RCI Competitiveness Conference June 17, 2009

1. Impact of the Global Economic Crisis on Macedonian Agribusiness RCI Competitiveness Conference June 17, 2009

2. Name - USAID’s AgBiz Program (AgBiz) Four Year Program Launched March ‘07 (26 months operations) $5.85 million LoP Budget Eleven Long-term Staff Cooperative & Supportive USAID Mission Small & Nascent Agribusiness Sector - not long out of central planning & public enterprises AgBiz Program Basics

3. Demand Considerations • Weak Export and Domestic Market Demand • Reduced consumer purchasing power/inclination • Customers ‘08 sales: Regional (10%), International 10%, Total 6% • Potential Export Customers Reluctant to take on New Suppliers • Conservative sales, and therefore purchasing, projections • +/- 75% of Macedonian Agriculture-based Exports go to Former Yugoslav Markets • Traditional markets under pressure from new competitors seeking to maintain their sales volume • Performance requirements in traditional market increasing in complexity due to their actual or potential EU entry • Current Macedonian balance of payments & employment situation (33%) puts pressure on increasing exports • Therefore, significant need for improved export competitiveness of Macedonian agribusiness

4. Supply Considerations • Agricultural Production will Likely be Significantly Greater • GoM subsidies (large, EU70 mil., but not competitiveness focused) • Good prices last year • Positive growing conditions so far • Agricultural Raw Material Prices are Likely to be Down • Not good for producers • Good for processors and marketers • Forward Contracting Still Quite Difficult • Attitudes - both sides hesitant to commit, want flexibility • No benchmark pricing mechanism • Weak contract enforcement • Potential Opportunity for Macedonian Processors and Marketers to be More Price Competitive

5. Financial Considerations • Very Slow Receivables Collection • Especially large supermarket chains • Banks have Become Very Reluctant Lenders • High collateral requirements • Shorter term loans and a reduced grace period • Smaller loans at increased rates • Slow loan approval, but no disbursements • VERY Difficult Cash Flow Problems for Processors and Marketers in the Current Season • Limited working capital to provide input advances & purchase raw materials • Strong Pressure on Input Suppliers for Trade Credit • But they have their own liquidity problems • Pushing the problem back through the value chain • Sellers Evaluating Payment Terms Almost more than Price • Availability of advances for inputs • Historical payment experience • Receivables insurance availability

6. AgBiz Program Responses • Support Implementation & Certification of Globally Accepted Food Safety Standards • GlobalGAP (14 producers) • HACCP and ISO22000 (six agribusinesses) • Organic (five Wild Gathered Products companies) • Implementation & certification return on investment is a challenge • Help Customers Identify, Understand & Utilize Available Sources of Financing • Overcoming our customer ‘s minimal knowledge re: the range of sources • Building understanding of alternatives and their comparative advantages: AgBiz Finance Manual • Assisted 260 customers to prepare $5.6 mil. in applications, including business plans • Preparing customers & consultants to access IPARD funds

7. AgBiz Responses (cont.) • Enhance the Organization of and Emphasis on Export Promotion • Understand success stories and methodologies in other countries • Stimulate Public Private Partnerships, e.g., export promotion entity • If an FDI promotion agency why not an export promotion agency? • Using Macedonian wines as a model • Help our Customers Understand In-depth their Customer’s Requirements in Current & Potential Export Markets • Comparative channels – e.g., increased importance of fresh markets vs. supers • Emphasis on VALUE – e.g., good quality, but not too much value added • Current EU labeling requirements • Supporting extensive Trade Fairs and Study Tours • 22 to date involving 174 participants who achieved $2.8 mil. in orders

8. AgBiz Responses (cont.) • Promote Demand Pull vs. Supply Push Marketing • Not connections, but appealing to consumers • Effective but very efficient sell through marketing programs • Not just price, but VALUE • Assisting product presentations, websites, label redesign, highly professional new market entry programs • Providing additional regional market information • Stimulate Significantly Enhanced Value Chain Linkages • Promoting processor/marketer backward integration via forward contracts, private extension-type services, input advances, etc. • Supporting trade association development via work with five associations that are at differing stages of development • Producer organization support: so far minimal interest, except for advocacy: but POs are a significant issue related to EU entry • Supporting field trials to verify production costs & demonstrate advanced production techniques

9. Thank you!