Agora Without Frontiers Volume 12 (2) 2006: 110-145
Olgica Bos kovic **
Agriculture of Serbia and
Abstract: The agriculture of Serbia and Montenegro inherited all the
characteristics of agriculture in the former Yugoslavia, while its
disintegration and civil war in the early 1990s also created some
new economic problems. But, issues in the agricultural
development cannot be related only to the solution of those
immediate economic problems. It is necessary to change the
development paradigm toward a market oriented economy,
European integration, and the adoption of WTO rules. The
structural adjustment in this context is much more complex than
the adjustment of a moderately-developed agricultural sector to
Key Words: Agriculture, productivity,reform, privitasiation.
* Senior Research Fellow, Economics Institute, Belgrade. Associate Professor, Belgrade Banking Academy,
** Assistant Professor, University of Belgrade, Faculty of Economics.
Agriculture of Serbia and Montenegro 111
Economic development in Serbia and Montenegro (S&M) during the last half
of the 20th century was based on the process of industrialisation. The process
was capital intensive with primary emphasis on the factors of production in
urban areas. Only agriculture remains as the main economic activity in the
rural areas - the primary source of income and improvement in the standard of
living of the rural population. In that sense, reducing poverty, eliminating
hunger, raising productivity, and protecting the environment in rural areas - all
in a sustainable manner - represent a number of complex objectives which has
to be efficiently governed toward development of a market oriented agriculture
and is one of the most fundamental challenges the country is facing today.
Currently, agricultural production in rural areas is performed both in the
private and so-called “social” sectors.1 The private sector owns 85% of
cultivated land (77% of total agricultural land) and the “social” sector owns
15%. The private sector controls 90% of livestock and 96% of agricultural
mechanisation, and generates 80% of the agricultural GDP and about 50% of
the market surplus. Its concept of agricultural production could be seen as a
mixed one, rather than a specialised one. The surplus sells on the “green”
market, to the private and “social” enterprises for processing or to the trade
and cooperatives – so called “zadruga”. The whole market organisation was
established to develop a modern, socialist agricultural sector and a gradual
socialisation by gradually abolishing the private farms. Such a strategic
orientation makes the entire agricultural sector inefficient in the long run and
replaces the economic basis of the development strategy with a political one.
In that way, lack of understanding and commitment – political and economic
– was a major reason for the low priority given to agricultural - rural
development in Serbia and Montenegro.
The Total Area
The total area of Serbia and Montenegro is 102.173 km2 with three main
regions: Central Serbia with an area of 55.968 km2 or 54.8% of the whole
territory, Vojvodina with an area of 21.506 km2 or 21.1% of the total area, and
Montenegro with an area of 13.812 km2 or 13.5% of the total S&M.
The Province of Vojvodina is a flat, fertile area. In Central Serbia there are
11.849 km2 of flat area and 44.119 km2 (or 78.8%) of the total area is hilly and
mountainous 24.037 km2 or 43% of this region are at an altitude of more than
500m). The area of Montenegro is 13.812 km², out of which 518.047 hectares
(37.5%) is agricultural land. The total surface of utilized agricultural land is
Could be understood as a joint ownership of the employees within the enterprise.
112 Agora Without Frontiers
Economic development in 188.766 hectares or 13.67% of the total land surface
Serbia and Montenegro of Montenegro.
during the last half of the
Agricultural Population and Households
20th century was based on
The total population of Serbia and Montenegro is
the process of
8,116,552.2 The agricultural population is 850,557
industrialisation. (Figure 1. and 2.). Its share in the total population
was decreased from 5,149,239 (or 74.57% of the total population) in 1948, to
850,557 (or 10.48%) in 2002.
Also, the active agricultural population decreased from 2,739,858 (or
80.64% of the total active population) to 543.378 (or 14.84%) between 1948
and 2002. The share of the economically active agricultural population, in
comparison to the total agricultural population rose from 53.21% to 63.88%
and shows that decreasing the rural population forces to be active for a longer
period of time than in other economic activities.
The number of enterprises and co-operatives is 1.011.0003 (778.891 of
which are private holdings) and it is from 14.9% in 1960 to 27.5% in 2002).
In the categories of 1-3 hectares there are 32.7% (30.3% in 1960), of 3-5
hectares 17.3% (decreasing from 22.6% in 1960), of 5-8 hectares 12.4%
(decreasing from 18.5%) and in the category of 8 or more hectares, 10%
(decreasing from 13.7% in 1960).
The average private farm is 2.42 hectares, with an average of 4.7 separate
parcels per farm, measuring 0.73 hectares per parcel in Central Serbia. In
Vojvodina, the average private farm is 2.76 hectares, with 2.9 parcels,
averaging 0.99 hectares each. In Montenegro, the average private farm is 5.1
hectares and almost the 80% of those farms are used as meadows and pastures.
The average number of people per household in Central Serbia, in 2002, is
3.01 and 2.85 in Vojvodina (Figure 3.).
More than 60% of active people in private households are over the age of
60 (70.4% in Central Serbia and 66% in Vojvodina), 53.4% being female.
Approximately 15% of the households are without active labor (in Vojvodina
21.9%) and more than a half have only one active member.
Some 26% of private agricultural households live only from agricultural
activities, about 27% of which had mixed sources of income and about 47%
earn income out of agriculture (44% in Central Serbia and 66% in Vojvodina).
In addition to small, private, household farms in Serbia, there are 671
Estimate on the basis of the final results of the 2002. Census for Republic of Serbia (which was not
carried out on the territory of Kosovo and Metohia) and final results of the 2003 Census for the Repub-
Estimate on the basis of the final results of the 2002 Census for Republic of Serbia (which was not
carried out on the territory of Kosovo and Metohia).
Agriculture of Serbia and Montenegro 113
Agriculture population by activity %, Census 2002
Ec. Active Ec. Inactive
Source: Statistical Yearbook of Serbia and Montenegro 2005. Statistical Office, Belgrade.
Active aglicultural population in Serbia
under 20 years 20-50 years over 50 years old
Source: Statistical Yearbook of Serbia and Montenegro 2005, Statistical Office, Belgrade.
114 Agora Without Frontiers
Currently, agricultural enterprises with 752,599 hectares of agricultural land
production in rural areas is and 742 cooperatives with 130,765 hectares of land.
This sector employs 44,143 workers in Serbia.
performed both in the
The average size of a large farm in Serbia is 1,547
private and so-called hectares (Central Serbia 953 hectares and in
“social” sectors. Vojvodina 1.900 hectares) and in Montenegro 347
hectares. In the cooperatives, the average farm in
Serbia is 326 hectares (Central Serbia 159 hectares and Vojvodina 593 hectares)
and in Montenegro 108 hectares. The enterprises are concentrated in the
categories of 100 – 3000 hectares, 71% of the total number of enterprises
(32% in the 100-1000 hectare category; 20% in the 1000-2000 hectare
category, and 19% in the 2000-3000 hectare category). Only two enterprises
are bigger than 15.000 hectares.
The strategy of strengthening the large enterprises is based upon the
privatisation process and the process of buying and consolidating agricultural
land. The process is rather slow, especially concerning the land ownership
policy, introducing the land, labor and financial market as well as monetary
policy, budget and fiscal policy, prices of goods and services and policy of the
exchange rate. So it is difficult to make any analysis of the economic
consequences of a wrong evaluation of production factors at the macro level
as the primary one.
Agricultural Land by Use and Ownership
In Serbia and Montenegro there are 6,221,791 hectares of agricultural land,
approximately 92% in Serbia ( See Figure 4.) (Central Serbia 54% and Vojvodina
29%) and only 8% in Montenegro.
Some of 4,847,430 hectares of agricultural land is cultivated land,
3,706,616 hectares are arable land, 266,081 hectares are orchards, 85,170
hectares are vineyards, 789,563 hectares are meadows, 1,336,300 hectares are
pastures, and 38,061 hectares are non-fertile land.
In Montenegro, 95% of cultivated land belongs to the private sector, in
Central Serbia 96%, and in Vojvodina 66% (See Figure 5.).
The land market has not functioned for decades. Agrarian policy had been
limiting farm size (initially set at a maximum of 20 hectares and then lowered
to a maximum of 10 hectares until the mid-1980s when limits were removed).
It shows that the importance of the factor prices played no role in the last
fifty years (Figure 6 and 7).
The farms in lowland regions are predominantly for the purpose of crop
production. From the total of 1,549,618 hectares of sowed land in Vojvodina
(1997), 44% is maize, 23% wheat, 9% sun flower, 4% barley, 3.6% soya, 3.1%
sugar beet. In the production of vegetables, 1.5% is potatos, 0.5% beans, 0.3%
peas, while 5.2% is fodder crops, 1.9% fruit and vineyards and livestock
Agriculture of Serbia and Montenegro 115
Private holdings according to number of members and type of settlement, average
Source: Statistical Yearbook of Serbia and Montenegro 2005, Statistical Office, Belgrade.
Arable land by the way of use, 2005. Repubplic of Servia
Source: Spring-sowing and early crops in the Republic of Serbia 1996-2005, Republic
Statistical Office, Belgrade.
116 Agora Without Frontiers
The share of agriculture in production. In the hilly and mountainous regions,
the GDP of S&M economy farms are mostly oriented toward fruit production,
viniculture, fodder crops, and livestock production -
increased during the 1990s,
even forestry. Their orientation is not only due to the
but the share has been natural conditions. It is also influenced by the
declining since 2000. In market position of the farms, supply of labor, and
1990, its share in total mechanization.
GMP was 9.7%, in 1999
it was 21.5%, and in 2004 Agricultural income and its distribution
it was 13.7%. The gross domestic product in Serbia and
Montenegro until the beginning of 2000 had been
constantly declining (Table 1). After that, it rose slightly Alternatively, the
share of agriculture in the GDP of S&M economy increased during the 1990s,
but the share has been declining since 2000. In 1990, its share in total GMP
was 9.7%, in 1999 it was 21.5%, and in 2004 it was 13.7%.
There is a tendency toward faster reduction in the growth rate of the
economy than in agriculture. The average growth rate of the total GDP was 5.3
% and in agriculture 2.1 %.
Source: Statistical Yearbook of Serbia and Montenegro 2005, Statistical Office, Belgrade.
Agriculture of Serbia and Montenegro 117
Source: Statistical Yearbook of Serbia and Montenegro 2005, Statistical Office, Belgrade.
Source: Statistical Yearbook of Serbia and Montenegro 2005, Statistical Office, Belgrade.
118 Agora Without Frontiers
The research and advisory The economic situation deteriorated dramatically
system has been strongly at one point (1993 hyperinflation) and there was an
urgent need for the monetary stabilisation and
oriented to the farming
structural adjustment of the whole economy. There
practices of large state were attempts to correct these problems, but reforms
enterprises. Small-scale were not sufficiently radical. The Agricultural
private farmers, the Ministry had governed the agricultural production,
majority of the producers, but failed to provide clear, comprehensive, and
have benefited very little efficient management of the enterprises. As a result,
from these services. the problems have only accumulated over time.
Performance, Productivity, and Technology
The resource base for agriculture in Serbia and Montenegro is generally very
favourable. Despite this, as with the rest of the economy, it suffered a serious
decline in productivity during 1990s. The consequences of policies creating
distorted programmes, the collapse of the rural finance systems, and
institutions operating on socialist principles with major attention given to the
state enterprises have had the following cosequences:
• Less availability of labour, relatively old population employed in agriculture.
This has also affected the skilled labour. There many farmers more than 60
• Difficulties in performing effective farm operations due to an unfavourable
property ownership structure. The average private farm size is 2.5 ha
(divided into 5 parcels), while 28% of the farms are less than one hectare
and only a portion of them more than ten hectares.
• A low level of mechanisation, the lack of capital has lead to an aging and
insufficient machine park, most of it being than 18 years old.
• Low input intake, as fertilizers, seeds, pesticides, and food supplements for
• Increased vulnerability to adverse weather conditions, due to the
deterioration of irrigation and drainage systems.
The research and advisory system has been strongly oriented to the farming
practices of large state enterprises. Small-scale private farmers, the majority
of the producers, have benefited very little from these services.
Despite the decline in production, in comparison to other sectors of the
economy, agriculture has fared relatively well. Although the large agricultural
enterprises are applying production systems based on modern, high input
technology, this was not the true picture overall. Instead, agriculture in Serbia
and Montenegro is better represented by small-scale private farmers, applying
Agriculture of Serbia and Montenegro 119
Gross Domestic Product of the Republic of Serbia in 2002, constant prices
in millions of CSD
1999 2000 2001 2002 2003 2004
Total Economy 795 641.8 836 920.5 879 482.6 919 230.5 941 616.0 1 029 560.0
Agriculture 127 506.3 111 185.5 131 866.0 127 382.6 118 211.1 141 262.2
The share of
Agriculture in % 16.0 13.3 15.0 13.9 12.6 13.7
Source: Statistical Yearbook of Serbia and Montenegro 2005, Statistical Office, Belgrade.
technology at a level well below the levels commonly found in Western Europe.
These farmers were also relying on fewer inputs for their production, and yields
were relatively low. For example, the average yield of maize is less than half of
that found in Western Europe and that of wheat about half of the Swedish
level, despite the less favourable climatic conditions. The average cow produces
about 1800 liters of milk per year, which is only a quarter of what is achieved
in Western Europe.
The Agricultural Resource Base
The highest agricultural potential in Serbia and Montenegro is found in the
province of Vojvodina (1,65 million hectares of arable land or 76%), and in the
central parts of Serbia (2,6 million hectares of arable land or 46%).4 These
areas are characterised by very fertile soils and a flat topography, hillier in
northern parts of central Serbia. A continental climate prevails in most areas
and the annual rainfall is between 600 to 800 millimeters. A restriction is that
the water-table is negative during the vegetation period. This is, however,
compensated most years by the generally good quality of the soils. There is an
abundance of surface and underground water, making the irrigation potential
high. However, of the 130,000 hectares developed for irrigation, approximately
only 18,000 hectares are operational at the moment. About half of the land
area in Vojvodina is considered suitable for irrigation.
A large portion is prone to floods and water-logging and the extensive
drainage systems in Vojvodina and Northern Serbia have not been maintained,
This compares to 2.7 million ha, or 6% in Sweden.
120 Agora Without Frontiers
The major reasons for the contributing to serious damage to crops during the
poor production are limited last years. In the past, very high production (e.g. of
up to 10 tons of wheat per hectare) was achieved on
use of fertilisers and
chemicals, and inadequate The Central and Southern parts of Serbia and the
cultivation due to fuel Republic of Montenegro are mountainous and have
shortages and old poorer soils. While Southern Serbia has a continental
machinery. climate, a Mediterranean climate prevails in
Montenegro. Land use under these conditions is
characterised by mixed cropping systems (livestock, field crops, and orchards).
A large proportion is pastures and forests.
The farming systems in the high potential areas of Vojvodina and Central
Serbia are dominated by intensive production of grains, dairy, and industrial
crops. Some 70% of the land area is under grains, with maize and wheat
dominating. Some barley is also grown. The area under industrial crops
(sunflower, soya, sugar beet, and tobacco) accounts for about 13% of the
cultivated area. Fodder crops occupy some 5-6%. When adequate inputs are
available, the production methods are based on high use of inputs and high
levels of mechanisation. As they are highly dependent on externally supplied
inputs, they have suffered a much larger decline in production compared to
the small-scale private farmers in less fertile areas.
In the less fertile, and predominantly mountainous, regions of Southern
Serbia and Montenegro the farming systems are very diversified (vegetables,
vineyards, and fodder crops to support the livestock). The farms often contain
a wood-lot, seldom more than one hectare, primarily to provide fuel wood.
Production methods are mostly low input, labour intensive, old fashioned, and
highly focused on subsistence.
Yields are generally far below those in Western Europe. For wheat, the
average yield is around 3.3 tons per hectacre or 4.2 tons below the average for
Western Europe. The yield level in low potential areas is about 70 percent of
the high potential. Yield is also higher on the big farms compared to the small,
private farms. Industrial crops in Western Europe commonly achieve twice the
biological coefficients as compared to Serbia and Montenegro.
The major reasons for the poor production are limited use of fertilisers and
chemicals, and inadequate cultivation due to fuel shortages and old machinery.
Serbia and Montenegro have a well-developed seed multiplication industry;
but, the extent to which improved seeds are reaching small-scale farmers is
Agriculture of Serbia and Montenegro 121
Also, in vegetable production, potentially promising for export, the yield is
only about a quarter of that achieved in the Western Europe. The same is true
for the production of fruits. Reasons for the poor productivity of horticultural
crops are the same as for the field-crops; but, additionally, there have been
serious incidences of viral infections in fruit trees.
The productivity of livestock has generally declined during the last fifteen
years. The production of meat and meat products has decreased by 50%. This
is to a large extent due to the lack of demand for livestock products and the
selling out of breeding stock. During the last years there have also been
problems with the supply of concentrates, forcing many large scale farms to
reduce production or close down. The small size of these farms is another
limiting factor to the expansion of the livestock industry.
The average milk yield is approximately 2000 liters per cow, which is about
a quarter of the yield achieved in Western Europe. The big farms produce over
5000 liters per cow compared to the mountainous regions with approximately
1000-1500 liters per cow.
On the big farms and on advanced small, private farms, cows are fed on
fodder crops, improved pastures, and concentrates. The small-scale farms rely
to a great extent on natural pastures and some additional supplement by
concentrates. In the north, dominant breeds are Holstein and Swiss brown,
while local Simmental and indigenous breeds dominate the south.
The production of pork has suffered a less pronounced decline because most
pigs are found on small farms. A large portion of the infrastructure for large-
scale pork production is not utilized, indicating a decline in this sector.
Serbia and Montenegro have very good natural conditions for the production
of wool and meat from sheep and goats. Sheep are mostly produced on natural
pastures and yield only about half the wool of their Western European
counterparts. Goats are emerging again, after a ban on raising goats was lifted
in 1998. The hens are producing half the amount of eggs as Western countries.
This is a strong indicator of the low level of technology prevailing.
In Montenegro the catch of salt-water fishing constitutes a significant part
of the economy. The annual catch was about 500 tons. In the mid-1990s, fish
farms were developed by the private sector, and together with natural
watercourses, they provide 9.500 tons of fresh-water fish annually.
Serbia and Montenegro produce enough food to meet the needs of its
122 Agora Without Frontiers
The average household in population of about 8.5 million people. It is
estimated that under optimum conditions it could
Serbia and Montenegro
feed some 40-50 million people. In aggregate,
spends almost 50% of its production has been enough so that hunger can be
income on food. Therefore, avoided, even during the most difficult years.
the general decline in The average household in Serbia and Montenegro
spends almost 50% of its income on food. Therefore,
personal income has meant the general decline in personal income has meant
that many, especially urban that many, especially urban households, can not
households, can not afford a afford a well-balanced diet. This is clearly reflected in
the decreased demand for animal products. The
poorer urban households have been most impacted
by this. The poor in rural areas fared better as they could rely on their own
After the recent change in the political climate, it is important that
consumers see a decline in food prices. Therefore, it is important that the
harvest of the grain baskets of Vojvodina and Northern Serbia are good.
Agricultural Support Services
Serbia and Montenegro have a good track record in agricultural research,
especially in plant breeding, and many viable plant varieties have been
exported outside its borders. However, research as well as the advisory services
was directed toward the needs of the large-scale social sector. These, in turn,
were supposed to provide the links to advise the small-scale private farmers.
But, the emphasis in research and extension was on large-scale, high input, and
highly mechanized agriculture and was poorly suited to the small-farmer group.
However, when it comes to quality and technical capacity in support of modern,
large-scale farming practices, the quality of the largest Institutes is considered
high, especially in plant breeding.
The basis for research in agriculture and forestry in Serbia and Montenegro
consists of independent Institutes, government Institutes often connected to
the Universities and Institutes within the big agri-business enterprises. The
network consists of four faculties, fourteen development organisations, and
twenty-one Institutes, in total about 4.000 people are involved. Crop
protection receives the most research attention. The sources of funding for the
research are the government’s (48%), private production (12%), provision of
services (8%), and other sources (33%).
In Serbia, the Institute for the Application of Sciences in Agriculture deals
mainly with farms in the social sector and with large private animal producers.
They are conducting a wide array of activities, such as: animal husbandry, herd
books, progeny testing, animal feed, yield estimates, soil testing, fertilizer
trials, forecast of plant diseases, demonstration plots, farm machinery,
Agriculture of Serbia and Montenegro 123
organisation of agricultural fairs, education, seminars, radio broadcasts, and
publishing. In total, 730 specialists and field technicians are employed. The
Institute has thirty-three field offices and cooperates with 540 enterprises. It
has considerable physical resources with 413,502 ha of own land, 21,000 m2 of
buildings, 125 laboratories, and more than 140 vehicles. Despite this, it has a
low coverage among the farmers (2-15% depending on branch in the livestock
sector). This points to a heavily extension system which is only reaching the
already well off farmers.
In Montenegro, agricultural research is carried out by the Biotechnology
Institute of Podgorica, which is part of the University of Montenegro. It covers
the following areas: agro-economy and sociology, veterinary services,
livestock, crop production and fodder crops, and it has Centers for research in
soil sciences, subtropical agriculture, and fruit production. It employs 135
Serbia (Belgrade, Novi Sad, and Cӑcӑk) and one in Montenegro (Podgorica).
There are four Agronomic Faculties in Serbia and Montenegro, three in
All these Faculties have plant and livestock Departments with specialisation in
the following fields: crop production, vegetables, medical and aromatic herbs,
fruits and viticulture, fodder crops and pastures, cattle, pigs, sheep, poultry,
horses, plant protection, irrigation, pedology, agro-technology, agro-
mechanization, and agro-economy. As the education system is based on the
Soviet model, the students specialise at an early stage.
About fifteen agricultural high schools offer basic agricultural education
and also provide some specialisation. In thirty- seven vocational agricultural
and animal science secondary schools, basic education is offered the first two
years and during the last two years the students are trained to be either crop
or animal production technicians.
There are two veterinary faculties, located in Belgrade and Novi Sad.
The curricula of the training institutions are oriented toward the needs of
large social enterprises. Little attention is given to the skills needed to support
small-scale private farmers. The training is very technical and no meaningful
training is offered on market-oriented economics as well as very little emphasis
is given to socio-economic aspects. The training institutions have also suffered
material decay due to lack of funds, resulting in a lack of laboratory and other
Reform in Agricultural Support Systems
Up to now, private small-scale farmers have benefited very little from
research training. While the creation of an improved environment, through
market oriented price policies, and assisting farmers in organising themselves
124 Agora Without Frontiers
Serbia and Montenegro are most important, this transformation requires a
complementary increase in the farmers”
have a good track record in
technological skills. To transfer improved technical
agricultural research, knowledge, it is imperative that those involved in
especially in plant breeding, research, training, and extension better understand
the farmers” circumstances.
and many viable plant
This shows a clear need to change the present
varieties have been exported university curricula in technical as well as in
outside its borders. economic content. Corresponding change is needed
at vocational learning institutions and in direct
At present, little is documented as to the real problems, needs, and
opportunities of the small-scale farmers. This information is a basic input to
design a meaningful, adaptive research agenda. Research also needs to be
more systems oriented, as opposed to the current system of fragmentation
and compartmentalisation. Small-scale farmers receive no benefits from the
current system of extension. Reform of the extension system should be linked
to the agricultural SMEs to ensure greater market orientation in its services to
farmers. Also, this can be a useful link for obtaining production financing and
even financing part of the overall extension effort by way of outsourcing many
of the services to the private sector.
Future Strategy of Farming Systems
The target for future crop production is to reduce the area for grains and
increase the area for industrial crops. Yield levels are expected to increase
considerably. The area of vegetable and fodder crops will be expanded.
Rehabilitation of orchards for fruits, berries, and viniculture is considered
important and these areas will be expanded. In addition to ensuring the
availability and affordability of inputs and increasing mechanisation, continued
improvements in breeding are important.
Average yields are not expected to reach the same level as in Western
Europe, but will increase considerably. Improvement in the quality of the
products is important and standards will be adapted to EU levels.
Livestock production will be intensified, and land resources will be better
utilised, compared to the present rate of 3ha per livestock unit. The focus will
be on ruminants, especially the production of milk and bovine meat. There is
a potential for development with those species as they are not dependent on
imports of fodder and have good prospects for exports. Breeding is a major
tool for improved performance. The conservation of the rich genetic diversity
in Serbia and Montenegro is important for both livestock and crop production.
Even if organic agriculture is not a decisive factor in the development of
agriculture in Serbia and Montenegro, it can offer an opportunity to some
Agriculture of Serbia and Montenegro 125
farmers in certain areas.
Sector Management, Marketing and Agro-industry
The role of agriculture in the centrally planned system has always been to
ensure the national food supply and generate exportable surplus output to earn
foreign exchange. Surplus earnings in agriculture were extracted via the
central-plan controlled pricing system and were used to finance the
development of other sectors. Finally, agriculture was used as a store for surplus
Specialisation of agriculture in Serbia and Montenegro accounted for only
20% of the agricultural land, primarily in the fertile plains suitable for large-
scale farming operations. The basis of this was the expropriation of large,
privately owned estates, supplemented by the addition of some smaller-sized
farms. Planned farming activities were overseen by local representatives of the
central government. The small-scale structure of the remaining 80% in the
private sector reflected the substantial peasant labour population of the rural
areas. Average farm size in any region still rarely exceeds 5 ha and subdivisions
are very common. Individually, they remained unimportant, but combined they
were, and are, a substantial source of agricultural output. To capitalise on this
output, the government organised these small-scale farmers into zadruga, or
cooperatives, with local units building up to a national federation. Necessary
central control of these cooperatives was achieved by central government
influence in the appointment of the zadruga management.5 The planning of
production, determination of prices, and delivery of inputs, and outputs were
all quite similar to those in the social sector. Since the outputs were more
varied and the volumes more volatile, private-farmer secondary markets were
more open and formalised. Targeted deliveries, centrally imposed prices,
rationed inputs, and quasi-government zadruga leaders ensured a lack of
commitment to and confidence in the zadruga by the members. Opposing
objectives led to a level of distrust between management and members as
individual farmer members sought to produce for, and sell in, local private
markets, while the zadruga management sought to procure output at lower,
centrally mandated prices for delivery to the state distribution system. 6
Under the socialist system of centrally planned production targets and
assigned prices, agricultural markets for about 90% of outputs and all
purchased inputs were controlled by the state, via the central planning system
and state marketing agencies. Agricultural products were simply collected for
processing and distribution to retail outlets. Purchased inputs, i.e. chemicals
In other words, the zadruga were not democratically constituted.
Income maximisation by private farmers versus output delivery by zadruga management.
126 Agora Without Frontiers
The target for future crop (fertilisers and pesticides), tractors, and farm
equipment, were largely supplied through state
production is to reduce the
agencies, particularly for the social sector.
area for grains and increase Traditionally, there was no private sector
the area for industrial crops. involvement, except for some local markets in which
small farmers sold some output directly to consumers
Yield levels are expected to (5-10% of total traded output). Output price levels
increase considerably. were set to maximize extraction of earnings on
agriculture, subject to costs of external inputs. Thus,
prices were set at the lowest possible level concomitant with ensuring the
planned food supply and retaining surplus labour in agriculture.
Although suppressing individual entrepreneurship, the system worked
adequately for the large-scale production of non-perishables, such as grain,
and products produced in even volumes year-round, such as milk and meat. It
also functioned well for seasonally produced perishables, such as units intended
primarily for processing. As a result, classical agricultural markets, aimed at
equating supply and demand in these products and their inputs, were
unnecessary and so remained undeveloped.7 The physically-based input-output
system required no formal rural credit market to allocate resources. Banking and
rural credit systems were nominally present, but were merely accounting
processes. External trade was used to balance output and consumption, void
surpluses, and earn foreign currency. When foreign currency was scarce, as it
generally was, export production became a priority. Reallocation to the export
market was generally at the expense of domestic consumption.
Initially, the system operated adequately, and with some gains in technical
and managerial efficiency through the socialisation of the more easily farmed,
fertile areas. But the dynamic economic efficiency gains available from a
liberalised, fully functioning market were lost. With no direct link between the
producer and consumer, via the price system, information concerning
consumers” preferences and producers” cost of production could not be
transmitted directly between the two, leading to a lack of quality in the
information and timeliness in its transmission. Also occurring in input markets,
this resulted in a continuous decline in efficiency and, consequently, in the
competitiveness of the production processes over time.
Pressured by the continuous strain on the budget, the reaction of the
economic management was to progressively liberate parts of the system over
To the extent that the central plan was technically incorrect, individual production units would
trade inputs and outputs between each other to better achieve assigned targets. This gave rise to infor-
mal secondary markets in inputs and outputs. While these became more significant over time, they were
never formally encouraged at the center (i.e Economic Planning and Agriculture ministries). In any case,
they were always local and unreported, and provided no guidance to decisions by producers and consumers.
Agriculture of Serbia and Montenegro 127
time, particularly at the lower level. Targets were based on proposals of
enterprise management and requirements estimated by planners. Social sector
units were given greater freedom in determination of the mix of outputs and
the levels of inputs. This allowed more individualised management in social
enterprises. But, these freedoms were illusory, as they generally carried a quid
pro quo, effectively requiring enterprises to produce a minimum amount of
output to be sold at fixed prices, resulting in cross-subsidisation and eventually
losses in many cases. Also, high profit levels were discouraged; where they
occurred, the enterprise was required to transfer them to the local government
for use in public infrastructure development.
Financial discipline became increasingly lax, as enterprise management
realised the economic management system was unable to maintain such
discipline. The genuine inability of some borrowers to repay bank loans was
aggravated by the inability of the economic managers to promptly deal with the
emerging problem. The resulting financial indiscipline of loan repayments
affected tax payments also, putting pressure on both sides of government’s
Economic sanctions imposed by the UN for two years, in 1992-93, closed off
all external trade, causing extensive hardship to the sector generally and to the
agro-industry in particular. The export agro-industry lost all its traditional
markets and these were quickly filled by others. Access to imported inputs was
denied. Again, the budget bore the cost and hyperinflation resulted. In these
two years, the GDP dropped by as much as 50%. This situation was finally
resolved under the economic stabilisation programme of January 1994 when
the government abandoned the soft budget constraint and discontinued
financing enterprise deficits. Immediately the banking system closed off
virtually all credit to the productive sectors. In the following years, economic
growth has been positive, but at a very low level and from a very much reduced
Liberalisation in output markets began in the late 1980s as competition
between the private sector and the state sector increased. Private traders, long
a factor at local levels, expanded operations to buying outputs in surplus areas
and selling them in deficit areas. Transfer of feed grain for livestock, from
private farmers in Vojvodina to private farmers in mountainous areas in Central
Serbia, Montenegro, Kosovo, and Metohija became possible. Prior to that, the
private growers sold grain to the monopoly state-purchasing agency, the
Commodity Reserve Agency, through the local zadruga (socialized private
farmer cooperative) and social enterprises, and also through private traders, for
a predetermined price. The zadrugas” purchasing agreements with their
members were unenforceable, despite having supplied them with inputs and the
128 Agora Without Frontiers
Pressured by the continuous state appears to have been unwilling to enforce its
strain on the budget, the legal authority. Undoubtedly, much of this informal
reaction of the economic liberalisation arose from the Commodity Reserve
Agency’s shortage of financing for purchases and the
management was to state’s inability to meet these needs due to the
progressively liberate parts ofincreasing size of the expenditure deficit at the
the system over time, macro level. This type of market liberalisation has
particularly at the lower become widespread, even occurring in processed
level. Targets were based on products such as milk. Small private milk processors
proposals of enterprise are said to have grown into sizeable local operations
management and as the private sector has increasingly substituted for
the public sector. Added to this are the more recently
requirements estimated by privatised social sector food processors, which now
planners. make their own way into the market.
Financing these activities is said to be largely of
savings and informal arrangements, as banks are no longer interested in serving
the agricultural sector. There are no estimates or even guesses as to the volume
of private sector activity in these markets. Much more needs to be done to
assess their needs and means to meet these in a commercial fashion.
For many inputs, the situation is similar to that of the output markets. In
the past, the social sector dominated; now, private traders freely supply private
farmers with fertiliser, seeds, and pesticides. These are purchased from
manufacturers who themselves are likely to be undergoing privatisation. Private
traders are also said to be importing input supplies directly, especially
specialised pesticides used in small quantities. Despite the public sector
monopoly of such imports the government of the time took a pragmatic view
of this development and allowed private enterprises in the market. It seems
unlikely that this de facto liberalisation will continue, as it provides needed
supplies and financing which the state is unable to meet. Again, the private
traders” share of the input trade and financing arrangements are unknown.
Traditionally, all significant agro-industrial capacity was in the social sector,
with ownership and operation concentrated in large-scale enterprises –
previous state-financed agro-combinates. Some processing capacity was also
developed by private sector agricultural production enterprises to provide
outlets for their own products, especially where the agro-combinates capacity
was absent. As private sector trading activity has increased, private-sector
investment in fixed capacity has also increased.
Agriculture of Serbia and Montenegro 129
At present, the number of known processing plants comprises:
Edible Oil 10 with refineries, 2 limited to extraction;
Fruit and Vegetable Processing 34;
Flour Mills 80 large-scale and 100 small-scale;
Animal Feed 65 large-scale and 60 small-scale;
Meat Processing 60 large-scale and 40 small-scale;
Milk Processing 38 large-scale, all originally in the social
30 smaller-scale private investments;
Confectionery 1 large-scale, for biscuits, cakes, sweets,
etc, many small-scale in the private sector;
Breweries 13, with 12 having large capacity;
Distilleries 18 commercially active;
Wineries 70 large-scale and 20-30 small-scale private
Cold Stores 73 large-scale, plus 10-20 large private,
many small-scale privately owned units.
In addition, there are many small plants serving local communities. Some,
such as abattoirs, have traditionally been constructed by local governments,
while many more, are exclusively private-sector investments, particularly those
Access to financing is a major problem. At present, the processing plants
must finance on-farm production to guarantee their supply of raw material
inputs. But their capacity to do this is quite limited, restricting growth in
capacity utilization. The Chamber of Commerce estimates that exports could
climb to one billion USD over the next five years if adequate financing for plant
operation and maintenance and raw material production were available.
Land and Credit Issues
Land ownership policies in Serbia and Montenegro are now completely
liberalised. All restrictions on ownership and transfer were eliminated by law
in 1986, making land accessible to all. But, earlier restrictions on private farm
size, originally 20 hectares and reduced to 10 hectares, have left their impact
on present farm size structure. The average private farm size is about 2.5
hectares. Fragmentation is common; and the average farm is split into five to
seven pieces. Consolidation is clearly needed to promote greater efficiency.
Only a transparent land market can provide an acceptable basis for this.
The current land administration system is divided between a Land Cadastre,
a Land Register, and a Land Court. The cadastre system is based on 5.700
130 Agora Without Frontiers
Economic sanctions imposed cadastre communes; each of which represents a
by the UN for two years, in topographically homogenous area, and so providing
detailed topographical coverage. The system is
1992-93, closed off all administered through a local office in each of the
external trade, causing 190 administrative (local government)
extensive hardship to the municipalities. This detailed land cadastre was
sector generally and to the established to provide a basis for land taxation,
based on historic productivity (unit output), values,
agro-industry in particular. and land use. It was also used to assist land
The export agro-industry consolidation in the social sector when formation of
lost all its traditional contiguous tracts of arable land was an official
efficiency-improving strategy. Although no longer
markets and these were
reflecting the potential or actual income stream of
quickly filled by others. land, these tax rates are still applied. This depresses
land sales, and, more so, the reporting of sales.
The cadastre covers the entire country and is regularly updated. The Land
Ownership Register is in a far weaker position. Reporting of ownership changes
is low, even though the transfer tax is modest. In a cash-starved economy (as
in rural areas) such tax avoidance is understandable, despite the low transfer
tax. Nonetheless, there is now a significant lack of correspondence between
ownership indicated in the registry (and also in the cadastre) and actual
ownership. Land administration authorities are now endeavoring to reconcile
the two and unite the land cadastre with the ownership register in a single real
For example, land prices in hilly and mountainous areas ( 8,000-30,000
euros) are far higher than those for more fertile land in plains areas ( 1,500-
3,000 euros). No satisfactory explanation was available for this but it may
relate to amounts which external workers are willing to pay for land in their
original home localities. Additional investigation and future development effort
will be necessary to ensure an adequately functioning land market; especially
as this market will be vital in permitting de-fragmentation and enlargement of
farms and so providing for greater technical and economic efficiency.
The role of agricultural credit is to finance investment and working capital
needs for productive enterprises. In the context of a market economy set in the
overall banking system, the agricultural sector competes with other sectors for
available financing with the interest rate equating between supply and demand
for funds by various sectors, and, within sectors, by the different firms.
So how are farm and processing operations now being financed? With export
markets reopened, segments which are operating are able to generate sufficient
cash flow from sales to finance at least some inputs for farm production and
Agriculture of Serbia and Montenegro 131
so assure themselves of raw material. Hard currency earnings assure access to
imported inputs, which are essential in the longer-run for on-farm production.
Domestic processors have good cash flow and the Dinar is now stable allowing
private financing for operations. The major difficulty is where longer-term
financing for rehabilitation is needed. The Ministry of Agriculture is trying to
fill the gap and provides support to the agricultural sector directly from the
budget and through the Development Fund. But this it is insufficient.
Micro-credit operations for small private farms are now being developed
gradually. Loan demand which is said to be enormous is moderated by the low
loan ceiling and short term. While of significance to its customers, micro-credit
is clearly a niche market and not of significance in resolving the overall
production and trade financing problems.
The general thinking of the officials in restoring liquidity to financing for
agriculture is somewhat narrow and unreal. Nonetheless, in view of the latest
constraints, the financing system for agriculture and the agro-industry must
rely, in the near future, on a donor community and International Finance and
Development Institutions. One consideration is to finance lines of credit for
these activities, but only in a strictly supervised system, and utilizing well
qualified credit specialists.
Government Development Policies and Strategies
From an economic perspective, after the first positive results of the reforms,
the entire economy is in a state of both change and waiting. Major economic
restructuring is being considered, planned, or is underway on virtually all
fronts, from the macro economy, through the financial sector, down to the
operation of the individual production units. In many instances, large
adjustment costs are associated with needed reforms such as writing off the
very large stock of obstacles in many social enterprises that are not currently
privatised. In agriculture, although privatisation is underway, it is slow.
Complete privatisation of the large-scale agricultural production and processing
units in the social sector must await the resolution of issues relating to
ownership of the land utilised and a decision by the state as to its own position
with respect to public ownership of productive assets.
Many other critical decisions regarding the future structure and role of
existing government agricultural agencies await government consideration
also. Prior to making these decisions, the government will need to decide on
its price and trade policies for the sector to avoid major conflicts between
policy, structure, and programmes.
132 Agora Without Frontiers
From an economic Agricultural Planning
perspective, after the first The single-most substantive indicator as to
current government thinking on the future
positive results of the
management of the agricultural sector is contained
reforms, the entire economy in The Long-Term Agrarian Development Strategy of
is in a state of both change Serbia and also Separate for Montenegro (LADS).8
Those separate Republic strategies cover long-term
and waiting. Major
agricultural development and set out the future role
economic restructuring is for agriculture, output targets, and the price and
being considered, planned, trade policies and programmes to be followed in
or is underway on virtually support of the targets. They are in line with the
requirements for EU accession and WTO rules. They
all fronts, from the macro are thorough enough to cover all important issues,
economy, through the but are still not instructinve enough for efficient
financial sector, down to the development and raising the overall competitiveness
because they are not consistent and still not complex
operation of the individual enough.
production units. But in terms of economic content, they are
successful in setting out priorities (objectives) for
the sector, thus establishing the role of agriculture in the economy for the
Plan period. Then, they assign the trade policy to be used in pursuit these
priorities. Finally, they prescribe the system of intervention to be used to
manage the sector and eventual market fluctuations (surpluses and
The Role of Agriculture
The six basic objectives are implicit in the strategy for the sector:
• food security – self-sufficiency and increasing exports
• sustainable development – technically and environmentally
• balanced rural and regional development – end rural urban migration
• stabilise markets – adequate consumption at reduced cost to consumers
• increased export competitiveness – a permanent trade surplus within the
rules of WTO and EU
• International integration – private ownership to permit access to the EU.
Resolving these objectives simultaneously (although there is no suggestion
of any ranking in the above list) creates a great burden on public expenditure
and inhibits efficiency and dynamism in commercial agriculture.
The Long-Term Agrarian Development policy of the Federal Republic of Yugoslavia is no longer im-
plemented. Issued by the Previous Federal Ministry of Agriculture, Belgrade, 1999.
Agriculture of Serbia and Montenegro 133
Main Thrust of the Sector Development Strategy
Except overall orientation toward EU accession and toward a market
economy, no specific targets have yet been developed, except that output
increase and food security are at the top of the list, and that the private sector
will be the focus of growth. They also indicated that the major growth
stimulants are expected to be: educating agricultural producers, raising
competitiveness, increasing output price, improving technology, improving the
quality of rural life, and increasing the use of purchased inputs.
The LADS is directed toward aggregate output targets in terms of future
domestic demand (based on expected growth in per capita consumption) and
export earnings (based on external market conditions). The targets are then
expressed in terms of cropped areas for various products, taking into account
changes in consumption and export patterns. In view of the state of
uncertainty now prevailing and the sheer volume of structural reform necessary
to be undertaken, it is not meaningful to make any judgment as to the
likelihood of achievement of the targets. The targets are obviously physically
feasible. Also, in view of the apparent change in modus operandi from a
command type economy to a market-based, incentive-driven system, it is not
at all evident how producers will react and, therefore, whether the targets will
be reached with the proposed development programmes.
Agricultural Price and Trade Policy under the LADC
This directly follows the approach of the EU. In general, domestic prices are
liberalised, and set by supply and demand. But, for critical food products a
system of protective measures seems to be implemented in the future. This
focuses on producers from “very high seasonal uncertainty mainly in
production.” All surpluses seem to be under a government intervention
Trade policy would be set in support of the domestic programme. Thus,
imports of products would be subject to protection to avoid undermining
domestic producer prices on excess imports. Exports of products would be
encouraged as necessary to eliminate non-storable surpluses and stabilise
domestic markets in these products.
Budgetary Cost Concerns
This policy stance seems straightforward. But, as evidenced by the
experience of many international commodity organisations from the post-World
Wawr II era through their demise in the 1970s, and more recently by the EU,
severe financial problems arise in implementation. Balancing CAP/CARPE-like
policies and WTO policies will require very large government expenditures.
Added to this will be the sizeable costs of commodity storage and disposal
134 Agora Without Frontiers
In general, domestic prices arising from distortion in production. Overall, the
proposed intervention programme will place a great,
are liberalised, and set by
possibly unsustainable, burden of cost on the
supply and demand. But, government’s public expenditure programme in the
for critical food products a long run.
Despite its massive financial resources, even the
system of protective measures
EU is finding it necessary to modify its intervention
seems to be implemented in programme in response to the enormous cost.
the future. Significantly, the EU administers the intervention
programme but does not operate the actual physical
process. Instead, this is sub-contracted to private sector firms under a
competitive bidding arrangement. Experience shows that commercial activities
carried out by public-sector agencies are never cost-effective, thus adding to
the fiscal burden. Expenditure issues did not arise in the official review of the
propsed programme carried out by the Ministry of Agriculture. There is no
monitoring and evaluation system in place. Also, the lack of an institutional
network for eliminating diseases, and introducing international health-care
and production standards, could have negative environmental consequences
giving rise to protests by concerned citizens” organizations.
Low Level of Competitiveness
Competitiveness, seen as a synonym for productivity, could be improved by
introducing knowledge-based technology, improving skilled labour, raising
investments and improving efficiency. For Serbia and Montengro, the important
element for raising competitiveness is the influence of the international
market. But only 27.8% of enterprises in Serbia and Montenegro are active in
the international market, with no more than 10% of its production, which
means that their basic orientation is directed towards, the domestic market. It
brings a low level of international competitiveness, and, consequently, a low
level of competitiveness in comparison with foreign firms competing in the
Technology in domestic agricultural products is low – Unit Value for
exported products 0.48 Euros and for imported products 0.82 Euros. Most of the
first twenty products exported are primary products of low technology – low
processing value (See Table 2).
The quality of agricultural products seems quite high but there were no
national laboratory networks for quality control under the international
standards. Therefore, a lower level of competitiveness for agricultural products
based on a quality is expected.
Raising the rivality and rivality intensity is another competitiveness element
which needs to be strengthened. It is connected with privatisation issues and
Foreign Direct Investment (FDI), which is still ongoing with no significant result.
Agriculture of Serbia and Montenegro 135
The most important export products, average 2000- 2003
No. EXPORT ITEM SHARE % CUMULATIVE %
1 Sugar – sugar beat 11.4 11.4
2 Raspberry – rolend quality 7.4 18.8
3 Raspberry – II quality 4.9 23.6
4 Maize – mercantile 4.5 28.2
5 Wheat – mercantile 4.4 32.5
6 Sweet biscuits, waffles, other 2.6 35.2
7 Sour Cherry – rolend with nut 2.5 37.6
8 Chocolate and other products 1.0 39.6
9 Raspberry – III quality 1.8 41.4
10 Blackberry – comfiture 1.7 43.0
11 Mushrooms 1.4 44.5
12 Mineral water 1.3 45.8
13 Raspberry, fresh 1.3 47.0
14 Mushrooms, fresh or cooled 1.2 48.3
15 Maize, seed 1.2 49.5
16 Bread, cakes, other 1.1 50.6
17 Wheat flower 1.1 51.7
18 Sugar beat 1.1 52.8
19 Raspberry, block 1.0 53.8
20 Malts for beer 1.0 54.8
Source: Serbian Statistical Bureau 2004.
Over time, this will impede the structural transformation of the production
system toward progressively higher levels of efficiency, i.e. competitiveness,
which are only achieved as the smaller, marginal producers leave the sector,
allowing farm size to adapt to market conditions.
Alternative Approach to Incentive Policy
Sensible alternatives to this expensive approach are to be found in
facilitating normal market forces and in utilizing the gains from trade to ensure
136 Agora Without Frontiers
Competitiveness, seen as a adequate, competitively priced supplies. In the short
synonym for productivity, run, if there is a need to support farm income, this
can be done at far lower financial and economic cost
could be improved by by using a deficiency price payment system combined
introducing knowledge-based with marketable output quotas. This better promotes
technology, improving skilled economic efficiency in production, avoids surpluses,
labour, raising investments and does not inhibit structural transformation of
and improving efficiency. For farm size.
Since EU reform of the Common Agricultural
Serbia and Montengro, the
Policy is moving in this direction, harmonisation will
important element for raising be relatively simple in future. Reforms in Serbia and
competitiveness is the Montenegro toward such an approach embody a new
influence of the international policy approach whose aim is to:
market. • create a more competitive agriculture sector
capable of international trade without subsidies
• promote hygienically safe production methods to supply quality products in
direct response to consumer demands
• encourage diversity in resource utilization
• maintain a vibrant rural economy, generating employment opportunities
• promote environmentally sustainable agricultural systems
• provide a simpler, more readily acceptable agricultural policy, implemented
in partnership within member states, and
• Ensure the agricultural policy is supported by all, based on the transparent
contributions of the sector to the entire society.
This will result in earlier harmonisation with EU policies and possible earlier
accession, having a more competitive and efficient agriculture. The resultant
decline in farm income will be offset by greater direct (non-market related)
transfer payments in return for environmentally improved farm activities. Off-
farm income-generating activities will also be encouraged.
Current proposals for the future incentive policy for agriculture by Serbia
and Montenegro are seen to conflict partly with the direction now being taken
by the EU. Over the next seven years, now seen in Serbia as a reasonable
timeframe for developing a close association with the EU, in both style and
substance, EU agricultural incentive policy will have changed enormously. It is
in the direction of that change which the Serbia policy-makers should now be
focusing their current policy proposals. Otherwise, wrenching and rurally
unpopular adjustments will be required as the time for harmonisation draws
The thrust of privatisation activities, ongoing since 1989, is to increase
efficiency in the production process by removing the public sector from the
Agriculture of Serbia and Montenegro 137
production of private economic goods and services and allowing enterprise
managers to respond to market prices only. At present, only social capital
(capital accumulated by the enterprise itself) can be privatised. All state
contributed capital still remains the property of the state. Between 1989 and
2006, the models of privatisation have changed. Under this new privatisation
process, a number of profitable small- and medium- enterprises have been
privatised under the government influenced under-valued sales.
During the 1990s, the political risk was seen as too large to entice FDI.
Also, during that period, FDI was prohibited under the UN economic sanctions
(1992-93). For reasons related to recapitalisation and lack of foreign interest,
over-employment, and uncertainty over state-owned assets, the privatisation
process is making relatively slow progress. Following years of losses and
neglect, recapitalisation is seen as essential, but the current process brings
very little cash to an enterprise. The hangover from the past decade continues
to hinder FDI. Nominally, excess labour problems are readily resolved, but in
practice they take time, and so, particularly in large enterprises, this depresses
interest from outside. Unsolved disputes of land ownership is an additional
Many large-scale farm enterprises included land provided by the state. At
present, the law requires that this remain the property of the state. As yet, the
government has not decided on what stance it may take regarding future
ownership. No clear economic criteria have been adopted here and apparently
many legal issues must be resolved prior to the government being able to
privatise its productive assets. Also, in the case of large-scale farm enterprises,
there is a great reluctance to engage in any form of privatisation that would
possibly disrupt the domestic supply of food products. This is also a source of
delay in the government exiting the private sector.
Overall Priorities and Strategy
Faster growth in income in the rural sector must be the priority, followed
closely by attention to the distribution of income. Thus, the agriculture sector
must take priority in any attempt to stimulate growth. The thrust of any overall
growth strategy must be to alleviate constraints to growth, initially for the
target group and then for the remainder. The main agricultural development
problems and limitations in Serbia and Montenegro represent the possible basis
for the future priorities setup. Few general limitations could be stated:
Political and macroeconomic instability
Still unsolved formal problems like the the Kosovo and Metohija problem,
138 Agora Without Frontiers
Isolation of agricultural are the crucial obstacles for constitutional
organisation of the states. It imposes the pace of
policies from macroeconomic
development reforms and possibilities for the
policies has been an formulation of the national competitiveness strategy,
important factor resulting internal efficiency of the overall economy, regional
rural development and particular economic branches
in the lack of consistency in like agriculture and agro-industry. Alternatively, it
economic policy. harms the possibility of faster accession to the EU
and the WTO.
An overstated role of agriculture in rural development
An overstated role of agriculture in rural development has occurred as a
result of a misunderstanding of the role of agriculture in sustainable rural
development. Agriculture has been regarded as the only sector in rural areas
and as an isolated object of policies. However, economic development
demonstrates that agriculture is becoming less important not only in the overall
economic structure but also in the economic structure of rural areas. Its
development is still of great importance for economic development but it must
be structured in different way.
Isolation of agricultural policies from macroeconomic policies
Isolation of agricultural policies from macroeconomic policies has been an
important factor resulting in the lack of consistency in economic policy.
Changing price and trade policies and frequent changes in the policy of the
state subsidies in the recent past has resulted in a decline in production,
consumption, and trade. However, due to the changes in exchange-rate policies
followed by a real exchange-rate appreciation, producers were still taxed.
The maintaining of a strong position by the state in the food chain
Maintaining the State’s strong position during the past decades is one of
the characteristics maintained by a tendency to overstate the direct role of
the State through monopoly storage enterprises, state marketing channels,
state regulation of foreign trade, and state regulation of prices. The budgetary
cost of such a policy was not as high as the administrative costs of monitoring
state monopolies and their low efficiency were. Combined with the latest
changes in the State position and its inactivity, and the slow pace of reform
after the year 2000, the situation in agriculture has still not improved.
Co-oping of CAP/CARPE - like policies
Co-oping the CAP-like policies in the period of an administrative and
centrally planned economy brings many negative consequences, mainly for
farmers and private producers. In the recent past, it was connected with
increasing both the inflationary pressure caused by higher agricultural and
Agriculture of Serbia and Montenegro 139
food prices, as well as raising the budgetary costs of agricultural policy. Today,
farmers are uncertain about adopting the EU policies. Such doubts complicate
the negotiated EU accession and WTO commitments.
Lack of progress in land reform
Land reform has been carried out through land restitution, land
compensation, and land distribution, but rarely through the sale of land. Severe
restrictions have been imposed on the land market and land tenure. During
the socialist period, limits on the size of farms, as well as moratoriums on the
selling of land, had been in place. Today, the land market starts to operate –
mainly through the process of privatisation, which is still in play in the country.
One of the major technical constraints for the development of the land market
and land tenure was non-transparent property rights on land. The new
legislation on property rights as a complex set of regulations, and the
institution of these regulations, is still missing and constitutes a major obstacle
for the further consolidation of private farms and agricultural enterprises large
enough to compete with the producers in the EU.
Privatisation without abolishing market imperfections
The privatisation per se is not enough to increase efficiency in an
environment characterised by a substantial lack of market institutions
developed toward the needs of private enterprises. The different approaches to
privatisation had been implemented but there was a lack of progress in the
privatisation of the food processing industry due to the lack of a clear concept.
As a result, the food industry performance has changed a lot, but not
substantially, and it will last until the company management, in the most cases,
Ad hoc policy measures vs. stable and continuation policy approach
Consistent policy measures are not being applied continually. Government
policy has continuously imposed shocks to the economy by unclear and
confused policy measures which were rapidly changing and, thus, creating much
uncertainty and risk for agricultural producers. The situation is slowly
improving but still is unsatisfactory.
Direct vs. indirect state programs
There is a lack of experience with a market economy in Serbia and because
of some distorted market practices observed in Western Europe – CAP/CARPE
policies direct state programmes are costly for the budget. It creates the
opportunity to set up market institutions, supports the market infrastructure
(such as storage facilities and market information systems), supports R&D and
its application, supports the establishment of the extension services, furthers
140 Agora Without Frontiers
Land reform has been the development of food safety systems and food
carried out through land security systems, and synchronises domestic quality
standards to international standards. A
strengthening, but still weak, state budget is not
compensation, and land enough to support all the needed measures.
distribution, but rarely The main priority is to create human and
through the sale of land. institutional capacities, strategies, and policies to
Severe restrictions have been facilitate future membership in the EU. Also, poverty
imposed on the land market alleviation and food security are still high priorities.
and land tenure. Also, faster growth of income in the rural sector
represents the overriding priority, followed closely
by attention to regional distribution. The real constraints to growth are
systemic and such that, if not remedied, can only continue actual trends toward
the poor performance of the sector,On the other side, for any reform and
development efforts to succeed there is a need for substantial development
The main areas for development assistance are the following:
• Overall economic management of agriculture (sector management)
• Transfer of advanced technology to the farmers
• Development of an agricultural credit system and financial market
• Institutional support in the field of food security and EU and WTO standards
• Institutional support directed to the farmers
• Development of a system for generating income (SMEs)
• Clustering and Cooperation programmes for the improvement of small,
private farm income and production
• Local area government programmes for further development of infrastructure
and solving the socio-economic problems in rural areas
The first step must be the relatively quick discontinuation of all direct
involvement of the Ministry in commercial activities. This would include the
provision of farm inputs, if any, purchase and storage of outputs, and
involvement in financial flows. In addition to ending all commercial activities,
the Ministries must introduce dynamic, outcome-oriented programmes on
expenditures, in order to accurately track the results achieved in the sphere of
The main directions for the agricultural development of Serbia as a
Some of 95% of agricultural production of Serbia and Montenegro.
Agriculture of Serbia and Montenegro 141
dominant agricultural producer by regions9 are:
Region 1 – Vojvodina (lowland): Emphasis on intensive crop production.
Development of production must be focused on industrial crops
(sunflower and sugar beet), wheat, maize, vegetable production, and raw
tobacco. In livestock, the main emphasis must be on poultry and pig
production. Also, it could include 30-35% of milk production and 25% of
quality livestock breeds.
The main support for such goals must be big, private farms, highly
mechanised systems, and partial implementation of irrigation systems.
Region 2 – Northern part of Central Serbia (hilly and mountainous
The pre-dominantly hilly region of Central Serbia has a potential for
livestock production (mainly cattle and sheep, as well as poultry and pig
production in the lowland of Macva and the Big Morava river). The perspective
production of milk could cover 55% of the total production and almost the
same share in quality livestock breeds. Fruit production could focus on
raspberry, plum, and sour cherry production. Viticulture production and raw
tobacco production (50% of total production) are also very promising.
Region 3 – Southeastern part of Central Serbia (pre-dominantly
mountainous and hilly region)
This region has a potential for livestock production (sheep breeding - for
meat and wool - and cattle breeding in the eastern parts of the region), fruit
production, and partial viniculture. Milk production and quality livestock breeds
have a relatively small potential (approximately 10% each). There is also strong
potential for raw tobacco production. Also there are small mechanization and
equipment programmes needed.
Region 4 – Montenegro as an agricultural region
Montenegro as an agricultural region has its competitive advantages in the
production of Mediterranean fruits, olive trees, viticulture in the coastal region,
Mari culture, fisheries, as well as livestock and fruit production in the
mountainous regions, and production of seeds.
In addition to sector management, the main directions in the further rural
development of Serbia and Montenegro must be toward:
– Supplying technology for small-scale agriculture and further specialisation
of the farm production
– Small-farmer extension services
– Improving the educational system from secondary schools and on
– Building capacity through different training methods
– Strengthening collaboration between small, private farms by establishing
142 Agora Without Frontiers
The privatisation per se is modern cooperatives
– Building a new agricultural credit system
not enough to increase
– Developing the financial market (developing the
efficiency in an stock exchange for agricultural product trading:
environment characterised forwards, futures, options, etc.)
by a substantial lack of – SMEs in agro-industry, in services, and in other
market institutions – Improving infrastructure (cool stores, warehouses,
developed toward the needs improving logistics, water supply, irrigation,
of private enterprises. transport and communication, energy efficiency
– Strengthening the local government and its ability
for efficient rural/local development
Technology for Small-Scale Agriculture
Small-scale agriculture has been selected as the point of focus for future
expansion of agricultural output. This reorientation of priorities is correct,
even if very late. But, delivery systems for inputs to this sector has been
remarkably neglected, and nowhere more so than in the area of technology
delivery. There is no small-farm extension service. Instead, small farmers were
expected to be served through a “trickle down” from large-scale farming
systems, which were the almost exclusive focus of all research and extension.
Now the small-scale farming sector is expected to pick up the slack and be an
engine of growth for the sector. In the absence of a suitable technology
transfer system, this growth will be slow.
It will take time to build such a system. But a start must be made. Currently
absent, the very foundation, research, and development of small-scale farming
systems must be created. At the very base, there is a great need to reorient the
educational system to give the students skills to support diversified and market
oriented farms and enterprises.
To this end, led by the Ministry of Agriculture, resources and programmes
ongoing in Universities as well as in technical Institutes should be reviewed for
their relevance to the new priority and appropriate adjustments should be made
to these work programmes. This must include the system of education in
agriculture at secondary and tertiary levels, to meet the human resource needs
of the new system. Since time is of the essence, the near-term focus of the
revised effort should be on the assessment and adaptation of suitable off-the-
shelf technologies and farming systems already available internationally. Much
should be readily available in nearby Western Europe. The Ministry must also
require the extension service to review and adjust its work programme to
reorient it to serving the new priority. Potential Donors and Development and
Financial Agencies can assist in this by financing specialised assistance to the
Ministry to assist and guide this review.
Agriculture of Serbia and Montenegro 143
Agricultural Credit is essential in promoting an increased flow of outputs
from, and inputs to, on-farm production and to agricultural marketing,
including all forms of agro-industrial processing and storage. A good credit
system, by providing both short- and long-term credit, ensures that system
liquidity is adequate to maintain growth. It also disciplines the financial
behavior of borrowers and so ensures the sustainability of the system. Finally,
it reacts to all changes in the business climate to appropriately vary credit
availability. In this context, Serbia and Montenegro have never had a good
credit system. Building one in the current climate will take time. The effort will
require strong support from the donor community, especially financially.
Partnerships between acceptable domestic banks and foreign banks will
likely be a key element. Because injection of new credit initially is essential for
recovery, some risks will need to be taken. To guard against loss, all credit
activities will need careful supervision by the donors. Due to the size of their
requirements, large-scale processing plants with on-going operations are likely
to be able to attract financial assistance directly from investors and special
finance agencies. But the bulk of agro-industry SMEs will not be so individually
attractive and will require servicing by a retail credit agency. Initially, for fear
of contamination, it may be necessary to isolate this operation from the
domestic banking system.
Agricultural SMEs are probably the single group in the agricultural sector
undergoing the greatest transition. As liberalisation of the economy grows so
do the opportunities for private investors in this area. On the other hand, the
previously dominant social agro-industry enterprises are now facing
privatisation and the absence of the credit system measures before
privatisation. In many cases they are in need of recapitalisation.
Expansion of SMEs in general, and agro-industry in particular, is of great
importance to development of the off-farm rural economy. Likely to be locate
in rural areas near raw material supply, these generate off-farm employment
well beyond their direct labour force, thus providing much needed dynamism
to rural communities. They are also vital links in the producer-consumer chain.
Without them, demand for farm output would be more localised and thus
greatly reduced. Economic disarray and transition in Serbia and Montenegro
has caused many SMEs to reduce their public profile. Concerns related to tax
demands, creditors seeking payment, and the general uncertainty of the
business climate are a part of this. Of course, most of these concerns are
common to many SMEs.
Resolution of these concerns in a general fashion, i.e. unrelated to any
144 Agora Without Frontiers
The main priority is to specific firm, could effectively be done by a
representative SME organisation. This could serve as
create human and
a clearing house for information and experience in
institutional capacities, dealing with generic problems as well as acting as a
strategies, and policies to lobbyist on behalf of the group. As the problems of
facilitate future membership the time are resolved, the organisation could move
on to identifying and addressing the new sets of
in the EU. Also, poverty generic constraints facing its members, including
alleviation and food security access to external markets, matching up with
are still high priorities. customers, and ensuring competitiveness in access
to inputs by presenting itself to suppliers and
creditors as a countervailing power on behalf of its members.
Any SME organisation should be entirely independent of the government
and run solely by and for the members. To get such an organisation started, a
catalyst (clusters) is likely to be needed, preferably in the form of a partnering
arrangement with a similar organisation operating in a market economy. Since
neither partner would be in a position to finance the start-up cost,
international finance support and general organisational assistance would be
of great importance.
The current farmer cooperative organisation system, the zadruga, is clearly
recognised as a creature of the past. Even its executives realise that it must
adapt to the present or cease to exist. However, its members (private farmers)
are reported to be indifferent to its future.
But, similar to SMEs, these farmers have shared operational concerns which
can be best addressed by a professional staff, selected and remunerated by the
farmers, and so dedicated solely to serving the members” best interests.
At the local level, development efforts may require reforming an existing
zadruga, to bring it entirely under the control of the members. The decision
must be made democratically by the farmer-members themselves and without
any undue influence from outside. Activities would also be decided at the local
level and arise from farmers own perceptions of their common interests.
Experienced external organiser could be sine qua non to assist in start-up.
Also, where it is desirable to take over fixed assets of the former zadruga, some
loan financing may be necessary. This could be repaid from user charges paid
by members and anyone to whom the asset may be rented by the group.
Through a process of federation, the organisation may be represented in the
policy-making process at the government levels.
Content specificity is difficult because of the broad-base of potential needs
Agriculture of Serbia and Montenegro 145
in most areas. Also, specificity early on may be unwise as it could block
resources for programmes which may not have broad-based relevance. Specific
programmes must be defined during the overall design phase. One relevent
issue which appears widespread, is that of under-utilised land. The reasons for
under-utilisation may be varied, such as ageing owners no longer able to work
the land, severe fragmentation making it a low return effort, absentee
ownership, etc. Whatever the reason, the impact on a community is the same-
reduced income inflow. In most instances national level programmes are either
not available or do not adequately address these issues. Yet, the amount of
under-utilised and fragmented land is substantial so that the gains are likely
to be significant. Retraining of local labour to meet requirements of local
employers is another example of social investment to improve local resource
utilisation. Improved health measures through improved water and sanitation
facilities are also a possibility.
To address such issues, programmes could be developed under the auspices
of local governments or interest groups (NGOs, farmers, or employers
associations) to explore alternatives, make recommendations, design solutions,
and oversee their implementation. Some external financial assistance,
especially for start-up technical assistance and training would be required.