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Agriculture Sector, beginning of recovery

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Most agricultural enterprises were established through mergers and takeovers and, regardless of the crisis, almost all companies recorded considerable growth.

Due to the considerable natural wealth at Serbia’s disposal, as well as a relatively suitable climate and long-running tradition, agriculture represents one of the key activities in the country and its share of GDP exceeds 10%. At the same time, Serbia boasts more than 4.2 million hectares of arable land (0.56 hectares per capita), which is higher than the standard among European countries. It is, thus, not surprising that the trend of takeovers and mergers (especially through privatization) has continued.

After recording growth of 19% in 2004, the agriculture sector has continuously declined. However, a bumper year, coupled with the effects of privatization in this sector, led to year-on-year growth of 9.1% being recorded in 2008 (the biggest agriculture sector companies recorded growth of 36%). The company Agrocoop recorded a drop in operating revenues and, together with PKB, it also recorded a negative EBITDA.

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The sector’s development trend continued in 2009 as well – with the export of food and livestock amounting to €600 million in the first seven months, compared to €530 million recorded over the whole of last year, while imports fell from €430 million to €400 million (though we must also note that last year’s ban on cereal exports provides a partly warped picture).

Regardless of whether we observe the companies in the sector as a single branch or divide them into two groups on the basis of their prevailing activities (primary production and foodstuff), there are two basic characteristics determining the agriculture sector in the previous period. Most agricultural enterprises were established through mergers and takeovers. As mentioned in the introduction, almost all companies recorded considerable growth, regardless of the crisis.

Furthermore, we should also underline that some companies have relatively high debt (the net debt/EBITDA ratio is higher than five). As is the tradition of large agricultural-industrial combines (PIKs), new large enterprises are being established on foundations of former PIKs. The leader in this field is Delta Agrar (initially established in 1993 within Delta M Group, but a separate enterprise since 2007), which comprises five agricultural entities (Podunavlje from Celarevo, Kozara from Veliko Banatsko Selo, Napredak from Stara Pazova, Jedinstvo from Apatin and Topola from Kikinda – facilitating production on 18,000 hectares, including crop farming, vegetable growing and fruit cultivation, as well as cattle breeding) and processing capacities (Juhor – meat products processor; Danubius – flour and pasta production; Gala – water bottling and Floridabel – packing).

Another large agricultural system is now being established by company Irva, with the backbone of the new company (utilizing around 25,000 hectares of land, of which 9,000 hectares will be irrigated) to be PIK Becej. Though establishment of the system started in 2003 through the purchase of three enterprises, the last three years have been characterized by intensive purchases of agricultural estates (four of them, besides the existing Napredak and Bread and Milk Factory taken over in 2003), while their merger and restructuring is slightly slowed by the financial crisis.

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In addition to the aforementioned, companies Almex and Mirotin were also established through a series of mergers and takeovers.

Almex (a family company established through the merger of about ten companies) deals with crop farming and cattle breeding, as well as the sale of machinery and processing of corn starch (employing 181 workers). Mirotin deals with crop farming and cattle breeding, as well as dairy production. It also owns cooking oil factory Banat and employs a total of 500 workers.

On the other hand, Agricultural Corporation Belgrade (PKB) has not been privatized and it appears that the prevailing idea is to turn it into a public enterprise. Since it has already been recording negative results for many years, PKB will require strong restructuring in the coming period. It currently utilizes about 22,000 hectares near Belgrade, while a relatively low level of debt is also to the enterprise’s advantage.

Competition is stronger in foodstuff production sub-sector. Gebi, a family company, is a pleasant surprise when it comes to market growth (a company with organic development). This company is joined by Sto Posto, another private company that also recorded rapid growth. However, it is important to underline that both companies appear to have exhausted opportunities for further development through additional indebting. On the other hand, their competition comes increasingly from MagnaVita, a holding company (formed through the 2005 merger and takeover of five foodstuff producers) established by Poteza – Private Equity.

When it comes to the debts of enterprises in the agricultural sector, we should point out that the average indebtedness of companies amounts to more than five on the EBITDA/net debt ratio; it seems that indebtedness is huge – particularly under crisis conditions. However, indebtedness is even more pronounced among the mentioned foodstuff producers, Delta Agrar, agricultural collective farm Vocar Dragacevo and the Corn Institute. Though most companies have been developing through acquisitions, their net debt is still not too high. It is also important to mention that we are perhaps lacking the real picture of the relative indebtedness of some agricultural companies until the revaluation of land has been carried out.

The worth of non-revalued land is not the only hidden potential of Serbian agriculture. Investments in modernization and machinery neglected for years now provide space for rapid growth (the average age of tractors exceeds ten years in the social sector and 15 years in private sector). After privatization and reorganization, as well as capital investments, the growth recorded in 2008 might only be the beginning of the recovery of the Serbian agricultural sector. Yields recorded by EU member countries with the same climatic conditions are not necessarily unattainable in the coming years, but this will mean a broad spectrum of investments, particularly in irrigation systems and other agro-technical and agronomic measures.

Source: Ekonom:east magazine

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