Market Study for Soft fruits in the Western Balkan countries (Serbia, Bosnia and Herzegovina (BH), Kosovo and FYR Macedonia) Identification of potentials for soft fruits sector (raspberry, strawberry, blueberry) in Western Balkan countries 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 BiH Kosovo Serbia Poland Export price Price paid to producer
1. Intro This study was conducted upon a request of the Embassy of the Kingdom of the Netherlands in Serbia and Montenegro and financed by the Dutch Enterprise Agency RVO. Study was written by Serbian consultant Ms Ivana Dulic Markovic. The study shows the potential (strengths, weaknesses, opportunities and treats) of the region in the selected field. It intends to attract attention of the Dutch entrepreneurs to the prospects Western Balkans has to offer in the soft fruit sector. It gives a set of recommendations to generate new forms of cooperation between the Netherlands and the region of the Western Balkans. 2. Introduction The soft fruit market is growing market driven by the consumers demand. Several factors occurred parallelly and attracted consumers: 1) health trend and demand for natural products, organic products, superfoods (super fruits), 2) increased demand for convenience food and 3) versatility and availability during a very short summer season transferred to availability throughout the year. Soft fruit production and processing are versatile and diversified over time from fresh fruit but also frozen, extracts, juices, pulps, dried, beverages, oils and other highly specialized ingredients and/or products. The soft production, particularly raspberry production is one of the successful story of the Western Balkan. The success is based on entrepreneurship od small family farms in rural regions as well as on the successful companies marketing the frozen product primarily at EU market. Soft fruit marketing is divided to completely different markets named fresh and frozen in this report. In Western Balkan region, frozen raspberry is dominant export product to be processed and finalized by other food industries at export destinations. The Study in Western Balkan countries (Serbia, Bosnia and Herzegovina (BiH), Kosovo and FYR Macedonia) objective was to present the main soft fruit production, trade and price trends in the region, to identify the strengths, weaknesses as well as opportunities and treats and particular opportunities in order to attract the attention of Dutch investors on the opportunities in region. The analytical part of the study has presented also global trends to ensure understanding regional ones. The study is consisted of two integrated parts - one covering extensive analysis of production and trade issues for selected berry crops (raspberry, strawberry and blueberry) and second which is summarizing descriptive part. 2
3. Methodology Production Trade Prices Trends SWOT Identification of strengths, weaknesses, opportunities and treats of beery sector in region Identification of strategioptions based on SWOT TOWS Opportunities Identification of opportunities for the Dutch companies Data mining All the data collected originate from reliable international databases (UN FAO, UN Comtrade, Eurostat, ITC Trade Map, Country s official statistics) that offer wide range of data for all countries of the world. The same methodology used to collect data from individual countries is offering the opportunity for it to be compared and crossed between different regions and countries without a fear of misinterpretation leading to wrong conclusions caused by using different datasets based on various methodologies and preferences. Exception of the rule in this analysis is Kosovo data since Kosovo isn t recognized by the United Nations, the main source of data in the analysis. Therefore, various reports were used to fill the gaps of missing information as much as possible. Countries and regions Number of indicators regarding supply and demand and using data explained above apply on 40 countries in 4 regions, focusing primarily on main competitors or potential markets for Serbia, Bosnia and Herzegovina FYR Macedonia or Kosovo are based on current political and geographical connections. CEFTA (Albania, Bosnia and Herzegovina, Croatia, Montenegro, Serbia, FYR of Macedonia, Kosovo) CIS (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russian Federation, Tajikistan, Turkmenistan, Ukraine, Uzbekistan) NMS New member states - EU member states accessed the EU after 2004 (Bulgaria, Cyprus, Czechia, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia, Slovenia) 3
EU15 First 15 members of the Union (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom) 4 4. Key trends Production trends. Serbia is dominant raspberry producer in the Western Balkan region, BiH is becoming important player while Kosovo production is growing fast. BiH and Kosovo are among the countries with highest growth of the production in 2011 2016 period in comparison to average world growth. In 2012 Serbia produced 91% of CEFTA raspberries, but in 2016 BiH represented 25 % of CEFTA production while Kosovo became noticeable as important producer. Overall production in region is about 80.000 tons with increase from 74.000 in 2014 to 88.000 t in 2016. Bosnia and Herzegovina almost doubled the production with total of 22 thousand tons in 2016. Kosovo, being the youngest producing country in the region, moved from only 105 tons in 2013 to 6,250 in 2016. FYR Macedonia is country with most favorable potentials for the out of the season production but the production is limited at the moment. Production of strawberries in the region goes through a period of great transformations. In Western Balkan region Serbia is dominant strawberry producer with the modest stagnating production and some increase of fresh export to Russia using the opportunity of absence of EU competitors. Bosna and Herzegovina and Kosovo are increasing the production in last 3 years (2014 2016) but the production is still scattered based on donor initiatives or at individual initiatives. In BiH, production in Herzegovina based on about 300.000 plans per year in the municipalities Capljina and Ljubusko 50 50%. The prevailing cultivar (90%) is Clery. Blueberry production is developing particularly in Serbia and there is an estimation that in last 3 years about 200 ha of new plantations are settled. Diversification of production models in the region. Prevailing raspberry growing model developed in Serbia in 1970, without innovations through 50 years. It is family business at plots from 0.1 0.5 ha with floricane variety Willamette in Central Serbia regions. In the last 5 years production expanded to South Serbia by donor initiative and in Vojvodina as market initiative. In Vojvodina primocane varieties, primarily Polka, are planted. Also, there are several hectares of plantings covered by plastic or net with Heritage variety but also Tulamagic and Himbo Top. BiH prevailing production model is following Serbian example, while Kosovo is following Polish production model growing primocane varieties (75% Polka variety) in open field without supporting infrastructure posts and wires. Kosovo based the production in 3 regions (Podujeva (50% of the Kosovo areas) and Ferizaj (20%) and Willamette and Meeker in Shterpce (10%) region. Diversification of producers. In the whole region producers can be generally divided in three groups - first group are those who are advancing permanently, improving production, increasing surface area step by step, timely applying of agrotechnical measures (fertilizing also by water-soluble fertilizers, plant protection based on professional service and following integrated pest management, on time cultivation measures, irrigation...) and permanent education. These producers achieve higher yields and excellent fruit quality. Most often, these producers have contracts with buyers who pre-finance their production through fertilizers and pesticides but also require their proper application. Second group are producers which are having lower productivity but higher expectations. They entered the sector lead by higher prices in 2012 2016 period, donor initiatives, national, regional or local policy signals, forced by the unemployment and
absence of other options etc. Third group are investors who earned money in other sectors of agriculture or economy and are investing in bigger plantations or in cold storages and after in plantations. The majority of the investments are in blueberry plantations. Competition at purchase level. Processors (cold storages with freezing capacities) are the central point of soft fruit value chain for the frozen market. They are collection points, in majority of cases organizers of production and they do marketing for the product. Majority of soft fruit export from the region is exported via EU intermediary import companies which are further supplying the EU processors or retail. The other export path is direct marketing from the company owning the cold storage to the EU retail and processors. Large supermarket chains in the EU are contracting frozen fruit procurement with intermediary - trading companies in Western Europe. They hope to provide security of delivery, greater responsibility, easier cooperation (due to language), etc. Cold storage capacities with freezing regime in Serbia are about 310.000 tons, in BiH 30.000 tons (and expanding in 2017 according to interviews) and in Kosovo 8.000 tones (and expanding in 2017 according to interviews). In BiH and Kosovo there are ongoing investments and expanding of cold storages, while in Serbia the process of concertation is ongoing. Trade trends. Soft fruit sector in Serbia, BiH and Kosovo is focused on processed, frozen product export. Trade value had growing trend from 2012 to 2015 reaching 350 million USD and than dropped in 2016. Export of fresh raspberries from the region had promising trend up to 2014 and then declined, both in value and prices. Value of raspberry export from Serbia increased by over 50% in USD currency from 2012 to 2015 while in 2016 followed the decline as the global and EU trends. Value of export from BiH tripled from 2012 to 2016. Export value of Kosovo raspberries is rapidly growing: Kosovo exported 550 thousand USD worth of raspberries, almost 7 times more than in 2011. Strawberry trade from the region is several times lower then raspberry trade. Export of strawberries from Serbia is driven by the opportunity at Russian market and it reached 18,6 million USD in 2016, while export of frozen strawberries valued for about 7 million USD in 2014 2016 period. In BiH there are no consistent export every year. In 2014 export of frozen strawberries was 1.6 million USD and then declined and in 2015 export of fresh strawberries was 2 million but in other years it was minimal. Price trends. In the first quarter of 2016 export prices of the frozen raspberries reached 3 euros but after that there was a decrease of price which influenced formation of purchase price in 2017. Comparison of monthly export prices from BiH, Serbia and Poland and import prices at main export destination from the region, Germany, Austria and France for longer period (2010 2017) and in detail 2015 2017, showed that price of 2.5 euro in average in the period 2012 2016 has been interrupted. Most of the traded raspberries are sold in frozen blocks and are treated as a commodity product. Expectations are that high competition in current markets for frozen raspberries will continue to be a challenge. Comparison of average export price and average purchase price showed that during the period before 2012 producers were getting around 50% of the export price, but in the period 2012 2016 producers benefited from the higher market prices getting 60 70% from export price in Serbia, about 66-67% in BiH in 2013 2015 and 59% in 2016. Producers in Poland are getting lower purchase prices then in BiH, Serbia and Kosovo but the ratio of purchase price in export unit value is higher. 5
5. Sector competitiveness Raspberry is among most competitive agricultural products in BiH, Serbia and Kosovo. Based on analysis of 27 different indicators in comparison to EU, CIS and CEFTA competitors competitiveness index is showing that Serbia and BiH are among 10 most competitive producers of raspberry among analyzed competitors. Shift to fresh market secured Spain to be the most competitive raspberry producer in the period 2011 2016. In both Bosnia and Herzegovina and Serbia, in competition to other agricultural crops, raspberry is the second most competitive crop, while the strawberry and blueberry are lagging behind. Graph 1: Competitiveness of selected regions regarding raspberry production and trade 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Spain Poland Serbia Portugal Bulgaria Germany United Kingdom B&H France Netherlands Russian Federation Ukraine Belgium Italy Hungary China Lithuania Austria Cyprus Sweden Azerbaijan Finland Estonia Croatia Ireland Romania Denmark Moldova Czech Rep. Macedonia Montenegro Kyrgyzstan Latvia Belarus Slovenia Luxembourg Greece Slovakia Malta Iran Armenia Georgia Albania Uzbekistan Kazakhstan Turkmenistan Tajikistan CEFTA SC CIS NMS EU15 Source: Systematization of authors Competitiveness analysis is complex analysis based on production and trade indicators. Each criteria is measured as a comparison to regions that represent current and potential market opportunities. Those markets are CEFTA, EU, CIS and global market. Each Country s share of every aspect of production or trade on each market represents an indicator. This way we have five different share indicators for every aspect of production, as well as one trend indicator showing production trend in the past number of years. Production indicators include production area and volume of production, while yield is excluded since it is not relevant competitiveness indicator. Trade aspects of supply side competitiveness analysis are export quantity, total value of export and export price. 6
6. SWOT Strengths Production Competition at producer level number of producers - family households with competitive production Existence of the commercial professional producers companies or family households with high productivity New technologies and growing techniques already present at several destinations. The innovation are usually implemented by the sector newcomers and companies out of the agriculture sector Purchase and processing Competition at purchase level over 300 cold storages purchasing the soft fruits in Serbia, more than 20 companies in Kosovo and over 30 in BiH. Contract farming / besides the production of oil crop the only sector with developed contract farming Process of concentration of companies main processors and exporters focused on marketing to EU retail sector Diversification of offer by adding value drying, lyophilization Expansion of season of by purchase of different soft and stone fruits Processing companies have invested in expansion, modernization and quality control Market Export focused sector with export experience and established connection with buyers Competitive product. Raspberry is main export product from Serbia and among the main competitive products in BiH, Kosovo. Increased competition in the region Zero tariff access to regional, Russian, EU and USA markets Weaknesses Production Tradition in main growing regions strongly influences the non/slow acceptance of innovations Quality certified planting material is major problem in the region. Hard to understand and explain why the problem is production of certified material. High dependence in the region on import of quality certified and new and proven plant genetics planting material Enforcement of phytosanitary and PBR regulations. Lack of infrastructure for enforcement of phytosanitary regulations highly influencing the standard implementation Difficulties in phytosanitary system are obstacle for producers to meet high-end market access requirements; certifications (such as GlobalGAP) not widely implemented Purchase and processing Problems that arise during the purchase (absence of grading, quality control and health safety of raspberry, control of the process of purchase, in terms of highlighting terms of purchase, payment deadline, etc.) Stocks financing Norovirus at RASFF Ensuring access to current and reliable data and information describing the size and characteristics of the industry and the various markets for its products and trends Market Lower chances to meet demand in fresh counter seasonal export markets in comparison to producers from some other production regions Non developed market chains for fresh raspberry. Fresh raspberry requires well developed organization of logistics and cold chain support. 7
Close to the big markets like the EU, Ukraine and Russia Predictable legal and macroeconomic environment due to the ongoing EU integration process Expectation of GDP growth (3% for the whole region) Low purchasing power at local market and in the region is obstacle to boost production for fresh market. Experience from Serbia is that one hypermarket store sells daily 1 kg of fresh raspberries. In Europe, dominance of retailer private labels may contribute to slower expansion in demand by limiting supplier promotions; and there is little genericpromotion of berries in Europe. Opportunities Production Free trade regime in CEFTA region, free trade with EU, hub location for Russian and CIS markets Further diversification of varieties and growing technologies in order to improve quality and consistency, with greater focus on flavor, firmness etc Move towards Integrated pest management and reduced inputs for production Organic production Developed credits market and IPARD Purchase and processing Move toward purchase based on quality differentiation Developed credits market and IPARD Market Consumer awareness/expectation of berries as superfruits. The health and wellness trend in food is expected to drive growth products which carry a functional health benefit. Consumer demand for consistent quality fruit, including look, colour and taste Established relationship and existing history with buyers. Expansion on markets other than EU frozen berry market Treats Production More technology-intensive growing practices will increase costs which may dampen demand Reduced ease of access and higher cost for labour Reduced competition at purchase level Climate change and variability in growing conditions Increasing demand for standards implementation and low ability of majority od producers to implement the standards Capacities of state infrastructure to implement the food safety and phytosanitary regulations Occurrence of Phytophthora spp root disease as major cause for wilting the plantations Purchase and processing Cold storages with small capacities and focused on frozen products for industry will face the challenge of price competitiveness. They are becoming of suppliers for companies with bigger capacities and contracts with retails Concentration at purchase level Market 8
Mayor retailers seeking for security of supply EU berry demand growing rapidly. Retailers seeking year-round supply, local & import, but there can be over-supply in certain weeks & competition intensifying. Trend of consumption of convenience food especially fruit is increasing providing the opportunity for the creativity. Convenience and variety are becoming the key selling characteristics of the product Growing competition. Increase of soft fruit production in countries in the region, Bulgaria, Moldova, Ukraine, in Spain, Morocco Competition from other fruits and snack food products Consumer expectation for assurances with product integrity and sustainability SWOT analysis does not show a different relationship between external and internal factors, and therefore a TOWS is used to develop strategies according SWOT elements. Strategies can be built on the strengths, they can eliminate weaknesses, take advantage of opportunities, or face threats. Based on analysis of the opportunities based on strengths the major strategic option for the soft fruit sector in the region is commitment to the quality and adding value to the frozen product which is dominant export product to be processed and finalized by other food industries at export destinations. There are possibilities for added value, coupled with the good reputation of the region origin: Fresh fruit is added value in the case of soft berry fruit marketing. There are blueberry, strawberry and raspberry and companies/producers already shifted and established at the fresh market. Additionally, adding value can be improved by expanding season with new varieties, focusing on high quality and yield in protected production, adopting improved technologies and inputs. Real opportunity for the potential fresh soft berry production exists in FYR Macedonia using favorable climatic conditions and skilled vegetable producers at the south of the country. Cultivated blueberries are novel to the fresh fruit market and have quickly taken off, due to its nutritional properties. Their consumption is already an added value to the regular nutrition, and being a premium product itself, with high unit value, it requires premium presentation. Newly introduced freeze drying in some companies adds to the quality of the product and retains its scope of use. Freeze drying is the process of dehydrating frozen foods under a vacuum so the moisture content changes directly from a solid to a gaseous form without having to undergo the intermediate liquid state through sublimation. In this process, the product maintains its original size and shape with a minimum of cell rupture. Removing moisture prevents a product from deteriorating at room temperature. It is novel for processing of berries in Serbia, and has proven to have number of applications in snacking, confectionary industry, pastry etc. 9 7. OPPORTUNITIES Opportunities which are derived from the major weakness in the whole region problems and non existence of the certified planting material. The quality certified planting material is major obstacle for the soft fruit sector development in the region. As example, in Serbia the production of raspberry planting material in 2016/2017 was 1.5 million out of which only 295.000 were certified. Also, the certified
strawberry plants were only 239.000 and no certified blueberry production. Concerning the container raspberries 438.000 standard and 155.000 certified were produced. Thus, the strategic option for the region but at the same time one of the major drivers for the sector would be production and/or supply of the region by the quality certified planting material. Based on SWOT and TOWS analysis the following opportunities for the Dutch investors are identified: 1. Exporting high-tech products and technologies to region Dutch businesses are renowned in the region for being innovative and investing in production technologies. Specific demand in region is for modern variety and planting material, fertilizers, in particular organic ones, biostimulators, biological pest control solutions and natural pollination methods, equipment for landpreparation, planting and potting, fertigation, spraying, crop maintenance (pruning / trimming), internal logistics and harvesting, mid and high-tech greenhouse solutions, including ventilation, screening, irrigation, fertigation, hydroponic systems and other climate control methods, labor management systems etc. 2. Technical and business consultancy all over the supply chain In the region, berry sector is competitive for years but driven by the same product (frozen fruits) and limited technologies. At the same time, the competition is developing and there is a need for the sector to shift from price competitiveness to quality competitiveness. The shift requires the spectra of specific knowledge s and skills not available in region. Business owners in the region are already hiring or consider hiring consultants when they need help or perspective on their chosen path or need a catalyst for change in their companies. In the whole region there is a lack of knowledge on experience on modern products and technologies but major lack is on expertise on specific markets, strategic planning and development of business strategies, creation of new businesses as well as proper identification of problems, rolling the changes and providing objectivity. 3. Production and trade partnerships for propagation materials for the regional production sector as well as for the third markets Implementation of production solutions that improve quality, adds variety, reduces cost. On the ground exists the infrastructure as a stone for the further improvements. Utilization of production partner in region and joint efforts for the third markets as Russia and CIS, Iran. Rational is to build presence in region with support of the partner with local knowledge, production capacities and lower costs. 4. Adding value on standard frozen products Creation of higher value products from standard frozen products. Rational of intervention is to produce high or higher value ingredients which (potentially) enable producers to position their product in a number of key ways. Production for the niche markets - innovation is relevant throughout the entire value chain and could include new consumer products and concepts, new packaging solutions etc. 5. Trade partnerships in the soft fruit sector 10
There are sector examples in region on partnerships which are enabling access to more profitable markets (example partnership via AMS Sourcing B.V.) In region there is a competitive sector but also there is a need for drivers familiar to businesses in Netherland. The drivers can be research and adopted international technologies, expanded and upgraded logistical facilities, strengthened vertical supply chains, improved organizations for collective action, building the credible systems for quality assurance and food safety management. Also, there is a need for associated services, such as packaging, equipment supply, and technical consulting, which in turn contributed to the underlying competitiveness of the sector. 11