Covid-19 created a widespread increase in global food insecurity. Despite this, Croatia’s agricultural industry not only survived during the pandemic – it thrived.

According to the National Bureau of Statistics, production increased by 4.7% in 2020 while the foreign trade deficit fell by more than 26%.

Good weather helped the country enjoy an excellent crop yield, while grants from the European Union’s (EU) Rural Development Programme (RDP) rose to a record high of almost €1bn, providing much-needed support for producers.

The main objective of the RDP is to restructure and modernise the agricultural sector in a way that enhances biodiversity. Croatia has many advantages already, thanks to availability of agricultural land and water, optimal climate and soil conditions and its proximity to EU markets.

However, its agribusiness model needs a profound transformation to further improve productivity, competitiveness and sustainability. Only then can the country become more self-dependent and reduce its reliance on imports.

Increased productivity

The Croatian government aims to increase the annual value of its agricultural output by 50% by the end of 2030, by encouraging more young farmers and those with smaller holdings. To achieve this goal, strategic initiatives are under way – including, for example, plans to increase the area covered by greenhouses by 500 hectares; vineyards and orchards by 5,000 hectares; the number of pigs bred by 35%; and the production of beef by 20%.

To support this initiative, the EU is providing €5bn alongside the national funds. Additionally, Privredna banka Zagreb (PBZ) is offering support to agribusinesses by funding their working capital, initiating investment programmes and enhancing cross-border operations through trade finance by issuing letters of credit and export financing. 

In addition, PBZ is offering its agribusiness clients hedging instruments to help them mitigate risks, especially those resulting from price volatility of agricultural commodities, foreign currencies and energy prices.

However, there are obstacles. Although 92% of Croatia is rural, one of the biggest challenges for agriculture is the small size of its farms. More than 70% of farmers own less than five hectares, which is considerably less than the average 17 hectares in the EU. As a result, productivity is much lower, and agricultural factor income per annual work unit is 6,697 – compared to the EU average of 20,210.

Vedrana Jelušić Kašić, a board member at PBZ, says: “Investments, supported by the EU and the national funds, have contributed to greater production volumes and higher productivity. However, the land is still fragmented and managed by a large number of small-scale farms that could benefit from the cooperative system through improved access to inputs, technology, financing and markets.

“For example, in Italy the agricultural cooperative movement has now been operational for over 150 years. Its oldest cooperative organisation, LegaCoop, has more than 15,000 member cooperatives, allowing them to pool their resources, cut costs through economies of scale and share innovations to boost output and productivity.

“Cooperative systems could further enhance our farms’ development, give them more control over the supply chain and ultimately improve the viability of their businesses.”

The further consolidation of land would also enable the industry to become more competitive, leveraging economies of scale. This can be increased by diversifying from primary products such as cereals, which account for 62.5% of agricultural output, and developing more high-value-added products.

A study by Wageningen Economic Research found that Croatia’s fruit and vegetable farming sector presents opportunities in both the domestic and tourist markets. According to the study, increased supply can be achieved by improving cooperation between farmers and addressing land reform measures.

Creating a competitive domestic market is a prerequisite for increasing exports. Another key growth area is crops that can provide protein replacements – such as soya, greens, peas and beans – to keep up with the increase in demand for meat-free products.

New technology

Due to the number of small, family-run farms in Croatia, technology in agriculture is not yet functioning at large scale. Also, 50% of agricultural holders are over the age of 60, a fact that is linked to a limited knowledge of modern farming methods.

However, the EU has allocated funds to improve the use of digital technology in agriculture – such as robots, drones, highly automated tractors, software that controls the management of production, and precision farming.

Some solutions are home grown – such as Agrivi, which is one of the top farm management solutions on the market. Founded in 2013, the platform allows producers to plan, monitor and analyse farm activities, and can be used by small-scale farmers as well as larger co-operatives.

Another digital solution is Farmeron, the world’s first cloud-based dairy business management platform. Built by farmers for farmers, its mission is to improve dairy performance and profits throughout the world.

PBZ is co-financing (with EU funds) businesses that contribute to higher productivity and the competitiveness of Croatian farms. To date, the bank has financed more than 1,000 clients in food and agriculture, such as companies that expanded their operations, either through increasing harvested areas or enhancing their storage facilities, agribusiness exporters and those that invested in environmental upgrades.

Promoting sustainability

Croatia is only just beginning its transition from a linear to a circular economy. However, the government has acknowledged the need to minimise waste generation and increase sustainability of production to reduce the country’s impact on climate change.

As a result, a growing number of producers are turning waste from plants and animals into bio-gas for use on their farm, or to sell on to third parties. Solar panels are also a growing trend.

“Achieving greater sustainability in agriculture is a strategic priority for the Croatian government because it will bring environmental, health and social benefits to the whole economy,” says Vedrana Jelušić Kašić. “We can be more competitive if we embrace the circular economy through efficient use of resources, contributing to reduction of the environmental and climate footprint of the food system.”

While much progress has been made along the path of structural transformation in Croatia’s agricultural industry, further steps need to be taken to improve the productivity of the sector, stimulate economic growth and increase sustainability.