1. RCI Competitiveness Conference June 17, 2009 Impact of the Global Economic Crisis on Macedonian Agribusiness

2. AgBiz Program Basics Name - USAID’s AgBiz Program (AgBiz) Four Year Program Launched March ‘07 (26 months operations) $5.85 million LoP Budget Eleven Long-term Staff Cooperative & Supportive USAID Mission Small & Nascent Agribusiness Sector - not long out of central planning & public enterprises

3. Demand Considerations Weak Export and Domestic Market Demand –Reduced consumer purchasing power/inclination –Customers ‘08 sales: Regional (10%), International 10%, Total 6% Potential Export Customers Reluctant to take on New Suppliers –Conservative sales, and therefore purchasing, projections +/- 75% of Macedonian Agriculture-based Exports go to Former Yugoslav Markets –Traditional markets under pressure from new competitors seeking to maintain their sales volume – Performance requirements in traditional market increasing in complexity due to their actual or potential EU entry Current Macedonian balance of payments & employment situation (33%) puts pressure on increasing exports Therefore, significant need for improved export competitiveness of Macedonian agribusiness

4. Supply Considerations Agricultural Production will Likely be Significantly Greater –GoM subsidies (large, EU70 mil., but not competitiveness focused) –Good prices last year –Positive growing conditions so far Agricultural Raw Material Prices are Likely to be Down –Not good for producers –Good for processors and marketers Forward Contracting Still Quite Difficult –Attitudes - both sides hesitant to commit, want flexibility –No benchmark pricing mechanism –Weak contract enforcement Potential Opportunity for Macedonian Processors and Marketers to be More Price Competitive

5. Financial Considerations Very Slow Receivables Collection –Especially large supermarket chains Banks have Become Very Reluctant Lenders –High collateral requirements –Shorter term loans and a reduced grace period –Smaller loans at increased rates –Slow loan approval, but no disbursements VERY Difficult Cash Flow Problems for Processors and Marketers in the Current Season –Limited working capital to provide input advances & purchase raw materials Strong Pressure on Input Suppliers for Trade Credit –But they have their own liquidity problems –Pushing the problem back through the value chain Sellers Evaluating Payment Terms Almost more than Price –Availability of advances for inputs –Historical payment experience –Receivables insurance availability

6. AgBiz Program Responses Support Implementation & Certification of Globally Accepted Food Safety Standards –GlobalGAP (14 producers) –HACCP and ISO22000 (six agribusinesses) –Organic (five Wild Gathered Products companies) –Implementation & certification return on investment is a challenge Help Customers Identify, Understand & Utilize Available Sources of Financing –Overcoming our customer ‘s minimal knowledge re: the range of sources –Building understanding of alternatives and their comparative advantages: AgBiz Finance Manual –Assisted 260 customers to prepare $5.6 mil. in applications, including business plans –Preparing customers & consultants to access IPARD funds

7. AgBiz Responses (cont.) Enhance the Organization of and Emphasis on Export Promotion –Understand success stories and methodologies in other countries –Stimulate Public Private Partnerships, e.g., export promotion entity –If an FDI promotion agency why not an export promotion agency? –Using Macedonian wines as a model Help our Customers Understand In-depth their Customer’s Requirements in Current & Potential Export Markets –Comparative channels – e.g., increased importance of fresh markets vs. supers –Emphasis on VALUE – e.g., good quality, but not too much value added –Current EU labeling requirements –Supporting extensive Trade Fairs and Study Tours 22 to date involving 174 participants who achieved $2.8 mil. in orders

8. AgBiz Responses (cont.) Promote Demand Pull vs. Supply Push Marketing –Not connections, but appealing to consumers –Effective but very efficient sell through marketing programs –Not just price, but VALUE –Assisting product presentations, websites, label redesign, highly professional new market entry programs –Providing additional regional market information Stimulate Significantly Enhanced Value Chain Linkages –Promoting processor/marketer backward integration via forward contracts, private extension-type services, input advances, etc. –Supporting trade association development via work with five associations that are at differing stages of development –Producer organization support: so far minimal interest, except for advocacy: but POs are a significant issue related to EU entry –Supporting field trials to verify production costs & demonstrate advanced production techniques

9. Thank you!