Serbia harbors big potential for Black Sea grain market

BELGRADE - Serbia is already an important player on the Black Sea grain market, but the country may not be reaching its full potential when it comes to crop production.

Corn is the key export for the former Yugoslav country, and the GMO-free quality of the grain captures the interest of buyers all over the globe.

Just like their counterparts anywhere in the world, Serbian farmers have their set of hardships that hold them back. But state policy specifically limits the domestic industry and is leading to an underutilisation of the country's fertile soils.

Two of the major setbacks for Serbian agriculture are the government policies regarding land leasing and subsidies. These policies make the universal struggle of weather more threatening to local farmers, but this is one of several impacts.

Reuters travelled to Serbia last week to interview local producers about the challenges facing the agriculture industry. The sentiment was unanimous - state policies are far from ideal.

Serbia already competes with the likes of Romania and Hungary in world corn trade, but the Balkan country has the potential to increase its presence greatly on the Black Sea market.

And if Belgrade opts to change the policies, competition on the Black Sea grain market could really crank up.

LAND LEASING

Of the 2.2 million hectares devoted to grain and oilseed crops in Serbia, about 25 percent is government-owned. This makes the state the largest single owner of farmland in the country.

Farmers are able to lease state land for one to three years, depending on the region, and this is where the problem lies.

Soils are delicate and have to be taken care of. It can take many years of specific crop rotations and land management to "groom" the soils to optimise nutrient intake and maximise yields.

But if farmers are unsure whether they will be farming the same fields in the following year, then they are less inclined to invest fully in all of the proper inputs, especially when resources are tight.

And even if the farmers know what was planted on their newly rented field in the previous year, they still have no way of knowing how the previous farmer treated the field.

Farmers are not motivated to take care of government land as they would their own land, and this makes government-owned farmland of lower quality than privately owned land.

This policy is a headache for farmers. Those interviewed by Reuters last week said the leasing period is far too short, and that even a couple of extra years might make a difference.

Either way, it is clear that if proper land management practices could be employed on 100 percent of Serbian cropland, yields could be noticeably higher, especially given the fertile black soils in the country's core grain belt.

SUBSIDIES

Many countries have subsidy programmes to protect farmers against massive losses and to encourage them to invest in their operations. The Serbian government offers subsidies, but judging by the terms and conditions, the effort might best be saved.

Belgrade pays farmers just 32.5 euros ($36.50) per hectare, but only to those that farm 20 hectares of land or less. Not only are there few farmers who operate on such a small amount of land, but the payout is essentially a drop in the bucket.

The current cost per hectare to rent farmland in the fertile Vojvodina region is generally between 100 and 500 euros per year depending on soil quality, and this rate is proportional to crop prices.

Purchase prices currently run between 6,000 and 8,000 euros per hectare, but can be as high as 12,000 euros for the best land. Top rent can also reach 900 euros.

One farmer said his cost to plant wheat was around 400 euros per hectare this year, not including machinery. And wheat is cheaper to sow than corn, Serbia's main cash crop. It is not hard to see that the 32.5 euros cover approximately nothing.

The primary effect of this policy is that farmers can be financially crippled in the event of a major yield loss, but the land-leasing programme and lack of subsidies prevent farmers from making bigger investments that would allow for higher productivity and better protection against losses.

For example, both of these policies are also reasons why irrigation systems occupy only 12 percent of Serbian crop fields - investing in them is simply not worth it. So droughts continue to be a major fear for farmers.

But the lack of financial assistance from the state could have negative long-term effects on domestic agriculture, as it may also be preventing future generations of Serbs from participating. Farming is a risky business in general, but where there are fewer cushions there is less incentive.

WEATHER RISK

Serbian farmers overwhelmingly told Reuters last week that weather is the main factor that threatens their operations. This is true in most countries, but the state policies already discussed raise the weather risk in Serbia.

With virtually no padding from subsidies, farmers cannot afford to take a hit to yield, no matter how small. But the big hits can be devastating.

In 2012, drought gripped grain belts across the Northern Hemisphere. Serbia was hit particularly hard as nearly half of its corn crop was wiped out within 10 days in early July from the hot, dry and windy conditions that dominated the region.

Many Serbian farmers are still suffering financially from the 2012 season. One farmer said his 3,000-hectare operation lost several million euros that year, and he can only hope for higher yields and prices in coming years to help him recover.

All interviewed farmers agreed that the best way to manage weather risk is to diversify the crops they plant. This strategy works well in the event of mild disruptions, but it is still no match for a catastrophic drought.

Weather will never cease to threaten agriculture in Serbia or anywhere else. However, changes to Belgrade's leasing and subsidy programmes would offload a great deal of risk from the farmers, who would not have to fear the weather as much as they do today.