Annual Report (April 20, 2018- April 19, 2019) Serbia Competitiveness Systems Strengthening (Css) Activity

ANNUAL REPORT (APRIL 20, 2018- APRIL 19, 2019) SERBIA COMPETITIVENESS SYSTEMS STRENGTHENING (CSS) ACTIVITY

May 20, 2019 This report is made possible by the support of the American People through the United States Agency for International Development (USAID). The contents of this report are the sole responsibility of Cardno Emerging Markets USA, Ltd. and do not necessarily reflect the views of USAID or the United States Government.

ANNUAL REPORT (APRIL 20, 2018 - APRIL 19, 2019) SERBIA COMPETITIVENESS SYSTEMS STRENGTHENING (CSS) ACTIVITY

Submitted by: Cardno Emerging Markets USA, Ltd.

Submitted to: USAID Serbia

Contract No.: AID-169-C-17-00003 Competitiveness Systems Strengthening Activity

DISCLAIMER The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. Serbia Competetiveness Systems Strengthening (CSS) Activity

Table of Contents ACRONYMS ...... 2 EXECUTIVE SUMMARY ...... 1 INTRODUCTION ...... 2 SUMMARY OF RES ULTS ...... 4 1) CONTEXT ANALYSIS:...... 4 2) PROJECT ANALYSIS: ...... 7 CLA Approach to Project Management ...... 11 TECHNICAL ACTIVITIES ...... 13 SUB-PURPOSE I: MARKET COMPETITIVENESS OF SELECTED VALUE CHAINS INCREASED ...... 14 a) Promotion of Serbian food products and processors...... 14 b) Specific Market Linkages Efforts...... 20 SUB-PURPOSE 2: BUSI NESS SUPPORT SY ST EM S COORDINATION STRENGTHENED ...... 25 a)Consolidation of the F&V sector with PKS ...... 26 b)Premium Food Design Hubs ...... 30 c) Workforce Development ………….……………………………………………………………………………….…29 SUB-PURPOSE 3: RESOURCES FOR ENTERPRISE GROWT H MOBILIZED ...... 32 a) Facilitating Foreign Direct Investment...... 33 b) Credit Gurantee Scheme…………………….………………………………………………………….…………..33 c) Financial Trainings …………………………………………….…………………………………………34 PR AND OUTREACH ...... 37 ANNEX A: AMELP : ...... 38 ANNEX B: PERFORMANCE MONITORING AND EVALUATION PLAN (PMEP) ...... 39 ANNEX C: PROGRESS AGAINST THIRD WORKPLAN – ...... 41 ANNEX D: SUCCESS STOR IES ...... 51 ANNEX E: S ELF ASS ESSMENT ON PROGRESS...... 58 ATTACHMENT A:ORGANIZATIONAL CHART ...... 59 ATTACHMENT B: CSS GRANTS AND SUBCONTRACTS UPDATE ...... 65 ATTACHMENT C: PRESS CLIPPING...... 67

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ACRONYMS APSF Association for the Promotion of Serbian Food B2B Business-to-Business BFS Belgrade Food Show BSO Business Support Organization CLA Collaboration, Learning, and Adaptation CSS Competitiveness Systems Strengthening DCA USAID’s Development Credit Authority FDI Foreign Direct Investment FoA Faculty of Agriculture, University of Belgrade FON Faculty of Organizational Sciences, University of Belgrade FP Facilitation Partner F&V Fruits and Vegetables FY Fiscal Year GHP / GMP Good Hygiene Practices / Good Manufacturing Practices GG Global Gap (Quality Standard) HoReCa Hotel/Restaurant/Café ILC Industry Leader Company IQF Individually Quick Frozen IPARD Instrument for Pre-Accession Assistance in Rural Development MENA Middle East and Northern Africa MIS Marketing Intelligence System MoA Ministry of Agriculture, Forestry and Water Management MoE Ministry of Economy NBS National Bank of Serbia NAPP National Association of Serbian Prune Producers PFDH Premium Food Design Hub PKS Chamber of Commerce and Industry (“Privredna komora Srbije”) RAS Serbian Development Agency RF Results Framework SME Small and Medium Enterprise VC Value Chain VCRA Value Chain Readiness Assessment YFI Association Youth for Impact

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Executive Summary Although Serbia's agrifood industry is a significant part of its economy and is widely considered to have great potential for growth, it is relatively small in European terms. Serbian land accounts for just 1.9% of the entire EU, and its total production accounts for 1.1% of EU output. Compared to just the 13 new member states, Serbia has 7% of their total land resources and only 4% of their exports. When talking about production compared to the EU, Serbia’s only really significant products (10-50% of EU production) are raspberries, plums, sour cherries, quince and soybeans; while maize, peppers and watermelons are considered relatively important (5-10% of EU production). Considering Serbia’s land and production size, it is clear that Serbia’s comparative advantages lie in the fruit and vegetable sectors, rather than the meat or milk sectors, which require greater economy of scale. In addition, due to a significant fragmentation and small average holdings, Serbia’s opportunities rather lie in producing niche products for a targeted group of (wealthier) EU buyers, than in serial production of large quantities targeting the broad global market. With domestic and regional market demand shrinking, increasing depopulation of rural areas, and limited presence in key high-value markets, Serbia must develop an export strategy that takes into consideration all these facts, and targets the most promising value chains to establish a model for others to follow. Government strategies still lack focus and are mostly targeting agricultural production, with space for improvement in stimulating investments and exports. There is also a very limited connection between academia, research, and the private sector, specifically in the area of new technologies, staff development, and market research. Youth engagement, a key element in bringing change in other industries and sectors, is at a very low level. CSS, thus, has a very targeted focus. For the most promising sub-sectors of the industry (frozen, fresh and specialty), key gaps to opening new markets and identifying new buyers have been identified. A group of stakeholders who can assist companies to utilize these opportunities has been recognized to ensure market-driven selection of beneficiaries. Pilots have been launched in the first two years to test project assumptions and selected interventions poised to drive local market change by empirically increasing the value of sales and driving investments. In the frozen segment, this includes working on interventions that will secure more private label deals for firms, open new markets, consolidate supply chains to ensure better food safety, and promote organic production. In the fresh segment, the primary focus is integration with formal EU distribution systems for apple, berry and selected fruit and vegetable value chains. Finally, for the specialty food sector, CSS is actively working on promoting entrepreneurship and identifying market opportunism in some of the fastest growing market segments in the world (organic, bio, healthy, functional, ethnic, etc.). With two years completed, the project can confidently state that most of the pilots have produced impressive results, and some of them have shown signs to be real market changers in Serbia. Some have also produced cautionary tales, which are also discussed in this report. In years 3 and 4, the project will look to scale up the successful efforts, with more focused utili- zation of resources and staff. It needs to be recognized that the Serbian Government and its agencies need to play a major role in this process. However, with experiences from previous USAID’s projects and current CSS pilots, the project is making a conscious effort to ensure the implementation strategy is private sector driven while remaining open and reactive to any opportunities for collaboration with the Serbian Government.

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Introduction Building on previous investments, successes, and lessons learned from USAID and other donor initiatives in Serbia, USAID’s Competitiveness Systems Strengthening Activity (CSS/Project) is a four-year activity initia ted in April 2017. The Project aims to strengthen Serbia’s agriculture processing sector (the sector), while focus- ing on the growth of sales as the key benchmark for evaluating performance. The Project takes a market system approach and focuses on addressing competitiveness issues that are systemic— rather than particular—thereby testing and proving the collaborative methodologies requir e d to resolve these gaps. While the approach is being tested on a narrow set of value chains (VCs) within the sector – fruits and vegetables (F&V), it should create a “ripple effect” into other sectors, so that the strengthening of Serbia’s overall competitiveness system gathers momentum and is self-sustaining. For this reason, the Project approach to implementation is organized functionally, instead of tied to a specific product or VC, and targets products and VCs with the highest competitiveness potential for Serbia.

Figure 1. CSS Theory of Change

There are four pre-identified functional competitiveness areas that the Project targets in different capacities:

Table 1: CSS Functional Competitiveness Areas Competitiveness Area Acronym Description Access to markets A2M Increasing the confidence of Serbian enterprises to identify markets to increase connections to local, regional, and international buyers. Operations improvement OPS Providing support for improvements in enterprise management, product design and development, product quality. Access to finance A2F Stimulating demand for growth finance and making finance accessible and borrower-friendly. Workforce development WFD Improving the pipeline of qualified workers to companies needing them.

The business environment is addressed by identifying important issues within the Serbian pol- icy and regulatory environment and actively collaborating with government partners, and other relevant donor programs. To mitigate risk, actively monitor the progress of activities and adjust

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implementation as needed, CSS uses Collaborating, Learning and Adapting (CLA) as a funda- mental implementation principle. The primary goal of CLA is to ensure that the desired objective and purpose of the Project remains constant while allowing for changes in program activities to more effectively achieve desired results.

Figure 2. CSS Fruit and Vegetable Sector

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Summary of Results 1) Context Analysis Because of its relatively small size, Serbia has little opportunity to influence EU markets and instead must adapt to the trends, price levels and quality standards there. Trade data indicates that: > Global demand for fruits and vegetables is constantly growing in the post-crisis perio d (8% year-over-year), but gradually decreasing in tempo (5% year-over-year in the las t five years). > Fruit and vegetables are becoming increasingly important, as their share in the agribusiness portfolio is increasing – compared to meat, milk, and cereals (from 20% in 2013 to 25% in 2017). > EU15 market is among the largest and wealthiest in the world, comprising as much as 40% of the world’s total import of fruit and vegetables, but is well saturated – growing slowly and steadily in the post-crisis period (5-6% year-over-year). > After import peaked in 2013 due to political conflict with the EU, import demand in the Russian market has been shrinking and is currently similar to the pre-conflict level. Russia has introduced import substitution measures in the agriculture sector that have put pressure on imports. > CEFTA market is stagnating, signalizing that purchasing power is limited and that the market size it close to its saturation point. > In terms of products, the most favourable trends are in the fresh segment, while the growth of frozen products is slower but stable. Canned products, and especially juices, have recorded weak performance and slowing demand in the global market. In addition, consumer trends and opinions in Serbia’s main exporting market (EU), based on the most comprehensive Fruit Logistica’s survey so far (7,000 respondents), suggests that fresh fruit and vegetables are becoming central to the success of any retail store (go-to-products). The quality of a store’s fresh food plays a key role in determining where customers choose to shop for their groceries. Consumers are increasingly opting for local and healthier – premium, functional or organic food. They demand such products all-year long, regardless of seasonality and ask for distinctive products that are authentic in terms of their origin, as well as complete reliability from repeat purchases. Consumers are demanding well designed, practically pack- aged (ready-to-eat, snacks), clearly labelled products, and becoming more environmentally conscious. Serbia has been improving its market position in the European market in the post-crisis perio d : > Serbia is a significant net exporter of fruit and vegetable products – both net export and export of these products have been increasing in past years, reaching maximum levels in 2017 (476 million EUR net, or 784 million EUR on a gross basis). Liberalization of trade, access to EU and Russian markets, favourable climate conditions, low energy prices, as well as low marginal costs of primary production determined Serbia’s positive competitive position. > In 2018, both Serbia’s export and net export dropped, as a consequence of the 2017 droughts that heavily influenced all agribusiness sectors -a similar situation occurred in 2012, but fortunately export rebounded the year after. However, performance in the first three months of 2019 is worrisome, as F&V export continues to decline. > When it comes to the structure of the product portfolio, fruit products are a dominant category and represent more than 80% of the export. Raspberries (frozen, industr ia l

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processing) and apples (fresh) represent the two most important exporting crops. These two crops make up 45% of the total export of fruit and vegetable products. Sour cherries (frozen), apricots, peppers, strawberries (fresh), and mushrooms are also strong crops. > Export of frozen products remains the most important segment of F&V export, with a share of more than 50%, mostly of raspberries and sour cherries. Export of fresh products, mostly apples, apricots and strawberries, for fruit, and cucumbers and peppers for vegetables contributes 35% to F&V export. Both groups of products have shown signs of steady growth in the last five years, with the already mentioned setback in 2018. The remaining share refers to warm processing, almost evenly distributed between juices (based on apple and sour cherries), canned products (potato, nuts) and dried (apricots, plums, mushroo ms). Serbia faces some key structural challenges in its efforts to additionally increase the value and competitiveness of its F&V sector. > Key features of the F&V value chain in Serbia is that considering the relatively high level of agricultural production, it adds relatively little value add to products and lacks diversification of exports. It is not an exclusive problem of the F&V industry; it is a general problem of the entire Serbian food industry. > One of the key reasons for little value add and insufficient diversification is the high fragmentation of the sector. Small households and firms are dominating the sector, with very limited access to finance, access to markets, expertise and current information. As discussed in the baseline document, small firms contribute to total export more than medium and large ones. The analysis identified 941 exporters of fruit and vegetable products in 2015, where more than 140 firms were able to export more than one millio n EUR. The structure of this sector is very specific, with hundreds of firms operating and exporting, but none having a dominant or major share on domestic or international markets. > Its high fragmentation presents a serious challenge for increasing value add, as SMEs face a number of constraints, including lack of market intelligence and access to information; lack of production quality, quantity, and continuity; inadequate support from business service organizations (BSOs) and lack of adequate technical expertise. Most SMEs also have inadequate technology and limited opportunities for innovation. While orientation towards differentiation, enhanced branding of products and the creation of specialty products is an option for some firms, it cannot be a systematic answer for such a large population of firms. > In such a situation, visibility, recognition, and bargaining power of the Serbian F&V sector is weak. Many small firms are mutua lly competing while producing similar products for similar buyers (in the case of frozen raspberries). As much as 42% of surveyed firms indicated that finding (new) buyers is the most binding obstacle for entering a new market and expanding abroad. However, it can be rationally suggested that such limited access to new buyers is directly linked with the above-mentioned factors. Overall adjustments to global trends, through a paradigm shift towards consumer-oriented ap- proaches, followed by more intensive integration and cooperation in the sector, are key areas for upgrading the competitiveness of the F&V value chain. Such adjustments are required for the majority of products, and the type of intervention depends on characteristics and the marke t position of the concrete product or subsector. For example:

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> Apple export is dominated by the Russian market, reaching a higher price than on the more competitive EU market. Diversification is required, to avoid key market risk, especially with Russia’s intensive import substitution efforts. In order to access and better position in new markets and to increase bargaining power and market intelligence, developing professional associations is recommended. > Raspberries are exported frozen, and in bulk, to the EU market, via intermediaries. In order to retain or improve positioning, firms need to upgrade the security of their products, by introducing full traceability and quality certificates. In addition, shifting towards the organic segment (highly increasing demand) is also an important opportunity. Support should also be provided to the fresh segment – although underdeveloped currently – it could perform significantly better if new varieties and effective promotion are introduced, together with establishing industry integrators (hub & spoke models) with the capacity to directly work with prominent EU buyers. > Premium food start-ups are still in the early phase of development. Companies could benefit from targeted and custom-made support to establish their businesses. The mos t important factors of success in niche segments, are the brand image, design of product, technological process, communication strategy, and access to (some form of equity) financing. > Some challenges and issues are common for the entire sector and not strictly product- related. – Workforce development is first on the list, and requires better preparation of the future workforce, to respond to modernization of businesses and industry needs. This can be addressed both through better-shaped curriculums in education institutions, and trainings, which should help them to acquire new (knowledge-econo my) skills – such as precision agriculture, digitalization agenda, understanding key global trends, customer- oriented marketing approach, etc. – Access to finance in such a fragmented sector is also among the key issues. In the current market, the alternatives to traditional bank loans should be developed through value chain financing and targeted guarantee funds, as well as maximum utiliza tio n of public funding (Serbian and EU). – Last, but not least – consolidation activities are required through cooperation with the retail sector, direct cooperation among firms (through associations), build ing a func - tional large wholesale market, followed by a few regional wholesale spots and joint operations under the unique “umbrella” brand.

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2) Project Analysis CSS has developed a strategy reliant on partnerships with key industry stakeholders – firms, the government, financial sector, service and input providers, and educational institutions, to create platforms for exchange and knowledge sharing based on clear, market-drive n princip le s , making capacity building an integrated process. Growth of sales has been defined as the key benchmark for evaluating project performance and its overall success. Before results on the growth of sales are presented and discussed, sources of data and methods of measurement are briefly introduced. > Data sources: In order to assess the growth of sales of firms reliably – two sources have been used. First, is the self-reported level of sales, obtained through the annual assessment survey with 232 companies from the sector. Second, is hard data on operating revenues from firms’ financial statements, obtained from the Serbian Business Register Agency (SBRA). Although data from financial reports is probably more accurate, it is certainly less timely. Out of the 232 companies surveyed in April 2019, only 105 have delivered their 2018 financial statements to SBRA and were available for sales analysis. > Measuring methodology: There are three potential indicators of measuring firms’ growth (of sales) – (i) rate of growth of the entire sector, (ii) average rate of growth among observed firms, and (iii) median rate of growth of observed firms. The first indicator (total sector growth) gives more weight to the growth of larger and already established firms, as their share in total sales is higher, compared to smaller companies. The second indicator (average growth) gives more weight to fast-growing companies, usually smaller ones and start-ups, as they tend to have more intense rates than already established companies and skew the average figure. The third indicator (med ia n growth) is more balanced, as it eliminates the effects of both large contributors to total sales and outliers in terms of rate of growth. The median pinpoints the middle value , signalizing that half of the companies exhibited higher growth rates, while another half had slower growth rates. This is reflected in the projects PMP indicator. According to both data sources and all three measuring methodologies, it can be concluded that firms that have received CSS support (treatment group) have moderately to significantly increased their market sales (2018/2017), compared to firms that have not been beneficiaries (control group). > According to survey data, collected from 232 firms, sales of the treatment group (133 firms) have grown by 11% year-over-year (2018/2017), when the median growth rate is observed. If the average growth rate is observed, it is even higher, reaching 22% year- over-year, indicating that growth of fast-growing firms, mostly start-ups (specialty food segment), was much more intense than the growth of already established firms, mostly industry leaders or existing exporters. In addition, as much as 66% of firms from the treatment group have increased their sales. Performance of the rest of the sector (control group, 90 firms) was significantly weaker. Their growth rate, measured through the median growth rate, stood at only 1%, while their average growth rate was 3%. On top of that, 52% of firms from the control group increased their year-over-year sales. > Hard data from the Serbian business registry (SBRA), obtained for all surveyed firms that have officially submitted their financial statements (105 firms), support the above- mentioned findings in the area of sales performance. Growth of the treatment group (47 firms submitted report) in 2018 was more dynamic (median 9%, average 16%, total growth 1% year-over-year), than growth of the control group (58 firms submitted report), which has even exhibited performance decline according to data from financial

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statements (median -7%, average -11%, total growth -8% year-over-year). There is a considerable difference in the performance of the control group when measured by SBRA data and survey data. A potential reason behind the difference in growth rates is attributed to desirability bias - a type of response bias that is the tendency of survey respondents to answer questions in a manner that will be viewed favorably by others, especially when it comes to sensitive issues. Therefore, it is possible that firms with the worse performance intend to present their business results better than they really are. > Such a strong difference in performance is probably also because of selection bias and not entirely rooted in the effectiveness of CSS projects interventions. It is probable that firms cooperating with CSS are simply more successful, and would be even without CSS support. This can be explained by a greater openness of more competitive firms to participate in trainings, invest time and effort in the development of a recognizab le brand, or introduce quality certificates. Better firms are probably, in general, more willing to cooperate with the CSS project, especially bearing in mind that direct financial stimulation to firms is not frequent in CSS activities. In addition, better performance of CSS supported firms (treatment group) can also be partially explained by a greater share of start-ups among supported companies, since the growth rate is usually higher in the initia l years of business. A more thorough analysis would be required to systematically and precisely decompose effects of CSS intervention from bias in selection. In order to achieve its overall objective of strengthening the market system and helping firms increase their performance, CSS has defined specific interventions that are targeting root causes of system problems (previously identified in context analysis). For example, in order for in- creases in performance to be long-term and sustainable, improvements should come by accessing new buyers/markets, increasing value by adopting new certifications or new technologies, and expanding production including expansion of physical infrastructure and the product sourcing base which are both employment and investment generators. All interventions can be grouped into three specific objectives. The first refers to the strengthening of business support systems coordination, the second is focused on the enhancement of market competitiveness of selected value chains, while the third implies mobilization of resources for enterprise growth. Although the key benchmark (sales) illustrates the overall impa c t of the CSS Project, sustainability is better portrayed by indicators measuring the effectiveness and coverage of its interventions. > Strengthening business support systems – In order to establish better linkages between key actors and stakeholders in the industry, CSS launched various pilots to integrate industr ies, such as – consolidation of the fro ze n sector with PKS, building strong firm-cooperative models for the high value fresh segment, promotion of incubator-type solutions for the specialty food sector, and support to key industry associations in improving member services, etc. – Indicative results of these interventions are measured through the Networking index, as defined by the AMELP document, which is based on survey data on level (and quality/satisfaction) of cooperation of firms with associations and research institutions, as well as on participation of firms in business, technical, and financial trainings. – The Networking index in 2018 confirms that businesses have made improvements in cooperation and that business systems have been additionally strengthened, compared to 2017. The Networking index for surveyed firms stood at 38 in 2018, compared to the baseline level of 34 in 2017. – There is a significant difference between the treatment and control groups. Supported firms achieved 49.6 points, while firms from the control group have recorded only 23.0

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points. Similar ly, when it comes to sales, one part of this increase and difference is certainly due to CSS interventions. For example, the most important driver of the increase in networking has been made by participating in business/financial trainings, organized and promoted by CSS and its partners. As much as 54% of firms from the treatment group participated (36% in 2017), while only 7% of control group firms took part in such or similar trainings (down from 9% in 2017). However, as stated earlier, selection bias should also be considered – supported firms were more keen to cooperate and network in 2017, prior to CSS interventions (networking index 43.3), compared to control group (21.8). Therefore, the increase in margin is not only a consequence of CSS interventions but also because treated firms are more proactive and better functioning in general. – Although businesses have made improvements in cooperation and business systems have been strengthened, sustainability remains the key issue. Networking activities – such as business and technical trainings, and market access activitie s were financed and supported by CSS and the next phase must include the development of sustainable models and exit strategies for service providers. Firms have been introduced to the concept and impact of trainings and linkages building, and the readiness of the firms to fina nc e these services will be tested during the scale-up phase in Year 3. > Enhancing the market competitiveness of selected value chains – In order to improve the market position of Serbia’s F&V companies, CSS undertook several marketing pilots, facilitated visits to Trade shows and B2Bs with internatio na l buyers, conducted market research, and organized the Belgrade Food Show (BFS). In addition, CSS invested effort in building specific market linkages focused on establishing product innovation hubs – “Premium Food Design Hubs” and supporting facilitation of export of fruits, vegetables, and niche food products to targeted markets – working through traders. – The number of private sector firms that have improved management practices or technologies because of CSS interventions is at least 74 (vs target for year two of 30), reported by firms through the survey. The majority of companies stated that those improvements were in the areas of marketing and sales, and a significant portion consider that CSS interventions have contributed to their planning processes and quality improvements (through obtaining standards). CSS interventions have a greater impact on larger companies, and it seems that there is room for improvement when it comes to micro and smaller firms (almost half of the micro-sized companies consider that the Project did not help them in upgrading their business, although this could be attributed to the fact that they were directly exposed to traders and industry leaders working with the project, and not the project itself). – The most direct/concrete indicator of the Project’s impact is represented by the number of signed and executed contracts, due to the CSS interventions and implementing partners. In total, according to the survey, there were 111 signed contracts, signed by 28 firms, the majority of which were referring to export contracts. Ten firms were willing to provide financial data on their contracts, with the total value of signed and realized contracts at 600,000 EUR (60,000 per firm). > Resources for Enterprises Growth Mobilized – In order to enable a better understanding and easier access to finance for firms, as well as to contribute to the establishment of modern channels of financing, CSS has initiated two key activitie s in Year 2 – financial trainings for SMEs and support to the Mission to establish the credit guarantee line with the MoA and commercial banks, to stimulate both the demand and supply side of the financial market.

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– Firm’s own resources remained a source of financing for the great majority of companies, as 92% of firms reported relying on it. In addition, more than 50% (51% in 2018) of firms were using traditional banking financing. Other means of financing were not as frequent – 10% of firms reported borrowing funds from family and friends, while 8% use funds provided by buyers, as a sort of value chain financing. Funds provided by investor capital was used by only 1.4% of those surveyed. There are no significa nt changes, compared to the previous year (2017), nor a difference between the control and treatment group. – It is important to briefly explain the presence of a paradox when it comes to access to finance. Lack of financing is cited by 40% of firms as one of the key obstacles for entering new markets and expanding the business. Despite this, the majority of firms did not apply for new loans in 2018 (84%). Firms reported not needing bank loans as the key and most important reason behind not applying (69% of firms). Favorability of interest rates and collateral requirements were not observed as the main reasons for not applying (only 9% and 7%, respectively). The majority of firms (64%) even stated that banks have approached them and offered a collaboration. Therefore, firms lack money to expand their businesses but do not apply for loans, because they consider that there is no need. – One potential explanation for such reasoning could lie in lack of financial literacy, ab- sence of adequate strategic planning, and/or insufficient market knowledge. Firms may be aware of a general need to invest in order to be more competitive, but do not apply for available funds, as they probably lack knowledge on where to invest and how to expand business. Additional financial and business trainings are required to raise the level of financial literacy and market-oriented approach and knowledge. The education system also needs to be improved to assist firms (and graduates) to transfer from agri- culturists to agribusinesses. There are no agribusiness MBA programs in Serbia, nor specialized courses that specifically target this sector. This gap is filled with a development project at the moment. – Eleven (11) companies stated that participation in project activities in terms of making new business contacts, working on new projects, dealing with new buyers, etc., resulted in new investments in 2018. The total value of these investments is around 430.000 EUR. Almost half of this amount has been invested by Pureberry – producer of retail- ready fresh berries, while relatively significant amounts were also invested by Happy Honey (honey production) and Voćarska zadruga Čačak (plums and pears). In addition to the key overall goal of raising the competitiveness of the selected fruit and vegetable sector, through enhancing cooperation among firms and other business and institutio na l actors, the project also aims to disseminate and promote lessons learned and create conditions for replication of its interventions in other sectors – especially in the food processing industry – wine/spirits, honey, meat, dairy, etc. The most important lessons learned so far, relevant to the majority of other domestic SME dominated sectors in Serbia’s economy, is that the donor community and official institutio ns should harmonize their initiatives as much as possible and support and promote a modern market-oriented approach. Projects should aim to disseminate knowledge on the importance of quality products and different market opportunities, to ease access to markets through identifi- cation and understanding of buyers and their requirements. They should also facilitate the integration of actors in local / business communities, in order to create synergy – especially between firms, research and development institutes. Initiatives need to be built around professional associations or already established industry leaders, with an ability to drive and promote

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changes along domestic value chains. Workforce development, primarily through the adjust- ment of outdated curriculum of traditional education providers (for example, more versatile traders are extremely needed in F&V industry), is one of the most important cross-cutting measures. Non-traditional actors, such as hubs and business incubators, are very important for the development of start-ups, as they are able to provide comprehensive support to business expansion, including access to finance specialist, branding managers, and technologists. The replication of specific interventions in other industries depends primarily on the similarity of those industries to the F&V industry. Some of the interventions could have a broader impact because they have some important characteristic in common with the F&V industry. For example, some of the interventions are designed to address the fragmented structure of the F&V industry, but fragmentation is a general condition of Serbia’s economy and is not exclusive ly tied to the F&V industry. If we take industries such as the general and special purpose machin- ery and packaging industry – interventions that could contribute to consolidation, such as the organization of well-functioning associations, support improvements in quality standards and certifications, promotion of Serbia’s custom-made products and flexibility of production, would be very helpful. In terms of final buyers, the F&V industry is similar to the fashion industry and solid-wood furniture sector, which also imply well-designed and custom-made products. These sectors would also benefit from the targeted international promotion, skill improving trainings, improvements in design, and 360 cooperation with hubs. Since the F&V industry products are considered fast moving consumer goods – they are similar to cosmetics and toiletries, which also need intense cooperation with the retail sector and have a consumer-oriented behaviour and approach. These sectors would benefit from cooperation projects with retailers (similar to ongoing DM project), development of branding skills (design, packaging, labelling), and communication and promotion campaigns. Finally, as a part of the food industry, the F&V subsector shares important characteristics with some other subsectors – it has similar comparative advantages and structure as the dairy sector (price competitiveness, reasonable quality, high fragmentation, existing infrastructure), beef sector, soybean products (sauce, milk, tofu), honey, or wine. These subsector/products, and wine in particular considering its profile and infrastructure on the ground, would largely benefit from interventions similar to those in CSS, such as building an umbrella marketing strategy, opening of new/high-value markets, introduction of traceability, functional exporting-oriented associations, connection to research/academia etc. CLA Approach to Project Management Cardno fully embraces continuous learning as a cornerstone of project implementation. The CSS team has designed different resources to facilitate this learning process, and they are all summar ized in the AMELP document (Annex A). Utilizing CLA, CSS is better informed to prioritize, plan, develop and adapt project activities. CLA has been integrated into CSS implementation from the onset of the activity and is reflected in formal reporting and manage me nt structure, and informal rules and practices that stimulate and reinforce implementation. The former is reflected in strong analytics related to M&E processes and synchronized reporting. The latter is reinforced by the COP and DCOP who have instituted a learning and collaborative culture both within the team as well as with all the partners. CSS utilizes pilots to test the projects theory of change. Projects are either scaled up, adapted, or ended based on results and market feedback. The team is also conscious of exit and sustainability strategies for each activity, to know when the project can phase out or what needs to be adapted to reach goals. As the project notices ‘crowding in’ of other market stakeholders around project interventions i.e. replicatio n and ownership over activities by the market, it starts to phase out support allowing

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the system to function on its own. This frees the project up to focus on other activities and maximizes value for money by directing funds only at activities still requiring support. CLA Mid-Term Event and Report: While CLA is an organic and ongoing process incorporated into day-to-day functions, it is managed through two annual CLA events. The first CLA event in May 2018, focused on presenting and analyzing Y1 results and initiating new pilots. The second, CLA mid-term event, held in December 2018 focused on Y2 results, adaptation and the work planning needed for Y3. The event not only helped evaluate the progress of activities, but also allowed for communal analyses of the project to help CSS staff collectively agree on necessary adaptations. The outcomes of this session were integrated into the annual work planning and provided a clear strategic direction for Y3. . Summary of the main findings of the CLA event: • Sustainability - the project needs to focus only on those activities that will be realisti- cally sustainable, and most importantly, will fit with or contribute to successful efforts that other teams on the project are implementing. • Industry Leader Companies (ILCs) models show the way forward. The Team determined to make the models which made ILCs successful (strong buyers – high standards/certifications – strong vertical integration) an industry standard. • Specialty food segment benefits from working with traders – what next. Traders are important agents in systemically improving export and sales, especially for industry segments where a lot of micro and small firms dominate. Extending their services with trainings and product improvement services for firms is a novel feature. BFS is seen as a great integrating platform for traders and specialty food companies. • Food hubs have produced immediate results, how does it become a business model? CSS plans to scale-up with the most promising “360” service providers, and try other willing and able partners. The model has received strong recognition from the rest of the industry (DM replicated the model with the DM incubator). • Workforce development programs are generating positive developments. CSS has started collaborations with universities and developed internship programs for students. Future efforts need to be explored with other leading firms in Serbia, and these activities should be popularized though public outreach. • Industry associations activities to remain flexible. Alternative ways for horizontal integration of the companies should be constantly explored as the association mod e l shows some diffic ultie s in impleme nta tio n. CSS can adapt to support new models for F&V processed industry consolidation / cooperation, changing the focus from supporting formal associations to supporting common goals of (non-formally established) key industry players in the value chains were haven not shown a willingness to change. • Project communication promotes successful market models, not individual companies. Project communication should slowly shift towards popularizing models we promote, rather than individual companies.

Annual Report Y2 12 Serbia Competetiveness Systems Strengthening (CSS) Activity

Technical Activities

Figure 3: CSS facilitation approach to generate export-led growth in the F&V sector

Annual Report Y2 13 Serbia Competetiveness Systems Strengthening (CSS) Activity

Sub-purpose I: Market Competitiveness of Selected Value Chains Increased The Project works to increase the market competitiveness of selected sub-sectors in the follo w- ing ways: a) Promotion of Serbian food products and processors Development of umbrella brand – “Serbia Does Food” One of the critical steps to improving competitiveness is increasing visibility “Serbia Does Food” Brand adopted in Y2 activities of Serbian firms and products in inte r - › Serbian Apple Producers – visual identity ‘Serbia Does Apples’ nationa l and domestic markets. To this › APSF - Svet hoće domaće (SHD) educational and promo- end, the Project initially established a tional platform unified umbrella brand with a recog- › Serbian Apple Producers Association - London Produce Show nizable visual identity for Serbian in- and Conference › dustry representatives to distinguis h APSF - New York Summer Fancy Food Show. › RAS - Abu Dhabi Agriscape. themselves from the competition. The › PKS, RAS - Fruit Logistica, Berlin. brand is utilized by industry associa- › Serbian Apple Producers Association - Belgrade FruitNet SEE. tions and government actors to reinforce a consistent and clear message that promotes Serbia as a natural and healthy food destination deeply rooted in tradition and culture. The branding and design are easily adaptable and have been used for multiple promotional activities during Y2.

The Serbian Apple Producers Association and APSF, as young associations, easily adopted the brand for their activities. Project partners, including the MoA and RAS, historically not focus e d on current marketing trends, are already using it in international activities, which is a notable accomplishment. Additional organizations are expected to adopt the brand including the berry producers’ group and prune association.

“All this (brand) will increase the visibility of Serbia on foreign markets and indicate that we are a market oriented, modern country that is very good in the production of fruit and vegetables.” Julka Toskic, General Manager Serbia Does Apples Association

Facilitate visits to Trade shows and B2B with international buyers Attending specialized international trade shows is important for firms to stay current with market trends. Currently in Serbia PKS covers major international trade show events, co-financ in g them with RAS. The Project works with key partners – associations, industry leaders – to lev- erage this opportunity and attend the trade events/B2Bs with clear high-value opportunities for the Serbian F&V industry.

Annual Report Y2 14 Serbia Competetiveness Systems Strengthening (CSS) Activity

Table 2. CSS supported companies exhibiting at Trade fairs in Y2 World of Private Label London Produce Show, Summer Fancy Food Show New York Fruitnet SEE Belgrade Fruit Logistica Berlin Amsterdam, May 29-30 June 6-8 June 30 – July 2 Nov 21-22, 2018 February 6-8, 2019 Fresh/Frozen Fresh Specialty Fresh Fresh Agranela Agroprom ACM-INT Laki Agro Bel System PDM Agro-fruit doo All berries Al Dahra Rudnap Armedina Planinsko blago Agroprom D.V.A. Sagal Agrar Frikom Atos Fructum Basket Real Red Raspberry* Agrounija Select fruit Hibrid Ćirić Agro* Drenovac Slatka jesen Al Dahra Rudnap Hladnjače Brestovik ITN Group Green Energy Group Flora Stanisic Bio* Atos Fructum Forest Food Jaffa Crvenka PIK Južni Banat Global Foods Suncokret Ćirić Agro ZZ Sistem Eko fungi Jugprom Pollino Agrar Happy Honey Truff Truff* Forest Food PIK Južni Banat Laki Verda Vivo Jam and Jelly* Vrtlari Green Energy Group Pureberry Master fruits Kabinet* Waw Miloš Hladnjače Brestovik Ćirić Agro Min-Commerce Intersad Agro Trust doo Deč Stojanovic Pharm Lido ketering (Lidoberry) PDM Agro-fruit doo Venac PIK Južni Banat D.V.A. Sagal Agrar Pollino Agrar Select fruit Pureberry Hladnjače Brestovik Verda Vivo * Represented at the fair by CSS/association representatives

Belgrade Food Show, November 5-6, 2018, Specialty ACM-INT Chrono Fruit Fuison Laloški PK ZLATIBOR d.o.o. Udruženje „Vrbički prolećni beli luk” Adore chocolate Damar tartufi Global Foods Leskovački ajvar PP SZR Udruženje prehrambenih tehnologa Srbije Marčeta tri-S doo Mačvanska Aguara Chocolate Densana Happy Honey Prpa Jomi doo Udruženje „Futoški kupus“ Mitrovica All Natural Foods Dolovac organic i tradicija Hoff Moć prirode komerc Radanska ruža Udruzenje vocara Zlatno brdo Društvo pčelara ,,Jovan Živa- Basket Home Made Company Next Premium - Coca Cola Real Red Raspberry Urbani farmeri PG nović'' Novi Sad Bee&Well E.S. Komerc INTERFOOD 60 d.o.o. NISHA d.o.o. Sirana Jovanović Vinarija Komuna Rivica Best Brand Friendly Fatalni začini Milan Babic PR Iplum distillery doo Nut Enough Suncokret Voćna dolina Bibli d.o.o. Fišek Z.T.R. Jam and Jelly Olda Group Sunny Delight Vrtlari Biolitus Flora JS&O Organika Bio Food Super Crops Zemljoradnička zadruga "Kulen" But&co Floriva d.o.o. KIRI123 "Agro Eko Voce" Arilje Swiss Nature d.o.o. Zemljoradnička zadruga Begečki povrtari Calina Food concept doo Konsberry PD „Golubački grad“ TRUFF TRUFF Zlatiborac doo

Annual Report Y2 15 Serbia Competetiveness Systems Strengthening (CSS) Activity

World of Private Label International Trade Show in Amsterdam (PLMA). The Project identified PLMA as an excellent platform to test opportunities for securing PL deals for Serbian fruit and vegetable processors. This is the leading private label fair in the food industry repre- senting more than 4,400 member manufacturers globally. Twelve Serbian food companies (Ta- ble 2) exhibited at the show and held 81 meetings with international retailers, distributors and importers. To date, five companies have signed seven contracts and achieved sales of $1.8 Million by attending this event. London Produce Show and Conference. Eight Serbian fresh fruit producers exhibited under the “Serbia Does Fruit” slogan at the London Produce Show and Conference in June 2018. Through the CSS market strategy, the UK was identified as one of the most promising new international markets for high-value fresh fruits. This is particularly important for the Serbian fresh apple sector since there is a clear rationale to diversify away from the oversaturated Rus- sian market. Participating companies held 39 meetings with potential partners from the UK, and Agrobrand collectively represented Serbia’s apple producers to 15 potential partners. As a result of the London Produce Show, one of the biggest global distributors, Total Produce UK, visited Serbia in August 2018 to meet with 8 Serbian apple companies. Following these meetings, four Serbian companies signed contracts with Total Produce. Atos Fructum has been exporting to Total Produce since September of 2018 with monthly exports valued between $100,000-$150,000. The company reported that they already shipped 100 trucks of premium- quality apples to the UK (2,200 tons). Besides their own production, Atos Fructum is integrating over 15 smaller apple producers (5-15 ha) into their value chain. The Summer Fancy Food Show in New York. APSF, with technical support from the Project, supported the organization of nine Serbian premium food companies and eight start-up companies to exhibit at the Fancy Food Show in New York (FFSNY), held from June 30-July 2. Under “Serbia Does Specialty Food” branding, the Serbian companies showcased their innovative food products during 171 meetings held at the trade fair. As a result of participation at the FFSNY2018 6 firms executed 17 new contracts worth $377,000. Vrtlari signed a $250,000 contract for four of their products to be carried in 76 Fresh Thyme Farmers Market stores across the United States. From FFSNY, Happy Honey now has 3 products in 276 stores Cost Plus World Market stores in the United States. Happy Honey is the first Serbian company to establish a direct deal with the Cost Plus World Market stores. FruitNet Forum South-East Europe 2018. CSS supported the organization of FFSEE 2018, enabling Serbian companies to learn about the world’s and the EU’s fresh produce market, industry trends, and to establish a relationships with lead European buyers and distributors. FruitNet brought key-industry people from the EU to Belgrade and held significant educationa l value for Serbian firms. The event brought together around 100 leading export-oriented producers and international buyers to explore and discover new commercial opportunities in the fresh produce market in the SEE region. FFSEE provided a valuable platform for the Serbian fruit and vegetable suppliers to learn from industry experts how to develop, diversify and increase exports in high-value international markets. The Project facilitated 9 apple and 5 berry fruit producers to exhibit at the event under the “Serbia Does Fruit” brand. The Project organized 70 B2B networking meetings between Serbian companies and five international buyers and distributors. Atos Fructum finalized five contracts following the event and Pureberry signed a contract for $200,000.

“Excellent organization and a great opportunity for companies from Serbia to enter a high-end market” Bojana Vukasinovic and Aleksandar Timotijevic Al Dahra Rudnap company

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B2B with Greenyard in Munich. At the invitation of Greenyard, the Project organized for five Serbian soft fruit producers (Brestovik, Pureberry, Agro Bel System, Forest Food and LidoBerry) to visit Greenyard’s newest distribution center in Eitting, Germany. During the visit, participants learned about Greenyard’s global purchasing activities of fresh and frozen produce, toured their state-of-the-art distribution center and held B2B meetings with purchasing representatives for the Dutch, Belgian, Austrian and German markets. This is one of the best and most concrete opportunities for the development of fresh export to EU as Greenyard is the second biggest distributor in the EU. This effort builds on close coordination with the USAID REG project from Y1 and has already shown results in Y2 with Brestovik selling an initia l order of 40t of GG certified blueberries and other fruits to Greenyard in June 2018. An additional 120t of blueberries was sold to other buyers, 70t of which was exported internationally, and the rest remained in the domestic market. FruitLogistica 2019. In cooperation with PKS and RAS, the Project promoted the Serbian fresh fruit and vegetable industry at the Fruit Logistica 2019 trade show. Fruit Logistica was selected because of the importance of the fresh produce industry worldwide. The Project supported ten Serbian companies to exhibit and sponsored the design and building of the Serbian national stand, under the umbrella brand “Serbia Does Fruit”. Over 3,200 companies and organizations from around 90 countries exhibited this year and over 78,000 buyers from 130 countries attended. The Project facilitated a series of planned Project representation during FruitLo- meetings linking Serbian producers and traders with gistica 2019 the renowned European produce distributors and buyers such as Greenyard, Chambers, Total Produce, Lehmann Natur, Port International, Pro- divec-Swiss and others. These business meetings already resulted in: > Port International from Hamburg, Germany, ordered testing quantities of fresh blueberries from suppliers from central Serbia, represented by the CSS trade partner “Dotika” from Gornji Milanovac > Prodivec-Swiss expressed interested in 650 tons of fresh peppers and establishing long- term cooperation with Serbian pepper producers > Greenyard requested testing quantities of sweet cherries, peaches, apricots, plums fro m “Brestovik” and “Pureberry” The CSS team also attended the first “Global Women’s Network” at the fair. This new platform is a great opportunity for women around the world to network to inspire the global agricult u r a l community to support women’s professional growth, especially in the fresh produce sector. Global Berry Congress 2019 (GBC). From cooperation with FruitNet International Media Group, the Project was invited to participate in the Global Berry Congress. This event, a leading annual event for the international soft fruit business, took place from March 25-27 in Rotter- dam. GBC allowed Serbian berry producers to network, exchange experiences and create new business opportunities with their counterparts from around the globe, while establishing Serbia as a recognized entity of fresh berry producers.

Annual Report Y2 17 Serbia Competetiveness Systems Strengthening (CSS) Activity

The Project facilitated meetings between three Serbian berry-producers (Agro Bel, Brestovik and Pureberry) with Bakker Holland, a leading Dutch wholesaler company. As part of this process, the Project facilitated a mini-study tour to visit leading Dutch berry growers Verpaalen Soft Fruit, Maatschap Pertijs and Maatschap Buiks to learn about modern practices and production standards CSS anticipates four contracts valuing 1.2M euros to be signed and will continue supporting these firms to ensure that contracts are finalized. CSS will also monitor progress towards establishing a fresh berry professiona l association, simila r to the Serbia Does Apples Association .

Visiting Dutch berry growers (hydroponic strawberry glasshouse) Bak k er Holland wholesaler

Belgrade Food Show CSS recognized a market need for a sustainable platform to showcase Serbia’s specialty, and premium food products to raise the internatio na l profile and position the country as a regional trade center. Organized by APSF, BFS focused on educating the industry on successfully entering global markets and offering a platform for B2B meetings and trade ex- hibitions between ready-to-export Serbian companies and selected international retailers and buyers. At the ceremonial opening, the Minister US Ambassador Kyle Scott tastes Serbian cheese at the of Agriculture, Forestry and Water Belgrade Food Show 2018 Management Branislav Nedimovic and the US Ambassador to Serbia Kyle Scott, each gave keynote speeches to a 350-plus person audience. The development and capacity of APSF were improved through CSS interventions during prep- arations for BFS. The Terra Madre bi-annual “Salone del Gusto ”event was an opportunity for

Annual Report Y2 18 Serbia Competetiveness Systems Strengthening (CSS) Activity

APSF to see first-hand how global food events are Belgrade Food Show Results 2018 structured and promoted, and learn from different actors on contemporary trends in the industry, for repli- 1. Over 600 attendees cation in BFS. 2. 80 premium food and beverage producers exhibited APSF will also include perspectives from other pro- 3. Over 30 buyers and traders discovered high ject activities related to specialty food, such as Eco- quality regional food products trophelia Serbia and iTQi. All students’ teams that 4. 137 B2B networking meetings organized took part in the national Ecotrohelia competition also 5. 47 media references in national, regional showcased their products at the BFS where they were and local media outlets represented by The Serbian Association of Food Tech- 6. BFS resulted in $400,000 sales arrange- nologists. iTQi and its Superior taste awards were in- ments for 12 companies. troduced at BFS 2018. This prestigious award provides companies greater domestic and global recognition. b) Specific Market Linkages Efforts Facilitating export of fruits, vegetables, and specialty food products to targeted markets Trade shows are a traditional platform for finding buyers and opening new markets. While the Serbian frozen F&V industry is relatively well integrated and linked with EU markets, major gaps in export efficiency were identified in the fresh produce and specialty food sectors. Ser- bian firms are mainly oriented to a single market in fresh produce exports. For example, 95% of all apples produced in Serbia are exported to Russia. It is, therefore, necessary to diversify markets by opening opportunities for Serbian companies to export to European and other global markets. To do this, CSS launched two solicitation cycles for F&V export facilitation and engaged expert trade partners specializing in specific product groups and markets, with the capacity to consolidate fragmented producers.

Table 3. CSS Trade Partners engaged to increase exports to competitive markets Company Product Target Y2- Achievements Specialization Market › Established a professional Serbian Apple Association Agrobrand- Con- Fresh fruit with EU, UK › Conducted 14 trainings for 9 companies on required standards sulting Agency a particular fo- (BRC, Global GAP), marketing skills and exporting procedures to cus on Apples prepare for 99 B2B meetings with British exporters › Organized 8 Serbian apple producers to participate at the London Produce Show › Supported 15 Apple Producers at the FruitNet Fresh South East Europe Forum › 11 established relationships between Serbian lead apple producers and large UK F&V distributors and 5 completed agreements with 5 distributors › $1.3M total value of additional apple exports to the UK Market › Established “Serbia Does Apples’ business association › Provided trainings to Serbian fresh fruit producers on food safety Dotika Fresh F&V- EU certification s- Global GAP, GRASP, EU Organic, BIO etc. mainly berries › Liaised with international buyers to establish quantities and sched- and peppers- ule for exports and a corresponding timeline focused on › Held 12 meetings with key contacts during FruitLogistica. fragmented › Held at least 5 meetings with contacts during the Global Berry Con- Serbian fresh gress F&V producers

Annual Report Y2 19 Serbia Competetiveness Systems Strengthening (CSS) Activity

Company Product Target Y2- Achievements Specialization Market › Provided comprehensive capacity building and TA to 5 companies Blue Zeppelin Specialty F&V Europe to upgrade labelling and standards required for Halal markets foods for Halal and the › Signed five trilateral contracts between five Serbian producers and markets Middle two importers/distributors covering Iraq, Kuwait, Lebanon, and East Saudi Arabia › $270,000 value of export contracts established › Identified in February 2019 to select companies from Southern Ser- Trofej-Trade Retail-ready CEFTA, bia with significant export potential. Partner products USA, and › Assessed the export potential of over 50 companies through a for- Australia mal interview process. (targeting › Finalizing a list of the most prospective 7 companies to be trained Serbian and prepared for export to CEFTA countries and the USA. diaspora) › Establish an online sales platform for international sales of Serbian Ko-Voli- Trade Serbian spe- World- specialty food products (modelled off Amazon, foodist.de, igour- Partner cialty food wide met.com, etc.) (KoVoli.com) products › Increase exports of this specialty food segment responding to in- Agro-Communi- Healthy, spe- Germany creased demand in W. Europe. As the third largest importer of agri- cations cialty and gour- and Aus- cultural and food products worldwide and with 82M consumers, met foods tria Germany is an attractive target market for Serbian products. › Targets some of the biggest supermarkets and drugstore chains in Germany such as EDEKA, REWE, DM Drogerimarkt, ROSSMANN, DENN’S › Identified 10 companies from the specialty food sector with high export potential › Delivered reports on training needs assessment and competi- tor/product analyses for the selected companies Efforts by trade partners are directly related to increasing marketing and export capacities of Serbian SMEs and business associations/business support organizations. The ultimate goal is to strengthen the stakeholders’ (trade-partners) capacity to train and help firms become mor e responsive to international market demands while building a cadre of firms capable to read and navigate new EU markets. Export facilitation partners in this subsector may partner with associations, PKS, and RAS to organize trade missions, buyers’ missions, international trade fairs and study tours. All traders identified by the Project are willing and able to integrate their activities into the BFS 2019. Industry Leaders (ILs) as market integrators Another way to consolidate the fragmented industry is to work with established firms (Industry Leaders) who already have access to high-value markets. They primarily come from the frozen segment, although the Project anticipates these partners will increasingly come from the fre s h industry, as it orients more towards the EU market. Each industry leader pilot is seeking to produce lessons on building strong vertically integrated models (hub and spoke) with smaller supply firms and producers. In this process, ILs are also opening new markets, securing new PLs, expanding organic production and including vegetables in the cold supply chain. Hub and spoke models are key to preserving life in rural areas while driving the adoption of new technologies and inclus io n in competitive markets, offering a solution to labor shortages and rural emigratio n.

Annual Report Y2 20 Serbia Competetiveness Systems Strengthening (CSS) Activity

Figure 4. CSS supports the building of strong cooperative/integrated (Hub and spoke) models

The CSS team has identified six ILs with significant sales in the domestic market and sizeable exports who are recognized for developing and maintaining effective working models with their supplier base.

Table 4. CSS supports the building of strong cooperative/integrated (Hub and spoke) models CSS Industry Leaders Description: Sirogojno is the leading Serbian frozen F&V processor and exporter.

Role: Sirogojno is partnering with CSS to address the issues of the food safety management system, product

standardization and integration of a number of farmers and SMEs into their VC. This is being accomplished through a comprehensive approach to improving product quality and safety in supplier networks using modern Sirogojno technologies and solutions and including both small-scale farmers and SMEs that supply frozen and dried fruit. Sirogojno is mostly in the south-west and central Serbia. Description: RZ AGRO d.o.o. is an importer and distributor for the major Dutch input company Rijk Zwaan, and also an exporter for fruits and vegetables.

Role: The Project selected RZ Agro, as an Industry Leader, to promote modern models of cooperation and integration of household producers into high-quality value chains for export. RZ Agro’s value chain production of gherkins is exported to Carl Kuehne, a German food company based in Hamburg, as well as peppers and RZ Agro strawberries. In Y3, RZ Agro will establish a commercial relationship with EmcoCal, a leading breeder of berries from the US, and will bring new commercial varieties to the Serbian market while providing smallholders with additional high-value crops to work with. Description: Cold storages Brestovik, is equipped with the latest technologies to enable the proper handling of fresh fruits and vegetables and serve as a modern distribution center for marketing both fresh and frozen fruits and vegetables.

Role: In coordination with USAID’s Regional Economic Growth (REG) Project, Brestovik was introduced as an Industry Leader able to effectively integrate their value-chain (fresh berry producers) and start supplying some Brestovik of the major EU fresh produce distributors. The pilot with Brestovik quickly replicated to include other firms (mentioned above – Pureberry and Agrobell) as it proved very successful and a buyer (Greenyard) expressed keen interest to scale up efforts.

Description: Lukowa, is one of the fastest growing companies in the frozen segment in Serbia, with three state of the art productions sites in Šabac, Draginac, and Belanovica, Lukowa has the total storage capacity of 9,500

Lukowa tons.

Annual Report Y2 21 Serbia Competetiveness Systems Strengthening (CSS) Activity

CSS Industry Leaders Role: CSS works with Lukowa on expanding their sourcing base to introduce modern product improvements, quality, and finance procedures in accordance with international market requirements and sustainable agriculture practices. The educational trainings are on current market needs and expectations, and important trends which present an opportunity for leveraging an expansive cold chain network in Serbia. The current price pressure on raspberries demands diversification in order to stay competitive. Description: Fortis is one of the largest producers and exporters of frozen fruits in Serbia, strategically located in the south part of the country where industry development is most needed.

Role: Fortis is engaged to increase sales and export volumes of organic PL products through selected pre-

Fortis mium international markets (European retailers like SCAMARK and Carfour, and HoReCa in the UK). In order for this to happen, Fortis’ network of organic producers needs to be strengthened, expanded, and certified, providing new opportunities for farmers and small firms and increasing value of Serbian exports. Description: VDFE is a processor and producer of freeze-dried fruits and vegetables, with the best technology for freeze drying products in Serbia. VDFE is one of the rare American investments in the Serbian agribusiness sector and extremely well connected with some of the biggest buyers in the world, such as Nestle and others. Role: VDFE was selected to enhance the knowledge of food safety practices for raw material suppliers of Van

Drunen Farms Europe (VDFE). Frozen processors and farmers will be educated on how they can enhance their quality and safety standards to meet VDFE’s requirements, in order to be integrated into the company`s supply value chain. This will directly contribute to the capacity of the overall frozen industry. For the first time, VDFE will also work on producing a final, retail ready product for the Serbian market which should further in-

Van Drunen Van crease consumption of berries in Serbia and showcase example for others to follow. All efforts with industry leaders will be consolidated either under activities with PKS or Union of Cold Storages. The pilots are also showing that market saturation for the frozen product in the EU will demand opening of new markets very soon. The project efforts will likely evolve in that direction in Y3. Key Industry Associations In selected, profitable value chains, professional industry associations are at the cornerstone of sustainable competitiveness. They represent sector interests and facilitate access to domestic and foreign markets, but in Serbia, they are generally very weak. Companies do not cooperate, and they have an individualistic approach toward R&D and exports. Although a number of development projects have supported associations in the past, including USAID projects, limited improvements have been made in this area of the industry. The project has thus taken a different approach to association development, through specialized consultants, with self-selected association members, centered around a few topics of joint interest.

Fresh Berry Industry Group Market Background: Except for frozen berries, there is no coordination or tradition of fresh berry fruit export in Serbia. Historically, Serbia has not grown the required mainstream varieties of fresh raspberries, blueberries, and other berries. The infrastructure, logistics coordination, and organization within the fresh raspberry industry is very weak, which largely affects the highly perishable products. The requirements and demands of the fresh buyers are specific regarding- mar- kets, varieties, packaging and logistics organization, size of companies, the value of an investment, and background of owners/investors of berry companies. Recognizing the strong potential of the fresh berry market, CSS is supporting consolidation and integration of berry fruit producers for export to the EU to better meet international demand and quality standards. Purpose: The Fresh Berry Industry Group is made up of 3 firms including; Pureberry, Agro Bell and Brestovik. CSS continues to help fresh berry firms with (1) communication with Greenyard, critical in the process so Serbian firms are producing not for traders, but for one of the most reputable buyers in Europe that can guarantee a long term business opportunity; (2) organization of production and certification logistics; (3) and implementation of required quality/safety stand-

Annual Report Y2 22 Serbia Competetiveness Systems Strengthening (CSS) Activity

ards. This emphasizes to the rest of the industry the importance of working with reputable buyers and managing suppliers/farmers in a fair and transparent manner. It is also encouraging that the companies are working together on berry fruit promotion, organization of production and logistics; and implementation of required quality/safety standards. Achievements: › Recognizing Serbia’s potential to produce certified soft-fruits, Greenyard visited Serbia during the Fruitnet Conference, held November 21-22, to further explore how other Serbian berry producers can fill the needs of its extensive global supply chain. › 40 tons of certified blueberries prepared for supply to Greenyard › An estimated investment of $0.8M in facilities and equipment achieved, upgrading to meet export demands › Sample trucks of additional fruit (e.g. plum and cherry) disseminated to Greenyard and Bakker Holland Future Activities: › Possible establishment of the Fresh Berry Group Association › Following the formal establishment of the Association, the Fresh Berry Group will attend all trade shows as an Associ- ation › Positive developments in the fresh berry sector and export to Greenyard provide an entry point for other fresh F&V products from Serbia to EU markets.

National Association of Serbian Prune Producers (NASPP) Market Background: The Serbian prune market is small but largely comprised of export-oriented companies. It is a relatively stable sector with potential for branding, as Serbia is one of the biggest plum producers in the world. The main need identified for this sector is opening new markets while pushing modern branding and making technological improvements in the industry. Purpose: As NASPP collectively accounts for approximately two-thirds of Serbia’s total prune export volume, CSS recognized the Association`s potential to expand the prune industry through technological improvement and access to markets through study visits/missions and branding improvements. The model of support follows the Serbia Does Apples model. This includes deploying a specialized consultant close to the industry as organizer and manager of the association and building business services in the process. NASPP will prepare; an Information sheet that summarizes the most important facts and data on the industry, production capacities, quality standards and other relevant information on each member company of NASPP. The association will also target and establish contact with an international buyer in Italy and organize a visit of an international buyer(s) to Serbia. After this intervention, prune producers, especially those who had limited access to foreign markets, are expected to perform market functions more effectively by conducting market research, identifying target buyers and enhancing marketing and branding. Achievements: › Improvements to the NASPP website is currently ongoing to increase the Association’s visibility › Developed marketing information sheets to demonstrate the capacities of the Association Future Activities: › Driving adoption of the hub and spoke model by association members and investments in new technology › Possible branding under ‘Serbia does Prunes’ › In year 3 and 4, NASPP will be able to use internal resources and available external resources (MoA, RAS and international community) to penetrate new markets. Export opportunities need to be opened for small producers/new members – at which point the project can start to phase out.

Apple Producers Organization

Owner, CEO Julka Toskic, AgroBrand Agency Julka Toskic, won the prestigious award at the 86th International Agricultural Fair in Novi Sad, for the most successful woman in the agribusiness sector for the promotion of Serbia`s apple production on international markets’. The award came as a result of collaboration with the CSS during 2018. The Project in collaboration with Agrobrand helped nine Serbian apple producers participate in the new export market, which resulted in excellent export performance.

Annual Report Y2 23 Serbia Competetiveness Systems Strengthening (CSS) Activity

Julka is the initiator of the establishment of the first professional business association of apple producers under the name "Serbia Does Ap- ples" founded in Sep- tember 2018. The Asso- ciation’s collective annual apple production represents more than 1/3 of the total apple production in Serbia. The Association will continue with the promotion of Serbian apple production and presentation of Serbia as a modern, market-oriented supplier of high-quality apples for foreign markets. Market Background: Serbian apple producers have faced changes in the international market with a shift in demand caused by preferences in apple varieties and sanctions between the EU and Russia. While originally favorable for Ser- bian apple producers, these sanctions hurt sales when Russia started planting their own apples, forcing Serbia to find other markets. The main focus for Serbian apple producers is to diversify its sales in international markets and consolidate the industry through the establishment of a strong grouping of the most prominent firms in the sector. Purpose: The purpose of the Association is to improve Serbian apple producers’ access to domestic and international markets through professional knowledge sharing, improving quality standards of apple producers, and increasing capacities to meet buyers demands and standards. The fully-professional Association aims to promote the whole industry internationally through its brand “Serbia Does Apples”. It’s managed by a professional consultant from the industry who is also building sustainable market services in the process. Achievements: › B2B meeting held between Total Produce and Serbian apple producers. Total Produce presented their values, portfolio and working standard › Officially registered as an Association in November 2018 › B2B meetings organized during FruitNet’s Fresh SEE forum, Belgrade with large international companies › Significant volumes of premium apples have been exported to the UK market; three companies from SDA association commenced exports to British F&V distributors; Atos Fructum company shipped premium-quality apples to the UK, valued at $1.3 Million. They are also integrating other apple producers into their value-chain. Future Activities: › Drafting a transparent Rulebook for initiating new candidate members to the Associations; › Entering new markets in 2019, (specifically Romania, MENA countries and the Scandinavian market) › Building of Hub and spoke models-inclusion of SMEs and farmers into their supply network through educational programs. › Focus on increasing SDA membership to ensure sustainability. Getting SDA to be self-reliant will allow it to promote Serbia as a country of professional, consistent and high capacity apple producers. SDA has set firm standards and rules for any new members, which in turn projects a standard of professionalism for the organization. This will improve the chances of sustainability and continued recognition in international markets › “Serbia Does Apples” Association is aiming to become a member of the international organizations World Apple & Pear Association (WAPA) and the European Fresh Produce Association (Freshfel).

Association for the Promotion of Serbian Food (APSF) CSS supported the establishment of the APSF to become an integrative point for the specialty industry, providing much- needed marketing and promotional support for the Serbian specialty food industry. After the successful organization of the Belgrade Food Show 2018, APSF is preparing the 2019 event and tailoring its key services for Serbian SMEs by providing knowledge about global trends, access to markets, B2B connections, and visibility in domestic and international markets. As a new organization, APSF is working on strengthening internal capacities and forming a better connection with the industry. In partnership with CSS, APSF will execute several activities deemed necessary by the industry stakeholders: › Organizing the BFS 2019 and 2020. › Continuing campaign on “Svet hoce domace” focused on marketing, branding, and promotion (April 2019 - March 2020); › Producing Demo Day event focused on retail and HORECA

Annual Report Y2 24 Serbia Competetiveness Systems Strengthening (CSS) Activity

Serbia Organica The Project recognized Serbia Organica as an umbrella association of organic producers. During Y2 Serbia Organica has: › Developed a modern website › Published and distributed organic catalogues to major retail chains, such as DM and UniverExport and other small organic and specialized shops. › Developed a database of organic production in Serbia as a unique tool to inform stakeholders about the capacities of organic producers. › CSS will partner with Serbia Organica in Y3 to develop a Strategy Study focused on identifying the organic products and new international markets.

Sub-Purpose 2: Business Support Systems Coordination Strengthened Under the second Sub-purpose, the Project supports marketing effort by ensuring that relevant stakeholders are engaged to support these efforts: > Consolidating project efforts in the frozen segment with PKS or Cold storage Union > Assisting industry associations to improve member services (above) > Enhancing the competitiveness of Serbian food products > Developing workforce development and internship programs for young graduates, innovative certification courses for companies and new educational models developed by companies a) Consolidation of the F&V sector with PKS As the only government body with a clear mandate to provide business support services, PKS was identified as a facilitating partner for consolidating activitie s under the frozen segment of the industry. The purpose of this activity was to position PKS as a partner that does effective coordination between exporters and smaller firms, while conducting market analysis that will provide everybody with up to date information on industry trends. Industry lead efforts were designed to serve as pilots under this effort, however, with frequent management changes, PKS was not able to complete this effort in time. b) Premium Food Design Hubs CSS launched PFDH focused on providing comprehensive and tailor-made support to domestic premium food SMEs to make their products competitive in domestic and international markets. The Project started with four selected hubs: BIPs, Desing Taste Centar, Nova iskra and Impact Hub. The most motivated companies were selected from the specialty food industry based on their innovativeness, use of technology and market demand. The core element of the first PFDH program was an intensive boot camp training for the 20 selected start-ups and SMEs. Compa- nies received a comprehensive product and business support in food safety and technology, industrial design, access to market and access to finance.

Annual Report Y2 25 Serbia Competetiveness Systems Strengthening (CSS) Activity

Figure 5. Creating Premium Food Design Hubs - se lf-sustaining market service

The companies entered the process of redesigning and improving their premium, high-value products to prepare for domestic and international markets. This innovative approach is based on a set of well-coordinated activities focused on hands-on trainings and workshops that address key issues facing food start-ups, such as food technology, market trends, access to finance and industrial design.

Annual Report Y2 26 Serbia Competetiveness Systems Strengthening (CSS) Activity

Table 5: Premium Food Design Hubs HUB Description Companies Key results BIPs – BIP established an innovative replicable and › Urbani farmeri (Beograd) › Aggregated sales of all beneficiaries have increased from RSD 2,327,250 to RSD Business scalable model. The core team of 15 experts de- › Truff Truff (Novi Sad), 5,840,230 in December 2018– 151% increase Innovation veloped a methodology for selecting potential › StanišićBio (Novi Sad) › 24 products improved and 10 new products developed Program beneficiaries, analysing their needs and areas › Bernstein (Irig) Poljubac › 19 new retail buyers with 71 outlets and 22 SKUs,1 new export market was opened for improvement and providing support services. prirode for one beneficiary (total sales RSD 241,919) and negotiations with 4 exporters are The working space for the beneficiaries and › DMW Rawfood (Belgrade) ongoing core team was at the Business Incubator Center › Kiri123 (Pančevo) › 82 tailor-made support sessions organized, according to individual development plan Kragujevac and BIPS offices in Belgrade; – 34 in technology, 14 in design, 22 in access to market, 12 in access to finance Desing Desing Hub Selected and worked with six se- › Real Red Raspberry (Novi › Conducted a total number of 32 training and individual mentoring sessions, 2 work- lected food start-ups and SMEs. They estab- Bečej) shops, exhibited at five trade events (trade fairs) lished a core team of 7 experts and worked at › Iplum Distilery (Vlasotince) › Facilitated placing the products in 3 new national retailers and opened three export Desing Taste Center, a venue fully equipped › Fruit Fusion (Belgrade) markets; with a R&D center and laboratory with training › Dolovac Organic i Tradicija › Helped the development of 5 new food products (SKUs), redesigned/improved 7 facilities. (Futog) products › Densana (Belgrade) › BioLitus (Mošrin) › Zlatno brdo (Smederevo) › The three companies’ turnover in March 2018 was a modest 31.800 RSD. In Decem- Nova Iskra Nova Iskra hub support program included: › Nut Enough (Beograd) ber 2018 this was around 1,876,700 RSD, an increase of almost 60 times. With effec- › Design of stickers and packaging for prod- › Fatalni začini (Grabovac) tively non-existent profit levels in March, they managed to end the year with a profit of ucts; development of Design book of stand- around 210.000 RSD. ards. › Nut Enough nuts creams were shortlisted for international quality award ITQI, › Storytelling development awarded by Brussels based The International Taste & Quality Institute – iTQi; › Package prototyping › 7 trainings organized, followed by individual mentoring sessions; › Financial Planning and Management › New storytelling and visual identity created for 21 products SKUs; › Business development and strategy for the › 5 new products developed, 3 visual identities and 3 storytelling, as well as 11 rede- market entry signed packages; › Domestic retail outlets enlisted 15 products deriving from the Nova Iskra PFDH program. › SuperCrops (Belgrade) › From the start to the end of the PFDH intervention by Impact Hub in 2018, the sales Impact Hub Impact Hub designed and provided a set of business consulting services, mentorship sessions › Olda Group (Belgrade) of companies assisted increased as follows: Laloski – 25%, Supercrops – 100%, and networking opportunities for five selected › Laloški (Novi Sad) Aguara – 35%; companies. The support program included: a › Calina (Belgrade) › 3 out of 5 selected PFDH companies were assisted in the development of their prod- set of workshops with technology and food › Aguara Chocolate (Bel- ucts. The total number of new products developed is 18 and the cumulative achieved grade) growth in revenues in 2018 is 2.031.360,68 * RSD without Olda and Aguara

Annual Report Y2 27 Serbia Competetiveness Systems Strengthening (CSS) Activity

HUB Description Companies Key results safety experts, industrial designers, financial ex- › 8 workshops with mentors from May to June; 25 startup-mentor matching; 12 peer- perts, matching meetings between mentors, re- learning (once a week); 30 consultations; 5 meetups; 18 technical assistance meet- tailers and open community meetings with (tech) ings; startups for peer to peer learning, and › Due to improved negotiating skills with domestic and foreign buyers, all 5 selected knowledge exchange; PFDH companies reported a total of 10 realized negotiations with buyers, and an additional 7 are still in progress;

Annual Report Y2 28 Serbia Competetiveness Systems Strengthening (CSS) Activity

DM Incubator As an immediate market replication of the Project’s PFDH initiative, in October 2018, CSS with dm droger- iemarkt, launched the DM Incubator to mentor and support food and beauty and cosmetic producers to place new innovative products in dm’s retail network of 91 stores in Serbia and potentially south-east and central Europe. The initiative, supported by CSS through a grant, aims to support development of locally produced goods and strengthen the competitiveness of domestic producers. 20 entrepreneurs with 56 products were selected to go through a 12-week boot camp to refine their products. Additional expertise was provided during the boot camp by The Serbian Development Agency, Belgrade University’s Faculty of Applied Arts, Serbia Organica, and the Serbian Food Technology Council (SFTC). Boot camp graduates’ refined products will receive placement in 100 domestic DM stores in Serbia; the highest performers will be part of regional markets in Bosnia and Croatia, and the ongoing performers will eventually be placed in 3,000 DM stores in the EU market. Though the Incubator is ongoing, early results indicate a ‘crowding in’ process as other retailers including DIS, Mercator S and Ahold Delhaize have already shown interest in initiating their own ‘Incubators’, while DM plans to continue with the project in the same or re-modeled form in 2020.CSS is discussing potential cooperation with Delhaize to support a pilot a model for vertical integration in the fresh segment. National Wholesale Market As an integrative point for all efforts in the fresh segment, CSS actively participated in the development process of the MoA National Wholesale Market Working Group (NWM). NWM is designed to support wholesaling of a wide variety of food produce, improve collection and distribution of goods, and create new market opportunities for agricultural producers. It was agreed with the MoA that the Project would provide consulting services to assist with the preparation of a wholesale market Feasibility Study and other documents and services related to the creation of the NWM Act. With delays in this process, CSS is also considering establishing a private wholesale market(s) with key industry stakeholders. c) Workforce Development The Workforce Development component actively engages with educational institutions and the private sector to develop models of cooperation and workforce improvement programs. If Ser- bia’s food processing industry is to become competitive in international markets, research, innovation, and knowledge transfer have to be tailored to respond to immediate and future industry needs. The creation of sustainable internship programs for the food processing industry, new educational models and stronger systemic links between academia and the private sector are not “one-off” interventions but are sustainable and will produce systemic changes. Development of Internship Programs for Young Graduates: The aim of this activity is to contribute to increasing the productivity and competitiveness of Serbia's food-processing sector through the development of a Sustainable Model of Internships. This model will be built on proven programs, which companies can implement independently after project completion to

Annual Report Y2 29 Serbia Competetiveness Systems Strengthening (CSS) Activity

improve their capacity and workforce. Standardized models of internships in the food-processing industry have not existed before. The project partner, Youth for Impact, has a strong affiliation with the Belgrade University’s Center for Career Development. YfI’s role is to support companies to create long-term internship programs that develop the required skillsets and competencies for work in the food processing industry. Internships are mainly for technologists, economists and merchandising positions, suitable for students of the Faculty of Agricul- ture, Faculty of Organizational Sciences, and Faculty of Economics. Participating companies will appoint mentors for each student, and offer some remuneration for students

Figure 6: Internship Timeline

The Internship Program will be evaluated following the completed cycle and adjustments will be made to the model based on this feedback. It will be advertised next year for more companies in the food-processing industry. The establishment of sustainable and functional internship programs in the food processing industry will lead to a more employable and internationa l ly competitive workforce. In Y3, the Project expects that the Center for Career Development will continue to offer this piloted model of internship to the industry. The Project intends to phase out of this activity as companies adopt the internship model as a regular practice. University Collaborations: Partnership with University of California (UC) Davis: The Pro- ject established collaboration between Belgrade University, Faculty of Agriculture and the UC Davis Postharvest Center, a premier US agricultural university, to develop professional, short term certification courses responsive to industry needs. An MOU was signed with FoA in July 2018 and an MoU with UC Davis was signed January 2019. UC Davis also signed an MoU with Belgrade University. The FoA is implementing this effort through UC Davis, AgroNet and CSS field visit to Lukowa cold AgroNET – Centre for Education storage in Draginac and Research founded by a team of highly qualified and experienced professors from the FoA. UC Davis Postharvest Technology Center (PTC), as a partner, will provide knowledge transfer and their expertise to strengthen the capacity of AgroNet to develop a sustainable model of certifica tio n courses for the Serbian industry on the topics of export and trade, innovative technology application and business development models. FoA and AgroNET will be acquainted with good international practices for cooperation between academia and the industry through this collaboration. The Project is fully supporting the implementation of the program in the first year of piloting the short certifica tio n courses (WP Y3) and will reduce support in Y3 and 4 as the activity becomes self-sufficient.

Annual Report Y2 30 Serbia Competetiveness Systems Strengthening (CSS) Activity

Partnership with Oregon State University (OSU): The CSS team visited OSU to learn about programs and best practices of the OSU Crop and Soil Science Departments and identify areas that can be replicated with Serbian stakeholders from academia and the agri-sector. The project explored the possibility of a joint extension project in Southern Serbia, between the newly established University of Nis’ Faculty of Agriculture in Krusevac and OSU’s Small Farm Pro- gram, which provides small farms and ranches with training and research to support their long- term financial and environmental sustainability. After visiting the University of Nis and discussing possibilities for collaboration, dean of the Faculty of Agriculture in Krusevac concluded that they do not have capacities to get involved in this collaborative project currently. The Project plans to discuss other collaboration opportunities for Y3 with the Faculty of Agron- omy, University of Kragujevac. The team will also meet and discuss further with OSU representatives’ during their planned visit to Serbia in-May. Private sector-Academia Partnership Models: From the private sector side, working with the companies on developing new educational models will equip students with the skills and knowledge that is required for the business world. Traditional curricula at Serbian universities do not currently provide students with practical knowledge and the skills necessary to work in export-ori- Internship Program Companies ented companies. In addition, faculties do not work on popularization of this industry and generally work with › Sirogojno (Rupeljevo) › Allberries (Ivanjica) companies oriented towards the local market. As a result, › DMV Raw food (Belgrade) export-oriented companies in the food sector have prob- › Stanišić BIO (Belgrade) lems recruiting individuals from the existing labor force › Menex (Belgrade) who have the required skill set. To address this, CSS › Kiri123 (Pančevo) works with Lukowa company on the Lukowa Académie › Nektar (Belgrade) Program to provide students with knowledge and skills to enter the job market. After evaluation, the piloted program will be improved and impleme nted again in Y3, while options will be explored to replicate it with other industry leaders.

LUKOWA Académie Program

› Exposes students to solving real industry company problems through the case study model › Provide four educational workshops to students on Finance, Spreadsheet Engineering, New Value Creation and Branding and Case Study Methodology › Promotes the food industry as an appealing career option for students › Highest performing students of the Academie have the opportunity for full time employment with Lukowa › 73% of students enrolled in the 2018 Lukowa Académie completed the program › 14 students interviewed for full time employment with Lukowa; 5 received a full time offer and 5 received an internship offer

“Unifood” - Food science and technology conference: The Project signed a Letter of Support with the University of Belgrade to assist with organizing the UNIFood Conference held Octo- ber 5-6, in Belgrade. The UNIFood Conference gathered over 300 participants, lectures, scien- tists, researchers, entrepreneurs, and industrial partners, from more than ten European countries to share their best practices in the field of Food Science and Technology. Sub-Purpose 3: Resources for Enterprise Growth Mobilized Lack of access to finance is one of the main constraints to growth and competitiveness which specifically affects SMEs. In other words, they are too big for microfinance (not an option in Serbia), too small or risky for traditional bank lending, and lack the growth, return, and exit potential sought by venture capitalis ts. The additional impediment is that SMEs have traditionally been treated as a homogeneous group fully ignoring that financing needs of different types

Annual Report Y2 31 Serbia Competetiveness Systems Strengthening (CSS) Activity of SMEs at different stages of business cycle. Serbian agribusiness SMEs, like their peers in all sectors of Serbian economy, lack the capacity to identify and utilize sources of financing available to them. This includes State funds, EU funds, commercial banking options, and grants. This also includes the IPARD program, a critical chance to upgrade the capacity of Serbia’s food industry. Alternative financial sources, such as equity investments and foreign direct investments (FDIs), can further support SME development and sound economic growth in the agricultural sector. a) Facilitating Foreign Direct Investment A positive correlation between FDI in agriculture and economic growth is well documented and CSS has worked in Y2 to promote new investors and markets. Traditionally, Serbian export potential was strictly focused on the EU and Russian markets because of their geographic prox- imity and tax incentives. The opportunities in Middle Eastern markets have been underutilized. CSS, in cooperation with RAS and the MoA, supported Serbia’s delegation to the Agriscape conference in Abu Dhabi. This premier international event targets entities active in long-term leasing, buying or selling agri-land, investment in food processing factories and other agricultural assets. This year 342 visitors from 47 countries attended, out of which over 30% were fully sponsored to attend to guarantee the presence of the most important agri-buyers. Agriscape 2018: > 8 Serbian companies with great production capacity, met inter na - tional investors to attract foreign investment and develop strategic partnerships. > 15 pre-arranged B2B network meetings held between the Serbian participants and potential Inves- tors. > 10 additional B2B meetings were initiated to discuss field crop prod- Egyptian buyer Marco representative meets CSS ucts and starch processing, high- team - from official Agriscape site value crops productions, ani- mal/protein production, and food processing. > Two CSS staff and a representative from the MoA and RAS were at Agriscape in order to assist companies. > Serbia Does Quality Food campaign- correlates to the umbrella brand and presents Ser- bia’s competitive advantage as an investment destination for high-quality agricultural production, food processing > MoA and RAS will oversee the follow-up work of these B2B meetings and will be responsible for further developing the investment strategy in Serbia. This provides additional sustainability safeguard, fully in line with CSS market systems approach

Annual Report Y2 32 Serbia Competetiveness Systems Strengthening (CSS) Activity

Results: > MoA and RAS’s attendance at Agriscape, helped advocate for the adoption of the Decree on Conditions and Methods of Attracting Direct In- vestments in the Field of Food Pro- duction. This resulted in a new sub- sidy regulation for large scale investment, which CSS will use in further firm trainings. RAS has adopted financial incentives for investment in UAE Investor Mubadala representative meets food processing projects worth at CSS team and MoA representative - from offi- least 2 million Euros. cial > On April 8, MoA provided information on promising contacts established with investors at the event including Muba-

dala, Jennan Investments, Elite Agro, National Food Industry, Cargo Etihad and Marco. Among the most reputable investors, UAE’s Mubadala, has confirmed a visit to Serbia in May 2019, and requested the MoA to prepare a package of potential investment opportunities mainly in the processing industry. This investment potential is expected to be a multimillion-dollar investment. b) Credit Guarantee Scheme CSS intensified efforts to work with USAID Serbia to implement the new DCA Credit Guar- antee scheme through a few selected Serbian banks. This required additional efforts by CSS and USAID Serbia as commercial banks are used to dealing with the EU guarantee scheme. Our efforts have been focused on explaining the new guarantee scheme and how it will specifically benefit SMEs involved in agribusiness. The Project supported the DCA Credit Guarantee scheme by facilitating meetings between DCA representatives, the MoA and different potential funder banks. CSS engaged seven large banks including Banca Intesa, Eurobank, Halkbank, OTP, ProCredit, Erste Bank and Addiko. This effort, while not linear, was of strategic importance in order to provide additional financing options for agribusiness SMEs. At the same time, it also establishes closer positive cooperation among USAID, GoS and the financial sector. After 18 months of engagement and negotiations with banks and the National Bank of Serbia (NBS), ProCredit and Addiko successfully completed the due diligence process in May 2019. The facilitating condition of the DCA scheme will motivate banks to invest more in traditionally overlooked businesses or regions using the benefits of the scheme as a risk-sharing tool. The scheme formally starts operating in July 2019 and will go thru July 2031. CSS will work with both MoA and USAID Serbia to further promote the scheme spherically among all stakeholders. The DCA model will function as a multi-year and multi-bank $40 million loan portfolio guarantee where the MoA provides a first-loss facility covering claims up to the amount of $1 million, with a proposed total coverage of 60% of the total DCA facility size ($40 million). Result: The DCA Credit Guarantee scheme is a strong additional financial instrument for Pro- Credit and Addiko banks to offer to new clients. Because of its risk-sharing nature, this instrument will encourage banks to invest more in non-traditional clients and underdeveloped regions. CSS will promote this scheme during the new round of financial trainings in order to increase investment in tangible assets for companies involved in F&V value chain.

Annual Report Y2 33 Serbia Competetiveness Systems Strengthening (CSS) Activity

Figure 6: DCA Structure

In parallel with negation procedures with banks regarding DCA, CSS has been cooperating with Erste Bank, to create an innovative financial product for start-ups from the Project’s hub and incubator programs. Inspired by the CSS initiative Premium Food Design Hub, this product is designed to help companies in the early stages of development overcome obstacles accessing finance. This product is advantageous because it offers more flexible approval terms and nearly no upfront collateral requirements for firms. Currently, Erste has set this investment opportunity at up to 25,000 euros per company. Results: Two start-ups from PFDH 2018, have been supported through this new Erste Bank product. Stanisic Bio which pioneered its Sumska tajna products and Dolovac Organic received 10,000 euros each for investment in working capital. In the coming period, the next candidate for potential financing from Erste Bank will include the graduate of the DM incubator, a natural makeup startup from Belgrade called Coquette. c) Financial Trainings for SMEs External financing of SMEs is still largely limited to the banking sector. SMEs lack knowledge about potential sources of finance and CSS focused on educating them. The Project informed SMEs involved in the F&V industry about existing options for financing and blended finance. The focus of the first round of financial trainings was to present equity investment options and to select potential candidates for the pilot project. CSS organized a series of trainings includ ing: > Seven one-day financial awareness trainings for companies involved in F&V industry. The first round of financial trainings, held in seven cities around the country over three months, was organized by CSS FP, WM Equity Partners (WMEP). The trainings, organized also with support from PKS, were further complemented by IPARD experts, UniCredit Bank staff and representatives of investment funds such as Fima Invest (domestic investment fund), DEG (part of KFW group) and IFC. Each financial training had a reputable guest from the food industry Global Seed, Strela and RZ Agro. The purpose of industry leaders

Annual Report Y2 34 Serbia Competetiveness Systems Strengthening (CSS) Activity

was to present their business models and encourage entrepreneurial behaviour. 289 participants from 130 SMEs participated in these trainings. > Deep dive three-day financial training organized for 30 selected companies in three cities. The detailed training was focused on discussing equity investments. > Focused three-day in-depth financial training to better prepare SMEs CSS supported to attend the Summer Fancy Food Show in New York. Result: 151 MSME companies participated in financial trainings over the six month period. From these trainings, 18 companies were identified as ready to receive equity financing ranging from RSD 30 million to RSD 200 million totaling USD 16 million of potential new equity investment. CSS also developed concrete recommendations for the establishment of an SME growth fund that will invest in agribusiness companies. To progress this, our team initiated talks between portfolio investment managers of FIMA Invest fund and companies interested in seed-investment. After three months of talks and negotiations, CSS came to a conclusion that is not currently possible to start the first private domestic equity fund because the Law on Alternat ive Investment Funds, has not been adopted yet. The law, currently with Serbian Parliament, is anticipated to be adopted in Fall 2019. In order to provide the alternatives for the selected companies CSS has started investigating options through the funds listed below which include three different funds, which can target different segments of SMEs in agribusiness.

Table 6: Funds currently in the development stage Fund Name VC Fund SEAF Investment Fund Finance in Motion Fund Value Total EUR 580K EUR 250k-450k per company Several million euros - Fund EUR 5K – 50K investments per will be located in Luxemburg company Description This fund will be linked to compa- This fund serves as a financing op- Interested in investment in nies participating in the 2019 tion for companies who attend finan- countries of Western Balkan PFDH who demonstrate social re- cial trainings provided by CSS and Focused on agri-business, sponsibility as part of their busi- who are willing and prepared for startups ness model. This VC fund will act strategic equity investment partners. Minority share in companies partially similar to a bank’s loan SEAF Investment will buy the minor- for the period of approxi- (grace period, repayment in instal- ity stake (30-40%) of the company mately 5 years ments) and partially as an invest- and then in 5-7 years will sell a ma- ment fund (expecting a return on jority stake (at least 75%). It is im- investment but not in advance perative from the Investor side and level) the owner must understand this ar- rangement at the initiation of the investment. Target SME companies demonstrating SME companies which received fi- SME in all stages of devel- Beneficiary social and environmental impact nancial trainings and who are inter- opment (seed, growth, ex- supported by PFHD 2019 ested in equity investment opportu- pansion), investment in other nities. private equity funds Criteria for › Firms registered in Serbia › SME companies demonstrating › High-tech, Agri-tech, agri- Selection › A demonstrable socially re- high ROI in 5 year time period business sponsible approach to doing › SME companies with a turnover › SME companies demon- business of EUR 1-3 million and EBITDA strating high ROI in 5 › Ready for scale up between EUR 100k-300k years

Annual Report Y2 35 Serbia Competetiveness Systems Strengthening (CSS) Activity

Fund Name VC Fund SEAF Investment Fund Finance in Motion Fund Time Frame Presented May 30, 2019, and an- Currently ongoing Currently in the discussion ticipated operation by end of 2019 phase, anticipated being op- erative at the end of 2019

PR and Outreach During Year 2 the Project maintained strong marketing and outreach campaigns utilizing different platforms including social media and the CSS website. Highlights of this engagement are provided below.

Engagement from April 1, 2018- March 31, 2019

Total Impressions: Total Impressions: 723,905 Total Impressions: 11,139,698 113,716 Total Engagement: 233, 823 Total Engagement rate: 1,65% Total Engagament: 1,882 Total Reach: 9,322,580 Total fans: 1,343 Mention: 30 Total Organic Reach: 409,519 Engagement rate higher than 0.1% is- (The number of retweeted or tag post, (The number of unique viewed post from a considered to be good. by audience) page, which is not paid)

Total fans: 125 Total fans: 21,565 Engagement rate be- Exceptional result: Total score of our tween 0.2% and 0.9% is good. Our promoted post is out of 10. score is 0,3% 8

Annual Report Y2 36