“O verall, we are satisfied with the results considering the environment that we have been working in. We can always do better and are well aware of that. We think that our results are  satisfactory.  On  the  other  hand,  we  are also  aware  of  the  fact  that  there  is  a  huge  decline  in  natural retail turnover in Serbia, which, some people say, ranges from 16% to 17%,” said  Slobodan Petrović to CorD. “What is even more worrying is that, according to some data, the decline in turnover from the sales of bread is in double digits. Hence, it should  not  come  as  a  surprise that milk consumption is  lower  this  year.  It  is  very difficult to do business under such conditions since turnover  has  declined  but  overheads have stayed the same, and some have even grown. All of this aff ects the profitability of our operations, but, regardless of that, Danube Foods Group is satisfied with the achieved results,” said Petrović.

 

■ The media have reported that your companies, including Imlek and Subotica Dairy, will be sold. Do you still want to sell them?
- Yes, we do. We are a part of Salford Investment Fund, and the aim of any such fund is to advance the operations of a company that it buys, make it marketable and ultimately sell it. However, we have
not set a deadline by which we need to sell these companies. We are always waiting for the right moment i.e. when the company is at its highest value and can bring the biggest profit. Generally speaking,  Danube  Foods  Group  plans  to  sell  all  the  companies that it owns in Serbia and we are maintaining contacts and still talking to prospective buyers. Because of the situation in Europe, Serbia  included,  such  transactions  are  rather  slow.  Simply  put, now is not the time to sell, even in more developed countries. Potential buyers are waiting to see how the crisis in Europe is going to unfold, but as I said, we are still talking to our prospective buyers.  We  are  in  no  hurry. We’ll  just  wait  and  see  how everything develops.

■ Today, both Imlek and Subotica Dairy are good and profi table companies. Are potential buyers  interested  in  continuing  to  develop  these  and  other companies in a way that Danube Foods has been doing or could these potential buyers terminate production all together?
- Luckily, we pay a great deal of attention to potential buyers about  any  possible  sales  and  the  companies  we  have  been talking  to  are  strategic  partners,  i.e.  renowned  companies  in this  production  field.  They  will  certainly  continue  to  develop the dairies and their milk production and processing. I cannot mention any names, but I can say that these are companies that are high up on the global stock exchanges and have revenues in the region of at least 10 billion euros per annum - they are the giants of the dairy industry.

■ Your companies, primarily dairies, have not only become profi table but have grown in terms of the number of employees and product ranges. Could we say that they are the backbone of economic    development in  the  areas  where  they operate?
- Absolutely. Imlek, with itsproduction facilities in the region, is considered as having substantial capacity, particularly since 2008. Our business is stable and we are the backbone of the economies of regional countries in which we operate. We are well aware of that and are doing everything  to  do  business  in  a  responsible  manner.  Our  aim, just like the aim of any other good market orientated company, which our dairies definitely are, is in having a good profit margin.  However,  we  not  only  operate  in  an  isolated  country,  but also on a continent that is rife with troubles. We are mindful of
the profit and everybody around us.

■ Following your arrival to the Serbian dairy industry, a lot has changed in production technology and market offer. Is this going to continue?
- We, as in Danube Food Group, are engaged in a very important economic  branch,  i.e.  we  produce  basic  food  items  like  milk (two dairies), water (Knjaz Miloš water factory in Aranđelovac) and confectionary (Bambi Banat from Požarevac). I would like to single out milk production. It is quite normal for the state to take care of this branch and to be well informed of what is happening with it. We only want to have a normal business environment, which means that the state needs to help agriculture and our raw milk producers. At the moment, our collaboration with the state authorities is good, since by developing cattle breeding and an entire related sector, the state actually helps the citizens. Because of such care and the state’s attitude, we have a certain stability in market supply. Apart from exerting a positive influence, there are also quite a few other areas where the state should implement certain measures, especially when it comes to this branch – milk production – where we have to fight off  unfair competition in the shape of the grey economy. There are around 200 dairies in Serbia, and many of them  are small. The majority operate in a so-called grey zone and this is a hindrance to us. We know for a fact that these dairies do not pay taxes and contributions to the state which means that business conditions are not equal for everybody since we are paying everything we need to pay to the state, and I won’t even mention other financial obligations. So, if a company has reduced their overheads by not paying taxes or its workers, then there is plenty of room to reduce prices and become an unfair market competitor. The state has failed to resolve this problem and we have been criticized by our consumers for having higher  prices  than  some other dairies.

■   The   Commission   for the Protection of Competition  has  heavily  penalized Danube Foods Group because of its dominant market share in the dairy segment. What stage is that procedure at now?
- The procedure is pending and we are currently appealing to relevant  courts  against  the  Commission  and  Administrative Court ruling. We do understand that this is the beginning of the implementation of the relevant law and that we were victims of beginner’s mistakes and in finding the right way in regulating monopolies and market misuse.

■ You are branded as a monopolist in milk production and accused of having over 47% share in raw milk buyout. What does your data show?
- That claim, made by the Commission for Protection of Competition, is not true and we have drafted several studies to show that our share is around 30%. The studies drafted by the European Union show the same. This is far from the 40% market share the Commission claims.

■ What are your plans for next year?
-  We  can  already  see  that  2012  will  be more  difficult  than  this  year  since  the conditions  for  doing  business  are  becoming increasingly difficult. Banks are struggling  and  are  trying  to  increase their  liquidity,  which  means  that  they are  keeping  a  certain  portion  of  funds to themselves and not directing them to businesses. This leads to illiquidity and we  really  feel  the  consequences,  since retailers   are   late   in   paying   invoices, small  corner  shops  are  disappearing, purchasing power has substantially declined, unemployment has gone up and we expect the sales of dairy products to fall even further. Therefore, we are gearing up for a tough year ahead.

■ We all know that bread and milk are things  that  most  people cannot  live  without  and are  purchased  on  a  daily basis.  Do  you  have  plans in  terms  of  rearranging your production?
- We have enough products in stock which means that there will be no shortage of milk or  dairy  products.  There  is  no  need  to  shift  one  product  to the  other  and  change  production  since  our  needs  are  met. We have two dairies whose products are sold all over Serbia. There  are  consumers  that  simply  love  certain  products  and are  refusing  to  buy  them  from  any  other  companies.  This  is a matter of taste and habit, and we respect that. We support them and are offering consumers an opportunity to choose us or another company.

 

■ Are prices going to stay the same next year or do you have other price plans?
- At present, we are trying not to raise our prices despite the price  of  raw  materials  constantly  growing,  and  that  is  not only the case in Serbia. The price of raw milk is growing in regional countries and Europe too. It is not a huge jump, but it is being felt in Serbia. The price of raw materials has been constantly  rising  since  summer.  If  that  continues,  then  we will  be  forced  to  change  our  prices.  Apart  from  said  higher prices, the cost of electricity, gas and fuel have also gone up and that is where we feel the pressure. For now, we have no
plans to hike up our prices and will stick to that as long as we can. This primarily pertains to milk, although we are going to try to keep everything at the present level.

 

■ How would you summarise the business conditions and environment  that  the  state  has  created? Are  they  conducive to the development of business in Serbia and should the state implement other measures to help companies?

-  The  environment  in  which  our  companies  operate  is  getting  more  difficult by the day. Since 2000, the inflation rate has  been  inversely  proportional  to  the fluctuations in the dinar/euro exchange rate.  This  could  be  interpreted  as  our economy  being  stronger  than  that  of Europe  or  America  since  our  national currency  appreciated  against  both  the euro  and  dollar.  This  is  fundamentally wrong and creates huge pressure on our economy. We have big competition from abroad  as  their  goods  are  cheaper  due to the said euro exchange rate. There  is  another  issue  that  should be handled urgently. We have signed the Stabilization and Association Agreement with the European Union and started to unilaterally  implement  it  a  long  time ago.  Now,  we  are  at  a  stage where,  as  of  next  year,  the protective measures will be reduced  to  a  minimum.  As we  now  know  for  sure  that we are not going to become an  EU  member  in  the  next five years, I would like to suggest that we start renegotiating with the EU and re-impose certain protective measures on top
of creating a new schedule of reducing these measures over the period of the next five to nine years. We did not use the Stabilization Association to our advantage, i.e. we did not withdraw any financial means from European funds in order to help our economy grow during that period. We also failed to obtain EU candidate status, which means that, again, we are not going to get  the  money  allocated  to  candidate  states.  Thus,  we  are  in a very difficult situation and if the dinar exchange rate is not realistic, and if we fail to reach an agreement with the EU about additional  protection,  our  market  will  be  swamped  in  cheap imported goods, GDP will fall and poverty will rise. Hence, we are  going  to  find  ourselves  in  a  situation  where  we  won’t  be able to support the state. ■