct payments per hectare in the plant production and per head in the livestock sector.

11 The rural development policies shall be financed by national funds and by the EU (via IPARD), and shall follow the concept of the rural development of the EU. They shall have to contribute to the reaching of the following aims (according to the EU axis): АXIS 1 Improvement of the market efficiency and the implementation of the EU standards, with three groups of measures: - Farm investments for the restructure and superstructure according to EU standards; - Support for the formation of producer groups; - Investments in the processing and marketing of agricultural products for the restructure and superstructure according to EU standards. АXIS 2 Preparation activities for the implementation of the agro-ecology measures and strategies for the local rural development, with one group of measures: - Activities for the environment and villages improvement ; АXIS 3 Rural economy development (two groups of measures): - Development and diversification of the rural economic activities. - Improvement and development of the rural infrastructure; АXIS 4 Technical support, with two measures: - Technical support, informative campaigns and publicity. - Professional education and training. In relation to the legislative harmonization by the EU acquis, a National program for the adoption of the acquis has been accepted. A certain number of important parts of the primary legislation and sub-legal acts have already been coordinated to the EU and have been passed (the Law on Plant Protection, the Law on Seed and Planting Material, the Law on Wine etc). The Law on Agriculture is in a Parliament procedure for its adoption. The institutional reforms are directed towards the building of an institutional capacity (formation of new necessary institutions and reorganization of the existing ones) and towards the strengthening of the institutional human resources with a purpose of their training to conduct the policies and the new legislative coordinated to the EU. These shall be introduced and adopted in the following years. References DG Agri (2005): Country Report Macedonia. Study on the State of Agriculture in Five Applicant Countries. Džambazovski S. (2005): Poddrška na zemjodelstvoto vo Republika Makedonija i Evropska Unija. Ministerstvo za zemjodelstvo, šumarstvo i vodostopanstvo. Skopje. Ilik B., K. Dokuzovski, V. Vukovik, D. Dimitrievski. (2004): Country Statement Republic of Macedonia. Leipzig Agricultural Policy Forum 2004 on Implementation of Agricultural and Rural Development Policies in South Eastern European Stability Pact Countries. November 19 th -21 st Leipzig. MAFWE (1996): Strategy on Development of Agriculture, Forestry and Water Utilization in Macedonia. Ministry of Agriculture Forestry and Water Economy of the Republic of Macedonia. Skopje.

12 MAFWE (2004): Strategy for Approximation of the Macedonian Agro-Food Sector to the Common Agriculture policy (CAP) of the EU. Ministry of Agriculture Forestry and Water Economy of the Republic of Macedonia. Skopje. MAFWE (2005): Annual Agricultural Report Ministry of Agriculture Forestry and Water Economy of the Republic of Macedonia. Skopje. MAFWE (2007): National Strategy for Agriculture and Rural Development for the period Ministry of Agriculture Forestry and Water Economy of the Republic of Macedonia. Skopje. MANU, MZŠV (2001): Strategija za razvoj na zemjodelstvoto vo Republika Makedonija do 2005 godina. Makedonska akademija na naukite i umetnostite. Ministerstvo za zemjodelstvo, šumarstvo i vodostopanstvo. Skopje Melmed-Sanjak J., P. Bloch, R. Hanson (1998): Project for the Analysis of Land tenure and Agricultural Productivity in the Republic of Macedonia. Working Paper No. 19. Land Tenure Center. An Institute for Research and Education on Social Structure, Rural Institutions, Resource, and Development. University of Wisconsin, Madison. SSO (2004): Household Consumption, Statistical review: Income, Expenditures and Prices. State Statistical Office. Republic of Macedonia. Skopje. SSO (2005): Economic Accounts for Agriculture of the Republic of Macedonia, Statistical review: National Economy and Finances. State Statistical Office. Republic of Macedonia. Skopje. SSO (2006): Field Crops, Orchards and Vineyards, Statistical review: Agriculture. State Statistical Office. Republic of Macedonia. Skopje. SSO (2006): Household Consumption in the Republic of Macedonia, Statistical review: Income, Expenditures and Prices. State Statistical Office. Republic of Macedonia. Skopje. SSO (2006): Statistical Yearbook of the Republic of Macedonia State Statistical Office. Republic of Macedonia. Skopje. SSO (2007): Field Crops, Orchards and Vineyards, Statistical review: Agriculture. State Statistical Office. Republic of Macedonia. Skopje. SSO (2007): Gross Domestic Product, Statistical review: National Economy and Finances. State Statistical Office. Republic of Macedonia. Skopje. SSO (2007): Household Consumption in the Republic of Macedonia, Statistical review: Income, Expenditures and Prices. State Statistical Office. Republic of Macedonia. Skopje. SSO (2007): Labour Force Survey, Statistical review: Population and Social Statistics. State Statistical Office. Republic of Macedonia. Skopje. SSO (2007): Number of Livestock and Livestock production, Report Agriculture. State Statistical Office. Republic of Macedonia. Skopje.

13 Annex Table 1. Macroeconomic indicators Population ' Economic growth (change in GDP) % Unemployment rate % Inflation % Share of food. beverages and tobacco in total household's expenditures % Table 2. Agricultural output Share of agriculture: - in GDP % in employment % Change in volume of GAO - Total % Crops % Livestock % Share of crop and livestock output in total GAO - Crops % Livestock % Table 3. Crops: Area and production Area: Total agricultural area '000 ha of which: - Arable land '000 ha Permanent crops '000 ha Grassland '000 ha Utilised agricultural area: Total grain '000 ha of which: - Wheat '000 ha Corn/Maize '000 ha Oilseeds '000 ha Sugar beet '000 ha Potatoes '000 ha Table and Wine grapes '000 ha Fruit '000 ha Vegetables (total) '000 ha Tobacco '000 ha Production: Total grain '000 t of which: - Wheat '000 t Corn/Maize '000 t Oilseeds '000 t Sugar beet '000 t Potatoes '000 t Table and wine grapes '000 t Fruit '000 t Vegetables (total) '000 t Tobacco '000 t

14 Table 4. Livestock and livestock products: Herd size and production Herd size: Cattle ' of which: - Cows ' Pigs ' Sheep/Goats ' Production: Beef & Veal '000 t (cw) Pig meat '000 t (cw) Sheep meat '000 t (cw) Poultry meat '000 t Eggs Mill Milk Mill. L Table 5. Agricultural prices Wheat EUR/t 166,7 167,6 163,8 163,6 173,0 141,7 Corn/Maize EUR/t 133,9 155,6 137,4 158,8 135,5 117,1 Oilseeds EUR/t 182,0 198,0 162,2 181,9 208,3 200,1 Sugar beet EUR/t 37,9 37,8 37,7 37,5 49,7 40,8 Potatoes EUR/t 159,7 196,2 198,9 200,8 222,4 175,8 Wine grapes EUR/t 191,6 165,9 182,2 179,8 179,5 155,6 Other (specify): EUR/t Tobacco EUR/t 1688,0 1891,5 2020,1 1327,3 2016,7 2262,1 Beef EUR/t (lw) 714,1 694,1 536,4 887,3 1095,4 876,6 Pig meat EUR/t (lw) 811,2 1352,7 1465,0 1306,1 993,2 1375,4 Sheep meat EUR/t (lw) 1819,4 2060,5 2289,4 2101,6 2267,2 2295,3 Poultry meat EUR/t ,9-832,1 - Eggs EUR/000p 57,1 61,3 76,8 54,7 62,6 61,3 Milk EUR/t 280,7 284,4 288,5 265,9 283,3 254,6 Table 6. Farm structure Used Agricultural area Number of Agricultural Holdings 1-2 ha ha ha ha ha ha ha ha ha 342 Source: State Statistical Office: Census, 1994 Table 7. Agro-food trade Agro-food trade Agro-food exports Mill. EUR Agro-food imports Mill. EUR Agro-food trade balance Mill. EUR Share of agro-food trade in: - Total exports % Total imports %

15 Table 8. Agro-food exports by commodity group 01 Live animals mil. EUR Meat and edible meat offal mil. EUR Fish and crustaceans. molluscs and other aquatic invertebrates mil. EUR Dairy produce. eggs. natural honey mil. EUR Other products of animal origin mil. EUR Live plants and floricultural products mil. EUR Edible vegetables. plants. roots. Tubers mil. EUR Edible fruit and nuts. peel of citrus fruit or melons mil. EUR Coffee. tea. mate. Spices mil. EUR Cereals mil. EUR Products of the milling industry. malt. starches mil. EUR Oilseeds. oleaginous fruits mil. EUR Lac. gums. Resins. other vegetable saps and extracts mil. EUR Vegetable plaiting materials. other products of vegetable origin mil. EUR Animal or vegetable fats and oils mil. EUR Meat preparations mil. EUR Sugars and sugar confectionary mil. EUR Cocoa and cocoa preparations mil. EUR Preparations of cereals. flour or starch mil. EUR Preparations of vegetables. fruit or nuts mil. EUR Miscellaneous edible preparations mil. EUR Beverages. spirits and vinegar mil. EUR Residues and waste from the food industries mil. EUR Tobacco and manufactured tobacco substitutes mil. EUR Total agricultural products mil. EUR Table 9. Agro-food imports by commodity group 01 Live animals mil. EUR Meat and edible meat offal mil. EUR Fish and crustaceans. molluscs and other aquatic invertebrates mil. EUR Dairy produce. Eggs. natural honey mil. EUR Other products of animal origin mil. EUR Live plants and floricultural products mil. EUR Edible vegetables. Plants. roots. Tubers mil. EUR Edible fruit and nuts. peel of citrus fruit or melons mil. EUR Coffee. tea. mate. Spices mil. EUR Cereals mil. EUR Products of the milling industry. malt. starches mil. EUR Oilseeds. oleaginous fruits mil. EUR Lac. gums. resins. other vegetable saps and extracts mil. EUR Vegetable plaiting materials. other products of vegetable origin mil. EUR Animal or vegetable fats and oils mil. EUR Meat preparations mil. EUR Sugars and sugar confectionary mil. EUR Cocoa and cocoa preparations mil. EUR Preparations of cereals. flour or starch mil. EUR Preparations of vegetables. fruit or nuts mil. EUR Miscellaneous edible preparations mil. EUR Beverages. spirits and vinegar mil. EUR Residues and waste from the food industries mil. EUR Tobacco and manufactured tobacco substitutes mil. EUR Total agricultural products mil. EUR