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Trends of Agro-industry • Economic Development BiH is an upper middle income country with GNI per capita as of US$ 4,700 in 2009. Total number of population is 3.8 million inhabitants, of which 52 percent live in rural area, and the annual population growth is -0.17 percent. BiH enjoyed strong economic performance with 5.4 percent of average real GDP growth between 2001 and 2008. As a result of the global economic crisis, GDP declined to 2.7 percent in 2008 after a 5.4% increase in 2008. The agricultural sector contributed with 8% of value added to GDP and employed around 21% of the total labour force in 2009. On the Entity level, the agriculture sector is more important for the economy of Republika Srpska, when it is estimated to be around 13% of GDP (2005), than for FBiH where it stands stable at 6%. Agriculture since the end of the civil war has tended to be subsistence rather than market oriented. Manufacturing industry generated about 13% of GDP with a sharp decline by 6% after experiencing a strong annual growth of 7.9% on average between 2000 and 2008. • Food and Beverages Demand The largest increase of prices was registered in Food and Non-Alcoholic beverages 24.8%, but slightly slower growth in alcoholic beverages and tobacco 1.5%. The highest share in food consumption refers to dairy products, meat and bakery & macaroni. The agricultural and agro-processing sectors do not meet BiH’s food needs. About 34% of shoppers in BiH claim supermarket to be their main shopping place for food and beverages and another 35% of shoppers spend most on food in hypermarkets in 2010. The latest trends is to develop the so-called “light”, “healthy”, “functional” and organic food products and the Halal food production (food permissible under Islamic law), but the standards have not yet introduced. Food and Agriculture Organization of the United Nations Regional Office for Europe and Central Asia Agro-industry Outlook The food and beverages industry in FBiH forms a large part of the economy, generating BAM1.33 billion (US$0.96 bln) of output, that represents about 22.6 percent of manufacturing output, and accounting 26.6 percent of manufacturing value added in 2009 with an annual growth by 14 percent. It employed 13.5 thousand people (or 16.4 percent of manufacturing labor force) in 2009. Most of foodprocessing enterprises are private micro, small or medium-scale enterprises. In 2008, there were 35 dairies operational in Bosnia and Herzegovina, of which 22 in the FBiH and 13 in RS. Apart from the registered dairy farms, there is a certain number of small family dairy farms, but these are exclusively focused on the immediate local market. Agri food processing industry is recovering after a long period of under-investment over the last decade. In 2006, the sector attracted the largest amount of FDI, 80% of the industry had been already privatised. Important subsectors include dairy, production of fruit juices, flour, processed fruits / vegetables, processed meat, sugar (isoglucose) and fodder. Domestic retail market is underdeveloped and fragmented across the country. Retail trade of food products generated BAM2.6 bln (US$1.9 bln) in 2009 sharing 45.6% of total retail turnover on food and non-alcoholic beverages and 3.5% of alcoholic beverages and tobacco sales, out of which only 4.2% of food products are sold through specialized stores. Since 2004 organic food production began to be developed, still sharing only 0.08% of total agricultural land with 39 certified producers, working for the European market, and accounting EUR1.3 mln of turnover in 2009. Main products are medicinal herbs, small fruits, and mushrooms. Chart 1: Food and Beverages Industry Performance in the Federation of BiH BOSNIA AND HERZEGOVINA 2011 Key Economic Indicators 2009 Food, Beverages & Tobacco, FBiH GDP, US$ billion 17.04 Output, % of manufacturing 22.6 Value Added, % of manufacturing 26.6 Enterprises, % of manufacturing n/a Manufacturing VA, % of GDP Agriculture VA, % of GDP 12.9 8.0 2009 Employment in Agric., % of total 21.2 Employment, % of manufacturing 17.1 Gross Fixed Capital F., % of GDP 19.7 Investments, % of manufacturing 22.6 FDI net inflows, % of GDP 1.38 FDI inflows, % of total FDI inflow 25.1 R&D, % of GDP 0.03 R&D, % of Output Merchandise Trade, % of GDP 74.5 Net Trade, US$ billion n/a -0.82 Merchandise Exports, US$ billion 3.9 Exports, %of merchandise exp 5.2 Merchandise Imports, US$ billion 8.8 Imports, % of merchandise imp 12.1 Global Merchandise Exports rank 106 Exports annual growth, % -5.6 Agro-industry National Policy Framework National Development Programme. The key documents setting out the Government policies for the country, agriculture, rural and agro-industry development include: (i) the Country Development Strategy for 2009–2014; (ii) the Strategic Plan for Harmonization of Agriculture, Food and Rural Development with the Strategic and the Subsidy Programs 2008-2011; (iii) the Strategy of Rural Development with a Strategic Plan for 2009-2015; (iv) the Strategy of Stimulation and Development of Foreign Investments for 2009-2012; (v) the Strategy of Small and Medium-Sized Enterprise Development for 2009-2011; (vi) the Policy of Privatization of the State Capital and the Privatization Plan; (vii) the State-level Employment Strategy for 2010-2014; (viii) the Science and Development Strategy for 2010-2015. Under the Dayton Peace Agreement BiH is divided into 2 political Entities, Federation of Bosnia and Herzegovina (FBiH) and the Republic of Srpska (RS), besides the self governing Brcko District was established. As a result, there is a complicated, contradictory and duplicative multitier legal and regulatory framework (e.g. each has their own tax and minimum wage laws, rural development strategy and operational programme on agriculture, food and rural development as well as business registration and administration procedures are not harmonized between RS and the state-level framework of FBiH). BiH has three common national-level food institutions: the State Veterinary Office, the Plant Health Administration and the Food Safety Agency. There is no a State-level Ministry of Agriculture, Food and Rural Development, therefore the Ministry of Foreign Trade and Economic Relations has taken the lead in food safety. Since 2008 BiH has a status of a potential candidate country for EU accession starting its negotiation with the EU on a Stabilisation and Association Agreement in 2006. The assistance of donors’ organisations is planned under eight projects related to agriculture, agro-industry and rural development with a total budget as of US$32 mln over the period 2007-2012. Together with the UN organisations the country elaborated UNDAF for 2010-2014 with the overall budget as of US$178.5 mln, out of which US$114 mln will be mobilized from donors. In 2009, direct budget subsidies to industry and agriculture increased to a consolidated 1.7% of GDP from 1.5% in 2008. Legal Framework. BiH has adopted a number of laws to encourage agricultural and agro-industry growth and rural development, among those are: the Law on Agriculture, Food and Rural Development (2008), the Law on Money Support in Agriculture and Rural Development (2010), the Law on Agricultural Land (1998/09), the Law on Cooperatives (1998), the Law on Competition, the Law on Industrial Property, the Law on GMO (2009), the Law on Tobacco, the Law on Cooperatives (2003), Law on Organic Production. Tr ad e L i be r al i zat i o n , W TO A c c e ssi o n an d Tr ad e Per fo r m anc e Foreign Direct Investments Trade Regulation. BiH has a liberal and transparent foreign trade regime that has been almost harmonised with the international trade rules. BiH adopted the Law on Customs Policy (1998/10), the Law on Foreign Trade Policy (1998/04), the Decision on Classification of Goods onto export and import regimes (1998/05) and the Law on Custom Tariffs. BiH does not apply custom duties on exports, export quotas, prohibitions or other forms of export limitation. Import into BiH is conducted according to the Customs Tariff, which is harmonized each year with Combined Nomenclature of EU and positive legislative regulations. Tariffs rates range between 0% and 15%. Imported goods are subject to payment of 17% of VAT while such products like coffee and cigarettes are subject to payment of excise in accordance with the Law on Excise. BiH concluded three FTAs with the CEFTA (in force since 2009), Turkey (since 2003) and the EU (since 2008 under the Interim Agreement on trade and trade-related matters). BiH exports enter the EU are duty and quota free for almost all agricultural products, except for wine, some fish products, sugar and baby beef where tariff quotas were introduced. Import duties for primary agricultural products coming from EU into BiH have been reduced since 2008 and abolished in 2011. WTO accession. BiH has been negotiating accession to the WTO for 11 years since May 1999, and it has gone through various steps of the WTO accession procedure (application, Working Party creation, memorandum of external trade, no export subsidies, 7 meetings, and agreements). The current status of BiH in WTO is an observer. BiH has reported on a progress in legislative action plan for WTO accession, especially in the areas of sanitary and phytosanitary measures, and on intellectual property rights. Many members of the 7th Working Party expressed support for the speedy accession of BiH. Trade Performance. The merchandise trade deficit narrowed from US$7.2 bln in 2008 to US$4.4 bln in 2009. Exports dropped by 21 percent in 2009 and imports – by 31 percent. In 2009 BiH had a negative trade balance of US$0.7bln in processed F&B that has been steadily increasing till 2008 and declined by 16% in 2009. Processed F&B products accounted around 11 percent of total merchandise imports and 4.8 percent of total merchandise exports in 2009 with an annual export decline by 8.8% after experiencing a steady growth till 2008. BiH is an highly import-dependent country in F&B products. Major commodity groups for imports are beverages, cereals, tobacco, edible preparations, sugars and dairy products; for exports are edible preparations, beverages, fruit and vegetables. The major exports to the EU are raw hides, sugars (isoglucose), mushrooms, plums and frozen raspberries. Top destinations for F&B products: Croatia (40%), Serbia (21%), Italy (7.1%) and Macedonia (6.6%) in 2009; Top origins for F&B products: Croatia (28%), Serbia (23%), Brazil (9%) and Slovenia (6%) in 2009 Chart 2: Food and Beverages Trade Performance over time Regulation. Law on Foreign Investment Policy (1998/10), Law on Foreign Investments (2001/03), Law on Companies (1999/05), Law on Free Trade Zones (2009), Law on Registration of Business Entities (2009) and the Decision on Establishment and Work of Foreign Representative Offices (2003) provide the legal basis for foreign investment in BiH. No legal distinctions are made between foreign and domestic investors. Foreign investors can participate in the privatization process. The Government of BiH established the Foreign Investor Support Find with BAM 2 mln budget per year. There are 36 Agreement on Protection of Foreign Investments signed. FDI inflows. In 2009 BiH’s FDI inflows accounted US$0.23bln or 1.4% of GDP dropped significantly in almost 9 times to the pick level in 2007, mainly thanks to the privatization of the large state-owned enterprises. There were considerable outflows of FDI in the financial sector. Manufacturing and trade accounted for more than 80% of FDI inflows. FDI inflows in F&B&T industries generated US$58.9mln or 25.1% of total FDI in 2009 declined by 14% to the pick level in 2007. The vast majority of FDI is directed to manufacturing (34%), financial sector (22%), telecommunication (12%) and trade (11%). In 2009 there were 2’269 and 381 affiliates with foreign capital registered in the FBiH in total and in manufacturing, respectively. Top investor countries are from Europe with 90% of total FDI, among those are: Austria (26%), Serbia (15%), Slovenia and Croatia (12%). According to WIR 2009 BiH was considered as a country having middle relative importance as in agriculture so in manufacturing. Chart 3: Share of Exported Product Groups of F&B in total exports, in 2009 F o od S afe t y , C e r t i fi c at i o n & Qu al i t y C on t ro l Food Safety regulation. BiH is a member of the Codex Alimentarius Commission and of the International Organisation of Standardization (ISO). Issues of protection of human health in general and in particular from food-borne risks are dealt with the Law on Health Protection (2010), the Law on Sanitary Appropriateness of Food and Articles for General Use (1994), the Law on Food (2004), Law on Food Safety (2004), the Law on Veterinary (2002), the Law on Protection of Plant Health (2003), Law on Sanitary Correctness of Food and Goods of General Use (1991), the Law on Consumer’s protection, the Law on Technical Requirements for Products and Conformity Assessment (2004) and the Law on Market Surveillance (2004/09). The quality of individual groups of products is subject to specific ordinances (e.g. Quality of Meat and Meat Products, Quality of Milk and Milk Products, Quality of Honey and other bee products etc) and the Rulebooks (e.g. on General Labeling of Packaged Food, alcoholic drinks, labeling of nutritional values, use of food additives, use of colors in food, use of sweeteners, use of other food additives, fruit juices and non-alcoholic drinks. State-level legislation that transposes the fisheries acquis remains to be drafted. The legislation still needs to be harmonised with the acquis. Certification. The Institute for Standardisation of BiH adopted 2’053 European standards as national standards, bringing the total to 11’279 ENs. Altogether there are 50 technical committees. Organic Control is a certification body in BiH for the certification of organic food producers, accredited by IFOAM in 2007. Quality Control. The enforcement capacity remains weak in the absence of implementing legislation on food hygiene and official control. BiH Food Safety Agency is responsible for food safety measures. An overlap in competences between the veterinary and food safety sectors persists. The Institute for Accreditation of BiH granted accreditations for 39 testing laboratories. No progress was made to upgrade agri-food establishments. By 2008 there were 20 dairies certified with HACCP, ISO9001 and ISO22000 Business Environment and Competitiveness Business Environment. According to the Doing Business Report 2011 BiH has through business reforms improved in registering property, closing business, paying taxes, dealing with construction permits and trading across borders, it was ranked (out of 183 economies) as 110 in 2011 with no changes to 2010. Trading across the borders is ranked as of 71 (down by 15 points), paying taxes – 39, protecting investors – 93, getting credit – 65, and starting business - 160. Taxation Relieving. The tax burden on companies was eased by lowering the social tax and the corporate income tax from 30 to 10 percent (2008), and by simplifying labor tax processes, reducing employer contribution rates for social security and abolishing its payroll tax. A new law effective from 2011 introduced has introduced an integrated system for the registration, monitoring and payment of Social Security Contributions. According to the Law on Excise Duties cigarettes will be subject to proportional duty (42% of retail price) and flat-rate duty (BAM 0.45 per packet of 20 cigarettes) from 2011. BiH is also a party to 30 double tax treaties. Competitiveness. According to the Global Competitiveness Report 2010-2011 BiH is in a stage 2, it got 102 overall Global Competitiveness Index among 139 countries, having the most five problematic factors of doing business as follows: access to financing, tax rate, inefficient government bureaucracy, corruption and tax regulations. Agr o- indu str y Br ief