The Corona Crisis Further Stimulated Food Imports and Increased Agricultural Deficit

During the first three months of 2020, the value of Croatian exports of agricultural and food products amounted to 564.3 million euros, while the value of imports was 861.7 million euros, resulting in a deficit of 297.3 million euros. Compared to the same period of the previous year exports increased by 7.3 percent, and imports by 9.1 percent, while the deficit grew by 12.6 percent. The coverage of imports by exports of agricultural and food products was 65.49 percent, which is a decrease of 1.07 percentage points compared to the same period of the previous year.

In recent months, a strong discussion has developed about Croatia’s dependence on food imports and how the corona crisis has raised awareness of the need to produce food for domestic needs and has made consumers more aware of their desire to consume more domestic products. As the corona crisis began at the end of February, it was expected that at least the trends in food imports and exports would start to change and reverse the negative trends that have been present for years. Unfortunately, this has not yet happened in the first quarter, and all indicators point to an even more significant increase in imports. Estimates suggest that the growth in imports may be mitigated in the next three months, but a decline in exports will certainly occur.

Imports will not significantly stop because we do not produce enough food for our own needs. Due to the entire situation, it is necessary to monitor, analyze, and determine which products have the potential for faster substitution of imports and how to stimulate their production through permitted market measures and stronger collaboration with producers and better organization of production, concludes the analysis by Smarter, a consulting company specializing in agriculture and the food industry.

We remind you that in 2019, Croatia achieved a value of exports of agricultural and food products of 2.2 billion euros, while imports amounted to 3.5 billion euros, resulting in a deficit of 1.3 billion euros. Compared to the previous year, the value of exports increased by 6.1 percent or 127.4 million euros, while imports increased by 12 percent or 370.5 million euros. The value of the deficit increased by 24 percent, and the coverage of imports by exports of agricultural and food products was 63.78 percent.

In exports, the most represented raw materials

In the period from January to March 2020, the most significant export products were cereals (64.6 million euros),  fish and crustaceans, mollusks, and other aquatic invertebrates (61.6 million euros), various food products (55 million euros), products made from cereals, flour, starch, or milk, confectionery products (42 million euros), and cocoa and cocoa products (39.4 million euros). This group of products accounted for 46.52 percent of the total value of exports. Compared to 2019, there were no significant changes, and the beginning of 2020 continued with a positive foreign trade balance for fishery products, cereals, oilseeds, meat products, fish, crustaceans, and mollusks, as well as tobacco products. For all other groups of agricultural and food products, we are experiencing a deficit that has significantly increased compared to the previous year.

During the first three months, the most significant products in imports were again meat and slaughter products (101.8 million euros), products made from cereals, flour, starch, or milk, confectionery products (70.2 million euros), milk and dairy products, poultry eggs and bird eggs, and natural honey, edible products of animal origin (67.4 million euros), edible fruits and nuts, citrus peels or melons and watermelons (56.3 million euros), and various food products (54.4 million euros). The mentioned groups of products together accounted for 40.61 percent of the total value of imports of agricultural food products in the observed period.

– Croatia is increasingly dependent on imports from the EU market, while we are exporting less to the markets of CEFTA countries, which were once our most significant export markets, and which we are now gradually losing. It is concerning that the deficit balance with EU countries is growing enormously, while the surplus with CEFTA countries is decreasing. In 2019, exports to the EU market accounted for 65.3 percent of total exports, while exports to CEFTA countries accounted for 26.7 percent. The value of imports from EU member states accounted for 87.6 percent of the total value of imports, while imports from CEFTA countries accounted for 6.6 percent. It is important to note that we almost exclusively export raw materials to the old EU member states – corn, soybeans, and wheat, while the export of food industry products predominates in Slovenia and Bosnia and Herzegovina, said Zvjezdana Blažić, an expert from Smarter.

For example, it is well illustrated that in cereals, during the first three months of this year, we achieved an export value of 65.5 million euros, while we imported products based on cereals as animal feed amounting to as much as 50.4 million euros. Even more pronounced is the import of products made from cereals and flour, as well as various types of pasta and bread, which arrived on the Croatian market with a value of as much as 70 million euros.

Analysis of the largest export markets

In the first three months of 2020, there were no significant changes in the export markets and products we are placing, so the list of the five most important export destinations remained unchanged. What is concerning from the analyzed data is that our imports from the largest markets to which we export grew at a higher rate than our exports to our largest export markets, the analysis showed.

Italy

Italy ranks first with exports of 81.6 million euros, accounting for 14.46 percent of total exports. Considering the situation with the epidemic, which was particularly pronounced in this country, exports remained almost the same as the previous year, while imports even increased by 5.7 percent. The most significant export products to Italy were corn, cigarettes containing tobacco, fresh or chilled sea bream, fresh or chilled European sea bass, and soybeans.

Slovenia

Exports to neighboring Slovenia amounted to 76.9 million euros, accounting for 13.63 percent. Compared to the first three months of last year, exports grew by 3.6 percent, while imports grew by 9.2 percent. The most significant export products to Slovenia are: water, including mineral water and carbonated water, with added sugar or other sweeteners or flavored, then various food products, followed by chocolates, sauces and preparations for sauces, mixed spices, and mixed seasoning agents, as well as corn.

Bosnia and Herzegovina

Exports amounted to 65.8 million euros, accounting for 11.67 percent. Exports grew by 9.3 percent, but imports also grew – by as much as 27.6 percent. The most significant products exported to Bosnia and Herzegovina are: beer, then various food products, followed by corn for sowing, and chocolates.

Germany

Total exports amounted to 42.7 million euros, accounting for 7.56 percent. Exports increased significantly by 36.7 percent compared to the same period last year, while imports increased by as much as 111.7 percent. Given the base, the deficit remains a staggering 84.71 million euros just for the first three months.

The most significant export products to Germany are chocolates, soybeans, products for infant and young child nutrition, food products made from milk, sour cream, whey, yogurt, kefir, and similar products, corn for sowing, as well as sauces and preparations for sauces.

Austria

Exports amounted to 37.4 million euros, while the share in total exports was 6.63 percent. The most significant export products were corn, soybeans, whole raw beef, cooked, prepared, and canned chicken meat from the “gallus domesticus” chicken, and white sugar in solid form.

Interestingly, since the beginning of 2020, Russia has appeared among the top five countries with which we had a surplus, while the surplus with Serbia has decreased.

Poor Competitiveness of Agriculture as a Cause of Increased Deficit

From all the data, it can be concluded that Croatia exports less complex agricultural products at the lowest prices, which have the least added value and the least invested labor and knowledge. Such products are sold immediately after harvest at low prices, while we import processed products, which have some new technological processing level, at significantly higher prices, concludes the analysis.

– Croatia’s commodity exchange shows an extremely poor picture of the competitiveness of agricultural products and a worrying production structure. When we consider that we are a country of small holdings, where it is difficult to justify the production of field crops, which require significantly larger agricultural areas to achieve average yields, it becomes even harder to justify such a structure of agriculture. We could conclude that our producers are prone to very low risks and small investments in agriculture. Through direct payments on the production of field crops, they achieve small profits, but they have also avoided greater risks associated with investments in some other more sensitive categories. For fruit and vegetable production, we do not have the necessary irrigation secured, we lack technologies for protection against hail, frost, and drought, which is why the risks of production in quite difficult and very variable climatic conditions are high. In livestock products, there are extremely large differences in productivity, so imported products are generally significantly cheaper, making it difficult for our producers to compete with their prices and required quantities. In addition to this, there is also the policy of retail chains that often import products from their home countries and often have their private labels. Croatian unorganized producers often do not have the necessary quantities for regular supply to retail chains, and they continue to resist organizing, emphasizes Zvjezdana Blažić.

Horizontal and vertical integration are also one of the prerequisites for products to be more accessible in the domestic market, and without that, there is no success in exports. Strong production organizers, buyers, and distributors should turn to the possibility of organizing production for export instead of supplying the market with imported products. This is a more challenging path, and the state also plays a role with numerous instruments of agricultural policy and market regulation measures that are permitted within the framework of European directives. Without a change in paradigm, we will not have significantly different indicators in the coming months, despite the strong growth in awareness of the need to consume domestic products; on the contrary, we can expect a further increase in the deficit, concludes the experts from Smarter.

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