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Drought Driven Declines in Serbian Crops Increase Food Prices

23 August 2012
USDA Foreign Agricultural Service

SERBIA - Persistent drought since June is affecting most of the spring crops, mainly corn, soya and sunflower. Crop yields are forecast to decline by up to 50 per cent with total losses potentially reaching US$2 billion. Drought will also drive food prices up, pushing the average Serbian consumer to spend over 50 per cent of their monthly income on food and will reduce agriculture export revenue which accounts for over 20 per cent of total Serbian exports.

Corn was planted this spring on some 1.3 million hectares (HA) and production was expected to reach 7 million MT (based on an average yield of 5.4 MT/HA). However, lack of precipitation in June and July together with very high temperatures over an extended period of time, have stressed the corn plants extremely.

The dry period has coincided with the critical corn pollination period thus increasing the risk for poor kernel development. According to the Serbian Farmers Association, average corn yields will decline by up to 50 per cent in many areas of the country. Post estimates that current corn production will only reach about 3.5-4 million MT (compared to 6.3 million MT in 2011).

The magnitude of the drought varies depending on the region of the country and farmers are seeking government assistance to address the current situation. Corn price at Novi Sad Commodity Exchange increased 18 per cent in one month from 22 dinars/kg (USD232/MT) in the beginning of July to 26 dinars/kg (USD274/MT) by the beginning of August, with this trend expected to continue in the following weeks.

Soybeans and sunflowers were also affected by adverse weather conditions in June and July. Average soybean yields are expected to decline by 50-70 per cent, while sunflower yields will likely decline by 30 per cent. The current price of soybeans at Novi Sad Commodity Exchange is a record high of 73 dinars/kg (USD730/MT) and for sunflowers it is 55 dinars/kg (USD 550/MT). Other major agriculture export commodities from Serbia where production has been affected by drought are: raspberries (down 40 per cent), sugar (down 30 per cent), fruits and vegetables (down 30 per cent).

Agricultural commodity export revenues are expected to decline by at least 30 per cent compared to last year. Only about 4 per cent of all farms in Serbia are insured, even with a Serbian Government program since 2004 to subsidize 40 per cent of the insurance premium for registered farmers. Serbia also is in last place within Europe in terms of irrigated area with less than 5 per cent of agricultural land covered by an irrigation system.

The Serbian Chamber of Commerce is estimating that Serbia will have enough food for domestic supply, but much smaller quantities will be available for export. The price of Serbian grains and oilseeds will be high and not export competitive compared to Russia and the Ukraine (Serbia’s main competitors in grains). Serbian Commodity Reserves currently are: wheat (300,000MT), refined sugar (100,000MT), and edible oil (60,000MT). Corn ending stocks for MY2011/2012 (which include the reduced MY2012/2013 production) and are mostly kept on private farms or silos of export companies are estimated at approximately 1 million MT instead of 1.8 million MT.

There is some speculation that the new Minister of Agriculture may impose a ban on corn exports in order to keep enough quantities for domestic needs. Some agricultural experts are suggesting corn export quotas be established to protect the domestic market; while others are suggesting corn trade should be totally liberalized by reducing import taxes (current import taxes on corn are 30 per cent).

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