Serbia: Food costs near EU average, drought tightens its grip

Food prices in Serbia at 96% of EU average

The prices of food and non-alcoholic beverages in Serbia in 2023 stood at 96% of the European Union (EU) average, indicating a gradual convergence with EU standards, according to data from Eurostat, and reported by daily Danas. Household consumption in Serbia last year was at 67.7% of the EU average, marking an increase of about 10% compared to 2020.

Countries in Central and Eastern Europe had cheaper food than Serbia. For instance, Poles paid 22.5% less for food and beverages than the EU average, Bulgarians paid 11.7% less, while the cheapest food in the EU last year was in Romania, where prices were 73.5% of the EU average. In Montenegro, food prices were at 87% of the EU average, in North Macedonia at about 68%, and the lowest prices were in Turkey, 36% below the EU average.

In 2023, clothing prices in Serbia were 2% higher than the EU average, and footwear prices were at 97.6% of the EU average. Serbia ranked among the cheapest countries in terms of alcoholic beverages and tobacco, with prices 27% lower than the EU average. According to Eurostat, the average net salary in the EU in 2023 was €1,367, while in Serbia, it was €733, representing 53.6% of the EU average.

Lower prices for basic goods announced

Serbian President Aleksandar Vucic announced that from September 1 to October 31, citizens will be able to purchase 81 products at reduced prices in supermarkets. This initiative is the result of negotiations between the Government and retailers.

Speaking on Radio Television of Serbia (RTS), President Vucic  mentioned that the list includes a "wide range of products" such as smoked sausages, shampoos, laundry detergents, yogurt, and various fruits and vegetables. "With this initiative, we aim to enhance the sense of responsibility among retailers while clearly demonstrating our commitment to ensuring that those who are less fortunate, as well as lower and middle-income groups, can navigate this period more easily. If not with ease, then certainly with the ability to afford a decent and dignified life," stated the President.

Serbian Prime Minister Milos Vucevic will present the “Best Price” initiative at the session of the Government of Serbia last week of August. In the ten days of August, Vucevic held a meeting with representatives from the largest retail chains, leadership of the Serbian Chamber of Commerce and several ministers. The meeting aimed to analyze why certain products are more expensive in Serbia compared to neighboring countries. "We do not want to jeopardize the ability of retailers to operate, as they are major employers. The nine retailers at the meeting employ over 50 thousand people," the PM stated but indicated that the Government would investigate any instances of price gouging and excessive profiteering.

Heading to a new food price increase  

Despite rising food prices, neither the economists, not the National Bank of Serbia (NBS) anticipate a significant price shock due to the ongoing drought. Although food prices have recently increased, particularly noticeable in local markets, both Bojan Stanic from the Serbian Chamber of Commerce and the NBS suggest that there will not be a dramatic impact on inflation. Stanic points out that lower yields will not impede domestic supply or export potential, and global grain prices are falling due to a strong season in key producing countries.

The NBS reports a 1.8% increase in food prices from January to June 2024, a significant decrease from the previous year's 10.7% rise. While food prices remain higher than pre-pandemic levels, they have been on a downward trend since April 2023, with some categories, like vegetables, seeing notable price reductions.

Consequences of the drought will be severe

This summer’s drought, similarly to Hungary north of the border, will cause severe losses for Serbian farmers this year. Early harvest results, even for drought-resistant sunflower, show yields lower than expected. Sunflower yields are down to 2-2.5 tons per hectare, compared to 3.2 tons of last year, leading to losses of €450-600 per hectare. Corn, which will be harvested a month early, is expected to have similar issues. Farmers also face high losses due to drought, with sunflower and corn prices falling significantly.

Zoran Keserovic, a professor at the Faculty of Agriculture in Novi Sad, stated last week that due to extreme heat, the fruit yield in Serbia this year will be five to eight percent lower than in 2023. Keserovic noted that Serbia typically produces around 1.45 million tons of fruit, this year's yield is expected to be between 1.22 and 1.25 million tons.

"Last year, the fruit yield was reduced by 270 tons compared to 2022. At the beginning of this year, I anticipated a fruitful year given the potential, but we faced low temperatures in the third decade of April, followed by significant damage from hail and high temperatures. Therefore, I expect the yield to be even lower than last year," Keserovic told the Beta news agency. He explained that high temperatures, particularly in areas without antihail nets, affected the quality of the fruit, especially the Cacak plum, whose fruit became dehydrated and shriveled. "In central Serbia, there were significant issues with cherry frost damage, particularly in Sumadija and Western Serbia, while in Vojvodina, cherry orchards produced well this year, and those growers with high-quality fruit secured high prices," Keserovic said.

He added that the sour cherry yield was reduced, with the fruit damaged by frost, but this was offset by high prices, reaching up to €1.02 per kilogram in some parts of Serbia, with an average price ranging from €0.68 to €0.77/kg. Professor Keserovic also mentioned that the apricot yield was diminished due to frost, although the Fruska Gora region had an abundance of this fruit, leading to the highest earnings for producers in the past 20 years.

In one decade, six billion dollars were lost due to droughts      

Irrigation in Serbia has been a persistent problem for farmers for decades, and this issue is exacerbated by the increasingly frequent droughts affecting Serbian climate. Despite the state taking a €100 million loan for irrigation purposes a decade ago, last year saw fewer irrigated areas compared to 2013. This year, due to the drought, Serbia has experienced a significant drop in the yield of fruits and vegetables, and the quality of the crops is doubtful.

Farmers are often left to their own devices, essentially "looking at the sky" to determine when it’s going to rain. Agro-analyst Branislav Gulan noted in his analysis that approximately six billion dollars were lost over the past decade due to droughts in Serbian agriculture and daily Danas reports. He also pointed out that research indicates that while the northern part of Europe will face increased flooding in the future, the Mediterranean and the Balkans will regularly encounter fires and severe droughts, which will devastate crops and dry up rivers.

Agreement between PM and farmers reached

After numerous protests and meetings between farmers and high state officials an agreement has been reached. The Serbian government will propose amendments to the Agricultural Incentives Law to the National Assembly to address issues raised by farmer associations.

The agreement includes a subsidy of €145 per hectare for use of certified seed. A public call for this subsidy will be issued by the end of October 2024. The Government will also address the use of agricultural land with unresolved legal issues by the end of September 2024. This year, a one-time incentive of €342 per head for breeding quality first-calf cows and €513 per head for breeding quality heifers will be provided, with specific conditions.

Measures to limit milk imports and improve oil exports will be implemented, and a coordination group for agricultural products will be formed. Farmers' representatives will be involved in creating the Agricultural and Rural Development Strategy for 2025-2032. Additionally, subsidies for weather-related crop insurance premiums will be offered, and drainage fees for certain agricultural land will be reconsidered.

Will mining endanger agriculture?

Protests against lithium mining were held throughout numerous towns in Serbia with the biggest rally organized in Belgrade at the beginning of August. The Belgrade rally against lithium mining gathered several tens of thousands of concerned citizens.

The main concern of the majority of people is a lack of discussion between experts with relevant expertise in this field. Protesters and activists are claiming that activities of Rio Tinto (the company set to mine this mineral in Serbia), will harm the environment, will have negative consequences on public health and will decay prospects for farming in western Serbia. Protestors demanded a legal ban on lithium mining and emphasized the importance of clean water, air and soil over lithium mining.

Serbian food export to CEFTA market

Last year, 1,720 Serbian companies exported agricultural and food products to the CEFTA market, totaling €1.34 billion. It represents an increase of 6.8% compared to 2022, according to the Beta News Agency.

Data from the Serbian Chamber of Commerce indicates that Bosnia and Herzegovina topped the list of importers within the CEFTA agreement, with imports from Serbia amounting to €598 million in 2023, marking a 5% increase from the previous year. Montenegro was the second-largest importer, with agricultural and food product imports reaching €367 million, a 10% rise compared to 2022. North Macedonia was third, importing €278 million worth of goods, a slight increase of 0.7% from the previous year.

In 2023, Serbia's top exports to the CEFTA market included bottled water and other non-alcoholic beverages, pastries, cakes, biscuits, various food products, animal feed, corn, wheat, flour, and sunflower oil. Suncica Savovcć, Director of the Association Serbia Grains which represents over 60 companies, highlighted that Serbia exported a total of 535,567 tons of wheat and flour, 337,564 tons of corn, 16,400 tons of barley, 72,067 tons of oilseeds (mostly sunflower seeds), 56,111 tons of edible vegetable oils, and 10.684 tons of oilseed meal to CEFTA countries last year. "The total export value of these agricultural products to the CEFTA market in 2023 was €309.37 million," she stated.

Sunoko to produce 275,000 tons of sugar this year

Sunoko, a member of MK Group, announced last week that it has begun its sugar beet processing campaign and expects to process over 1.9 million tons of sugar beets across its three processing centers this year, producing approximately 275,000 tons of sugar.

The furnaces at the sugar factories in Pecinci and Kovacica were ignited last week, while the furnace in Vrbas is expected to be operational this week, according to the company's statement. "Despite record-high temperatures and prolonged drought, Sunoko plans to produce close to 275,000 tons of sugar this year. This quantity will meet the domestic demand for sugar and allow for exports," said Slobodan Kosutic, GM of Sunoko. He emphasized that the company's strategic plans remain focused on increasing sales in CEFTA and EU markets but noted that high yields and quality in sugar beet production are essential for strengthening their position as a net sugar exporter—something that is challenged in drought years like this one.

"Compared to other crops, we expect the least reduction in yields for sugar beets, but investing in irrigation systems is definitely a priority and makes a significant difference in the income per hectare that farmers can achieve. Irrigation is a strategic issue for the development of Serbian agriculture, especially given the impact of climate change," Kosutic stated. The statement also noted that this year, sugar beet was planted on about 47,500 hectares in Serbia, and Sunoko's sugar factories will process raw materials from approximately 33,400 hectares.