The food and beverage sector is one of the most important in Croatia. Turnover in 2020 was valued at €3.6bn, and it contributed a 26% share of the total manufacturing sector.

The industry also stimulates other vital sectors such as agriculture, tourism and exports. However, it has experienced significant changes over the past decade, due to the EU accession process in 2013 and the global economic crisis following Covid-19.

The food industry proved more resilient than beverages. In 2020 there was decline of just 1.5% in revenue for food, while beverages experienced a fall of 25%. This was largely due to Covid-19, which massively impacted tourism, while lockdown prevented locals from drinking out which resulted in significant decline of revenues in the HoReCa channel.

Other challenges arising from the pandemic are a declining labour force. In 2020 there were 41,443 employees in the food sector, 2.7% less than in 2019, while the beverage sector saw a 3% decline to 4,951.

In addition, there has been an increase in the price of raw materials and energy. As a result, the cost of food increased by 3.8% in October 2021 over the same month in the previous year.

For this sector to prosper in an increasingly competitive market, there needs to be an emphasis on consumer-focused trends, sustainability, exports and innovation.

Vedrana Jelušić Kašić, board member of Privredna banka Zagreb (PBZ), says: “Following Covid, to increase the resilience of the national economy and reduce reliance on imports, Croatian producers are seeking ways to strengthen their supply chains and increase local production wherever a portion of the demand is still met through imports.

“Expanding sales channels and innovating new products – while satisfying growing demand related to new health and safety requirements – are among the top sector priorities. The industry’s future expansion and prosperity lie in exports – especially to the neighbouring markets, where Croatian products enjoy high brand awareness.”

Consumer trends

New consumer-focused strategies are needed to create value in an increasingly competitive market. As incomes rise, consumers demand more in terms of quality, convenience and labelling.

The emerging “fresh convenience” trend is especially attractive for the Croatian food industry, and consumers are prepared to pay a premium for quality and ease of use. In addition, younger generations are open to experimenting with new culinary ideas and are more concerned with food transparency.

Food manufacturers can innovate in this segment by adapting packaging and labelling to target consumers seeking healthy foods in high-value, ready-to-eat sectors.

Sustainability

Consumers are also demanding more environmentally friendly products and packaging. As a result, innovations have led to a number of alternatives to single-use plastics, which are supported by PBZ. Leading food company Atlantic Grupa has introduced 100% recycled packaging for its Donat range. In addition to reducing plastic waste, the company aims to cut CO2 emissions by as much as 90%.

Other brands under the Atlantic umbrella that are making a difference include Barcaffè, which has introduced the use of aluminium-free foil and has reduced its carbon footprint by 63%, and Argeta, which uses FSC-certified cardboard to transport its products. This is gradually being introduced into all types of packaging.

Waste reduction is another key focus. The government’s goal is for at least 65% of municipal waste, by weight, to be recycled or reused by 2035, and the proportion of municipal waste going into landfill to be reduced to 10%.

Once again, Atlantic Grupa has made improvements – such as turning jute bags used for coffee into paper, and setting up recycling yards where waste can be sorted and composted where possible. Another important PBZ client, Podravka, one of the largest food companies in the south east of Europe, has invested in “green” food processing technologies and improved its waste-management system to reduce generated municipal waste by 13% compared to 2019’s level.

But more still needs to be done. In particular, the industry needs to significantly reduce its water consumption and increase its bio-compost. In Croatian towns, less than 2% of bio-compost is created from wasted food.

One pilot project by the Environment Protection and Energy Efficiency Fund is trying to make a change: “Reduce food waste, cook for your guests” was launched in July 2021, in co-operation with the ministries of economy and tourism.

Exports and imports

Croatia relies heavily on food imports to supplement its tourism industry, which accounted for 19.5% of GDP in pre-pandemic 2019. The hospitality industry necessitates the import of produce such as meat, milk, fruit and vegetables because of limited domestic supply.

However, things are beginning to change. According to the Central Bureau of Statistics, the total value of agriculture and food imports into Croatia from January to September 2020 was €2.5bn, a decline of 7.3% from the previous year. During the same period the value of exports was €1.7bn, an increase of 5%.  

The most significant exports were cereals (€205.4m), followed by various food products including manufactured/processed foods (€168.1m), and fish and other seafood (€147.4m). However, higher-value exports will bring in bigger revenues.

One initiative helping boost export is geographical indication (GI), which is a sign used on goods that have particular qualities, reputation or characteristics that are specific to a certain region. For example, in 2013, mandarins from Croatia’s Neretva Valley and sausage from the Baranja region in the east of the country became the first to gain the right to bear the GI status. These have paved the way for other products to follow, and Croatia is now one of the top 10 European countries with the most registered products, with 31 foodstuffs proudly bearing the GI label.

“Collective branding through a geographical indication can support rural development, preserve cultural heritage and add value to local products,” says Jelušić Kašić. “As part of the registration process, groups of producers come together and collaborate in setting official standards, in cooperation with the Ministry of Agriculture.

“These standards protect the reputations of the products and add to their value, increasing competitiveness and creating higher visibility for local produce.”

To create a more resilient, competitive future for Croatia’s food and beverage industry, it is vital that producers receive continued support to grow and strengthen their output, with an emphasis on exports and high-value products.