Effects of market structure changes on supply chain in

Rade Popovic

Department for Agricultural Economics and Agribusiness The Faculty of Economics University of Novi Sad Dairy policies SERBIA

 Until 2001

 Maximum retail prices and subsidies for pasteurized

 High border protection  After 2001

 Deregulation of dairy market

 Subsidies for row milk directly to producers

 Additional subsidies

 Free trade agreements and lowering of border protection Dairy farms SERBIA

 285,000 dairy farms in Serbia  Small scale production 2.2 cow per farm  Family farms produce 91.3% of milk  Number and share of small farms decreasing  Number and share of commercial family farms increasing  Companies produce 8.7% of milk  Milk production is stable in last 10 years  Share of milk for human use in legal market channel is 52.6% and increasing  No dairy cooperatives  Production on farms is diversified  Small dairy farms in some areas losing market opportunities Dairy farms SERBIA

3000

2500

2000

1500

1000

500

0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Cows (in thousand) Milk yield (l/cow/year) Milk production for human use (million l) Dairy processors SERBIA

 202 dairy processing companies in 2007  4 the biggest companies control 60.3% of row milk market  Successful privatization  Concentration and Market power  Innovativeness and diversification of product  Active influence of dairy farms  Vertical integrations  Rationalization of supply base  Organize milk collecting stations and transport  prices establishing on the milk quality control carried out by processors Dairy processors SERBIA

Deliveries of milk to Market share Company name (in liters) 2006 2007 2006 2007 Dairies in structure of DANUBE FOODS GROUP B.V. 350,374,975 361,959,880 47.4% 44.4% 1. - IMLEK, IMPAZ and 230,587,554 243,462,640 31.2% 29.9% Zemunska mlekara - Novosadska mlekara 60,697,564 61,205,680 8.2% 7.5% - Mlekara Subotica 59,089,857 57,291,560 8.0% 7.0% 2. „Mlekara Šabac“, Šabac 43,187,653 56,945,950 5.8% 7% 3. „Somboled“, Sombor 40,256,713 43,665,250 5.4% 5.4% 4. „Mlekoprodukt“, Zrenjanin 28,977,976 28,720,080 3.9% 3.5% Dairies from 5 to 15 millions liters 5. 126,563,765 158,097,080 17.1% 19.4% of processed milk Small sized dairies with less than 6. 150,584,654 165,139,540 20.4% 20.3% 5 millions liters processed milk TOTAL: 739,945,736 814,527,780 100.0% 100.0% 1Source: MAFW Register

Retail sector and consumers SERBIA

 Mostly domestic companies  Foreign competitors mainly from ex Yugoslav republics  Market power  High margins and high retail prices Huge credit period from processors, 90 – 100 days  Demand drivers:  Population decreasing  Income slightly increase

Milk Milk Milk and liquid Year production consumption milk products Per capita 2005 215.3 208.2 174.3 3.3 0.6 2006 214.1 205.7 170.8 3.3 0.5 2007 209.7 201.3 165.3 3.4 0.6 2008 208.3 200.6 163.3 3.5 0.7 Economics of milk production SERBIA

45

40 y = 0,0636x + 29,021 R2 = 0,4791 35

30 Dinar Dinar / liter

25

20 - 20 40 60 80 100 120 Herd size Average cost Marginal cost Average revenue Linear (Average revenue) Monthly milk prices 2006-2008 SERBIA

Germany 70,0 Poland 60,0 Serbia Serbia - commercial farms 50,0 World*

40,0

30,0

20,0

10,0 Monthly inprices US milk $/100kg 0,0 jul.06 jul.07 jul.08 jan.06 feb.06 jun.06 jan.07 feb.07 jun.07 jan.08 feb.08 jun.08 okt.06 apr.06 okt.07 apr.07 okt.08 apr.08 avg.06 avg.07 nov.06 avg.08 nov.07 nov.08 sep.06 maj.06 sep.07 dec.06 maj.07 sep.08 dec.07 maj.08 dec.08 mar.06 mar.07 mar.08

 Asymmetric milk price transmission

 Time lagged and volatile milk prices Conclusions SERBIA

 Changes along dairy supply chain are characterized:

 market deregulations,

 concentration of row milk production,

 strengthening of formal row milk market,

 successful privatization and development of dairy processing sector,

 concentration in retail sector and

 slightly decrease of dairy consumption with changing structure of its consumption  Main constrains identified in dairy supply chain are:

 lack of dairy cooperatives,

 low transparency of economics of all links in dairy chain,

 retailers’ market power and

 lack of transparency and consistency in agriculture long term policy