The Milk Industry In Bosnia And Herzegovina Economics Essay


Presently, there is a planetary tendency of economic integrating where states tend to associate their markets in order to obtain free market, intending a market which maps without any authorities intervention. With the economic integrating and development of states ‘ dealingss free trade of both, goods and labour force is stimulated. Logically, every state tends to go a portion of planetary economic system and to offer their merchandises on planetary market and to bask in other ‘s states merchandises. Additionally, there are many other benefits of free trade which represents favourable result for states ‘ economic systems. Bosnia & A ; Herzegovina ( B & A ; H ) is a state whose economic system and all the other facets of regulating face effects of the past war ( 1992. – 1995. ) . As a portion of the Central European Free Trade Agreement ( CEFTA ) which is an understanding between non-EU states, Bosnia and Herzegovina is one measure closer to the fulfilment of demands of World Trade Organization ( WTO ) . As it is already known, free trade has many advantages but besides has disadvantages particularly when it comes to developing states – B & A ; H being one of them. In order to understand issues of B & A ; H emerging from CEFTA rank the political divisions present in the state should be taken under the consideration which significantly affects the economic system. Furthermore, the fight of domestic manufacturers compared to the manufacturers in neighbouring states ( Croatia and Serbia at first ) should be considered. The production of milk and dairy merchandises is one of the indispensable subdivisions of Bosnian & A ; Herzegovinian economic system which are earnestly affected by free trade understanding which so triggers other jobs in state ‘s economic system. One of the chief causes of the issue related to the milk industry is due to the state ‘s inability to vie with other states and to develop its domestic production. Because of that, it is of import to measure the consequence of CEFTA rank on milk industry and to find whether it influences the economic system in a positive or negative manner. This can be accomplishment by sing the ordinances of CEFTA, Bosnian & A ; Herzegovinian production capacity and ability and fight in comparing with other states.

Obstacles to the research:

Some of the obstructions in the research are deficiency of official informations due to the weak docudrama available to the populace and the fact that it is difficult to do comparing with the period prior to and after the CEFTA rank because of the war which destroyed most of the substructure and slowed down everything including milk industry which makes it difficult to acquire an penetration in direction of the houses.

CEFTA partnership and predicted advantages:

Bing portion of CEFTA requires a member state to merchandise free with current CEFTA member states and to follow both, the WTO and EU ordinances. The most of import facet of all is free trade. Free trade between states enables manufacturers to export and import without intercession of authorities. It has many advantages such as lower monetary values, greater pick, handiness of resources, increasing competition therefore increasing the quality of goods and/or services. B & A ; H is a member of the CEFTA together with Albania, Croatia, F.Y.R Macedonia, Moldova, Montenegro, Serbia and Kosovo.[ 1 ]The chief purpose of CEFTA is to fix member states for EU accession and achieve free trade between member states and to let the member states better entree to EU markets. Bosnia and Herzegovina is a state with passage economic system and one of the ends of CEFTA is to assist to ease its integrating in planetary economic system. Bosnia and Herzegovina joined CEFTA in January 2007.[ 2 ]As many of the trade understandings tend to liberalise the markets of states which are members, the chief purpose of the CEFTA is well the constitution of the wholly free zone in the part. CEFTA rank has many benefits. Some of them are political stabilisation and macroeconomic stabilisation, export part to the growing, Foreign Direct Investment ( FDI ) attraction, and competitiveness growing on regional degree. Additionally, CEFTA represents first-class measure towards World Trade Organization ( WTO ) and European Union ( EU ) rank. It helps passage economic systems in a manner that it helps them to rearrange their economic system and to develop up to a degree suitable for the criterions of the EU. Furthermore, CEFTA rank states are all reasonably much at the same development degree which is good since they should all, in ideal conditions, have equal abilities and resources available which so triggers same fight which is good since they trade freely among themselves and are non downgraded by other more developed states. It was created in a manner that all the economic systems which are members are meant to increase free and its exports of goods and services such as milk and dairy merchandises and therefore to be able to offer its merchandises on broader market which represents one of the advantages of free trade understandings. In ideal conditions CEFTA B & A ; H should profit mostly from being a member of free trade understanding in a manner that consumers ‘ pick is increased since foreign manufacturers entered the market. Besides, monetary value of the merchandises should diminish because more merchandises are offered in the market which once more is a positive for consumers in B & A ; H. Becoming a CEFTA member B & A ; H became more attractive for foreign investings which contributes to the economic development. In add-on, fight should increase which is a positive result since fight is related to lower monetary values, higher quality of merchandises and greater graduated table of production.

Milk industry in Bosnia & A ; Herzegovina:

Food industry and agricultural industry ( within which milk industry ) in B & A ; H represents a subdivision of economic system in which the highest rate of new, large and little, industries was formed after the war. However, nutrient industry is still non at a sufficient degree due to the old engineering used in production, troubles in passage the industry faces and inability to vie with the foreign manufacturers. Because of that one of the chief purposes of B & A ; H should be to better both, agricultural and nutrient industry within which is milk industry. One of the most of import constituents of the nutrient industry is milk industry. Country has really good conditions for farm animal cultivation even though there is deficient usage of grass land all over the state. Harmonizing to the informations from 2008 there has been 35 dairy processing industries in B & A ; H out of which 22 is in Federation of B & A ; H ( FBIH ) and 13 in Republic of Srpska ( RS ) . All of them are in private ownership five out of which are in the ownership of foreign companies. The most of import and successful milk industries in B & A ; H are Milkos so dairy in Zenica which was privatized by workers and Tuzla and Bihac dairies were privatized by foreign companies ( Ljubljanske Mlekarne and Megle severally ) . In the last few old ages the agricultural sector becomes really attractive for FDI. The strongest foreign investor is Danub Food ( investing fund ) , Ljubljanske Mlekarne, ( Slovenia ) , Dukat ( Lactalis, France ) and Meggle ( Germany )

Besides, of import thing to reference is that there are many small-scale milk manufacturers which are non included in the entire figure of milk industries but are still bring forthing milk holding the creative activity of trade name and autochthon merchandises as their chief end. Even though their production of milk and dairy merchandises does non lend much in the figure of entire production they tend to integrate with larger industries and can stand for possible chances for future production of milk in B & A ; H.

The chief jobs B & A ; H milk industry faces:

Deficient usage of the available grass land: Bosnia & A ; Herzegovina has available grass land suited for farm animal production but it is non used wholly which mostly affects the entire end product within which is a production of milk. The inefficient usage of available resources is one of the factors which is an index of fresh potency which so reflects on supply of the milk and dairy merchandises on the market which subsequently on is related to the fight and the export rate.

Low capacity use: Harmonizing to the information of “ Milk processing d.o.o ” in 2008 about 59 % of entire capacity was utilised which once more represent an addition in use of 9 % in comparing with 2007. However, the use of capacity is still at the low degree particularly in comparing with other member states of CEFTA.

B & A ; H still suffers the effects of the war: During the period of the war the entire milk production fell drastically. Besides, many people within which husbandmans, left the state as refugees. Harmonizing to the study supported by “ AgriPolicy ” it is estimated that 80 % of farm substructure suffered war harm.[ 3 ]Additionally, B & A ; H had to set particular accent on recovery of the nutrient and agricultural sector foremost and so to give to the developing the sector and increasing the fight.

Lack of ordinances and production criterions: Bosnia & A ; Herzegovina ‘s ordinances on quality of produced milk and dairy merchandise does non fulfill ordinances in other states which could be possible importers of dairy merchandises and therefore are unable to increase their export. By going a member of CEFTA some ordinances had to be adopted which are still, non at the degree EU demands and are still below merchandise criterions in part states.

Scale of production: Even though there are several major companies of milk production in B & A ; H milk production is still non at the degree appropriate to the demand. Problem about all companies face is that they can non bring forth at higher graduated table and are therefore unable to cover both, domestic and foreign market which mostly affects their net income. Furthermore, such little graduated table industries are non able to vie with foreign manufacturers. Due to that in period 2006 – 2009, 9 milk industries stopped their work because they were unable to do net income. This could be seen as one of the negative effects of the CEFTA since some small-scaled milk industries had to halt working because of the competition. Additionally, large figure of really little farms impedes the system of aggregation of milk which is why low per centum of milk is utilised. Besides, little farms are closely related to the deficiency of specialisation, they lack sufficient machinery and selling scheme. Because of that the figure of little farms varies every twelvemonth and there is no any official statistical informations about the figure of bing 1s.

Lack of instruction: Many husbandmans and providers of milk are non provided with instruction which could assist them to better their production and the entree to information and cognition is non at the appropriate degree. Because of that certain figure of milk providers is bring forthing milk at a little graduated table and are n’t utilizing their resources in the best possible manner.

Political divisions therefore deficiency of policy on state degree: B & A ; H is divided into two entities which mostly affects the sufficiency of the production because cooperation of entities is non at a fulfilling degree. There is n’t any ordinance the province degree and no specific strategic development program either. Policy for steering budget financess, which chiefly focuses on back uping monetary values and milk, is non in conformity with inclinations to fall in the EU which focuses their budget beginnings of financess largely on direct support to undertakings of capital development[ 4 ], which affect the structural alterations and increase fight of milk manufacturers and dairies while that ‘s non the instance in B & A ; H.

However, in the post-war period milk industry represents a strategic sector which can extremely lend to the economic development of B & A ; H and therefore the accent on this sector is large. Unfortunately, B & A ; H is still net importer of dairy merchandises significance, it imports more dairy merchandises that it exports with Croatia as chief foreign trade spouse within CEFTA.

Milk industry prior to CEFTA rank:

The milk production recorded changeless growing over the period of 2000-2007 which is a period prior to the CEFTA rank making 724 million litres in 2007 which represents an addition of 39 % in comparing with 2000. Positively, the addition in production is chiefly due to the addition of output per cow significance same resources are used in better mode because of the betterment in strain composing. Additionally, the importance of the sector can be considered trough out the figure of people it employs. From statistical informations from 2006 31,414 husbandmans were included into aggregation of milk.[ 5 ]By economic recovery, both, production and ingestion of milk and dairy merchandises is increasing. Yet, production is below ingestion demands which are really modest in comparing with other state members of CEFTA. Because of that the import of milk and dairy merchandises is still really strong. After subscribing CEFTA understanding exported increased extremely which is one of the positive sides of CEFTA rank but still the export is merely about 1/3 of import value ( in 2007 export value was 21.3 million and import was 62 million of EURO ) .[ 6 ]

Statistical informations:

Table 1 – Import of milk over a period during 2006-2008[ 7 ]



2008[ 8 ]

Entire import expressed in BAM ( Convertible Marks )

99 679

115 661

131 099

Entire import expressed in milk

118 500

135 086

121 610

Table 2 – Export of milk over a period during 2006-2008[ 9 ]



2008[ 10 ]

Entire export expressed in BAM ( Convertible Marks )

29 237

40 701

53 647

Entire export expressed in milk

33 100

47 265

56 283

Sing table 1 and 2 it is obvious that B & A ; H is net importer of dairy merchandises. Comparing the two tables the immense difference between import and export is seeable with the import being about three times greater than export. Besides, lessening in import and addition in export during the three old ages is apparent but the difference still remains immense. 2006 is a twelvemonth prior to CEFTA rank. 2007 and 2008 are old ages when B & A ; H was a portion of CEFTA. It is apparent that the rate of export decreased more than the import increased when comparing these two old ages which is a positive mark of cut downing trade instability. Additionally, about 90 % of export is the export in part states intending states members of CEFTA. Bosnia and Herzegovina is the most important importer of merchandises from other states from CEFTA trade understanding and achieves a big trade shortage foremost with Croatia. Sing the given big trade shortage, economic crisis has affected on the B & A ; H to cut down the trade shortage with CEFTA deeper diminution in imports than exports in 2009. twelvemonth. B & A ; H has a much faster growing of exports to CEFTA states of import growing in 2010 twelvemonth, so that it continues to cut down the trade instability. The chief cause of trade instability is due to the fact that B & A ; H failed to capitalise on that, as Serbia and Croatia, every bit good as some of the other states, managed to restrict Bosnian imports through other steps. Additonally, Bosnian leaders failed to respond rapidly and efficaciously plenty to reenforce Bosnia ‘s trade place.[ 11 ]

Most noteworthy foreign spouses of Bosnia & A ; Herzegovina

Taking into consideration foreign spouses with which B & A ; H trades Croatia is chief trade spouse doing about 55 % of the overall turnover. It is followed by Germany, Slovenia, Serbia, F.Y.R Macedonia and Kosovo. EU participates with 40 % of entire imports while there is practically no export in EU states[ 12 ]chiefly because the quality of the merchandises does non fulfill European criterions and ordinances. However, if B & A ; H milk industry was to

Showing the state of affairs trough out economic theory:

The state of affairs in which Bosnia & A ; Herzegovina is now can be easy explained by utilizing the simple free trade graph. Even though it can non be wholly dependable because B & A ; H is still enduring effects of the war significance that for the state of affairs before the B & A ; H joined CEFTA we can non state that it was ideal and in equilibrium but still the graph is used to stand for current market behaviour so the fact that B & A ; H suffered the effects of the war and is still retrieving can be neglected when sing the graph. So what really happened?

Graph 1 – Market of milk industry in Bosnia and Herzegovina ( simplified )

On the Graph 1 it can be seen what happens with the milk and dairy merchandises market in B & A ; H. We will say that before B & A ; H joined CEFTA intending at that place was no free trade that Bosnian & A ; Herzegovinian market of milk and dairy merchandises was in equilibrium – the measure supplied QE was equal to the measure demanded at an equilibrium monetary value PE. With the constitution of free trade with CEFTA members foreign manufacturers ( in this instance states which are members of CEFTA ) offered their merchandises on B & A ; H market which are much cheaper because of their comparative advantage. Obviously, the monetary value of the imported dairy merchandises is below the equilibrium because otherwise at that place would non be the point in trading. The milk and dairy supplied merchandises is represented with S ( CEFTA ) . The import caused monetary value to diminish at the monetary value P2 at which domestic manufacturers are non able to bring forth the milk and dairy merchandises at phase QE and do net income at the same clip and are therefore forced to diminish their supply at the phase Q1. Now domestic manufacturers are able to provide merely 0-Q1 measure while foreign manufacturers supply Q1-Q2. In this state of affairs consumers and foreign manufacturers are profiting. Consumers should profit because of the lower monetary value but this was non the instance in B & A ; H because four large supermarkets ( Mercator, Interex, Merkur and Konzum ) dominate in the sector and their strong market place bound effects of market liberalisation. It was expected to see lessening of monetary values due to diminish of boundary line protection ( largely imposts ) and addition of competition degree. It was non a instance at B & A ; H market. In other words, the crisp liberalisation of B & A ; H market did non hold important impact on monetary values for concluding consumers, which peculiarly applies for nutrient markets. On the other side, domestic manufacturers ‘ hurt because they had to cut their supply and therefore their net income is decreased.

Future challenges:

There are many challenges that Bosnia & A ; Herzegovina will hold to confront in the hereafter in order to utilize CEFTA rank as an chance to develop economically. Since long-run end of B & A ; H is accession to the EU and CEFTA can be considered as passage which should assist in fall ining the EU, it is necessary for the authorities of B & A ; H to synchronise and follow development/agricultural policy related to production of milk harmonizing to the 1s in other states which are members of CEFTA and which satisfy EU criterions. These ordinances understand application of EU criterions for milk and dairy merchandises quality that would let B & A ; H to export to EU states.


To sum up, there are many factors impacting milk industry in Bosnia and Herzegovina, out of which one of the most important one is being a member of CEFTA. Free trade understandings are primary created so that all member states can profit out of it. However, as we could see, that is non ever the instance. It is non plenty merely to go a member and allow everything go on without any control. Bosnia and Herzegovina is a state whose economic system sectors are still retrieving and which is even in present politically divided and lacks official ordinances and development schemes all of which contributed to the failure in milk sector – capacity is non to the full used, domestic manufacturers can non bring forth sufficiency for export, most of the dairy merchandises are imported, people are non educated plenty about how can they increase the production etc. However, it can non be said that CEFTA rank influenced B & A ; H milk industry negatively despite the trade instability because it increased the export and decreased the import of dairy merchandises in past twelvemonth although the ratio of import over export is still high. However, the B & A ; H authorities failed to utilize all of the benefits CEFTA offers and to utilize favourable place in the part to develop the fight of the milk industry which contributed to the trade instability and made Bosnia and Herzegovina net importer of milk and dairy goods. On the other side, many milk industries and husbandmans found it difficult to go on their concern after B & A ; H joined CEFTA because of the addition in consumers ‘ pick – cheaper and diverse merchandises offered by foreign manufacturers. B & A ; H milk industry can non maintain up the gait with manufacturers in neighbouring states, besides members of CEFTA, which influenced domestic economic system in negative mode. In future, particular accent should be on happening a manner to protect from imports from states with which B & A ; H records trade shortage and subsidising domestic husbandmans and manufacturers in their production in order to increase supply on the domestic market every bit good as to increase export and hence cut down trade shortage. Besides, B & A ; H has all the available resources needed for milk production which means that it has an chance to develop the sector and is attractive to foreign direct investings which, once more, can cut down the trade instability and increase the fight of domestic manufacturers. Additionally, what could be done is to work on integrating of little agriculture companies and therefore making big 1s which could so bring forth more assorted merchandises utilizing the same resources and will assist better the degree of use. With that, cooperation between entities should be improved and ordinances should be made on province degree alternatively of entity degree. By holding development scheme and ordinances on province degree, the quality of merchandises would be much higher and, if adequate attempt is put on that, merchandises can finally go of hearty quality for a broader market, chiefly European Union. All in all, being member of CEFTA opens new prospective to B & A ; H which has all favourable conditions for the development of the sector and has to be strategically used if B & A ; H wants to better its milk industry and nutrient & A ; agricultural sector in general and to broaden its market foremost of wholly, to all states of CEFTA and subsequently on European Union.

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