Shortages force North Macedonia to change its farm policy

Shortages force North Macedonia to change its farm policy
By Valentina Dimitrievska in Skopje May 3, 2022

Record-high food prices and shortages of cooking oil, wheat and flour amid the crisis stemming from the war in Ukraine have forced North Macedonia’s authorities to consider restructuring their farm policy.

The economy was already shaken by the COVID-19 crisis, and even though that is not yet over, a new crisis has emerged prompted by the Russian invasion of Ukraine, which has affected energy and food supply.

Agribusiness is one of the country’s most promising sectors, but North Macedonia is import dependent for many basic food products. Among the reasons for this are the poor organisational structure in the agricultural sector, insufficient use of farm land and accordingly reduced production.

The direct consequences of the Russian-Ukrainian conflict on North Macedonia’s agricultural production stemmed from the enormous jump in prices of energy as well as mineral fertilisers, but also the loss of Russian and Ukrainian markets for fruits and vegetables.

All this led to price hikes for basic food products such as oil, flour, bread, milk and meat, as well as a shortage of some products such as sunflower oil, which is mostly imported.

In turn, rising inflation has prompted protests as workers claim food is becoming too expensive for them and they are no longer able to afford their basic needs.

Sources from the country’s biggest dairy Bitolska Mlekara, told bne IntelliNews that there was a shortage of raw milk so this product was out of stock for a period of time in April.

“Simply there was no UHT milk due to the lack of purchase of raw milk,” they told us. After the supply was restored, the price of UHT milk and milk products increased again. Price changes have been frequent during the crisis.

Cooking oil crisis

A week ago Serbia lifted the ban on exports of edible oil, which put an end to the crisis caused by shortages of this product, which lasted for almost a month. But now a bottle of edible oil is being sold for MKD135 (€2.2), almost 40% higher than before. The price of cooking oil has jumped by as much as 125% since inflation started to rise back in 2021.

During the Serbian export ban, shelves in North Macedonia’s stores were emptied and people started to panic that this would last for a longer period of time.

“We received three packages of cooking oil (one containing 12 bottles) and they were sold out within few hours. We don’t know when to expect the next delivery,” a cashier in a Skopje’s KAM supermarket said in mid-April.

The situation was similar everywhere. Some people started stockpiling cooking oil, while stores limited purchases to only two bottles.

Now that the product is back in stores at much higher prices, the authorities are looking at making a serious policy adjustment to avoid such problems in future.

Boosting domestic production 

“The Ministry of Agriculture is focusing on adopting measures to increase the domestic production of strategic crops,” the ministry said in a statement e-mailed to bne IntelliNews, adding that this also applies to production of sunflowers.

The ministry said it made changes to the programme for financial support of sunflower producers with the aim of increasing domestic production, which means that each producer that exercises the right to subsidies will have to sell their harvest to local processing facilities, not export it.

In March, North Macedonia imposed temporary restrictions on the export of sunflower edible oil to ease the pressure on prices on the domestic market, which will be valid until May 31. Later the ban was extended to include wheat, wheat flour, corn, barley and sunflower seeds.

According to some estimations, North Macedonia spends $45mn per year on importing raw materials for the production of sunflower oil. In the past three decades, the areas planted under sunflowers have been decimated to only 4,000 ha from 46,000 ha under sunflowers 30 years ago, Sitel reported.

This was due to the irregular water supply in the eastern Ovche Pole region that caused a drastic decline in yield, so farmers opted not to plant this crop anymore.

Recently, the government also decided to abolish customs duty on imports of sunflower cooking oil, but the measure did not lower the price of this product.

As regards wheat, Serbia approved the export of wheat and corn to North Macedonia on April 7, following the one-month export ban. The agriculture ministry in Skopje also had plans to import wheat from Bulgaria.

According to the US’ International Trade Administration, North Macedonia imports most of its grain. The country is estimated to import one-third of its wheat per year. There is insufficient domestic production of corn to meet domestic consumption.  

Prices for wheat in the global grain market have already soared to decade-long highs as the war in Ukraine shuts down ports and threatens to disrupt this year’s grain harvest, while there are fears Russia may respond to western sanctions by banning grain exports.

The government’s new strategy

“In order to have even greater domestic production, we make every free agricultural area available for the production of strategic crops. The goal of this measure is to stabilise and increase domestic production, and thus reduce the import dependence on strategic crops,” the agriculture ministry told bne IntelliNews.

The land will be given exclusively for growing strategic crops, such as wheat, corn, barley, sunflower, rye, rice, oats and oilseed rape.

Dragan, a greengrocer from Skopje, said in an informal conversation that North Macedonia is suitable for agricultural production, but it is a shame that the authorities neglected the sector.

“Instead of the authorities stimulating farmers to grow sunflowers, now the shelves are left without cooking oil,” he said. Not only sunflower, but wheat and other crops can be planted more widely, he added.

On the other hand, Dragan expects prices of some fruits to drop in summer as farmers can no longer export to the war-stricken countries.

“Prices of cherries may drop in summer as farmers cannot sell them in Russia and Ukraine which were the main export countries for this fruit,” he said.

However, the authorities said that North Macedonia is looking for alternative markets for exports of fruit and vegetables that have so far been exported to Russia and Ukraine, the two markets which are closed for exports following the war which started on February 24.

The agriculture ministry told bne IntelliNews that the government adopted  a National Plan for food production, which incorporates a MKD400mn (€6.5mn) Intervention Fund, to support the production of strategic crops.

With these measures, farmers will receive 40% additional assistance to buy fertilisers for corn and maize, as well as MKD2,500 per hectare for soybean and barley.

"We are motivating farmers to increase yields, with an additional almost €100 per hectare," the ministry said. Applications for these measures are already underway.

The ministry also announced a public call for the allocation of an additional 5,722 hectares of agricultural land in 14 municipalities.

Prime Minister Dimitar Kovacevski said earlier that the same applies to the livestock sector, which means subsidies for sheep, pig and poultry breeding.

In March, North Macedonia’s government adopted a package of 26 measures and recommendations divided into two categories — for protection of living standards of citizens and maintaining the liquidity and financial support of companies worth €400mn to ease the effects of the economic crisis caused by the Russian invasion of Ukraine.

European Investment Bank (EIB) vice-president Lilyana Pavlova said recently during a conference in Skopje that sustainable agriculture, especially food production, should be high on the EIB agenda.

“This is particularly important taking into account the impact of the war in Ukraine, which will likely affect the global agricultural market,” Pavlova said.

Pavlova added that EIB will support projects in the Western Balkans that will help countries dependent on food imports to boost their domestic production and improve the overall supply chain.

Protests as inflation eats away pay checks

How such issues will be dealt with in future depends on the government’s policy, but there are high levels of dissatisfaction among the population as prices soar.

On the Labour Day holiday on May 1 several thousand people organised by the Federation of Trade Unions held a protest in Skopje, seeking wage hikes after inflation had eaten away their pay checks.

“We are dissatisfied with the wages and we ask the institutions to honour our work more. At the moment we are receiving a salary that does not meet the existential requirement for a family,” they complained.

Inflation started to increase rapidly in April 2021, mainly as a reflection of the growth of world prices of primary products such as food and energy, but also of import prices in general. This is especially evident in the economies that depend on imports, where a significant proportion of consumption items are imported, as is the case with North Macedonia’s economy.

In March average annual inflation speeded up by 1.2 percentage points from the previous month to 8.8%. Prices of food and non-alcoholic drinks increased even more, by an annual 11.4%. Within the food group, prices of edible oil and fats climbed the most, by 21.6%, followed by vegetables (17.7%) and bread and cereals (16.5%).

According to the International Trade Administration, North Macedonia’s agribusiness accounted for around 8% of GDP in 2019.

In 2020, exports of agricultural and food products constituted just over 10% of North Macedonia’s total exports. The top markets for agriculture and food products are the EU (mostly Greece, Germany and Croatia) which accounted for about 50% of the total exports, while Central Europe Free Trade Agreement (CEFTA) countries accounted for around 36%. 

The EU is also the top import market, with 46.8% of the total imports, and largest single trade partners are Germany, Poland and Bulgaria.  

The main export products from North Macedonia are tobacco, wine, lamb, and processed and fresh vegetables and fruit. The main import products include meat, sunflower oil, citrus fruits, chocolates and confectionery, cheese, processed foods, and grains.