AGRICULTURAL SUBSIDIES IN THE BUDGET OF THE REPUBLIC OF SERBIA 1

In this paper, the authors analyse the dynamics of agricultural subsidies, compared to the developments in public revenue and public expenditure and the total subsidies of the republic budget, in the years of 2006-2013. We performed desk research using official statistical data and processing them with standard statistical methods, and studying and quoting a number of scientific papers and documents of national and EU institutions. We also considered the government’s projection of the scope and structure of agricultural subsidies by 2024, having in mind the fiscal consolidations and the obligations of adjusting legislation, support policy and institutional framework in agriculture with those of the EU. A three-year fiscal consolidation programme, which includes, among other things, reducing and re-examining agricultural support programmes, should create a healthy basis for stable and growing budget transfers to agriculture. Investment support will still be very important, and producers could expect a more significant growth in direct payments just before and just after joining the EU.


Introduction
Agriculture is the base of economic activities. It includes a large number of employees and it creates a significant foreign trade surplus. In the year of 2011, agriculture and food industry accounted for 15.8% of GVA of the national economy (agriculture 10.3%), (SORS, 2013a). The sectors of agriculture, forestry and fishery employ 21.6% of all employed workforce (SORS, 2014a). The export of agricultural and food products in the year of 2013 accounted It is necessary to increase investments in agricultural production and to direct far more budget transfers to agricultural sector, since strengthening agriculture, in correlation with food industry, is one of the best chances for development of Serbia in the period when food prices in the world tend to jump (Puškarić et al., 2012). This demand should, however, be adjusted to the measures of fiscal consolidation which are prioritised in periods of budget shortages and high public debt. In the framework of fiscal consolidation measures 5 , the Government planned reductions in subsidies from the republic budget as well as reexamining certain subsidies programmes, including agriculture, in order to increase the efficiency in public expenditure and preserve the sources of potential growth. In agriculture, these measures are oriented towards investments in productivity and competitiveness growth and infrastructure improvement.
It is very important that the Ministry of agriculture establish cooperation with relevant institutions on both the horizontal and the vertical level, when adjusting the national agricultural policy to the EU Common Agricultural Policy (CAP). Legislation harmonisation is also very important, especially in the field of food safety and quality. This paper analysed: (1) fiscal policy and subsidies in agriculture compared to public revenues and expenditures and total subsidies from the budget of the Republic, 2006Republic, -2013and (2) amounts and structure of agricultural support, defined by the Strategy for Agricultural and Rural Development by the year 2024 in light of legislative, political and institutional framework of support for agriculture and rural development harmonisation with those of the EU, as well as fiscal limitations in the upcoming three-year period.

Methodology and data sources
We performed desk research using official statistical data of the Statistical Office of the Republic of Serbia (SORS), Ministry of Finance and National Bank of Serbia (NBS) and appropriate statistical methodology to calculate needful indicators (nominal and real growth indices) for monitoring trends of budget transfers in the reporting period. We also studied and quoted a number of scientific papers and consulted legislation acts, published in the Official Gazette of the Republic of Serbia (OG RS), and relevant documents of national and EU institutions in the fields of fiscal and agricultural policies.

The fiscal policy of the Republic of Serbia in the period of 2006-2013
The period of 2006-2013 in the economy of Serbia was marked by an expansive fiscal policy and failed attempts at restraining its negative effects, which can be seen in a growing budget 6 deficit and increased public debt of the country. The global financial crisis of 2008 found Serbia with a consolidated budget deficit of 2.6% of GDP, which was the result of a politically motivated expansive fiscal policy in the election campaign period, years 2006-2008 (Praščević, 2013).

Agricultural subsidies in the republic budget expenditures, (2006-2013)
The largest part of consolidated state budget transfers is directed from the central level of government, primarily from the republic budget 9 . The republic budget also transfers most of the subsidies, including agricultural subsidies, whose participation in total subsidies varies from 32% in 2011 to 51.2% in 2008 10 ( Table 2).  The fiscal strategy 2014-2016 marks the development of agriculture, along with infrastructure investments, as a priority on the expenditure side of the budget, where the available sources would be directed to, in case of creating additional fiscal space (OGRS, 97/13). Still, agriculture is among the sectors that can expect a reduction in scope and adjustments to the structure of the budget support policy. Adequate adjustments to the structure of measures of support to reduced agricultural budget can neutralise to a large degree the negative consequences of this reduction (Katić, Popović, 2009).

Policy of support for agriculture and rural development in Serbia
There are three basic fields of action on ensuring support for the development of agriculture and rural development during the pre-accession period: 1) creating a consistent support policy for agriculture, in accordance with the EU Common Agricultural Policy (CAP), 2) strengthening the legislative framework, and 3) building institutions, necessary for implementing legislations and support policy.
For harmonisation with the EU CAP, it is necessary to make important changes in the domestic agricultural policy. While the Serbian policy of support in agriculture and rural development is determined at an annual level and financed by modest budget amounts 11 , the budget framework of EU CAP is determined for a period of seven years, with planned annual subsidy amounts and a high rate of budget appropriations for agriculture and rural development. The budget framework of agricultural support for the period of 2014-2024, as defined by the Strategy for agriculture and rural development of the Republic of Serbia, maintains the development orientation of the Strategy. The agricultural budget is projected in such a way that it can reach more than twice the level of today during the pre-accession period (755 mil EUR after 2020, compared to 280 mil EUR in 2013). This would increase the ability of the sector to use EU funds, and the incentives would reach the level they had in the surrounding countries at EU accession point. The different dynamics of growth in budget appropriations for these purposes in sub-period 2014-2016 acknowledge the demands of the fiscal consolidation (Table 3). Having in mind the need for improving the competitiveness of the sector in the preaccession period, in the conditions of parallel engagement on harmonisation of domestic schemes of support with EU CAP, the budget projection contains: 1) An increase in amount and share of direct payments per ha/head in the structure of direct incentives of the Pillar 1 of agricultural support on account of reducing coupled support (production-related aid), establishing market support and support for small producers; 2) Strengthening the support for rural development (the share of which in the total incentive will grow on account of reductions in direct incentives of the Pillar 1), and within it, support for investments for improving competitiveness and reaching quality standard, environmental and support programmes for LFA areas and rural infrastructure building; 3) Directing support towards general services in agriculture, in order to ensure knowledge transfer and technology and adopting European food safety and quality standards (OG RS, 85/14) 12 .
When to investment support for promoting competitiveness in production and processing of agricultural products.
The lack of a referent national laboratory for milk disables the payment of premium to producers according to the quality of the raw milk 13 . A small number of dairy cows registered in livestock breeding records are an obstacle to implementing payments per head, which should replace the milk subsidy in the process of harmonisation with the EU legislative as of the year 2016.
The amended Law on Incentives in Agriculture and Rural Development (OG RS, 142/14) limits subsidies per ha in plant production in 2015 to producers with holdings of up to 20ha of sown arable land and plantations, instead of the current 100 ha. Such a decision is justified by the desire to support small commercial producers, and direct the mid-range producers towards more efficient measures of investment support.
This can protect the income of small producers and implement certain necessary savings in the republic budget, but in this case, the support will have more of a social character than a development one. Measures of investment support are more efficient than direct payments in raising the competitiveness of mid-range commercial households in transitioning countries, but in this case it is necessary to ensure the redirection of savings made from direct payments into investment support to this group of producers, which is not probable in the conditions of fiscal consolidation 14 . Investment support will certainly remain a very important measure, and producers can expect a more significant growth in direct payments after accession to the EU (Popović, Katić, 2007). Progress in structural reforms in agriculture is tightly connected to the development of entrepreneurship in food production and processing, primarily in family households that have been in the focus of agricultural and RD strategists for years. The development of small and medium sized enterprises in agribusiness needs significant investments through different types of credits. Financial support can be obtained through institutional support and share capital of banks, credit associations and leasing companies (Bogavac Cvetković et al., 2010). Domestic agriculture also needs a specialised agricultural bank, whose primary task would be concentrating free (and cheap) financial resources and release them into agriculture under benefit conditions (Vasiljević, Popović, 2014).
Producer organisations and clusters are of great importance to efficient business doing of a great number of small and medium sized agricultural producers (Nikolić, Popović, 2007).

Vesna Popović, Biljana Grujić
Producer organisations operate efficiently in the EU, especially in production of milk, meat, and fruit and vegetables. In Serbia, these organisations are still few, mostly local and have a weak competitive position on the market. Development of wholesale markets as trade channels is especially important for these market subjects, from the aspect of food safety and quality standard control.
Passing the Law on Food Safety created a legal basis for establishing Directorate of National Reference Laboratories, as an administrative body within the Ministry of Agriculture. Directorate encompasses a network of reference laboratories, which perform tasks in the field of food safety, plant and animal health, residues, milk quality and plant gene banking, and carries out other activities in this area.
The Ministry of Agriculture and Environment protection is the main stakeholder and coordinator of activities on harmonization of national agricultural policy with EU CAP with relevant institutions on the horizontal and the vertical level (ministries, extension service, rural development support network, chambers of commerce, science and research organisations, etc.), .

Conclusion
Serbia faces great problems when it comes to fiscal consolidation and support for the agricultural sector. The reasons for reducing budget expenditure and re-examining the current support programmes (those in the agriculture sector, among others) lie in the fact that the state has significant budget deficit and that it uses a wide spectrum of fiscal policy measures to reduce it.
At the same time, agriculture and food industry are marked as sectors whose comparative advantages will serve as basis for the economic policy of the country in the upcoming period, and sectors where we expect the establishment of a new investment and development cycle.
It is imperative for the state authorities to provide adequate amounts of budget support to finance the development-oriented investments in agriculture and rural areas, and take on the necessary activities in establishing and strengthening institutions that will deal with adjusting legislation and agricultural policy with those of the EU.
Market oriented medium sized households as pillars of the development of agriculture, food industry and food export, as well as of preserving the vitality of the rural areas, must come into focus of budget support. These households primarily need investment support for modernisation and strengthening the production chain in the pre-accession period, in order to promote competitiveness and reaching EU food safety and quality standards.
Reducing direct payments due to budget restrictions will not help the development of the sector unless followed by strengthening investment support, but a fiscal consolidation should create healthy conditions for stable and growing budget transfers for these purposes, at best already in 2018. The producers can expect significantly larger amounts of direct support just before and after EU accession.