Serbia: Sugar Industry in a Jam

The Serbian government is at last speaking publicly about the sugar export scandal which threatens to disrupt trade with Europe and harm its own farming sector.

At a May 14 press conference the head of Serbia's customs authority, Vladan Begovic, confirmed that imported sugar had been re-labelled and sold to EU member countries as if it had been grown in Serbia.

"I am quite certain that imported sugar was repackaged and then exported as a local product. The whole of Europe knows it… I personally saw two different invoices for one trailer truck, and I informed the police about it," said Begovic.

The day after these disclosures Begovic was shifted to another job, but finance minister Bozidar Djelic quickly held a news conference on May 16 to scotch rumours that the two were connected.

"Nobody is trying to muzzle Begovic," said Djelic, with the customs chief beside him. Begovic has been put in charge of the government's tobacco agency.

The sugar affair has undermined Serbia's ability to export to the EU on preferential terms, and it has jeopardised the livelihood of about 100,000 farmers in the Vojvodina province who depend heavily on sugar beet.

The EU Commission first told Belgrade of its suspicions that sugar was being exported illegally in March 2003. Its commissioner for external relations Chris Patten advised the Serbian government to tighten up customs and trade controls.

Officials in Belgrade pledged to investigate the allegations and established a special government commission to do so, but so far they have not established what happened or who profited. Serbian police confirmed in early May that they had begun an investigation, though charges have yet to be brought.

The EU took decisive action in late April, suspending preferential tariffs for imports of Serbian sugar for a period of three months. Djordje Djukic, the executive council chief in Vojvodina, the main beet-growing region which will be hard hit by lower profits, warned that the suspension put Serbia's entire sugar production chain in danger, and he demanded that the truth be established immediately.

But none of the culprits has been named to date. Until Begovic confirmed that evidence of illegal exports existed, the authorities were hesitant to even admit there was a problem. Agriculture minister Dragan Veselinov's initial response to the EU suspension of sugar imports was that it was "political pressure".

Trade minister Slobodan Milosavljevic suggested the EU's response was overblown. "My ministry ordered the state trade inspectorate to check all export-import deals at the beginning of May, and the results were given to the government commission investigating sugar exports," he told IWPR.

"Our analysis shows that there was only one case of sugar re-export - where sugar from Poland instead of domestic sugar was sent to the EU. However, it was only a symbolic sum, one hundred tonnes, and I think that the EU has punished us too severely for such a small violation."

But Begovic's comments at the May 16 press conference indicate that illegal exports were on a much larger scale and that at least two firms were involved.

Although the government has on the whole been reticent, deputy prime minister Nebojsa Covic has been a powerful voice demanding action. He has accused domestic sugar companies of earning 130 million euro at the expense of local beet growers. And finance minister Djelic has called for action against those responsible.

"EU privileges are very difficult to get, and so easy to lose. The government commission set up to investigate this affair will clear the matter up completely," Djelic said.

The EU guessed there was something wrong when it noticed that imports of Serbian sugar were skyrocketing. Customs data show that Serbia exported 76,000 tonnes in 2001. That figure is close to the country's realistic annual surplus, and matches the EU's annual import predictions. But in 2002 exports more than doubled to 163,000 tonnes. The rapid increase continued into 2003, with as much as 84,000 tonnes exported in the first quarter.

Ratomir Vasiljevic, director of Jugosecer, an association of sugar producers, thinks there were two different scams on the go.

He told IWPR that imported cane sugar may have been processed in local refineries and re-sold to EU markets, with fake labels saying it was made from beet grown in Serbia. In addition, beet sugar bought cheap on the world market is thought to have been exported to EU markets at a higher price, again with a declaration saying it was made in Serbia.

Begovic has said that the latter type of customs fraud, involving a straight import and re-export, will only be eliminated once customs officials are authorised to track sugar consignments from the moment they enter the country until they reach the end buyer.

Serbian customs officers have been sent into refineries to set up better monitoring systems. They will be assisted by 30 tax and customs experts sent by the EU. To make it harder to refine and re-sell cane sugar, Begovic wants laboratories to be set up to check whether refined sugar has been made from cane or beet.

Sugar beet cultivation and refining are one of Serbia's most important economic assets. The industry received a boost in late 2000 when the EU granted the country permission to sell sugar on very favourable terms for a period of five years. The move was designed to support Serbia's democratic government and assist recovery following the fall of Slobodan Milosevic.

The revelations threaten to disrupt the sugar industry's ability to export at keen, tariff-free prices. Dragan Veselinovic, director of the Granicar farming estate in Gakovo, one of Serbia's largest beet growers, told IWPR that he fears farmers will now be paid much lower prices than originally promised, as a result of losses that the refineries will sustain from the export suspension.

Serbia has eight sugar refineries, most of which were privatised last year. Three are owned by Serbian businessman Miodrag Kostic, a long-time friend of the late prime minister Zoran Djindjic. The Italian company SVIR owns two sugar refineries, while Greece's Hellenic Sugar also owns two and is poised to take a majority stake in a third.

The new powers exercised by the customs service will go some way towards meeting the EU's concerns about future trading relations. But local farmers will be watching to see whether government action on the current scandal is decisive enough to encourage a speedy end to the EU's export suspension.

Sijka Pistolova is an IWPR contributor in Belgrade.