* Yields halved in Croatia, huge profit losses across region
* Producers in Bosnia say situation worst since 1992-95 war
* Future bleak with infrastructure old, little new technology
* Farmers threaten protests; calls for export ban, tax cut
By Daria Sito-Sucic
KALESIJA, Bosnia, Aug 20 (Reuters) - As crops wilt and die in the Balkans, farmers struck down by a particularly harsh drought this year are rueing the region's failure to upgrade irrigation networks and invest in a long-term agricultural strategy.
Hot, dry weather in eastern and southern Europe has piled pressure on world grain markets already reeling from huge drought damage in the United States.
The toll in Bosnia, where surface soil temperatures in the south have hit 47 degrees Celsius (116 Fahrenheit), is estimated at almost $1 billion - a huge blow to a country where the farming sector accounts for 20 percent of employment and about 10 percent of economic output.
The cost to neighbouring Serbia, where agriculture last year accounted for about 12 percent of gross domestic product (GDP), is around $2 billion, and up to $250 million in Croatia, where yields have also been halved.
"It's a disaster," said Zoltan Pinkert, a farmer in the fertile flatlands of Baranja in north-east Croatia. "Everything was top-notch, and then the drought came. We've had less than 10 percent of the rain compared to normal years, and the damage to corn crops is 100 percent."
The region is no stranger to drought and farmers usually get by until the next growing season.
But producers in Bosnia say things have not been so bad since the end of the country's 1992-95 war and are threatening to block major roads and border crossings from early September unless the government pays outstanding subsidies and acts to protect domestic production.
The future looks bleak. Cash-strapped governments in the region, all facing recession, say the money is not there to invest in modern farming methods.
The former Yugoslavia is still plagued by weak governance and a tradition of wholesale change in policy and personnel with each change of government, impeding the creation of a long-term strategy to develop farming.
Bosnia does not have an agriculture ministry at the state level but only at the level of its two autonomous regions - the Muslim-Croat federation and the Serb Republic.
Policy-making is hostage to a complex system of power-sharing since the war, based on ethnic quotas, slowing the adoption of myriad laws and regulations needed for the country to catch up with the European mainstream.
This institutional inertia already threatens to deprive Bosnia of its main export market for milk and meat in Croatia when Zagreb joins the EU next year.
Critics argue the problem has been years in the making. "We are paying for the lack of systematic agricultural policy over the past 20 or even 50 years," said Damir Kovacic, agricultural marketing lecturer at Zagreb University. "We're always surprised when the drought hits in the summer," he said.
The World Bank, which in May approved a $40 million loan to improve the irrigation system in Bosnia, said the countries of the Balkans had huge agricultural potential, but lacked the infrastructure and strategy.
"Former Yugoslavia used to have one of the most advanced irrigation and drainage systems," said Holger Kray, the World Bank's lead officer for agriculture and rural development in Europe and Central Asia.
"Unfortunately, these systems have degraded, eroded," Kray told Reuters by telephone from Washington. "This is not only about functional budgetary shortages but also frequent turnover in the management of these systems."
Mate Brlosic, head of the Croatian Agriculture Chamber, said corn would be "as rare as gold" in Croatia this year.
"The recovery will last several years for vineyards and orchards, and livestock farming will also feel the impact for years, due to lack of cattle food," he told Reuters on Monday.
"We've not had a clear agricultural strategy for 20 years. Regulations change with every change of power."
The difference upgraded farming methods can make is illustrated by a few green fields in Bosnia's breadbasket Kalesija region.
"We have used modern technology to improve the water regime in some fields and switched to a new animal feeding mix," Dzenadin Veispahic, general manager of the privately owned Spreca dairy farm, told Reuters.
Even then, the drought will cost the farm more than $300,000 this year.
"We are on yellow alert regime when it comes to cattle watering," he said, meaning the farm was negotiating with local authorities to tap river water and enlist the help of the fire brigade.
Vladimir Usorac, head of the farmers' association in Bosnia's Serb Republic, said the effects of bad harvests were cumulative. "This is the fourth consecutive year that agriculture has suffered enormous losses because of bad weather, and many producers will not have the means to start the production cycle next year," he said.
Experts estimate it would cost about $2.5 billion to overhaul irrigation networks in Serbia, the biggest agricultural producer in the former Yugoslavia.
But there is little sign of such a long-term strategy emerging. The focus, instead, is on emergency remedies.
In Serbia, where the corn yield is expected to be half the projected 7 million tonnes, trade officials last week called on the government to ban the export of grain, in particular corn, soybean, sunflower seed and wheat.
Such a move would spell additional uncertainty for regional markets, particularly Bosnia, which have traditionally relied on Serbia in the event of shortages.
Croatian unions want tax on food cut so producers are not priced out of the market, but the government is resisting.
Agriculture Minister Tihomir Jakovina said the Croatian government was considering a partial lifting of fees on the lease of agricultural land and increasing customs fees on exports of grain and corn to avoid shortages.
The only glimmer of hope for Croatia is the EU funds that will become available when it becomes the bloc's 28th member in July next year, money that could be invested in a long-term strategy to revive farming.
Deputy Prime Minister Radimir Cacic has compared the country's approach to agriculture to that of "primitive tribes".
"If there is rain, there will be crops, there will be electricity," he said in the run-up to last year's election. "If there is drought, there'll be nothing. This has to change." (Additional reporting by Zoran Radosavljevic in Zagreb and Matt Robinson in Belgrade; Editing by Matt Robinson and Pravin Char)