Goran Živkov

Landing to agribusines/rural SMEs and micro-enterprises

Development of rural finance in Serbia

REPUBLIC OF SERBIA Ministry of Agriculture, Forestry and Water Management

www.minpolj.sr.gov.yu

East Agri 2005 ANNUAL MEETING

Rome, March 2005

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

• Agricultural land: 5,734,000 ha5,734,000 ha• Cultivatable land: 4,867,000 ha4,867,000 ha • Agriculture land per capita: 0.56 ha• Arable land per capita: 0.46 ha • 35% of population have access to land• 87% of land is private ownership • Number of farms: Around 700.000• Average size of farm: 3 ha• Number of villages: 4.706 • 44% of the population live in rural areas• 93% of municipalities and 75% of villages with negative population growth

Less then 75

85 - 90

75 - 85

Over 95

90 - 95

% of cultivable

area

Agriculture resources

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

Agriculture - Major component of the

economy

• Primary production from agriculture, hunting and forestry accounted for 21 percent of GDP (25 % agro-processing)

• Exports of primary agricultural products account for 26.3% of total export

• More than 10 % of employed are in primary agriculture and agricultural processing industry

Agriculture share in GDP (% )

0 5 10 15 20 25

1980

1985

1990

1995

2000

2003

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

  Land own Land own

% Cows own Cows own

%Number of

farms

Agriculture households less than 1 ha 4% 1-3 6% 200,000

Small holdings 1- 5 ha 35% 3-5 41% 400,000

Private farms more then 5

ha 46%more then

10 44% 100,000

Cooperative avg 400 5% 50 1% 510

Kombinats avg 700 10% 100 8% 549

Important in terms of

household food & income

security, so ensure

continued access to

inputs, but exclude from commercial

policy

Encourage switch to

high-value crops &/or

expansion to private farms,

with some reducing to

ag. households

Ensure further development

and enlargement

Establishment of democratic

structure, transformation to modern cooperatives

or other structures

Privatization and

restructuring

The policy challenge: one size does NOT fit all !!!!!

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

Agricultural Products Agricultural Products Trade (mTrade (mio USD)

Liberalization 2000 dabbled the trade

Deficit decreased

-400

-200

0

200

400

600

800

1996. 1997. 1998. 1999. 2000. 2001. 2002. 2003 2004

Export Import Trade balance

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

Budget expenditure for agriculture in 2000-2005 (in

billion dinars )

0

5000

10000

15000

20000

25000

30000

2000 2001 2002 2003 2004 2005

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Total ag. budget Percentage of overall budget

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 +1 +1 +1 -1 -1 -1 EU

Market Intervention Structural support Administartion Finasial infrastructure

Rural Incentives Enviromental payment Area payment

Modernization of the agriculture and adjustment to the EU

Budget goals

2005 … +1…..______________n_______________….-1…..EU

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

Current situation in development of

the rural credit market

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

PRIVATE BANKS

State Commodity Reserve

Input suppliers

Farmers

Processors

ProizvodPare

PRIVATE BANKS

PRIVATE BANKS

PRIVATE BANKS

Organizatiors of

production

• Fertilizers • Pesticides • Seeds …

• Millers • Oil factories • Sugar factories … • Zadruge

• Directors zadruge • Kompanies …

• Farmers • Cooperatives • Kombints …

Ministry of Finance Ministry of Agriculture

Development Fund

HIG

H I

NTER

ES

T R

ATE

Su

bven

tion(Limited influence)

Current situation SHORT TERM CREDITS

Hidden interest rate 30-70%

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

Current situation MEDIUM TERM CREDITS

High demand ***

Available to the processors and SMEs not to the farmers

***ProCredit Bank (around 20 mill € per year,

average credit size 3.000 €, interest rate 2% per month linked with € )

***Mechanization suppliers

***Ministry of economy – leasing for domestic

mechanization***

UNDEVELOPED MID-TERM CREDIT MARKET

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

Current situation LONG TERM CREDITS

Not exist and

No sign that will be established soon

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

• The lack of investment credit generally in the economy

• The particular risk and low profitability associated with agriculture

• The lack of collateral available (unfinished cadastre)

• Inefficient legal protection

• The relatively small loan size required in the private sector and the associated relatively high fixed cost of establishing and monitoring it

• Lack of expertise in the banking sector for appraising agricultural business plans

• Lack of experience and expertise amongst farmers in developing and presenting business plans

• Farmers do not trust to banks (and opposite) - lack of credit history

The lack of commercial credit for agriculture can be attributed to:

Agriculture credit market in Serbia never existed!

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

Are there successful agriculture without developed credit market?

To wait or

To do something to speed up (slow down) process

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

FARM REGISTRY

FARMERS

Ministry of Agriculture

MINISTARSTVO POLJOPRIVREDE, ŠUMARSTVA I VODOPRIVREDE

Direct payment & Price support

RD (Investment payment)

Structural payment

BANKBANK

BANK

SMEsCooperatives

BANKBANK

BANK

BANKBANK

BANK

Open account

Budgetary payment

Commercial credit

Short term credit

Medium term credit

70.000 farmers open account in one of the bankBank started to be interested for farmers

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

MAIN OBJECTIVES:

DURRATION: BUDGET:

i) Development sustainable system for financing agricultural sector from real sources

ii) Develop credit historyiii) Improving of production through ensuring access to

capital to farmers5 – 7 years700 millions to 1 billion EURO

2004 2005 2006 2007 2008 2009 2010 … Need

ed

cap

ital

Banks m

oney

State budget (MoA)

Priorities: Financing

System Development

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

Short term credit

• Short term credit to buy inputs • Loans on 1 years with interest rate on 7% (din)• Linked with farm size (150 – 1000 EURO)• Important to build credit history • Source of money is agrarian budget• Banks are managing credits • Programme 2004

– 68 SMEs received credits in total amount of 6.7 mill EURO (avg. 89,338 EURO)

– 28.125 farmers received credits in total amount of 21.6 mill EURO (avg. 807 EURO)

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

Medium term credit

• Investment credit on 5 years with interest rate of 3% per year (€)

• Source of money is agrarian budget and banks • Banks are managing credits • Banks have 10% risk• Government Guaranty found secure credit • Programme 2004

– 157 SMEs received credits in total amount of 21.3 mill EURO (avg. 135,880 EURO)

– 740 farmers received credits in total amount of 12.04 mill EURO (avg. 16.271 EURO)

East Agri - 2005 ANNUAL MEETING, Rome, March 2005

HVALAThank you

East Agri - 2005 ANNUAL MEETING, Rome, March 2005