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Where are we now and where should we go?

GAP ANALYSIS OF FOOD SECTOR

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Where are we now and where should we go?

GAP ANALYSIS OF FOOD SECTOR

Banja Luka, December 2014

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Publisher

Enterprise Development Agency Eda, Banjaluka

For publisher

Zdravko Miovi

Author

Assistant Proessor Stevo Pucar, PhD

English ranslation

Dragana eprki

Design

Nenad Savkovi

Tis publication has been produced with the support of Sweden. Te content of this publication does not reflect the

official opinion of the donor. Responsibility for the information and views expressed in the publication lies entirely

with the team of authors of Enterprise Development Agency Eda, Banja Luka.

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Contents

Introduction

1. Where is the ood industry today?Market position o ood industryLarge retail chainsTe certification o productsTe promotion and branding o productsTe equipment and technologyWork orce

Cooperation between the companiesInstitutions or support and developmentFinancing o investmentsBusiness environment and ramework conditionsCulture and values

2. Where do we want to get to?Significantly increased production and sales o ood products,especially those or EU market

3. What are the most significant gaps to be overcome?Access to and perormance in the marketLagging behind in terms o technological and business processesEnvironmental protection and energy efficiencyLack o institutional support to development

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5

Introduction

CREDO Krajina is a project financed by the Swedish International Development Agency SIDA andimplemented by the Development Agency EDA, Banja Luka, in cooperation with the Association orDevelopment Nerda, uzla. Te aim o the project is improvement o competitiveness o medium andsmall size companies in the area o Krajina, in order to create and maintain jobs, reduce poverty andimprove the economic status o this area. Te project should support creation o around 200 new jobsand maintain up to 1000 jobs in the companies/sectors encompassed by the project interventions. TeCREDO Krajina Project lasts or 30 months and it consists o several phases and components. Troughan initial analysis o the priority commercial sectors, a selection o industrial sectors with a significant

potential or creation o new jobs was done and representatives o companies rom these sectors, throughsectoral boards, defined priority needs or advisory assistance and training. Additionally, a part o an ad-visory and financial assistance is directly aimed towards the municipalities with intention to significantlyimprove local business environment and establish a permanent and efficient dialogue with the privatesector.

Tis analysis is based on the two previously perormed analyses within the CREDO Krajina Project.Te first one is Baseline Study o the Industrial Sectors, the aim o which was to explore and identiythe sectors with the biggest potential or growth o competitiveness and growth o employment. On thebasis o this analysis, a decision was brought that the CREDO Krajina Project will ocus on the sector ometal industry, ood processing industry, wood industry and leather and ootwear industry. Te secondanalysis is the value chain analysis or ood sector. Te ocus o this analysis was on the production, pro-cessing, distribution and sales together and this has enabled us to analyze each step in its comparison tothe previous one and to compare it to the next step in the chain. Te results o this analysis are being usedto a great extent as a basis or the GAP analysis.

GAP analysis has offered an overview o the situation in the ood industry, rom the point o view o

comparing the current reality with desirable possibilities offered at the market. GAP analysis is a businessanalysis tool, which implies defining o differences between the current and desired state and manner ounctioning o the branch.

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GAP-Analysis6

In its basis, the GAP analysis asks two questions: Where are we now? Where do we want to be?

Tis document consists o the three basic parts. Te first part is a description o the current situation,which starts rom the situation on the market and it describes a way in which the producers and thewhole value chain correspond to the demand rom the market. Te second part shows what a desiredsituation would be, that is, it responds to the question what this branch would look like, i its develop-mental potentials would get achieved. Te third part is related to determining the gap between these twostates, the so-called gaps and their description. Specific measures or overcoming the gaps are defined inthe process o work with the Food Industry Sector Board.

We thank all the companies that participated in the survey, sectoral coordinator Brane Novakovi, secto-

ral expert dr. Rajko Latinovic, members of the Sectoral Board and workshop participants. We owe specialgratitude to Shawn Cunningham and Frank Waeltring from German company Mesopartner and Zdravko

Miovi, the director of Eda, for the advisory support in preparation of the analysis.

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1. Where is the food industry today?

he ood industry is one o the leading industrial branches in the area covered by the CREDO Kra-jina Project. his sector has great potentials, also owning substantial natural and human resources,as well as a long tradition. he ood industry, in the area o Krajina, in the late eighties and in thebeginning o nineties o the last century, was considered to be one o the developed branches and,as such, it managed to ollow global trends. Financial business results have still been positive orthe majority o companies. heir products have their customers on both domestic and, to a slightlylesser extent, international market. his sector has urther potential or signiicant increase o sales,export and employment.

he ood industry sector, in 398 companies registered or these business activities, has employedabout 5,000 employees. As we can see on Graph 1, the biggest number o companies is in the pro-duction o bread, rolls, cakes and conectionary products, whereas slightly lesser number o thecompanies is in the production and processing o meat, ruit and vegetables, production o drinks,as well as diary products.

Graph 1 - Food industry companies in the area of 34 municipalities.

131

33

24 18

9

0

20

40

60

80

100

120

140

Producton of

bread, biscuits,

pasta, cakes and

sweets

Producton and

processing

of meat

Producton of

water,

alcoholic and

non-alcoholic

beverages

Processing and

preserving of fruit

and vegetables

Manufacture of

dairy products

NUMBER OF COMPANIES BY BUSINESS ACTIVITY GROUPS

Source: APIF RS and AFIP FBiH

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GAP-Analysis8

Market position of food industry

otal sale that the ood industry realizes in the area o all the 34 municipalities, in this sector, is KM 680million. Out o this, KM 100 million goes to export and KM 32 million accounts or realized profit. Tis

shows that the sector, on the whole, operates rather well and that it has been less export-oriented, insteadbeing mainly oriented towards the domestic market.

Graph 2 - Food industry companies in the area of 34 municipalities.

Source: APIF RS and AFIP FBiH

Graph 2 shows that the ood industry companies are mainly B&H market-oriented. A wider market, whichincludes the ood industry producers, is mainly a regional (CEFA) market. Te CEFA Agreement onFree rade, whose present members are: Albania, Bosnia and Herzegovina, Macedonia, Moldova, Monte-negro, Serbia and UN Interim Administration Mission in Kosovo, on behal o Kosovo.

Tere is one significant problem. Te population o Bosnia and Herzegovina and the Western Balkansregion has a low purchasing power and this greatly affects the size and characteristics o the domestic de-mand or all kinds o goods, including or ood products. Products in highest demand in these areas are in

the lower price segment and the lower segment in terms o quality. Options on the domestic and regionalmarkets are or this reason very limited.

Because o this the export potential is quite different in certain types o ood products. For products oanimal origin possibilities are very limited and mostly related to milk and milk products and poultry and

170

146

123

84 84

1729

10 1222

0

20

40

60

80

100

120

140

160

180

Producton of

bread, biscuits,

pasta, cakes and

sweets

Manufacture of

dairy products

Producton

and processing

of meat

Processing and

preserving of fruit

and vegetables

Producton of

water, alcoholic

and non-alcoholic

beverages

Millions

BiH Market

Exports

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FOOD SECOR9 FOOD SECOR9

chicken meat products. Te processing o pork and bee has many weaknesses, so the big question is wheth-er it is to be stimulated. Tere is no significant opportunities and space or intervention in this area because,or example, dairy and poultry sectors are relatively well developed, and most o their problem stems rompoor legal and institutional ramework that exists in B&H. Just because o this, exporting these products

to the EU at present is not possible, because we ail to meet EU requirements in several areas, or example,legal requirements, market issues and state support.

However, products that are very successul and increasingly exported to EU countries with a large marketor ood products (primarily in Sweden, Germany, Belgium, France and Austria) are berries (raspberries,blackberries), orest ruits, mushrooms, dried ruits, spices and herbs, and some sorts o vegetables (mainly cu-cumbers). Raspberries are exclusively grown on small amily arms, but in blueberries, blackberries and otherspecies, in addition to growing, the greater part comes through the collection o wild ruits. Te largest parto these products is rozen and exported in this orm abroad. In our area there are not many processing plants

that have the necessary inrastructure and equipment. Major processors are only ew companies Mushroom,elinac and Rolend, Bosanska Krupa, and Eco Bell as the producer o dried ruit (plums) and other ruits. Inaddition there are smaller plants and companies that supply large companies or retailers with resh or semiprocessed products, and also do a direct export. Te export potential or these types o products can be seenin the act that berries makes a very small proportion o the ruit production in B&H, though its share in totalexports o ruit is almost 40%, with an annual export value o around EUR 7 million.

Large retail chains

On the domestic market, the biggest part o sales goes through large retail chains. Several o these re-tail chains operate here, which are, in principle, the main market: Agrokor (Konzum, Konzum Super,Konzum Maxi, Mercator d.o.o. Sarajevo and M-BL d.o.o. Banja Luka) ropik who took over the acilitiesand sales o Delhaize Group (empo, Delta Maxi, MojMarket), Intermarche (Interex), , Bingo uzla,Energotu (u), Hiperkort Derventa, Fortuna Prnjavor). Requirements that come rom the retail chainsare mainly reflected in the ollowing: A great pressure on decreasing prices (the basic discounts are minimum 10%, additional activation

discounts are minimum 7%, credit notes based on annual sales are about 2%, ees or listing o anew product are minimum KM 500, etc.). Average trading margin o retail chains or meat and meatproducts is about 15-20%.

Long payment terms (moving rom 60 to 120 days in cooperation contracts).

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GAP-Analysis10 GAPanaliza10

Short delivery times (somewhere up to 2 days rom purchase order, with a payment o ee in theamount o 20% rom the amount o ordered goods).

As long o a remaining shel lie at delivery as possible (minimum 70% o the remaining shel lie atdelivery).

Te main competitors on the domestic market are large companies rom Croatia, Serbia and Macedonia.When it comes to large Croatian companies, membership at CEFA (Free rade Agreement) has createdor B&H a competitive advantage, as customs duties have started being paid on Croatian products sinceCroatia joined the EU.

Te certification of products

When it comes to certification o the system or quality management and ood saety, the majority o thesurveyed companies have obtained HACCP system certificates, in line with the guidelines given in thedocuments Codex Alimentarius. Te application o the HACCP system in slaughter-houses or cattleand poultry and processing o meat is, also, a legal obligation in B&H. In smaller acilities, the applicationo the HACCP system is not ull and a small number o these acilities have been certified.

Certification, according to requirements o other standards, such as ISO 9001, ISO 22000, is not presentin as big a scope as the HACCP certification is in the surveyed companies, as certification, according tothese standards, is voluntary and the companies have not recognized the usage rom the implementation

o the management system according to the requirements o these standards.

Changes that happen in the EU, when it comes to certification according to the requirements o tradingassociation standards, such as the International Featured Standard and requirements that are given inthe IFS Food Standard have still not been recognized by production companies, hence, in our area, thereare almost no certified companies according to the IFS Food Standard (the only exception, according toour findings, is the company Mladegs Pak). As this standard is a condition or doing business with hugeretail chains rom the EU (Metro, Lidl, Spar, Getro), their arrival into the B&H market will increaserequirements when it comes to quality management and ood saety systems o their suppliers. Retailchains are also members o this Association; however, they still have not applied this control and require-ment mechanism to the suppliers.

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FOOD SECOR11

Te promotion and branding of products

In the majority o domestic ood industry companies, marketing and promotional activities are inad-equate. Almost all surveyed companies stated that marketing and product promotion is their weakest

link in the process and that, in this segment, they are much weaker than the competitors. Also, what theyhave noticed is a large lack o qualified people that could improve the market position, i.e. marketing andsales o our products.

Because o huge amount o efforts and money they invest into market positioning o their products, the com-petitors o our ood industry, or example, rom Serbia and Croatia, have a large number o known and recog-nizable ood products and brands. Tose products have enjoyed a high reputation o domestic and regionalconsumers. Teir branded ood products on the market are categorized into higher price categories, simplybecause they have a certain identity and they are easily recognizable at the market. Te only way to make our

products, which are usually not branded, competitive to them, is to offer a significantly lower price.

Vitaminka, Banja Luka some of recognizable products

Recognizable products and brands made by our producers are rare. Te company Perutnina, which pro-duces quite a lot in our region, is a recognizable brand in terms o chicken meat and processed prod-ucts. Te milk actory Mlijekoprodukt, Kozarska Dubica, as well as ruit processing company Vitaminka,Banja Luka, both have products that are recognizable on the domestic and/or regional market, however,the majority o producers do not have products o such type. A good example o ood products that mayserve or branding is Banja Lukas evap (kebab), which is a meat product well-known in the area oormer Yugoslavia and in the Diaspora o our people in the world, though its branding potential has notbeen well used.

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GAP-Analysis12

What is the problem? It takes a lot o efforts to have a good perormance at the market and our producersneither have the unds necessary nor the will to get into such a process. Te main reason that they men-tion is that this, to a great extent, depends on the finances, and they do not have enough unds or that,thus the activities in these areas are limited

Te equipment and technology

Equipment and technology used in the ood industry process are mainly obsolete, which is a specificcharacteristic or smaller processing plants. Out o the total number o surveyed companies, 62% o themhave older generation equipment.

Te modern equipment, enterprise Mladegs Pak, Prnjavor

A great part o such companies use the equipment, which is ten or more years old, however, there are nohuge problems with productivity and competitiveness, as their machines are well kept and maintainedand their shortcomings are compensated by cheap and trained labor orce. Teir logic is that it is better topay cheap labor orce than purchase an expensive machine. It is precisely this labor orce that makes ourcompanies flexible to the customers demands. Tere are some examples where some o the large custom-ers ask or products to be packed in a specific manner, which can only be done manually. Our companiesmeet these requirements without problems, because they have numerous and cheap labor orce. Teymay change the order, in one day, but, on the other side, they do not have huge series, as you cannot have

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FOOD SECOR13

both. Generally, there is no need or large series, thereore, such companies have good ratios: they areflexible and they can meet the required quantity.

On the other side, greater and more developed companies, or which large series are important, ollow

technological development and novelties and they apply them in practice (38% o surveyed companies).Such companies need this, as some things cannot be compensated by labor orce.

Work force

In addition to the lack o qualified people that could improve the market position, i.e. marketing andsales, the ood industry has the lack o qualified bakeries and butchers shops.

What is characteristic is that in the processing plants, the majority o labor orce does not have officialeducation (o a butchers proession) and the reason or this is, partly, that there is a lack o employeeswith this proession, mainly because, afer the completion o their education, people do not want to workin the plants or meat processing. Te situation is similar with qualified bakers.

As the ood industry was relatively developed in this area beore the war, there is a significant number oqualified employees o older generations in other proessions. Te companies need to train new employ-ees, who do not have the necessary knowledge, which all takes both time and money.

Cooperation between the companies

Cooperation between the ood processing sector companies is at a low level. Tis cooperation mainlyoccurs when some o them ace huge breakdowns in production, thus, other companies help them bydoing service production or them.

Producers ofen purchase inputs rom the same supplier, but they all do individual purchasing. When itcomes to common purchasing, their position would be better, as their joint purchasing could get them toa lower price and better services. Also, they all have huge costs o distribution, or example, as or manyproducts takes the so-called cold chain, i.e. that is transportation o goods in rerigerator trucks andwarehousing at low temperatures. Joint distribution would, o course, lead to lower distribution costs.

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GAP-Analysis14

In addition to that, it makes sense to have joint branding, so that the companies invest into brand crea-tion, where several products would be made in a certain way. Afer they develop to be recognizable at themarket, these products could get positioned in a higher pricing category.

Institutions for support and development

Public policies or development o this and other industrial sectors are mainly based on empty phrasesand those documents are mostly a dead letter. Tose policies are also brought without significant consul-tations with business companies, they are ofen not developed into specific activities and project tasks, nofinancial constructions or realization o priority projects are done and no reports on realization o theseprojects are done at all, either in public or in proessional circles.

Several important institutions or the ood sector do not perorm their jobs in an adequate manner. TeFood Saety Agency o Bosnia and Herzegovina is in charge or ood saety and international rules romthis area are applied. Basic comments o the companies about the work o the Food Saety Agency o Bosniaand Herzegovina are related to adoption o the legislation, which can hardly be applied in BiH and also thelegislation that is not sufficiently clear to the very users, that is, to the companies that should apply them.

Also, the Veterinary Office o Bosnia and Herzegovina (KZV BiH) and entity veterinary services dotheir jobs poorly and this is reflected in the ollowing: inadequate product quality control system, com-plicated procedure related to certification o acilities, high costs o issuing certificates on health saety

o shipments, non-harmonized legal regulations with regards to the import o meat rom the EU, non-application o the provisions o the Law on Veterinary with regards to the application o HACCP systemand auditing o the situation o acilities.

Te companies generally consider that they almost do not have any support by the institution. When, asthey say, such help is needed, there are very ew organizations and individuals to be able to help them.Our institutions do not deal with companies and they are not interested in them.

In addition to the Chambers o Commerce, ood industry companies are rarely members o some otherbusiness associations. Out o the total number o surveyed companies in the ood industry, only about20% o them is happy with the support that the Chambers are providing to businesses. Tis support ismostly reflected in certain training, support in obtaining standards, etc.

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FOOD SECOR15

When it comes to educational institutions, the secondary schools in the project area are the ones that trainthe pupils or the necessary occupations, however, the quality o knowledge and particularly practical skillso pupils have been very limited. Te companies are ready to closely cooperate with these schools, so thatthe pupils would provide practice and obtaining o real skills, which the pupils and the companies would

benefit rom. However, there is no such cooperation. In addition to this, the motivation and work habits othose completing those schools are ofen the problem, as today in BiH there is a different system o values,compared to the one that would be desirable rom the point o view o the industry.

Te Faculty o echnology o Banja Luka has or many years now had specialization in ood technologyand those technologists present one o the main strengths o the ood industry. Also, technologists areeducated, in this area, at the Biotechnological Faculty in Biha. However, it must be emphasized thatthere is no sufficient cooperation between the aculties and businesses.

Financing of investments

One o the big problems that companies are currently acing are unavorable lending conditions. Banksare very expensive. Commercial lending rates are much higher in comparison to the EU . Tus, orexample, or loan in Slovenia and the same amount and the same purpose, the interest rate is 3.9 % and6.62 % o BiH .

Te positive thing mentioned by businessmen themselves in financing investments are subsidies given by

certain ministries. As or the ood industry , the most common orm o subsidy is the one or increasingcompetitiveness . Te aim o subsidy is supporting the implementation o development projects o eco-nomic entities , in order to improve their development , improving competitiveness , establishing qualitysystems as well as increasing employment . Te maximum amount is 200.000 KM.

In addition to the grants that are awarded , it is certainly important to mention the assistance to thesector through credit lines o Investment-Development Bank o the Republic o Serbska . Te amountsrange rom KM 30.000 to KM 5,000,000, depending on the purpose and orm o organization o users,the payback period is 1-15 years, grace period ranges rom 12 to 24 months , with interest rates rangingrom 4 % to 4.9 %. However , some business respondents complain that these loans can be obtained onlyby political affiliation and that they are not equally available to all .

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GAP-Analysis16

Business environment and framework conditions

Companies rom ood industry are in a disadvantage in terms o the environment in which they operate,in relation to European competition. Unlike us, cities, regions and countries in EU are fighting to attractfirms, in order to employ people and pay taxes on their territories. Tereore, the conditions in whichfirms operate in the EU are much more avorable.

We have a completely opposite situation. Existing tax legislation indicates that the real economy is bur-dened with many tangible and intangible liabilities. For example, in the RS tax rates are ormally low(profit tax 10% and VA 17%), but the legislative is very complicated, so the company is obliged to ad-here to over 20 laws related to fiscal and parafiscal charges, and about 30 laws that talk about the penaltyprovisions. Te firms submit more than 100 different applications and orms in the course o the year.In the Federation, the situation similar or many things, except or one, significant, positive exception.

Export-oriented firms in Federation are supported by fiscal stimulus measures. Namely, all companiesthat export more than 30% o total sales, do not pay profit tax. Tis is a significant incentive and positivemove o decision-makers in the area o fiscal policy.

Tis is an exception, but generally most o procedures are harder and more complicated or firms, be-cause these procedures are a source o institutional rent. For example, process o issuing building per-mits and other permits is very complicated and laborious task, and requires a significant financial effortand a large number o administrative procedures. Tere are also some incongruities that make lie diffi-cult or firms. State or entity may be delayed in payment to firms (public procurement, VA, etc.), but the

reverse is not possible. It ofen happens that the state has debt to particular company, but the companystill has to pay its debts to state. Also, BiH as a state has not adopted the regulations and directives o theEU in terms o technical requirements and characteristics that products must meet, so it is necessary tomeet the criteria and procedures specifically designed in Bosnia and Herzegovina.

Tese are just examples, there are more o them and we are not going to state all o them here but it canbe concluded that the legal and institutional ramework in which the economy operates is very compli-cated, there are intricate and lengthy procedures that require a lot o costs, ormal and inormal, and thatthose who make decision on this ramework ofen do not understand the conditions under which theeconomy unctions.

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FOOD SECOR17

Culture and values

Modern approach to economic growth and development means that the productivity and competitive-ness o a country are not conditioned by its material assets - natural resources , physical and financialcapital, but by intangible characteristics o the population - the quality and quantity o knowledge, en-trepreneurship, creativity, innovation, work ethic. Only societies that value highest civilizational charac-teristics such as creativity , knowledge and work can, in modern conditions, count on greater prosperity .In such societies , these values play a major role not only in the economy but also in the building o socialstructures , in general change in education, culture, mentality and quality o lie.

However, characteristics valued in BiH, unortunately, are not these. Neither RS , nor FBiH are a societythat creates ertile ground or highest civilizational characteristics such as creativity , knowledge andwork. In our society , instead o knowledge and ideas there is more ocus on party and amily ties, instead

o hard work, ability to accomplish things without work is valued more. In our system o values leastvalued are those that create most o new, added value , which is not possible without creativity , knowl-edge and work . It is well known that the business people rom the real sector are ofen on the marginso society by reputation. Even the common name or the business people - privatnik has negative con-notations and bad reputation.

Tis is supported by scientific research in this field . Lack o confidence among the people o Bosnia andHerzegovina recorded in these studies , is a direct result o poor system o values . According to thesestudies ( eg, Salaj 2008 , the European Values Studies ) , measured general level o confidence shows that

only 16 % o inhabitants believe that most people can be trusted. Let us remind that in countries wherethe creativity , knowledge and work are highly valued, such as the Scandinavian countries, according tothe same research, 60-65 % o people trust other people.

Having this in mind , it becomes clear why are institution uninterested in economic development , whyprivatniks have a bad reputation, why business associations are weak , why there is no real dialoguebetween business and government , and why , at the end , there is no compelling vision and developmentstrategy. Because o this value system we have allen into the trap rom which it is difficult to get out. Oursociety does not value creativity, knowledge and work sufficiently, and the result is current situation - lowcreation o new, added value, low productivity and slow development. It is thereore important to sup-port the producers in the ood sector, because they are the exception to the rule and a positive exampleo how creativity , knowledge and work can create good results .

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2. Where do we want to get to?

Significantly increased producon and

sales of food products, especially

those for EU market

Strong cooperaon established

with big buyers, especially those from EU

The biggest part of

producers fulfils European and

other standards from domesc,

regional and EU market (IFS)

Established funconal

associaons/clusters

in some types of producon,

where producon is

at a small-scale

Increased producon capacies

for producon of food and drinks

at most companies

Significantly increased number of

qualified butchers and bakers, with a constant inflow of other

qualified employees, technologists and other highly qualified staff,

in line with the growth of producon

The companies finance investments

under favourable financing terms

Secondary schools and instuons for

addional qualificaons and change of qualificaon provide

more qualified employees for the food industry;

the facules provide sufficient number of technologists and other highly qualified staff

Financial development instuons provide

sources of financing under good terms,

equal to all

Significantly increased

producon of domesc

raw materials

FINALRESU

LT

MARKET

RESOURCES

INSTITUTIONS

PRODUCTION

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3. What are the most significant gaps to be overcome?

Te analyses perormed so ar o the existing state and projections o the desired uture state, it resultsthat the most significant gaps to be overcome between these two positions are as ollows: Access to and perormance in the market Lagging behind in terms o technological and business processes Environmental protection and energy efficiency Lack o institutional support to development

Access to and performance in the market

Our ood industry does have chances or getting onto the European market in terms o preerential,privileged treatment, however, a great deal o our producers and institutions does not ulfill the require-ments or export o ood to the EU, so this market is quite ofen not available to us.

Export potential is rather diverse, when looked at by individual types o ood products. When it comes tomeat processing, this is rather limited and it is mainly related to chicken meat and chicken meat products.However, berry ruit (raspberries, blackberries, etc.) have a good sale on the European market, as well asorest ruit, mushrooms, dried ruit, spices and medicinal herbs, etc. Tis segment covers significant pro-

motions at exhibition airs. Here, it is not necessary to look or distributors, which is why the airs are, at thesame time, channels o sale or these types o products. Te preparation consists o preparing the offer oproducts well, along with pre-determining potential customers, agreeing on meetings with them in advanceand ocusing all the activities in this direction. For example, one o the most significant exhibition airs inthis area is Bioach Fair, as the biggest air o this type in the world. Te trend o this air is not only to sellorganic products, but also to present the products not organically produced, as the majority o companiesdealing with organic products deal, at the same time, with ordinary, commercial production.

When it comes to standards and certificates, when the neighboring countries, or the reason o their ac-ceding to the European Union, start applying European regulations in this area, those markets will getclosed or us. Te same happened with the export o milk to Croatia and the time is coming when thesame will also happen with the other neighboring countries. It is necessary to begin resolving these prob

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GAP-Analysis20

lems as soon as possible. ime works against our producers and i it is not reacted on time, the damagewill be irreversible. It will take great investments (into acilities, resolving o slaughter houses waste, etc.)or the producer to be able to ulfill requirements. Te second kind o obstacle all the producers in theood industry ace are the trading standards, applied by large retail chains, such as International FeaturedStandard and IFS Food. Tese standards have not been recognized yet as significant by ood processingcompanies, which is why only ew companies in our region are certified in line with the IFS Food stand-ard requirements.

Te aspect Why is it important? Found weaknesses Main actorsArea of activity and

potential interventions

GAP - MARKE

Access to and

perormance in themarket.

Increasing the scope o

sales and employment.

Not enough knowledge

about markets and sourceso inormation.

Unused potentials andresources.

German Chamber o Com-

merce (AHK) and similarassociations

Processing companies Village arms GIZ

Support to initiatives o

producers or market re-search and entry to oreignmarkets and internationalretail chains

Support or attending airs,where it is possible to nego-tiate sales

Support to initiatives orinormation exchange on

market possibilities withregards to berry ruit (rasp-berries, blackberries), orestruit, mushrooms, driedruit, spices and medicinalherbs, etc.

Support to initiatives orestablishing groups o pro-ducers and their activities.

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GAP - MARKE

Standards, certifi-cation and protec-tion o productorigin

Entry o large retail chainsrom the EU (Metro, Lidl,Spar, Getro) to theB&H market will result inincreasing requirements totheir suppliers.

Standards are precondi-tions or cooperation withoreign partners.

Without oreign markets,

there is no growth and nodevelopment.

Many producers have noHACCP, yet many whohave it, only ormally meet-ing the conditions

Te standards applied bylarge retail chains, suchas International FeaturedStandard and IFS Foodhave not yet been recog-nized as important by the

processing companies.

Companies and expertsrom the neighboringcountries with a lot oexperience in this area

Inormation/training ocompanies about possi-bilities o introduction ostandards and certificationo products (one-day)

Introduction o HACCPand improvement o thequality control system

Support to certification byspecific standards:

GFSI standards (IFS Food,FSSC22000, Global Gap,etc.), Halal, Kosher, Or-ganic Certification

Checking possibilities orthe protection o productsbased on geographicalorigin.

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GAP-Analysis22

Lagging behind in terms of technological and business processes

echnological progress o the ood industry in the world provided development o new products and diver-sification. One o the most important global trends, prevailing in the ood production industry, is increasingproductivity and technological development. Majority o our companies do not ollow these changes and theysignificantly lag back in terms o equipment and technology, especially when it comes to small processing plants.

In addition to that, it would take changes o the key business processes. In our companies with stronggrowth, this growth is not ollowed by adequate management and organizational transormation. Manyowners/directors have limited (proessional) knowledge and, as they were ofen o a technical profile, theyare particularly lacking market and management knowledge. Some o them are aware that they have be-come bottle necks or their companys development and that it would take a transormation in manage-ment. Also, in some o them there is an intention o the successors to seriously get into management o the

company, while in some others, there is either no successors or they are not interested.



GAP ECHNOLOGICAL AND BUSINESS PROCESSES

echnologicalprocesses

echnology is one o thekey actors o domesticcompanies competitiveness

Te technology used in theood industry is most ofenold-ashioned, which is aspecial characteristic orsmaller processing plants.

Successul companies Individuals/ companies offering these

services

Inormation/training o thecompany about the benefitso introducing new tech-nologies (one-day)

Support to the applicationo the latest technologicalsolutions in the preparation(processing) and packing oood products and regula-tions o the most demand-ing markets: (IQF reezingtechnologies),

Support to purchasing o spe-cific transportation vehicles

Support to automation o

technological processes Support to investing into

acilities and inrastructure(actory plants, laboratoryequipment, development otechnologies or the produc-tion o new products)

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GAP ECHNOLOGICAL AND BUSINESS PROCESSES

Investment capitalor purchasing onew equipment

Te companies have theneed or investing into bet-ter equipment and technol-ogy

Expensive loan unds Access to the IRB unds

more difficult and condi-tioned

No more subsidies or theincrease o competitiveness(or export)

Lack o readiness o theowner or new ways o ob-taining capital (equity)

Tere is still no risk capitalunds

Banks, IRB, Loans guarantee und Western Balkans Innova-

tion Fund Companies with positive

experience Stock Market

Support to purchasing okey equipment throughdevelopment und withinthe project

raining and consultingabout the obtaining o theinvestment capital

Key processes organization oproduction

Because o possibility orincreasing efficiency anddecreasing o productioncosts (lower prices and/orhigher profit)

Tere is some interest othe companies or this area(lean production)

Few experts or this sectorin our area

Companies and expertsrom the neighboringcountries with good experi-ence in this area

Faculty o MechanicalEngineering

Inormation/training ocompanies about improve-ment o production organi-zation (one-day)

raining and consulting inthe organization o produc-tion (LEAN, KAIZEN)

Connect the work o

students (exercises) withresolving o such problemsor specific companies.

Managemend andorganization

Directors are decision-makers, whose all opera-tional work and organiza-tional culture depend onthem, especially having inmind (an assumption) todelegate little

Enterpreneurship mannero running a company bythe ounders becomes alimitation in the companysgrowth

Companies that resolvedsome o the problems suc-cessully

Organizations havingexperience with training odirectors (eg. Adizes)

Organizations having ex-

perience in the transer otacit knowledge (Eda)

Sectoral experts

Organization o events orthe exchange o experienceand knowledge or direc-tors

raining and consultingabout selected topics (ac-cording to requirements o

the companies)

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GAP-Analysis24

Environmental protection and energy efficiency

Te ood industry companies have significant shortcomings with regards to environmental protection.Waste water treatment and proper disposal o solid waste are requirements, which are already includedinto the legal ramework, while, with the accession o B&H to the European Union, those requirementswill become all the more significant. As a part o this, resolving the waste water issues as well as theirtreatment, as a necessary precondition or the health o population and preservation o water resources,above all, as well as meeting the requirements set beore the companies. Also, by increasing the level osolid waste management, through enabling combustion and recycling o a part o waste, burdening o theenvironment will decrease and the very waste management system will seem sustainable.

It is important to emphasize the measures rom the area o sustainable energy development o the oodsector, by which the companies have tried to get amiliar with the benefits rom the energy efficiency

measures and ways o application o renewable energy sources, which will also result in increasing thequality o the environment.



GAP ENVIRONMENAL PROECION AND ENERGY EFFICIENCY

Environmental

protection

Non-ulfilling the standards

o environmental protectionmay be an obstacle jeopard-izing survival o majority ocompanies, because o theEU integration process.

A great number o com-

panies do not ulfill theEU standards or environ-mental protection.

Companies and experts

rom the neighboringcountries with a lot oexperience in this area

Domestic companies

Support to building o

acilities and purchasingo devices or recover andtreatment o technologicalwaste waters

Support to resolving solidwater disposal problems

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GAP ENVIRONMENAL PROECION AND ENERGY EFFICIENCY

Energy efficiency Increasing o energy effici-ency may significantly de-crease the costs and increasecompanys productivity.

Modern approaches to in-creasing energy efficiencyare very l ittle representedwith the domestic com-panies.

Companies and expertsrom the neighboringcountries with a lot oexperience in this area

Domestic companies

Inormation/training ocompanies about the pos-sibility to increase energyefficiency (one-day)

Support or the usage oCO2 and IQF methodol-ogy in cooling systems alonger shel lie o rozenproducts and energy saving

Support to replacement oenvironmentally acceptableuels with environmentallyacceptable uel

Support or the usage obiomass as engine uel

Support or the buildingand reconstruction o acooling system plant, usageo waste energy or heating/

cooling Support to construction o

systems using renewableenergy sources.

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GAP-Analysis26

Lack of institutional support to development

In the area o ood production, there are many institutions that may directly help ood industry com-panies. In addition to institutions whose work (or the lack thereo) a lot depends on, especially, withregards to export and import (Agency or Food Saety o Bosnia and Herzegovina, Veterinary Office o

Bosnia and Herzegovina and entities veterinary services), there are institutions having significant capac-ities or supporting ood industry, however, those capacities, or the time being, are insufficiently used.

Branch associations, operating within the Chambers o Commerce and associations o producers, area significant instrument in representing the interest o companies in their relations with the executivepower authorities. Also, they may play a significant role in providing certain services to their members.However, according to the companies, these capacities are used in a way as to most ofen hear the voiceo the loudest ones, yet, hardly getting to the issues o real significance to the majority o businessmen.

Agricultural Institute o Banja Luka, a respectable institution in the ood production sector, currentlyemploying 92 employees, including seven persons with Ph.D. degrees, eight with two-years masters de-grees, one with a one-year master and 24 with bachelor degrees. An example o cooperation o thisInstitute with the ood industry is cooperation with Banjaluka Pivara, where the application o newtechnologies has significantly increased participation o barley in beer production, with maintenance othe same quality, however, with a significant decrease o production costs.

Veterinary Institute o Banja Luka employs 60 staff, out o which 30 is with university degrees. Labo-

ratories o the Institute are equipped with modern laboratory equipment or diagnostics o contagiousdiseases o animals, microbiological and qualitative ood and odder analysis.

Scientific Institute o Food echnologies, Novi Sad, is one o the leading institutes in the area o oodanalysis or the ormer Yugoslavia and other areas. It owns exceptional capacities or ood industry tech-nologies with a special emphasis on sustainable management o ood production, creation and utilizationo biological potentials and development o new technologies and products in the ood chain.

Faculty o echnology, Banja Luka, is a scientific and educational institution, where the young, during

their studies, obtain theoretical knowledge in all the areas o ood technology, biotechnology and scienceo human nutrition (eg. production o nutritive products, conservation, storage o raw materials andfinished products, control and management o production processes, quality assurance and ood saety,etc.). Te problem here is that the Faculty o echnology is very little connected with the industry andthere are very little opportunities to gain valid practical knowledge.

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GAP INSIUIONS O SUPPOR DEVELOPMEN

Branch andother associations(Chamber o Com-merce, PUZ RSand other associa-tions)

Te voice o industrymust be heard, i wewant real changes o legalregulations and businessenvironment

Passive behavior o bothcompanies and associations

Only the loudest are heardand those with politicalbacking

Brach association o theChamber o Commerce

PUZ RS and other as-sociations

CREDO Food IndustrySectoral Board

domestic companies

Strengthening o capacitieso branch associations ormodern communicationwith private sector

Support to stronger con-nection o association withprivate sector

Support to associations instrengthening capacities ormodern representation o

the private sector interest

Institutes (Agricul-tural and Vet-erinary in BanjaLuka, Institute oFood echnologyo Novi Sad)

Companies can get romthese Institutes the latestknowledge about tech-nologies that are key onesor competitiveness o thesector

Although individual Insti-tutes present real treasur-ies o knowledge, they areinsufficiently used by thecompanies

Agricultural Institute inBanja Luka,

Veterinary Institute inBanja Luka,

Institute o Food echnolo-gies o Novi Sad,

CREDO Food IndustrySectoral Board

domestic companies

Inormation/training ocompanies about possibili-ties in transer o know-how (one-day)

Support to transer oknow-how through pro-

jects, consulting, designing,easibility studies, elabo-rated reports on individ-ual products, training andsuch.

GAP A l i28

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GAP INSIUIONS O SUPPOR DEVELOPMEN

Faculty o oechnology(FBL)

Faculty o echnologyis the main supplier ocompanies with highlyeducated staff.

Faculty o echnology hasalmost no connection withthe industry.

Faculty o echnology CREDO Food Industry

Sectoral Board Domestic companies

Initiating presentation andactivation o the capacitieso the Faculty o echnol-ogy to support the industry

Initiating introductiono practical education orFBL students (ood de-partment) at ood industrycompanies

Initiating change o the

curricula o the FBL ac-cording to the ood indus-try SMEs requirements

Promotion o the oodsector and attractiveness o

jobs in the ood sector

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