FEATURE-Bosnian farmers to lose lifeline to political paralysis

Thu Dec 22, 2011 3:37am EST

* Bosnian state paralysed by political rift

* No government, no budget, nobody qualified to certify exports

* Farmers face losing vital Croatia market in 2013

By Daria Sito-Sucic

SARAJEVO, Dec 22 (Reuters) - Eighteen months from now, Marko Damjanovic will practically be able to reach out and touch the European Union from his farm on Bosnia's northern border with Croatia.

But he'll no longer be able to sell his eggs there.

"I feel like I could explode," he said. "It looks like I'll have no other solution but to shut up shop."

Damjanovic sells 800,000 euros worth of eggs in Croatia every year.

Sixteen percent of Bosnia's total food exports and more than half of its milk and dairy exports go to its ex-Yugoslav neighbour, bringing in 200 million Bosnian marka ($133 million) in return.

But a year from now, six months before it joins the EU on July 1, 2013, Croatia will start implementing EU market regulations, and imports of Bosnian animal products will stop.

There's nothing wrong with Damjanovic's eggs, but Bosnia has no one to certify that to the satisfaction of the EU.

Bosnia's farmers -- the mainstay of its economy -- face becoming the latest victims of the political paralysis that has gripped the country since an election in October 2010.

Bosnia has no central government, no state budget and -- most worryingly for Damjanovic -- no agriculture ministry.

The food and veterinary agencies it does have lack the directives and legislation to harmonise Bosnia's food safety regulations with EU standards, and some 400 pieces of EU-standard legislation are sitting gathering dust.

"We are already too late," said Yuri Afanasiev, head of the United Nations Development Programme (UNDP) in Bosnia. "We are basically losing our primary market place, and it would be a miracle if we make it by the deadline."

POLITICAL IMPASSE

More than a year after Bosnians voted for a new central government, their leaders are still bickering over how it should be formed, what competencies it should have and how much money it needs.

Their inability to agree is a symptom of the opposing visions of Bosnia's future that divide its Serb, Croat and Muslim communities almost two decades after war broke out with the collapse of socialist Yugoslavia.

A U.S.-brokered peace deal ended the fighting in 1995 but only after 100,000 civilians died.

To do so it split the country into two autonomous, ethnically-based regions so decentralised and unwieldy that Bosnia barely functions at the state level.

Its administration is bloated, its institutions fragmented and its politics polarised along ethnic lines. The European Commission described the overlapping bureaucracy as a "hyperinflation of competencies" in its October report on Bosnia's halting progress towards EU membership.

While the Bosnian Muslims want to streamline and integrate the state, the Bosnian Serbs are fiercely protective of the autonomy they enjoy as enshrined in the Dayton peace deal.

The Serbs have blocked all EU-related laws in the national parliament that they believe might usurp power from the regional level to the state level.

The Serb Republic considers agriculture a regional responsibility, for example, so EU money that would have gone to the sector has been diverted to other sectors instead because there is no agriculture ministry to receive it.

As a country that aspires to membership of the EU, Bosnia receives funds from the bloc to help finance reforms and development in preparation for future membership.

It's just one example of how, with no central government, Bosnia is losing out on vital funding from the EU and the International Monetary Fund. Foreign investors are steering clear.

"We have lost and mismanaged millions of euros from the European Commission (EC) and the World Bank because of Bosnian Serb obstruction," said an official at the Ministry of Foreign Trade and Economic Relations, who declined to be named.

"TERRIBLE BLOW"

More than 70 state agencies face grinding to a halt next year because the politicians have been unable to agree on a state budget for 2011 or 2012.

The border police, a state body, doesn't have the financing to buy new uniforms or winter equipment to patrol Bosnia's mountainous borders.

And now the farmers face losing their main export market, a potentially crippling setback for Bosnia's 3.8 million people, half of whom rely directly or indirectly on the agriculture sector for their income.

"It's very urgent for Bosnia to establish very clear competencies and chain of command (to be able to win product certification)" said Jurgis Vilcinskas, a senior diplomat with the EU delegation to Bosnia.

To make matters worse, those food products that Bosnia will be able to export to Croatia will be squeezed through just two crossing points on the 1,000-km (600-mile) border certified by Croatia and the European Commission.

Experts say delays at the border will simply increase costs for farmers.

Zeljko Marijan, whose Livno dairy plant exports over 60 percent of its cheese products or around 220 tonnes annually to Croatia, said the loss of their Croatian market would come as a "terrible blow" to Bosnia's milk and dairy producers.

"The problem is not with the dairies," Marijan told Reuters.

"Some of us invested a lot to harmonise production with EU standards. But the state is putting the brake on progress. The authorities didn't do their part of the job."

Farmers, experts and government officials admit there is no solution in sight.

Some experts have called for a transitional period, rather than a January cut-off, to allow some exports to continue and so soften the blow. But there is no official indication this is being considered.

Damjanovic and Marijan both say they are looking to alternative export markets, and are in early negotiations with potential partners in Turkey. But this will drive up costs given the transportation distances involved.

Mostly, they will just have to wait.

"Nobody knows what's going to happen," Damjanovic said. (Editing by Matt Robinson and Sonya Hepinstall)

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