Croatia’s post-independence path entailed significant changes to its laws, policies, and policy paradigms. Current agricultural policies are to a large extent decided at the EU level and governed by the Common Agricultural Policy, with some space available to adapt the CAP to its national needs and priorities. This chapter outlines the institutional framework governing the agro-food sector and reviews the evolution of Croatia’s agricultural policies, from the period following independence to the current implementation of the 2023-27 CAP. Beyond the CAP, it addresses other policies financed with EU and national funds. The chapter also examines relevant trade policies.
Policies for the Future of Farming and Food in Croatia
Abstract
Following Croatia’s integration into the European Union in 2013, its agricultural policies are mostly determined at the EU level. Croatia uses the space provided by the implementation options of the Common Agricultural Policy (CAP) and the greater flexibility of the 2023-27 CAP Strategic Plan to adapt EU policy to its needs and priorities.
In its new CAP Strategic Plan, Croatia has allocated a relatively high share of funds to a payment that seeks a redistribution from large farms to small and middle-sized farms. Direct payments and rural development interventions designed to attract young people to the sector remain important. Coupled support, in particular to livestock sectors, will also continue up to the maximum share allowed by EU rules. Agricultural risk management focuses on the provision of insurance subsidies.
Croatia uses its national budget to co-finance CAP rural development measures and to fund state aid programmes, including additional coupled support to sensitive sectors – dairy cows, breeding sows, sugar beet, tobacco, and olive oil − and measures that preserve indigenous breeds.
The EU-funded Recovery and Resilience Plan, approved in 2021, is not sector-specific but also finances investments in agriculture and food to improve logistics, increase land consolidation, monitor soils, improve digitalisation, and reduce food waste.
The processes to lease and sell state-owned agricultural land are slow and the legal framework changes frequently. This creates uncertainty for farmers and could hinder land ownership by young farmers, in turn affecting their access to finance. The most recent legal reform has sought to speed up processes to dispose of this land.
Promoting competitiveness and increasing market diversification are important national objectives. There is no specific export promotion strategy for the agro-food sector, and different public and private actors perform trade promotion activities.
Over the more than three decades since its declaration of independence, Croatia has successfully transitioned to a stable market-based economy that is well integrated in the international arena. This process has been characterised by important institutional reforms and by a significant evolution of policies in all areas. The 2003 application to join the European Union (EU) marked the start of convergence towards the EU framework, with the definitive adoption of EU policies and legislation upon its accession in 2013. This process has shaped Croatia’s economic development, institutional framework and policymaking (OECD, 2019[1]).
2.1.1. Policies in the first years of independence
Agricultural policy paradigms changed rapidly after independence, with Croatia prioritising market liberalisation and closer ties with the European Union
Prior to Croatia’s independence, agricultural policy in Yugoslavia was characterised by central plans that set targets for agricultural production. There were stark differences between socialised enterprises practising large-scale farming and peasant holdings (see also Section 1.2.4), and the plans promoted contracts between peasants and the socialised sector aiming to foster the growth of peasant agriculture. Policy instruments included guaranteed and minimum prices, state interventions in the domestic market, and engagement in foreign trade, as well as import quotas and, in some cases, export bans to safeguard domestic supplies (OECD, 1973[2]).
Following independence, Croatia started to develop its own agricultural policy. The transition to a market economy involved reorganising the agricultural production structure and changing the country’s development focus (ARCOTRASS Consortium, 2006[3]). Initially, most measures were taken over from Yugoslav legislation. The war of independence constrained government action and its focus on agriculture, caused extensive damage to natural resources and infrastructure, in addition to driving the population away from valuable agricultural areas (Franić and Ljubaj, 2015[4]). Key milestones include the establishment of a public agricultural advisory service in 1991 (Box 4.1) and the adoption of the Development Strategy for Croatian Agriculture in 1995.
Policies included guaranteed prices for wheat, sugar beet, sunflower, soybeans, rapeseed, and tobacco, and special import levies on numerous agricultural and food products. Croatia granted production subsidies for livestock (especially cattle) and crops (in particular tobacco and sugar beet), as well as input subsidies for mineral fertilisers and certified seeds (World Trade Organization, 1996[5]).
Accession to the World Trade Organization (WTO) in 2000 required intensified market liberalisation and aligning domestic legislation with WTO agreements. Reforms included increased allocations to “Green Box” support measures (with less trade-distorting effects), the introduction of area payments for crops and of payments per head in livestock production, and the provision of investment aids for vineyards and orchards. In addition, special import levies and input subsidies were abolished, and guaranteed prices reduced with the objective of abolition1 (World Trade Organization, 2000[6]).
Integration into the European Union in 2013 also implied a process of alignment with the EU legal framework. This convergence was supported by financial assistance from various instruments (Box 2.1).
Despite implementation difficulties, EU funds reached end-beneficiaries and had an impact
Croatia’s pre-accession was supported by several EU assistance instruments. Initially, they operated separately: the Community Assistance for Reconstruction, Development and Stabilisation programme (CARDS) for the Western Balkan region, the Programme of Community Aid to the countries of Central and Eastern Europe (PHARE), the Instrument for Structural Policies for Pre-Accession (ISPA), and the Special Accession Programme for Rural Development (SAPARD). In 2007, these were replaced by the Instrument for Pre-Accession Assistance (IPA) (European Commission, n.d.[7]). In agriculture and rural development, Croatia received funds from SAPARD in 2005-06 and from IPARD (the rural development component of IPA) in 2007-13.
SAPARD (active from 2000-06) sought to help candidate countries implement the Common Agricultural Policy (CAP) and related policies, and to assist in the transformation of their agriculture to prepare for integration into the European Union. Each country was invited to formulate a National Agriculture and Rural Development Plan (the “SAPARD Programme”), selecting from 15 measures. As Croatia had a much shorter implementation period than Romania and Bulgaria, it focused only on two of these measures: investments in agricultural holdings, and improving the processing and marketing of agricultural and fishery products. The public expenditure allocation for Croatia under SAPARD (EUR 33 million) was much smaller than for Romania (EUR 1.5 billion) and Bulgaria (EUR 722 million). The ex post evaluation of SAPARD indicates that the rate of absorption of EU funds in Croatia was low (56%), as was the percentage of projects actually implemented (22%) (Sanopoulos et al., 2013[8]).
IPARD was active from 2007-13. Croatia’s programme included three priority axes: (i) improving market efficiency and the implementation of Community standards, (ii) preparatory actions for the implementation of agri-environmental measures and local strategies for rural development, and (iii) development of the rural economy. The total budget was EUR 162 million, with 75% funded by the European Union. According to its ex post evaluation, IPARD was moderately successful in the use of funds and the measures’ effectiveness. Reasons for this limited success include the late start of the implementation and a lack of capacity of the implementing institutions and the users (KPMG Croatia, 2017[9]). The situation was aggravated by the recession that affected Croatia during this period.
Despite the modest results in terms of use of the funds and project implementation, a firm-level analysis of the impact of SAPARD and IPARD grants to modernise and improve production capacities found that these grants had a positive effect on short- and medium-term indicators of growth and business performance of the beneficiary companies (Kukoč, Škrinjarić and Juračak, 2021[10]).
2.1.2. Start of convergence with EU policies and pre-accession
Alignment with EU policies started with legal reforms and changes to support policies...
The Law on Agricultural Land and the Law on Agriculture – both from 2001 − marked the first steps towards harmonisation with EU policy (Franić and Mikuš, 2013[11]). Further developments included the 2002 adoption of a strategy for agriculture and fisheries that widened the focus to rural development. Croatia’s policies also started placing more emphasis on food safety and organic farming (Mikuš, 2014[12]).
Support to the sector was gradually aligned with EU policies. After 2000, Croatia introduced new models of support, such as decoupled direct payments (World Trade Organization, 2010[13]). Other noteworthy reforms include the creation of the Farm Register in 2002 − with registration as the first requirement for farmers to obtain state aid − and the 2009 adoption of the Act on State Support in Agriculture and Rural Development that sought to gradually harmonise the system of direct payments with the EU Single Payment Scheme (Mikuš, 2014[12]). In line with the EU Common Agricultural policy (CAP), the 2009 Act also differentiated between direct payments and rural development support and between basic area-based payments and coupled payments (Franić and Ljubaj, 2015[4]).
Coupled direct payments, which had played an important role in previous years, decreased between 2006 and 2012, although they remained in place for sensitive sectors. Basic flat rate area payments for agricultural land were introduced in 2009, and payments in line with the EU Single Payment Scheme in 2012 (Mikuš, 2013[14]). Expenditures for rural development and for general services also increased, as did their share in total budgetary transfers (Mikuš, 2014[12]).
...and continued by incorporating the rural development dimension
The EU accession negotiations marked a period of “learning about rural development”. The scope of agricultural policies broadened to include the overall development of the rural economy, a process that was supported by the SAPARD and IPARD programmes (Franić and Ljubaj, 2015[4]). In 2008, Croatia adopted a Rural Development Strategy for 2008-13 in line with the CAP. However, the implementation of the intended policy reforms and their communication to users were limited with the result that Croatia’s agricultural policy measures remained focused on direct payments (Franić and Mikuš, 2013[11]).
Despite these limitations, rural development initiatives by local actors increased as they became familiar with the EU’s LEADER approach.2 In this context, the Croatian Network for Rural Development was established in 2007 with the purpose of connecting civil society organisations to collaborate and share knowledge that would improve life in rural areas (Croatian Network for Rural Development, 2024[15]). The first Local Action Group (LAG Gorski Kotar) was formed in 2008. Croatian stakeholders recognise the importance of rural development. Indeed, 90% of Croatian respondents to a survey on the development of the European Union’s rural vision towards 20403 supported consideration of the needs of rural areas in the EU’s public spending decisions, as opposed to 79% at the EU level (European Commission, 2021[16]).
2.1.3. Institutional framework for agricultural policy management
The governance around the agro-food sector has changed in recent years
The institutions in charge of implementing policies related to agriculture and food have changed in recent years as a result of Croatia’s EU membership, the evolution of policy focus areas, and the reorganisation and consolidation of domestic agencies.
The main governing authority of the sector is the Ministry of Agriculture,4 which is responsible for agriculture (including support to agriculture and the organisation of agricultural markets), fisheries, forestry, rural development, and agricultural land. It is also in charge of sanitary and phytosanitary policy, including plant varieties, plant health, the use of pesticides and fertilisers or the prevention, detection and control of animal diseases and zoonoses. Furthermore, the ministry is also responsible for food safety and hygiene, food quality and labelling, animal feed, reduction of food waste and loss, and quality systems for agricultural and food products, among others.
EU regulations require that Member States establish paying agencies responsible for the management and control of expenditures from the CAP funds (European Commission, n.d.[17]). In Croatia, the Paying Agency in Agriculture, Fisheries and Rural Development (Agencija za plaćanja u poljoprivredi, ribarstvu i ruralnom razvoju - APPRRR) was established in 2009 during the pre-accession phase. APPRRR is a public body in charge of the implementation of the CAP and the EU Common Fisheries Policy, and of national programmes and measures. The work of APPRRR is supervised by an Administrative Council presided by the Minister of Agriculture and including representatives of the Ministry of Finance and the Ministry of Regional Development and EU Funds.5
In addition to executing the payments, APPRRR must verify that beneficiaries comply with all rules and requirements, including those established under the CAP’s cross-compliance (Section 2.2.2). The agency is in charge of managing the Farm Register, the AGRONET electronic system for processing subsidy applications6 and other registries and databases, including ARKOD (the system for digital identification of land parcels). It also has responsibilities in the area of international trade, such as issuing import and export licences (see also Section 2.6.2).
In view of the growing importance of EU policy in Croatia, the increasing complexity of the conditions and requirements for CAP payments and the expansion of its responsibilities, operating APPRRR requires more staff. As of October 2023, the agency had 797 employees, a four-fold increase from 2009, the agency’s first year of operation (Figure 2.1). As a comparison, the total staff employed by the Ministry of Agriculture in October 2023 was 858.
The Croatian Agency for Agriculture and Food (Hrvatska agencija za poljoprivredu i hranu - HAPIH)7 is a specialised public institution that gives professional and scientific support to the Ministry of Agriculture in areas such as drafting legislation and providing expert opinions. It also participates in the implementation of official controls and other activities related to food, animal feed, animal health and welfare, plant health, and plant protection. HAPIH is the national contact point of the European Food Safety Agency (EFSA), ensuring the co-ordination of the national network of institutions in the fields of food safety and animal feed. It started operating in January 2019, taking over most staff and responsibilities of previously existing agencies including the Croatian Food Agency (HAH) and the Croatian Agricultural Agency (HAP) (Croatian Parliament, 2018[18]).
Evolution of staff of the Paying Agency for Agriculture, Fisheries and Rural Development, 2009-2023
Note: The number for 2023 corresponds to staff employed as of mid-October.
Source: Authors, with information provided by the Croatian Ministry of Agriculture.
The State Inspectorate8 (Državni inspektorat) is responsible for inspection and official controls in many areas, including food safety and sanitary and phytosanitary inspections. There were several legal reforms and institutional reorganisations in this area. A State Inspectorate was created in 1997 to put under a single umbrella the responsibilities of numerous separate inspectorates beyond agro-food. However, in 2014 it was abolished, and inspection functions were returned to separate authorities, including the Ministry of Agriculture. A 2018 legal reform unified again the inspection services and re-established the State Inspectorate in its current form. The new institution started working in April 2019 (OECD, 2019[1]).
Other institutions with competences relevant to the sector include the Ministry of Health (aspects related to food safety and the protection of human health), the Ministry of Economy and Sustainable Development (environmental policies), the Ministry of Foreign and European Affairs (export promotion), the Agency for the Protection of Market Competition (competition in the domestic market), the Croatian Accreditation Agency (technical regulations) and the Croatian Bureau of Statistics (national statistics including the Agricultural Census). Section 2.6.2 details the institutional arrangements for trade policy.
2.1.4. The strategic vision and priorities for Croatia’s agriculture and food
The government and stakeholders developed a strategic vision for the sector
Croatia’s agricultural policy is based on the CAP objectives along with other EU and international commitments and domestic priorities. Two recent strategic exercises helped define the priorities of its food system: the CAP Strategic Plan for 2023-27 (Section 2.3) and a national Agricultural Strategy up to 2030 (“the 2030 Strategy”), adopted in February 2022. For the definition of the 2030 Strategy, the government and agro-food sector representatives agreed on a vision of agricultural development that seeks to “produce a larger quantity of high-quality food at competitive prices, sustainably manage natural resources while increasing resistance to climate change, and contribute to improving the quality of life and increasing employment in rural areas” (Croatian Parliament, 2022[19]).
The 2030 Strategy sets the framework for interventions financed by the 2023-27 CAP and state, regional and local budgets. It has four strategic goals: increasing the productivity and competitiveness of the agricultural and food sector; strengthening the sustainability and resilience of agricultural production to climate change; renewing the rural economy and improving living conditions in rural areas; and encouraging innovation in the sector. The sector’s strategic goals and needs, and the necessary interventions to achieve them, were determined based on analysis and stakeholder consultations. The Strategy considers the direction given at the EU level by plans such as the European Green Deal, the Farm to Fork Strategy and the Biodiversity Strategy, as well as the national strategies and goals in areas such as climate change.
Other national plans and strategies that are relevant to the sector include the Low-Carbon Development Strategy, the Strategy for Adaptation to Climate Change, the Nature Protection Strategy and Action Plan, the Plan for Prevention and Reduction of Food Waste, and the National Action Plan for the Development of Organic Agriculture. Relevant documents will be assessed in the following chapters.
2.2.1. Adoption of the EU Common Agricultural Policy
The Treaty of Accession signed in December 2011 paved the way for Croatia to become a member of the European Union as of July 2013. As for other EU Member States, the policy setting affecting the agricultural sector since the date of accession has been driven by the Common Agricultural Policy (CAP) (Box 2.2). Croatia adopted all EU policies of relevance to the sector, including the common trade policy. In some cases, transitional provisions were established to allow for a gradual implementation of measures.
The CAP is the first common policy adopted by the European Union under the Treaty establishing the European Economic Community (the Treaty of Rome) in 1957. It is based on three principles: a common market, community preference and financial solidarity. Its objectives, set out in Article 39 of the Treaty on the Functioning of the European Union, are to increase agricultural productivity by promoting technical progress, and thus to ensure a fair standard of living for the agricultural population; to stabilise markets; to ensure the availability of supplies; and to ensure that supplies reach consumers at reasonable prices. While these principles have not changed in over 60 years, in practice the CAP now addresses additional objectives such as the environment, climate change, rural development, and animal welfare.
The CAP is composed of two pillars, with two separate funding sources.
Pillar 1 is funded by the European Agricultural Guarantee Fund (EAGF). It defines and funds direct payments to farmers and market measures under the Common Market Organisation. Direct payments are largely decoupled from production and make up the bulk of CAP spending: in 2022, they accounted for two-thirds of the CAP expenditures (OECD, 2023[20]). Market support measures cover mainly the fruit and vegetables and wine sectors, while other market-related expenditures support the European Union’s outermost regions or fund the promotion of agricultural products, apiculture, and the distribution of milk, fruit and vegetables in schools.
Pillar 2, or Rural Development Regulation, is co-funded by the European Agricultural Fund for Rural Development (EAFRD) and Member States’ national budgets. Pillar 2 contains measures such as agri-environmental schemes, payments to areas with natural constraints, rural development, investment assistance, and the LEADER approach. EAFRD is part of the EU-level Common Strategic Framework covering all support from European Structural and Investment (ESI) funds in Member States through partnership agreements.
In 2023, the OECD reviewed the European Union’s policies for the sector over the period 2014-22, including the CAP, and made recommendations that can be applied either during the current programming period 2023-27 or in the next programming period. The key messages of this 2023 review are presented in Box 2.3.
The European Union’s diverse agro-food sector is at a critical juncture, confronting climate change and successive crises such as the systemic shock of the COVID-19 pandemic and the war in Ukraine, while addressing the triple challenge facing food systems: ensuring food security and nutrition, providing livelihoods for actors in the food chain, and improving environmental sustainability.
Through the OECD’s Agro-Food Productivity-Sustainability-Resilience lens, this review, which draws lessons from the period 2014-22, shows that, in this ever-changing economic and policy environment, the EU agro-food system has demonstrated its resilience and has been able to keep productivity growing, in particular in post-2004 Member States, to reduce GHG emissions intensity, and to foster cross-country collaboration on innovation.
However, in recent years, agricultural productivity has increased at a slower pace than in other OECD countries, while the environmental sustainability performance of the sector has not improved in line with expectations. This stalled progress is not due to insufficient ambition or lack of resources, but rather to policy design and implementation.
The Common Agricultural Policy (CAP) 2023-27, which represents about one-third of the EU budget, includes promising new approaches and priorities. The CAP is considered strategic for the European Green Deal (EGD) agenda due to its potential for addressing environmental concerns, and is increasingly expected to deliver on broad food systems objectives that go beyond the agricultural sector.
The transition of the EU food systems calls for an overall transformation, where innovation will play a critical role in delivering sustainable productivity growth. Meeting the ambitious EGD objectives will require further reform, by redesigning payments, regulations, innovation and data strategies, as well as adopting new approaches to deliver environmental services.
Payments. Further redesign CAP payments into separate measures targeted at income support and environmental sustainability and align the CAP expenditures with environmental and climate priorities. Introduce specific mechanisms to incentivise performance by Member States, reduce total spending on decoupled income payments and phase out coupled support.
Regulations. Address the implementation gap on sustainability objectives, enhance regulatory design and overcome potential barriers that hamper innovation. o Innovation. Bring innovation to the centre of EU agricultural policy strategy to ensure that it effectively helps the sector to become more productive, sustainable and resilient.
Data. Strengthen the EU agro-food data strategy and enhance digitalisation to monitor policies, create awareness, facilitate knowledge exchanges and find innovative solutions.
Environmental services. Advance in the adoption of result-based multi-annual payments and collective action for environmental services when possible, and introduce reporting on results.
Source: OECD (2023[21]).
Croatia started to implement the CAP at a time of reform
The timing of Croatia’s EU accession required the adoption of the Common Agricultural Policy (CAP) just when its 2013 reform started to be implemented. The 2014-22 CAP was effective as of 1 January 2014 and remained in force until 31 December 2022 (as a transitional period for the post-2020 reform). Its most important feature was the conversion of decoupled aid into a new system with aid for specific objectives. The new system of direct payments comprised seven components: (1) a basic payment; (2) a greening payment for environmental public goods; (3) an additional payment for young farmers; (4) a “redistributive” payment for the first hectares of farmland; (5) support for areas with specific natural constraints; (6) aid coupled to production; and (7) a simplified system for small farmers (OECD, 2023[20]). The 2013 reform also featured a more integrated, targeted and territorial approach to Pillar 2 through rural development plans, simplifying the range of available instruments to focus on core objectives. The Common Market Organisation tools were consolidated into safety nets in case of market disruption or price crisis, with other supply control measures (the milk and sugar production quotas) ending in 2015 and 2017, respectively.
Under the 2014-22 CAP, EU Member States had several options for implementing the rules at the national level. They could decide whether to transfer funds between the two pillars and had specific choices for each one. In Pillar 1 the options included the use of the redistributive payment for the first hectares of the farm, the share of funds dedicated to the payment for young farmers, and the use of coupled payments. For Pillar 2, they could choose to implement the Rural Development Plan at the national or regional level and could select among 20 possible measures across six priority areas. One of these measures (M18) was specific to Croatia to finance complementary national direct payments. Two new measures were added after 2020 to grant exceptional temporary EAFRD support in response to the COVID-19 pandemic (M21) and in response to the war in Ukraine (M22).
Croatia is a relatively small recipient of the EU’s CAP funds. As an example, in 2020 it received only 1.1% of the overall CAP expenditure (including direct payments, market measures and rural development support), which placed it twenty-first among the 27 EU Member States in terms of the support received (European Commission, 2021[22]). Nevertheless, this amount represented 39% of Croatia’s gross agricultural value added in the same year, well above the EU average of 25%.9
The initial EU budget for the 2014-22 CAP in Croatia was EUR 3.4 billion, distributed in EUR 1.07 billion for Pillar 1 (31%, close to the EU average of 28.5%) and EUR 2.33 billion for Pillar 2 (69%) (European Commission, 2016[23]). The relatively low size of Pillar 1 is due to the gradual introduction of direct payments, and the Pillar 2 allocation increased in the years that followed (see below). Croatia chose flexibility between pillars, transferring 15% of its Pillar 2 budget to Pillar 1. This transfer from rural development to direct payments was also made by four other EU Member States.10 The transfer reduced the national agriculture budget for Croatia as funds moved to Pillar 1 have no national co-financing requirement (World Bank, 2019[24]).
2.2.2. Implementation of Pillar 1 measures
CAP direct payments were introduced gradually, with limited complementary payments from national funds
Like other newly acceded EU Member States, Croatia introduced direct payments over a phasing-in period. As set out in the Treaty of Accession, 25% of the applicable level of direct payments was introduced in 2013. This percentage increased by 5% in 2014 and 2015, and by 10% each year thereafter, up to 100% in 2022. During this ten-year period, Croatia was allowed to top up to 100% of the applicable level by using a combination of national and EAFRD funds (through measure M18). These complementary national direct payments (CNDP) were subject to a ceiling. In practice, Croatia only granted CNDP between 2015 and 2017 and, due to budgetary constraints, limited the payments to an average of two-thirds of the possible ceiling (World Bank, 2019[24]).
Given the presence of landmines from the armed conflict of the 1990s (see also Box 1.2), Croatia was allowed to establish a special national de-mining reserve for ten years to allocate payment entitlements to farmers on the basis of land that was de-mined and returned to agriculture. This reserve was subject to the same phase-in schedule as the direct payments, with the maximum amount of EUR 9.6 million reached in 2022. Croatia committed to notify the Commission annually the eligible land area, the budgetary envelopes, and the unused amounts.
With the CAP, Croatia adopted cross-compliance, which aims to ensure that beneficiaries implement mandatory standards and requirements. Cross-compliance is designed to raise awareness by beneficiaries of their obligations under statutory management requirements (SMRs), which are based on EU legislation that all farmers must respect regardless of whether they receive CAP support. It also ties direct payments and some rural development and sectoral payments to compliance with standards of Good Agricultural and Environmental Condition (GAEC), which relate to the environment, food safety, animal and plant health, animal welfare, and to maintaining agricultural land in good agricultural and environmental condition (OECD, 2023[21]). Seven GAEC standards and 13 SMRs were applicable for the 2014-22 CAP. All Member States were obliged to implement cross-compliance, but had flexibility in their design in order to adapt them to local situations.
The payment for young farmers stands out for its high uptake
Unlike other new EU Member States, Croatia opted to directly apply the regular Single Payment Scheme instead of the simplified transitional Single Area Payment Scheme (SAPS). Given the large number of small farms (Chapter 1), the minimum farm area threshold for receiving direct payments was set at one hectare.
Croatia chose to apply the redistributive payment, which allowed higher payments to the first hectares of the farm. It did not use other redistribution options such as capping payments per beneficiary or applying degressivity (reducing payments that exceed a threshold). The maximum area to which the redistributive payment applied could vary by country. Croatia granted this payment to the first 20 hectares of each holding. The redistributive payment represented around 30% of the total decoupled payments that eligible farmers in Croatia received between 2015 and 2021 (European Commission, 2023[25]).
The young farmer payment (YFP), additional to other direct payments for farmers of 40 years or less, was compulsory for all Member States, but they could decide whether to allocate it 2% or less of their total direct payment envelope. Croatia allocated 2% until 2015 and 1.5% afterwards (European Commission, 2016[23]). Despite the intended decrease, in 2021 it spent 2% of its direct payment envelope on the YFP, which made it the only Member State to spend the maximum share. Croatia also had the fourth-highest increase (111%) in the number of YFP beneficiaries in 2015-21. As of 2021, 10% of farmers were covered by the YFP. Even if this represents a decrease from the 12% reached in 2019 (a downward trend also observed in other Member States), Croatia had the third-highest share of YFP coverage in the European Union, after Greece and the Netherlands (European Commission, 2023[25]).
Croatia was among 15 Member States that applied the small farmers scheme (SFS). This system offered farmers the option of a single annual payment of up to EUR 1 250 instead of different components and was subject to simplified administrative procedures and an exemption from greening obligations and cross-compliance penalties. In Croatia, farmers were automatically included in the SFS if they were entitled to less than EUR 657 in basic payments. In 2021, this scheme covered 8% of all farmers that applied for decoupled payments in Croatia (European Commission, 2023[25]).
Member States had to earmark 30% of their direct payment envelope for a “greening” payment to support farmers to adopt or maintain practices deemed to contribute to the European Union’s environmental and climate goals. The three mandatory practices entail crop diversification, maintaining permanent grassland, and dedicating 5% of arable land to Ecological Focus Areas to improve biodiversity. Member States had the flexibility to allow farmers to meet the requirements through equivalent practices. Croatia selected to implement greening as an individual payment per beneficiary instead of a flat rate per hectare. It also chose not to use equivalent practices.
Member States could allocate up to 13% of their direct payment envelope to voluntary coupled support (VCS). This could be increased by an additional 2% earmarked for protein crops. VCS is granted to sectors or regions facing difficulties, and under production-limiting conditions (based on fixed areas and yields or number of animals and subject to a financial ceiling). Croatia allocated the maximum 15% to VCS. The sectors covered were beef and veal, milk and milk products, protein crops, sugar beet, sheep meat and goat meat, and fruit and vegetables. VCS payments by Croatia reached EUR 52 million in 2021, with the largest share going to the milk and dairy sector (Figure 2.2).
Distribution by sector of coupled support paid under the CAP VCS, 2021
Note: This does not include coupled support granted from Croatia’s State budget.
Source: European Commission (2023). Summary report on the implementation of direct payments (except greening) 2021, https://agriculture.ec.europa.eu/system/files/2023-06/summary-report-implementation-direct-payements-claim-2021_en.pdf.
Unlike the overall EU trend, the number of beneficiaries of direct payments in Croatia increased over the period 2014 to 2021 (European Commission, 2022[26]). Despite the high share of redistributive payments in Croatia, as CAP Pillar 1 payments are largely area-based, in 2021 small farms (which represent almost two-thirds of support beneficiaries) received less than 15% of payments, while the largest farms held 17% of the area and received a similar share of payments (Figure 2.3).
Share of direct payment beneficiaries, area and payment by farm size, 2021
Note: Farms of over 250 ha represented 0.2% of the beneficiaries.
Source: European Commission (2022[26]).
2.2.3. The Rural Development Programme 2014-22
The largest share of rural development funds supported investments in physical assets
Croatia’s Rural Development Programme (RDP) for the period 2014-22 was adopted in May 2015. Its main objective was to restructure and modernise the farm and food sectors. The RDP initially envisaged EUR 2.3 billion of public funding, consisting of EUR 2 billion EAFRD funds and EUR 0.3 billion national funds. This was later amended and increased, including through the additional EAFRD funds made available to address the challenges brought by the COVID-19 pandemic and the war in Ukraine. The Croatian RDP was last amended in February 2022 (European Commission, 2023[27]). The final resource allocation was EUR 3.3 billion, consisting of EUR 2.8 billion EAFRD funds (86% of EU co-financing) and EUR 0.5 billion national funds (European Commission, 2024[28]).
Croatia offered all twenty measures available, as well as the measures to respond to the COVID‑19 pandemic and the war in Ukraine (M21 and M22). The three measures with the largest budget allocations were M4 (Investments in physical assets) with a total public funding (including EU and national) of EUR 986 million, M13 (Payments to areas with natural or other constraints) with EUR 437 million and M7 (Basic services and village renewal in rural areas) with EU 392 million. By the end of 2023, 90% of the allocations of the 2014-22 RDP had been decided and 83% spent (European Commission, 2024[29]). This puts Croatia in the middle of Member States regarding the absorption of rural development funds, just over the EU average of 82%.
There were variations in the national-level uptake of RDP measures (Table 2.1). This can be partly explained by the fact that Croatia was implementing the RDP for the first time, with experience from pre-accession limited to a few measures (World Bank, 2019[24]). Measures with environmental and climate purposes, such as agri-environmental programmes, support to organic farming and to animal welfare practices, were fully utilised, as were the funds for risk management funds (mainly insurance subsidies, see also Section 2.5). However, some measures, including those related to innovation (M1 on knowledge transfer and M16 on co-operation) had a low share of use of the initially budgeted funding (see Section 4.3.1 for a more detailed discussion). This is also the case for measures aimed at improving participation in quality schemes and to foster producer groups and organisations.
Detail of planned and effective expenditure per measure in Croatia’s RDP, 2023 (EUR million)
Note: “Planned” refers to the total amount allocated, and “spent” is the total expenditure eligible for reimbursement, as reported by the beneficiary projects and transmitted by the programmes to the European Commission. *According to the Ministry of Agriculture of Croatia, the full amount for M22 had been paid by end-2023. However, this amount was not yet reflected in the EU database at the time of consultation.
Source: European Commission (2024). ESIF 2014-2020 Finance Implementation Details [Database], https://cohesiondata.ec.europa.eu/2014-2020-Finances/ESIF-2014-2020-Finance-Implementation-Details/99js-gm52 (accessed in February 2024).
2.3.1. The new CAP delivery model
The new CAP gives Member States more space to focus on their priorities
The 2023-27 CAP entered into force in January 2023. It is built around ten specific objectives for social, environmental, and economic sustainability: ensuring a fair income for farmers; increasing competitiveness; improving farmers’ position in the food chain; climate change action; environmental care; preserving landscapes and biodiversity; supporting generational renewal; promoting vibrant rural areas; protecting food and health quality; and a cross-cutting objective of fostering knowledge and innovation.
This CAP introduced a new delivery model, with more flexibility for Member States. Specifically, Member States design and implement CAP Strategic Plans (CSPs) that define funding allocation for income support, market measures and rural development in line with broad policy measures provided by the European Commission that can be shaped to national needs and capabilities (European Commission, n.d.[30]). The CSPs are based on an analysis of the strengths, weaknesses, opportunities, and threats (SWOT) of Member States’ agro-food sectors and provide more space for them to target interventions and adjust the common policy to their needs.
The CSPs apply to both pillars of the CAP. Unlike the previous CAP, in which Member States implemented 118 Rural Development Programmes that included regional plans in several countries (e.g. France, Germany, Italy, and Spain), there is a single CSP for each Member State (except for Wallonia and Flanders in Belgium) for a total of 28 CSPs in the European Union.
In this CAP, environmental sustainability is addressed through a new “green architecture”. Greening payments were replaced by “enhanced conditionality” with stricter environmental cross-compliance requirements and by new voluntary eco-schemes. Eco-schemes (Box 2.4) are payments per hectare to farmers that, on a voluntary basis, implement in a given plot of their farm some determined additional management practices (OECD, 2023[31]). They must be designed by all Member States and should account for at least 25% of direct payments (although some derogations to this rule apply). Social sustainability is incorporated through provisions to improve inclusiveness − such as support for small farmers and income redistribution – address food security and support rural communities (European Commission, n.d.[32]).
This new instrument seeks to support a transition towards more sustainable farming
Eco-schemes are a new element to promote environmental sustainability in the CAP. They use Pillar 1 funds to reward farmers who manage land in a nature- and climate-friendly way beyond the cross-compliance requirements. Their implementation is voluntary for farmers. Each eco-scheme designed by a Member State must cover at least two of the following areas of action: climate change mitigation, climate change adaptation, water protection, soil protection, protection of biodiversity, sustainable and reduced use of pesticides, enhance animal welfare or combat anti-microbial resistance.
Member States may adapt eco-schemes to their national needs. They can be used to support practices such as organic farming, agro-ecological practices, precision farming, agro-forestry or carbon farming, and animal welfare improvements (European Commission, n.d.[33]).
The payments are granted per hectare either as compensation for additional costs incurred or income foregone, or as fixed top-ups to decoupled direct payments. Member States developed a total of 158 eco-schemes in their CSPs. Of them, 82% provide compensation for costs or lost income and 18% are implemented as top-ups to basic income support (European Commission, 2023[34]).
Member States have used the flexibility of the new delivery model to implement a myriad of options and approaches. General trends in the choices made include an important rise in redistributive support, an increase in the share of coupled payments and numerous scopes and approaches for the eco-schemes. Support for young farmers has been generally shifted to direct payments from rural development support. There are heterogeneous approaches in the rural development interventions. Rates of national co‑financing vary from as low as 12% to as high as 80%. There has also been a strengthening of environment and climate interventions, risk management tools, and LEADER (Münch et al., 2023[35]).
2.3.2. Overview of Croatia’s CSP
Like in the previous CAP period, Croatia opted to transfer funds from rural development to direct payments
Croatia’s CSP (known as SP ZPP, its Croatian acronym) was approved by the European Commission in October 2022. The total budget for 2023-27 is EUR 3.7 billion, with EUR 1.9 billion, or 52% of the total public funding, for Pillar 1 direct payments and sectoral interventions (including EUR 9.5 million of national co-financing for the latter). The budget for Pillar 2 is EUR 1.8 billion, or 48% of the total public funding. This is distributed in EUR 1.5 billion of EAFRD funds and EUR 352 million of national co-financing (Table 2.2). The rate of EU financing for Pillar 2 is thus 80.5%, above the EU average of 60%, placing Croatia in the group of eight Member States11 with relatively high (80% or more) rates of EU financing for rural development (Münch et al., 2023[35]).
Member States may transfer up to 25% of their allocated funds between pillars. As in the previous period, Croatia opted to transfer funds from Pillar 2 to Pillar 1. The transfer applied to only 2% of Croatia’s funding allocation (against 15% transferred in 2014-22). Five other EU Member States12 also selected a transfer of funds in this direction.
When the distribution of public funding is compared with peer countries and the EU average, Croatia has a relatively even distribution of funds between the two pillars and a relatively high share of EAFRD funding for Pillar 2 (Figure 2.4).
Structure of Croatia’s CAP Strategic Plan and budget for 2023-27 (million EUR)
Source: Ministry of Agriculture, Strategic plan of the Common Agricultural Policy 2023-2027, https://ruralnirazvoj.hr/files/Strateski-plan-Zajednicke-poljoprivredne-politike-Republike-Hrvatske-2023.-2027..pdf (accessed November 2023).
Distribution of planned funding for the CAP 2023-2027, selected Member States and EU average
Note: Values expressed as a percentage of total public funding. Pillar 1 includes direct payments and sectoral interventions. Pillar 2 refers to the rural development programs and is funded through EAFRD and national co-financing.
Source: Authors, based on an analysis of Member State CSPs.
The design of the new CSP included a needs assessment performed in consultation with stakeholders and experts. Croatia identified 23 needs, which were prioritised based on the stakeholders’ evaluation (Table 2.3). Of the ten needs given high priority, many are of an economic nature: improving farmers’ income, productivity and competitiveness, increasing value added, creating jobs and improving access to capital. Two high-priority needs are environmental and relate to practices for climate change adaptation and mitigation and for minimising negative impacts from agriculture.
Following submission of the draft CSPs, the European Commission assessed to which extent Member States’ needs were linked with interventions and adequately covered. Only Croatia and France were found to have addressed 100% of their needs across all CAP objectives (Münch et al., 2023[35]).
Needs assessment and prioritisation in the Croatian CSP
Source: Authors based on Ministry of Agriculture (2022[36]).
2.3.3. Support for direct payments and sectoral interventions
The CAP 2023-27 includes five types of direct payments: the mandatory basic income support for sustainability (BISS); complementary redistributive income support for sustainability (CRISS); complementary income support for young farmers (CIS-YF); the eco-schemes for the climate, the environment and animal welfare; and coupled income support (CIS).13 As in the previous CAP, Member States may also opt to grant a lump sum payment of up to EUR 1 250 to small farmers.
All Member States had to allocate funds to the BISS and eco-schemes. Redistributive support (CRISS) was elective and implemented by all Member States except Denmark and Malta. The payment for young farmers (CIS-YF) was implemented by all countries with the exceptions of Denmark and Portugal. The choice of implementation of coupled income support and the payment for small farmers was left to Member States. Croatia opted to grant coupled income support, but not the payment for small farmers.
Croatia’s Pillar 1 choices intend to improve the distribution of support among beneficiaries and support young farmers
Basic income support (BISS) makes up 38% of Croatia’s Pillar 1 budget. This share is below the EU average and that of most peer countries (Figure 2.5). On the other hand, Croatia selected to allocate more than the minimum 10% to redistributive support (CRISS). Thus, 20% of the envelope for direct payments will be paid for the first 30 eligible hectares, rather than the first 20 hectares as in the previous programming period. The objective of this allocation is to reduce the existing imbalance between large and small beneficiaries produced by the direct payment system and achieve a fairer distribution of support. As in 2014-22, Croatia chose not to apply the other instruments available for the redistribution of support (capping and degressivity), considered inappropriate for the structure of the Croatian economy and associated with disproportionate administrative costs (Ministry of Agriculture, 2022[36]).
Distribution of direct payment budget by type of measure, selected Member States and EU average
Note: The figure does not include sectoral measures.
Source: Authors, based on an analysis of Member State CSPs.
Two per cent of the envelope for direct payments in Pillar 1 will fund additional income support for young farmers of 40 years or less. Although the ratio of younger to older farmers has improved in the last ten years (see also Section 1.4.1), the share of young farm owners is still considered low. Additional resources for young farmers are granted under the rural development interventions (see below).
Croatia plans to use the maximum allocation for coupled income support
As in the previous CAP period, Croatia opted for the maximum possible allocation for coupled payments (13% plus 2% for protein crops), with a total budget of EUR 281 million for 2023-27. Coupled income support (CIS) will be provided through nine interventions supporting seven sectors (Table 2.4). The largest share of coupled payments is directed to the livestock sector. These payments are complemented by coupled support from the State budget, which is provided as de minimis aid14 to dairy farms and to other sectors (Section 2.4.2). Agricultural policies that provide support coupled to production can distort production signals and potentially result in negative environmental impacts (Henderson and Lankoski, 2019[37]).
Coupled payments are seen as contributing to the stabilisation of agricultural incomes in sensitive sectors that have been affected by a decrease in production and in the number of farms. The objective of maintaining production in these sectors for food security purposes was underscored by the COVID–19 pandemic and the war in Ukraine (Ministry of Agriculture, 2022[36]).
Coupled payment allocations in the CSP 2023-27
Note: Milk and milk products, beef and veal and sheep and goats are the only livestock sectors eligible for coupled support as per Article 33 of Regulation (EU) 2021/2115. The pig and poultry sectors are thus excluded.
Source: Authors, based on the CSP of Croatia.
Eco-schemes are concentrated on crop rotation and diversification and manure use
Croatia allocated 25% of its direct payment envelope (EUR 468 billion) to eight eco-schemes15 covering the areas of climate (mitigation and adaptation), water management, soil management, biodiversity, and animal welfare (Table 2.5). The only area of action foreseen in the CAP legislation that was not covered by the Croatian eco-schemes is the reduction in pesticide use (Münch et al., 2023[35]). Two eco-schemes (intensified diversity of agricultural land and intensified maintenance of ecologically significant areas) will be granted as top-up payments, while the rest will be paid in the form of compensation (Ministry of Agriculture, 2022[36]).
The largest budget share (42%) has been allocated to the eco-scheme “intensified diversity of agricultural land” for crop rotation and diversification. This practice was already promoted through the greening payment in the previous CAP, but was applicable to arable land only. It has now been extended to other types of land including greenhouses on arable land, meadows, pastures, karst pastures, vineyards, olive groves, orchards, short rotation crops, nurseries and mixed perennial plantations. The eco-scheme “use of manure on arable land” is the second most important, with 16% of the budget allocation. It requires the application of manure on arable land with the objective of increasing the content of organic matter in the soil by reducing the use of synthetic mineral fertilisers. The other eco-schemes promote the sowing of legumes, grazing, conservation agriculture practices such as reduced tillage, and the preservation of ecologically significant areas and grasslands.
Overview of Croatia’s eco-schemes and budget distribution for 2023-27 (EUR million)
Source: Authors, based on the CSP of Croatia.
Croatia used some flexibilities in the implementation of conditionality
The enhanced conditionality of the 2023-27 CAP requires beneficiaries of direct payments and some rural development payments to fulfil environmental and animal welfare regulations and good practices through eleven Statutory Management Requirements (SMR) and nine standards for Good Agricultural and Environmental Conditions (GAEC). Member States are allowed to use exemptions and select the practices required (Münch et al., 2023[35]). An overview of the 2023-27 GAECs with the main implementation choices of Croatia is provided in Section 3.1.3.
The new CAP introduces the concept of “social conditionality”, which requires compliance with requirements related to the social and labour rights of agricultural workers. Member States may delay the implementation of social conditionality, but they will have to have implemented it by 1 January 2025. Due to the complexity of setting up systems at the national level, the vast majority of Member States − including Croatia − deferred its application to 2025 (Münch et al., 2023[35]).
Two-thirds of the budget for sectoral market interventions will go to wine
In addition to direct payments, CAP Pillar 1 includes interventions that target specific agricultural sectors under the common market organisation (CMO). They may be granted in the form of reimbursement of eligible costs, unit costs, lump sums or flat-rate financing of market interventions. They apply to fruit and vegetables, wine, hops, olive oil and table olives, and apiculture products. They can be mandatory or optional depending on the agricultural profile of the Member State.16 Interventions in apiculture are mandatory for all and must be co-financed by an equal amount of national funds. Wine interventions are mandatory for 16 countries (including Croatia). Measures for fruit and vegetables are mandatory for countries with recognised producer organisations in the sector (which also includes Croatia). Accordingly, Croatia has programmed interventions in these three sectors.
Sectoral interventions are relatively small, taking up less than 2% of Croatia’s overall CSP funding. Their budget for 2023-27 is EUR 62.5 million. Almost two-thirds of this budget (EUR 41.6 million) will be in the wine sector, mainly covering investments in the production or marketing of wine and support for the restructuring and conversion of vineyards. Apiculture interventions amount to EUR 19 million, funded in equal parts by the European Union and the national budget. Fruit and vegetable interventions have a budget of EUR 1.7 million. Examples of sectoral interventions include co-financing investments in tangible and intangible assets and research, and promotion and marketing actions undertaken by producer organisations.
2.3.4. Support for rural development
Over 40% of the Pillar 2 budget will support investments
The rural development component of the 2023-27 CAP includes eight types of interventions. This represents an important simplification with respect to the preceding CAP period (which encompassed 20 measures). The current rural development interventions, often referred to by the corresponding article of Regulation (EU) 2021/2115 are: (1) Environment, climate-related and other management commitments (Article 70); (2) Natural or other area-specific constraints (Article 71); (3) Area-specific disadvantages resulting from certain mandatory requirements (Article 72); (4) Support for investments (Articles 73 and 74); (5) Setting-up of young farmers and new farmers and rural business start-up (Article 75); (6) Risk management tools (Article 76); (7) Cooperation17 (Article 77); and (8) Knowledge exchange and dissemination of information (Article 78).
Member States are mostly free to allocate funds to the interventions as they judge appropriate, but must respect several ring-fencing requirements, such as reserving a minimum of 35% of their EAFRD envelope to environmental, climate and animal welfare actions undertaken across Articles 70 to 74 and reserving 5% of EAFRD funds for LEADER.
Article 94 allows up to 6% of the EAFRD envelope to be used to finance technical assistance actions for the effective administration and implementation of the CSP, including the establishment and operation of national CAP networks. Croatia has reserved EUR 50 million of EAFRD funds for these purposes. Use of this fund was to start in 2025, as technical assistance activities for 2023-24 were to be financed with funds from the 2014-22 RDP (Ministry of Agriculture, 2022[36]).18
As shown in Figure 2.6, Croatia has placed greater emphasis on investments compared to the EU average: the relative importance of this component is shared by other newer Member States. The budget share for environmental, climate-related, and other management commitments is slightly lower than the EU average, as is the allocation to the co-operation component. However, the budget allocated to young farmers and new entrants, risk management tools, and knowledge exchange and innovation is in line with the EU average.
Distribution of rural development budget by type of measure, selected Member States and EU average
Note: The funds allocated to interventions in areas with natural and other constraints and for area-specific disadvantages resulting from certain mandatory requirement (Articles 71 and 72) have been grouped in the category “Natural or other area-specific constraints”. The category “Support for investments” groups the funds allocated to investments in general (Article 73) and investments in irrigation (Article 74). The figure does not include the EAFRD contribution for technical assistance (Article 94).
Source: Authors, based on an analysis of Member State CSPs.
Funding for investments intends to support productivity improvements and the development of public irrigation infrastructure
EUR 713 million, or 41% of the Pillar 2 budget, have been allocated to investments. Most interventions will take the form of grants, with a relatively small amount of funds (approximately 2.3% of the investment funding) reserved for financial instruments. Over half of this funding is earmarked for investments to improve the overall efficiency and sustainability of primary agricultural production (intervention 73.10) and to promote the processing of agricultural products and the creation of value added (intervention 73.11) (Table 2.6). Eligible investments include those for restructuring and modernising farm holdings, improving the disposal, handling and use of manure, using renewable energy sources on farms, building or modernising processing capacities, and introducing digital technologies.
This component will also finance investments in public irrigation systems, with priority given to investments in undeveloped areas, areas with lower rainfall than the national average, and irrigation systems with a higher economic rate of return and in soil suitable for irrigation (see also Section 3.3.2).
The three financial instruments included are credits, loans, and guarantees for micro, small and medium enterprises, with funding of about EUR 6 million allocated to each intervention. They seek to support investments in tangible and intangible assets or finance working capital to improve the efficiency and sustainability of holdings and promote the creation of value added. They will also help farmers develop non-agricultural activities that can contribute to the economic diversification of rural areas.
Planned investment measures (Articles 73 and 74) and budget for 2023-27 (EUR million)
Note: The code FI_ refers to financial instruments.
Source: Authors, based on the CSP of Croatia.
Agri-environmental commitments mostly support organic farming and animal welfare
The environmental dimension in Pillar 2 is mainly incorporated through environmental and climate-related measures (Article 70). These interventions will be supported with EUR 496 million, or 28% of the rural development budget. The two most important interventions in this category, accounting for 79% of the planned funding, are support for the transition and maintenance of organic farming (EUR 238 million) and support for animal welfare practices (EUR 155 million).
Member States had the choice to support organic farming through the Pillar 1 eco-schemes or through a combination of eco-schemes and rural development interventions. Croatia will fund it exclusively from rural development funds (Münch et al., 2023[35]). The intervention will support the conversion and maintenance of organic areas for arable crops, vegetables, perennial crops, and permanent plantations. Among other obligations, beneficiaries are required to attend mandatory training. Policies regarding organic farming are further detailed in Section 3.2.3.
The animal welfare payment is granted to beneficiaries who implement measures for improved nutrition, housing conditions, access to outdoors and care of cattle, pigs, poultry, goats, and sheep, with specific requirements adjusted to each type of animal.
Planned environmental, climate-related and other commitments (Article 70) and budget for 2023-27 (EUR million)
Source: Authors, based on the CSP of Croatia.
Other rural development interventions support areas affected by natural constraints, young farmers and the LEADER approach
While the largest share of the CSP Pillar 2 budget has been allocated to investments and to environmental commitments, measures that stand out among the remaining rural development interventions include payments that will benefit areas with natural constraints (EUR 213 million or 12% of Pillar 2 funds). This intervention targets areas where unfavourable climate or soil characteristics or remoteness make agricultural production difficult or costly. They include mountainous regions and isolated areas such as the islands and the Pelješac peninsula.
Co-operation interventions (Article 77) represent almost 7% of the planned Pillar 2 financial allocation. Most of this funding will go to LEADER, the community-led local development approach, with a target of 54 local development strategies implemented by Local Action Groups and supported by EUR 103 million of public funds (European Commission, 2023[38]).
A budget of EUR 101 million (6% of the Pillar 2 funding) has been reserved for investments supporting business development by young farmers and start-up companies in rural areas (Article 75). The largest share of funds under this component will be provided as a one-off lump sum payment to young farmers for the implementation of a business plan related to agricultural production or processing. Another intervention will help registered farmers (of any age) diversify into non-agricultural activities, which can include services in rural areas, traditional crafts or tourism.
Risk management (Article 76) was allocated EUR 70 million (4% of the funding for Pillar 2). The intervention in this component is agricultural insurance support (Section 2.5). Support for knowledge transfer and agricultural advisory services was granted EUR 35 million (2% of the Pillar 2 allocation). This component will be further detailed in Chapter 4.
Other rural development interventions and budget for 2023-27 (EUR million)
Source: Authors, based on the CSP of Croatia.
In addition to programmes and measures under the direct payments and rural development pillars of the CAP, Croatia applies a number of other policies that seek to support the agro-food sector and promote the development of rural areas. They include measures financed from other EU funds as well as state aid and national programmes fully financed from the State budget.
2.4.1. The Croatian Recovery and Resilience Plan
In the Next Generation EU plan to mitigate the impact of the COVID-19 pandemic, the European Union authorised around EUR 720 billion in loans and grants to support Member States’ Recovery and Resilience Plans, which outline reforms and investments that seek to make their economies and societies more sustainable, resilient, and prepared for the green and digital transitions; they also address country-specific recommendations from the European Commission (European Commission, n.d.[39]).
In this context, the Croatian Recovery and Resilience Plan (RRP), of July 2021, was initially allocated EUR 6.3 billion in grants. It was amended in December 2023 to add additional grant and loan funding for energy transition under the REPowerEU Plan,19 to reach EUR 10 billion or 18.5% of Croatia’s GDP (European Parliament, 2024[40]). The plan outlines reforms and investments designed to address the social and economic impacts of the COVID-19 pandemic and of two devastating earthquakes that occurred in 2020. It contains 78 reforms and 157 investments structured into five broad components (economy; public administration, judiciary and state assets; education, science and research; labour market and social protection; and health) and one initiative (renovation of buildings). Component 1 (Economy) has the highest share of the RRP’s overall funding, with EUR 3.7 billion.
Investments and reforms focusing on the agro-food sector are in subcomponent 1.5 (Improving the use of natural resources and strengthening the food supply chain), with EU funding of EUR 131.7 million. It includes eight investments grouped into four measures: (1) establishment of a network of logistics infrastructure to strengthen the production market chain in the fruit and vegetable sector, (2) improvement of the system for agricultural land restructuring and consolidation, (3) digital transformation of agriculture and (4) improvement of the food donation system. Table 2.9 outlines the specific interventions and funding. For some of the investments, such as those related to the logistics infrastructure network, some co‑financing by end-users is foreseen.
Detail of RRP measures and funding distribution (million EUR) for the agro-food sector
Note: The amounts were originally expressed in HRK and were converted to EUR using a rate of 1 HRK = 0.1327 EUR.
Source: Government of the Republic of Croatia (2021[41]).
As of December 2023, almost EUR 3 billion of the grants intended for Croatia had been disbursed (European Commission, 2024[42]). Regarding the implementation of the investments under Component 1.5, the first two projects for the construction of logistics distribution centres for fruits and vegetables (investment R1-I1) were approved in early 2023 with EUR 25 million of support allocated (Ministry of Agriculture, 2023[43]), and the first Regional Distribution Centre for Fruits and Vegetables was opened in the county of Osijek-Baranja. In addition, the first point for monitoring agricultural soil (investment R2‑I2) was established in July 2023, with the Soil Centre of HAPIH responsible for its implementation (Croatian Agency for Agriculture and Food, 2023[44]). Finally, the existing IT platform for food donations (measure R4) was upgraded in 2022 with additional functionalities, in particular adapting the existing system to regional management (Ministry of Agriculture, 2022[45]).
2.4.2. Other support measures not financed by CAP funds
Additional coupled payments from the State budget are granted to sensitive products
In addition to payments financed by the CAP, Croatia provides coupled support from the State budget to certain products that have been designated in the national legislation governing support to agriculture as “extremely sensitive”. These schemes were implemented as transitional state aid for three years after EU accession and afterwards as de minimis state aid which, according to EU rules, may not exceed EUR 25 000 per beneficiary in a three-year period. Eligible beneficiaries must produce, deliver and sell extra virgin olive oil, produce and deliver Burley of Virginia tobacco for processing, keep dairy cows or breeding sows, or produce plants from a specific list of autochthonous and protected varieties, and provide evidence of this to the APPRRR. The payments apply per head for dairy cows and breeding sows, per hectare for plants, per kilogram for tobacco, and per litre for olive oil (Ministry of Agriculture, 2023[46]).
In 2022, the amount paid for this type of support was EUR 13.5 million. It has shown a decreasing trend since 2017 (when it amounted to EUR 16.5 million) (Ministry of Agriculture, 2023[47]). The maximum financial envelope assigned to this programme in 2024 was EUR 14 million, with the largest budgets for dairy cows (EUR 6 million) and tobacco (EUR 5 million).
A special coupled support programme seeks to retain the production of sugar beet
Considering the circumstances that have led to a stark reduction in the production of sugar beet and sugar (Box 1.4), sugar beet production receives coupled support from the State budget in addition to that granted under the CAP. The programme (also implemented as de minimis support) aims to maintain producers’ interest in this crop, which has declined since EU accession. It grants a payment per hectare to farmers who ensure the sowing of sugar beet on their farms by crop rotation and deliver sugar beet to the processing chain. The payment is applied degressively, with the highest amount (EUR 530 per hectare) granted to farms with less than 40 hectares of sugar beet and the lowest (EUR 130 per hectare) to those with 200 hectares or more (Ministry of Agriculture, 2023[48]).
Retaining sugar beet production is considered essential to guarantee the survival of the existing processing capacities, and important for crop rotation and the fertility of agricultural land. In 2022, 191 producers received HRK 6 million in support (approximately EUR 796 000).20 This is a decrease from 2021 when the programme granted HRK 7.3 million (around EUR 970 000) to 384 beneficiaries (Ministry of Agriculture, 2023[47]; Ministry of Agriculture, 2022[49]). The extension of this programme was approved in October 2023 with a total budget of EUR 6.5 million for 2023-27.
National funds supplement CAP support for the conservation of native breeds
Several programmes financed with national funds support breeding programmes and the preservation of livestock breeds, in particular Croatia’s autochthonous and endangered breeds (see also Box 3.2). The main intervention in this area is part of the CSP (measure 70.03), with a total budget of EUR 39 million. Additional programmes financed by national funds provide support mainly as payments per head. They include: (i) programme for encouraging the implementation of breeding programmes for warm-blooded horse breeds (APPRRR, 2021[50]), with an annual budget of HRK 1.2 million (around EUR 165 000) for 2021-25; (ii) programme for the improvement of sheep and goat breeding, with an annual budget of HRK 2.5 million (around EUR 333 333) for 2021-23; (iii) programme for the improvement of original poultry breeds, to co-finance the breeding of Croatian hens and Zagorski turkeys, with a budget of HRK 1.5 million (EUR 200 000) per year in 2021-23 (APPRRR, 2021[51]) and (iv) programme for co-financing the work of breeding associations in the field of animal husbandry, with a budget of approximately HRK 2 million (EUR 266 667) per year in 2021-23 (Ministry of Agriculture, 2021[52]).
Over 200 small state aid programmes are managed by agencies at different levels
Other small state aid programmes are managed by different national, regional and local authorities and agencies. In 2022, a total of EUR 62.5 million was allocated to the agricultural sector through 194 small value grant programmes and 11 state aid programmes provided by the Ministry of Agriculture, local and regional self-governments, the Ministry of Veterans Affairs, the Ministry of Economy and Sustainable Development, the Croatian Agency for SMEs, Innovation and Investments (HAMAG BICRO), and the Croatian Bank for Reconstruction and Development (HBOR) (Ministry of Agriculture, 2023[47]).
2.4.3. Financial instruments
Small farmers can access several financial instruments from public providers, but the supply of commercial credit is limited
Sources of finance from public agencies for agriculture in Croatia include the Croatian Agency for SMEs, Innovation and Investments (HAMAG BICRO) − which implements the CAP financial instruments for rural development and other financial instruments for small and medium enterprises −, the Croatian Bank for Reconstruction and Development (HBOR) – which offers larger investment loans, including those under the RDP − and commercial finance providers. Only eight out of 26 commercial banks active in Croatia offer specific finance for the agricultural sector, which consists almost exclusively of loans. This limited supply of commercial finance is believed to be the result of banks not having lending policies that properly consider the specificities of agricultural production (fi-compass, 2020[53]).
The picture is somewhat different in the case of companies in food and beverage production, which have access to a more diversified and versatile supply of financial products. SMEs in the sector can access the financial instruments implemented by HAMAG-BICRO and the HBOR, as well as products offered by commercial banks to companies in general, including those specifically targeting SMEs. They include short and medium-term loans, permanent working capital loans, long-term investment loans, guarantees, and leasing products (fi-compass, 2020[53]). See also Section 1.2.5 on the sector’s financial gaps and needs.
2.4.4. Tax incentives
Farmers are exempt from excise duties on a fixed amount of diesel for agricultural use
Farmers are exempt from excise duties on blue-dyed diesel for agriculture. This exemption, which also applies to fisheries and aquaculture, was introduced in 2010 to lower production costs for the sector. The excise duty on diesel would otherwise amount to EUR 353 per 1 000 litres. Other uses also benefit from partial exemptions, such as a duty rate of EUR 21 per 1 000 litres applied to diesel for heating (Ministry of Finance of Croatia - Customs Administration, n.d.[54]).
The programme for agriculture is managed by the Paying Agency in Agriculture, Fisheries and Rural Development (APPRRR). Only agricultural holdings in the Farm Register can use blue diesel. Beneficiaries are entitled to a quota determined by APPRRR according to the hectares of agricultural land (from 50 litres per hectare (l/ha) for meadows and pastures to 600 l/ha in the case of arable land) or the number of livestock heads in the farm (from 1 l/ha for fattened pigs to 180 l/ha for dairy cows). Users are issued a fuel card (GPR card21) on request of APPRRR, which they must use every time they purchase blue diesel. The card is used to monitor fuel consumption against the authorised quota.
The Customs Administration (Ministry of Finance) publishes yearly reports with data on the quota used and the subsidy amount provided for each month of the year.22 The 2022 quota of blue diesel for farmers was 206 million litres. Of these, 154.5 million litres were used, with an estimated subsidy amount of HRK 423 million (approximately EUR 56 million).
In some cases, small farmers are exempt from personal income tax
Farmers benefit from other tax measures, many of them aimed at easing the administrative burden they face. For example, low-income farmers (with an annual income below EUR 10 685) are either exempt from paying personal income tax altogether or may calculate the tax on the basis of a flat rate. They are also not obligated to register for value-added tax (VAT) (OECD, 2020[55]).
Self-employed farmers are liable for income tax only if their total annual income from agricultural and forestry activities exceeds EUR 10 685 or if they are liable for VAT. They can also deduct from their tax base the state support for education and training or the incentives for research and development received. Farmers (along with all other taxpayers) from regions with difficult economic conditions and the city of Vukovar23 can also benefit from tax reliefs in the form of exemption from personal income taxes.
Foodstuffs and agricultural inputs are subject to a lower VAT rate
Certain agro-food products and agricultural inputs benefit from lower value-added tax (VAT) rates. The standard VAT rate in Croatia is 25%. A reduced rate of 5% applies to numerous foodstuffs, such as all types of bread, all types of milk (but not other dairy products), baby foods, edible oils and fats, meat and meat products, fruits and vegetables, eggs, live farm animals, seedlings and seeds, fertilisers and pesticides, and animal feed (other than pet food). The provision of food in hospitality facilities is subject to a VAT rate of 13%.24
2.4.5. Policies related to agricultural land management
State-owned agricultural land is allocated by local governments. Changes in the legal framework and lengthy procedures can create difficulties for farmers
Approximately one-third of agricultural land in Croatia is publicly owned. This high percentage is a consequence of the transition from the socialist system, as land that was socially owned in Yugoslavia changed to state ownership (see also Section 1.2.4).
State-owned agricultural land can be leased, offered for temporary use, exchanged for other land, or sold, as provided for in the Agricultural Land Act. Allocation is managed by local self-government units (municipalities and towns), which must submit a programme for the disposal of the state-owned agricultural land in their territory for approval by the Ministry of Agriculture (Ministry of Agriculture, 2023[47]).
The land can be sold through a public tender, provided that it does not belong to certain categories such as ponds, common pastures, or particularly valuable arable land (Ministry of Agriculture, 2023[56]). A maximum of 50 hectares in the continental part of Croatia (or 5 hectares in the coastal areas) may be sold to an individual buyer. In sale tenders, priority is given first to those already using the land and then to the owners of neighbouring plots. Buyers must cultivate the land for ten years and may not sell or transfer it during this time. If they decide to sell the land after this period, the State has right of priority to purchase it at market price (Croatian Parliament, 2022[57]). The initial value of state-owned land for a public tender is determined on the basis of the property market information system eNekretnine.
Lease contracts are concluded for 25 years for permanent plantations or 15 years for other production types and can be extended for the same number of years. The lease is done through public tender, with the initial rent price based on the plot size and a unit rent per hectare established according to the location and type of land.25 Local self-government units launch the tenders and allocate the land, with the allocation subsequently approved by the Ministry of Agriculture (Ministry of Agriculture, 2022[36]). A scoring system is applied to determine the most favourable bidder in lease tenders, with priority given to the bidder with the highest score (Table 2.10). Of the funds generated from the disposal of state-owned agricultural land, 65% go to the budget of the local self-government unit, 10% to the budget of the regional self-government unit, and the remaining 25% to the State budget (Ministry of Agriculture, 2023[47]).
Between 2018 and 2022, the Ministry of Agriculture approved 368 programmes26 for the disposal of state-owned agricultural land, for a total of 310 582 hectares (ha). Most disposal programmes were for lease of the land (87% of the area). However, the actual conclusion of lease agreements with users was slower: in 2018-22, local authorities announced 226 public tenders for the lease of 54 912 ha. In the same period, the Ministry of Agriculture approved 139 decisions on the selection of the most favourable bidder, covering 15 063 ha. The lease agreements actually concluded covered only 11 524 ha of land or 3.7% of the land in the approved disposal programmes (Ministry of Agriculture, 2023[47]). State-owned land that has not been leased or sold must be maintained suitable for agricultural production, with maintenance works performed by the corresponding local government.
The Agricultural Land Act has been reformed several times. This is a source of uncertainty: private sector participants in the OECD fact-finding mission pointed to the challenges created by frequent changes in the legal framework related to agricultural land. The World Bank noted that the administrative procedures for the allocation of state-owned agricultural can be inefficient and lengthy, creating constraints in the agricultural land market and hindering the structural transformation (World Bank, 2019[24]). Other factors that slow down the disposal of state-owned land include obsolete data in the land cadastre and lack of control by the state inspection (Vranken et al., 2021[58]). The reforms introduced in the most recent legal amendment (approved in May 2022) intend to speed up the process of disposal.
One of the investments of the Croatian Recovery and Resilience Plan (RRP) grants EUR 33 million of public funds (with an additional EUR 6 million of national co-financing) to support land consolidation projects by regional self-government units on a target area of at least 18 000 hectares. These projects seek to consolidate small and distant parcels of agricultural land, resolve legal issues around property, harmonise and update the data from various records, build roads for easier access to agricultural land, and build reclamation systems where needed. Land consolidation would be carried out in several stages, the first being the identification and collection of data (such as ownership status, the existence of real rights, land layout, land valuation) on the land where consolidation could potentially take place, and updating the data in the cadastre and land registry (Government of the Republic of Croatia, 2021[41]). In April 2022 Croatia adopted a reform to the Law on the consolidation of agricultural land, which sets the terms and rules for these consolidation processes, with the first public calls for the selection of land consolidation areas published in 2023 and 2024.
Some restrictions remain on the acquisition of agricultural land by foreigners
The Agricultural Land Act regulates the acquisition of land by foreigners. It states that, unless otherwise provided by an international agreement or special regulation, foreign natural and legal persons are not allowed to acquire or hold any property rights in agricultural land. Exceptionally, non-residents can acquire the right of ownership on agricultural land by inheritance, under reciprocity conditions.27 A reform to the Law on Agricultural Land was under discussion by the Croatian Parliament as of October 2025. The amendment abolishes the condition of reciprocity in cases where agricultural land is inherited by natural and legal persons from countries that are adherents to the OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations (Croatian Parliament, 2025[59]).
2.4.6. Policies related to migration and inclusion
Recent policies seek to encourage the Croatian diaspora to return to rural areas
Emigration following accession, particularly towards other EU countries, has been the main driver of Croatia’s rapid population decline. Emigration flows traditionally surpassed immigration, although this trend reversed in 2022 for the first time in 15 years (Section 1.4.3). Over the past decade, Croatia has adopted policies to engage with its diaspora population and encourage returns, recognising their potential contribution to the local economy and the revival of rural areas. This includes facilitating the obtention of Croatian citizenship for the descendants of emigrants and implementing various programmes and subsidies, particularly targeted towards the young and highly educated (OECD, 2025[60]). One example is the programme “I Choose Croatia”. This scheme, launched in 2021, provides grants of up to EUR 7 000 to Croatian citizens abroad who move back and start their own business. Additional funds are granted to those settling in depopulated rural areas. The programme is applicable to diaspora members living in the European Economic Area, the United Kingdom, Argentina, Australia, Brazil, Chile, Canada, New Zealand, and the United States (Central State Office for Croats Abroad, 2023[61]).
Requirements for foreign labour have been relaxed to respond to an increased demand
The need to respond to an evolving labour market has driven recent reforms to immigration policies. In 2017 there was a substantial increase in immigration quotas. However, as the quota system was deemed too rigid to respond to changes in the labour market, it was replaced in 2021 with a labour market testing regime (OECD, 2025[60]).
Under the current system, the employment of third-country nationals28 either for seasonal work for up to six months or as agricultural workers under contract for one year (with the possibility of extension) requires a labour market test by the Croatian Employment Service (CES). This requirement is waived for a list of high-demand occupations that includes bakers, butchers and, in certain regions, waiters and cooks.29 If the test determines there are no available workers in the Croatian labour market, employers may apply for a stay and work permit on behalf of a specific third country national. If all conditions are met, the CES provides a positive opinion to the Ministry of the Interior. Following additional security tests by the Ministry of the Interior, a stay and work permit can be issued.
Seasonal workers from third countries can obtain a stay and work permit for up to 90 days. For these short-term workers in agriculture, forestry, hospitality and tourism, permits may be issued without the labour market test (Ministry of the Interior, 2023[62]).
The permits issued are not always fully used. For example, in 2020 only 43% of the permits for agriculture and forestry were used. While this low use may relate to the COVID-19 situation, utilisation of the 2019 quota was also not full (72%) (European Migration Network - Ministry of the Interior, 2021[63]). The OECD has found that Croatia’s labour migration model places a high administrative burden on public authorities, who have insufficient capacity to deal with the rapid increase in the demand for stay and work permits, leading to the slow processing of applications (OECD, 2025[60]). In the context of the OECD fact-finding visit to Croatia, representatives from the agro-food sector indicated that the lack of labour to work in farms and in food processing is a matter of concern, and expressed that the quotas for third-country nationals should be higher.
EU and State funds support policies for the inclusion of women and minorities
As detailed in Section 1.4.2, Croatia’s gender gap in paid work is smaller than the OECD average. Even if data for agriculture is limited, the evidence points to certain disadvantages for women in rural areas, which are also linked to the general urban-rural disparities. In March 2023, the government adopted the National Plan for Gender Equality for the period until 2027. One of its goals is to improve the position of rural women. Actions by the Ministry of Agriculture to implement this measure include conducting workshops that aim to increase the number of female farm owners.
The Make a Wish programme (Zaželi) is a policy initiative that has contributed to improving the employment status of rural women, while also addressing the gap in care services. The programme was introduced in 2017 and is mainly funded by the European Social Fund. Make a Wish grants funds to local and regional authorities and non-governmental organisations, particularly from rural areas and the islands, to train and employ women to provide at-home care services for the elderly and infirm. It targets women over 50 years of age and those belonging to vulnerable groups, such as women with disabilities, homeless women, victims of domestic violence, and those who have been treated for addiction (OECD, 2018[64]). While the programme was initially aimed at promoting the employment of older women, it has also made an important contribution to the delivery of care services for seniors. The programme had a very positive reception and there was a high demand for participation. It was recently extended up to 2027 (OECD, 2025[60]).
The rights of national minorities are protected by the Constitutional Law on National Minorities and they are entitled to be represented by eight elected Members of Parliament. Croatia funds the implementation of programmes and projects to support the minority population, with the annual State funding for national minority purposes increasing from EUR 25 million in 2019 to EUR 39 million in 2022 (Council of Europe, 2023[65]). Initiatives to address the specific challenges of the Roma community are carried out under the National Strategy for Roma Inclusion for 2021-27. The Office for Human Rights and the Rights of National Minorities (OHRRNM) carried out a project to map the size of the Roma population in Croatia and analyse their socio-economic outcomes, with the aim of further improving policies for Roma inclusion (OECD, 2025[60]).
Some programmes specifically support farmers in areas traditionally inhabited by minorities. In November 2023, the Ministry of Agriculture announced the results of a tender for financing projects of local infrastructure and rural development in areas inhabited by members of national minorities. EUR 4.9 million of national funds will finance grants of up to EUR 10 000 to self-sufficient family farms and family agricultural holdings (known in Croatia as OPGs; see Box 1.1) in areas with more than 5% of members of national minority groups, to help them transition to market-oriented production, with the objective of fostering the socio-economic empowerment of national minorities (Ministry of Agriculture, 2023[66]).
Croatia has advanced toward an integrated approach to disaster risk management
In 2016 Croatia established the Disaster Risk Reduction Platform, managed by the Ministry of the Interior, to promote a co-ordinated decision making, as activities in this area fall within the competences of individual ministries. The Disaster Risk Management Strategy until 2030 was adopted in October 2022. The Strategy aims to reduce disaster risks by predicting, mitigating, and preventing them, and to provide the information and tools necessary for decision-making. It also seeks to increase preparedness for disaster management. The Ministry of Agriculture is the competent institution for making assessments of threats related to plant diseases, animal diseases, and drought (Government of the Republic of Croatia, 2022[67]).
In the SWOT analysis done for the preparation of the CAP Strategic Plan, Croatian authorities identified agricultural risk management as a policy area where further progress is needed. Under CAP Strategic Objective 1 (support viable farm income and the resilience of the agricultural sector), using risk management instruments more and more efficiently was identified as a need with a medium level of priority, after the high-priority objectives of improving farmers’ incomes and preserving production potential (Table 2.3). The analysis points out to the potential of investing in farmers' knowledge of risk management tools and mitigation measures and increasing their uptake (Ministry of Agriculture, 2022[36]).
Agricultural risk management policies in Croatia focus mainly on supporting the insurance of agricultural production through the co-financing of insurance policies from rural development funds. However, compensatory payments in the case of natural disasters and other crisis situations are frequent. Some investments and crisis prevention activities are also included within the sectoral interventions for the fruit and vegetable sector.
But still, several programmes grant ad hoc aid in response to crisis situations
State aid from national funds has been granted to respond to different crisis situations. Several programmes were launched in 2020 and 2021 to help primary producers that faced difficult business conditions due to the COVID-19 pandemic. The total national funds granted to these programmes between 2020 and 2022 was approximately EUR 55 million, and as of 2023 they were no longer active.
A support programme for the disposal of animal by-products in 2021-23 was launched to respond to market disruptions that, starting in 2017 and aggravated by the COVID-19 pandemic, caused increases in the cost of disposal of by-products from slaughtering livestock. It consists of a subsidy of up to HRK 0.2 per kilogramme of by-product. The programme budget is HRK 5 million (around EUR 666 667) for each year of implementation (Ministry of Agriculture, 2021[68]).
The Small Value Support Program for Farmers for the Procurement of Mineral Fertilizer was adopted in March 2022. It has a budget allocation of HRK 200 million (approximately EUR 27 million). This programme compensates farmers for the higher production costs caused by the increase in the price of mineral fertiliser with a subsidy per hectare up to a maximum of 20 hectares (Ministry of Agriculture, 2022[69]). A total of HRK 95.4 million (about EUR 12.7 million) were granted to respond to 26 928 requests for support received in 2022 (Ministry of Agriculture, 2023[47]).
Another programme launched in August 2022 supports micro-, small- and medium-sized producers of seed corn (maize) facing difficulties linked to the war in Ukraine. It consists of a payment of up to HRK 5 000 (EUR 667) per hectare up to a maximum of HRK 263 700 (approximately EUR 35 000) per beneficiary (Ministry of Agriculture, 2022[70]). The programme budget was HRK 7.5 million (approximately EUR 1 million), of which 42% had been allocated at the end of 2022 (Ministry of Agriculture, 2023[47]).
Two larger state aid programmes for damage compensation were approved in December 2022. The first one, with an allocation of HRK 200 million (approximately EUR 27 million), compensates producers of processed agricultural goods for the increases in energy prices. The second, with HRK 100 million (around EUR 13 million) provides direct financial support to producers of corn, soybeans, sunflowers, sugar beets, tobacco, fruits and vegetables that suffered damages from drought during 2022 (Ministry of Agriculture, 2023[47]). A further ex post compensation programme with a budget of EUR 10 million was approved in July 2023 to mitigate the consequences of natural disasters that occurred in 2023 by compensating farmers for up to 50% of the damages suffered.
In June 2023, Croatia reported the detection of cases of African Swine Fever (World Organisation for Animal Health, 2023[71]). Given the disruptions caused by the outbreak in the pork sector, the government approved several measures to compensate producers for the losses incurred and to maintain pig production in the affected areas. The total budget is EUR 41.2 million, of which EUR 7.5 million were spent in 2023. This budget may be increased depending on how the epidemiological situation evolves.
Policies and funding focus on agricultural insurance, yet uptake remains low
Before 2013, farmers had access to insurance subsidies financed from the State and local government budgets, which covered respectively 25% and 10% of the premiums (Radović, 2020[72]). Following EU accession, the subsidy was increased to 70% in the 2014-22 Rural Development Programme. A total of EUR 97.7 million was provided to around 46 000 requests under measure 17.1.1. “Insurance of crops, animals and plants” of the RDP (Ministry of Agriculture, 2023[73]).
In the 2023-27 CSP, EUR 70 million of public funds (80% financed by the EAFRD) have been allocated to intervention 76.01 “Insurance of agricultural production”. These funds support farmers in the acquisition of agricultural insurance by subsidising up to 70% of the insurance premium, with a maximum annual subsidy amount of EUR 75 000 per beneficiary.
Beneficiaries must have contracted an insurance policy with a private company that covers damages caused by the loss of more than 20% of the average annual agricultural production due to unfavourable climatic conditions (frost, lightning strikes, storms, hail, ice, longer periods of high temperatures and heavy rain and their consequences in the form of floods, droughts or fire) or animal diseases as recognised by the World Organization for Animal Health. Farmers must have paid at least 30% of the insurance premium before submitting the application for support to the Paying Agency for Agriculture, Fisheries and Rural Development. The Paying Agency processes the application and, after determining that all conditions have been met, pays the subsidy amount either directly to the insurance company or to the user (Ministry of Agriculture, 2023[74]). To avoid overlaps, producer organisations that are beneficiaries of harvest insurance under the CAP sectoral market intervention provisions30 are not eligible for this intervention.
Before 2018, farmers had to pay the full price of the premium before submitting the subsidy application. The change to the current system, in which farmers pay only 30% of the premium price upfront, is believed to have had a positive impact in the number of applications. According to the Ministry of Agriculture, between 2016 and 2019 the number of requests for support increased almost four times, from 2 359 to 9 006 (Ministry of Agriculture, 2019[75]). Despite the increase in uptake, farmers’ usage of insurance remains low, with only 8% of registered farmers insured as of 2019 (covering around 50% of total production) (World Bank, 2019[24]). Noting this low insurance coverage, the SWOT analysis highlights the need to step up insurance promotion activities and start a discussion with insurance companies on how to make insurance products more accessible to small farmers.
Other risk management interventions, including support for mutual funds and prevention, have a limited scope and less funding
The CSP includes additional risk management measures in the context of the sectoral interventions in the fruit and vegetable sector, which have a total public budget of EUR 1.8 million. These interventions benefit producer groups and organisations. Specific measures within this component include co-financing the costs of establishing, filling and replenishing mutual funds through which the producer group can prevent and manage losses and damages arising from crisis situations, as well as co-financing climate adaptation activities.
Some rural development interventions in the CSP also support the prevention of risks. For example, support for non-productive investments (intervention 73.01, with total public funding of EUR 20 million) can co-finance the removal of invasive species, the construction of electric fences or the purchase of dogs from autochthonous breeds (such as the Croatian shepherd) to protect herds from predators in areas where large carnivores are present. In addition, intervention 73.02 (total public funding EUR 22.5 million) co-finances eligible costs for the restoration of production potential damaged or lost due to natural disasters and catastrophic events.
Trade liberalisation was an important part of the economic reform programme that Croatia undertook to repair the damages of the war and advance in its transformation from a centrally planned to a market economy. In this context, Croatia applied for accession to the General Agreement on Tariffs and Trade (GATT) in September 1993.31 After concluding this process, it became a member of the World Trade Organization (WTO) in November 2000. Following its WTO accession, Croatia continued reforming its trade and related policies and legislation to align them with the WTO agreements and, after its 2003 application for EU membership, with the EU acquis (World Trade Organization, 2010[13]). Upon its EU accession, under the EU trade policy, Croatia became a party to the EU’s trade agreements with third countries and withdrew from the trade agreements it had previously signed, such as the Central European Free Trade Agreement (CEFTA) with neighbouring countries.32
The European Union is a single market with free movement of goods, services, capital, and people. Trade between Member States −including all agriculture and food trade− is not subject to any tariffs or non-tariff measures (NTM). The European Commission guarantees the well-functioning of the single market and determines the external trade policies of the bloc. As a member of the European Union, Croatia has full access to the EU single market and is an integral part of it.
2.6.1. The EU trade policy framework
The policies governing trade with non-EU countries are an exclusive competence of the EU. The common commercial policy covers trade in goods and services, intellectual property, foreign direct investment (FDI) and public procurement. Trade agreements with non-EU partners are negotiated by the European Commission on behalf of Member States. Within this framework, measures related to trade in agro-food products, such as tariffs and tariff rate quotas (TRQs) are defined and co-ordinated at the EU level, as is the large majority of legislation related to Sanitary and Phytosanitary (SPS) measures and technical barriers to trade (TBT).
Agro-food products face higher tariffs than other sectors and are subject to numerous non-tariff measures
Imports of goods into the EU are subject to the Common Customs Tariff (CCT) regime.33 Agro-food trade overall is subject to higher applied tariffs than other sectors: in 2022, the simple average most-favoured nation (MFN) tariff applied by the European Union on agro-food products (as defined in Annex I of the WTO Agreement on Agriculture) was 11.4%, compared with 4.1% for non-agricultural goods (Figure 2.7). Certain subsectors face tariff peaks, with maximum rates of up to 144% (against a maximum of 26% for other products). In addition, 31% of agro-food tariff lines were subject to non-ad valorem (NAV) tariffs34 (as opposed to only 0.6% for non-agricultural goods) (World Trade Organization, 2023[76]), which can increase complexity in trade. For example, tariffs on certain food products are calculated based on their content of milk or sugar, and some vegetables are subject to seasonal tariffs that can take a mixed form (an ad valorem plus a specific tariff by weight) in certain months (D’Elía, 2016[77]).
EU most-favoured nation applied tariffs by product groups, 2006 and 2022
Note: The figure shows simple average rates. The calculation of the average includes an estimation of ad valorem equivalents for tariffs expressed in NAV form. Agriculture is defined according to Annex I of the WTO Agreement on Agriculture.
Source: WTO (2023), World Tariff Profiles 2023, https://www.wto.org/english/res_e/publications_e/world_tariff_profiles23_e.htm and WTO (2006), World Tariff Profiles 2006, https://www.wto.org/english/tratop_e/tariffs_e/tariff_profiles_2006_e/tariff_profiles_2006_e.pdf.
The EU average agro-food tariff has decreased over time. At 11.4% in 2022, it is below its 2006 value of 15.1%.35 The 2022 average tariff is higher than in OECD members such as Australia, Chile, New Zealand, the United Kingdom and the United States, and accession candidates Brazil and Peru, but lower or similar to Costa Rica, Colombia, Japan, Norway, and Switzerland. Of these countries, only Switzerland, Norway, the United States, and the United Kingdom have similar or higher shares of tariff lines subject to NAV tariffs (Table 2.11).
Agricultural MFN tariffs in selected countries, 2022
Note: The table shows simple averages. The calculation of the average includes an estimation of ad valorem equivalents for tariffs expressed in NAV form. Agriculture is defined according to Annex I of the WTO Agreement on Agriculture.
Source: WTO (2023), World Tariff Profiles 2023, https://www.wto.org/english/res_e/publications_e/world_tariff_profiles23_e.htm.
Tariffs on agro-food imports can also be increased through the special agricultural safeguard (SSG), under which an additional import duty is applied if a trigger import price or volume is reached. In its WTO commitments, the European Union reserved the right to use the SSG for 539 tariff lines and has invoked it at least once each year since 1995, most recently using the price-based safeguard for one line of poultry products in the marketing year 2022/23 (World Trade Organization, 2023[78]).
A large number of agro-food products is subject to tariff rate quotas (TRQs), which allow for the import of determined quantities subject to a lower or zero tariff rate. The European Union uses three types of quotas: (i) WTO TRQs, established pursuant to its WTO schedule of commitments, (ii) preferential TRQs, granted to products from trade agreement partners, and (iii) autonomous TRQs, which can be opened to facilitate access of certain agricultural and industrial products insufficiently available in the European Union.
WTO TRQs are available for 124 products. They cover a wide range of sectors, including meat, dairy, cereals, fruits, vegetables, sugar, and other processed products. In 2022, 29 of the quotas were fully used (fill rate of 100%), and 31 had not been used at all (fill rate of 0%); the average fill rate (imports as a percentage of quota quantity) was 39% (World Trade Organization, 2023[79]). In the case of autonomous TRQs, as of June 2023 they were open for four agro-food products: mushrooms of the species Auricularia polytricha, preserved sweet cherries for use in chocolate products, animal feed additives, and unprocessed tobacco (Official Journal of the European Union, 2023[80]). The products and quantities for preferential TRQs are defined in the specific EU trade agreements. As a transitional measure provided for in the Treaty of Accession, the EU authorised Croatia to maintain an autonomous TRQ for the import of 40 000 tonnes of raw cane sugar for refining for a period of three years following accession.
TRQs can be allocated either on a first-come-first-served (FCFS) basis or on the basis of import licences. In 2022, 35% of the European Union’s agricultural TRQs were allocated by licences and 65% under the FCFS method (World Trade Organization, 2023[81]). TRQs allocated on a FCFS basis are managed by the Directorate General for Taxation and Customs Union (DG TAXUD) and available for agricultural and non-agricultural products. TRQs administered through import licences exclusively concern agricultural products and are managed by the Directorate General for Agriculture and Rural Development (DG AGRI). The licences are issued by competent authorities in Member States to any applicant registered on their territory for Value Added Tax (VAT) purposes, require lodging a security to guarantee that the commitment to import will be fulfilled, and are valid in all of the EU (World Trade Organization, 2023[82]).
Beyond tariffs and quantitative restrictions, the European Union applies other non-tariff measures (NTMs), such as sanitary and phytosanitary measures and technical barriers to trade, on agro-food imports. They include requirements on food production and safety, animal and plant health, animal welfare, alien organisms, and gene technology (OECD, 2023[21]). A 2016 inventory estimated that only 0.5% of food products, 1% of vegetable products and 4% of animal products in the European Union were not subject to NTMs (WITS, 2018[83]).
The European Commission’s Directorate General for Health and Food Safety (DG SANTE) is responsible for the formulation of policies related to sanitary and phytosanitary (SPS) measures. DG SANTE is also in charge of monitoring Member States’ implementation and enforcement of these measures and of notifying them to the World Trade Organization (WTO). Multilateral rules require WTO Members to have enquiry points responsible for answering questions and providing relevant documents on SPS measures. In the case of the European Union, the enquiry point is DG SANTE alongside with Member States’ enquiry points. In 2022, the European Union notified 105 SPS measures to the WTO, or almost 5% of the total notifications submitted by WTO Members. As of November 2023, and based on the cumulative number of notifications submitted since 1995, the European Union is the fourth notifying WTO Member after the United States, Brazil, and Canada (World Trade Organization, n.d.[84]).
While SPS measures are mostly associated with agricultural products, the universe of technical barriers to trade (TBT) measures of relevance for the sector is smaller. They can include standards for food packaging and labelling, animal welfare measures, or measures on chemicals for agricultural and veterinary use (Gourdon, Stone and van Tongeren, 2020[85]). Of the 83 TBT notifications that the European Union submitted in 2022, 14 covered agro-food products, addressing aspects such as the labelling of organic pet food, production rules for organic salts for food and feed, or standards for olive oil, among others. A further four TBT notifications concerned agricultural pesticides and fertilisers. Based on the number of TBT notifications presented up to November 2023, the European Union is also the fourth notifying WTO Member after the United States, Uganda, and Brazil (World Trade Organization, n.d.[84]). The European Union enquiry point for TBT measures is the Directorate General for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW), along with Member States’ enquiry points.
The European Union has a network of 42 regional trade agreements with 74 partners. These agreements are seen as a key factor contributing to the European Union’s position as a major global trader of agro-food products and to the resilience of the sector. The United Kingdom is the European Union’s most important preferential partner, as well as the top destination of its agro-food exports and the main source of agro-food imports (European Commission, 2023[86]). The European Union also grants duty-free and quota-free access to all imports (except arms and ammunition) from least developed countries (LDCs) and unilateral trade preferences to other developing countries (subject to eligibility criteria) under its Generalised Scheme of Preferences (GSP).
2.6.2. Policies at the national level
Several national agencies implement agro-food trade policies
In Croatia, the overall responsibility for the border process is in the hands of the Customs Administration, which co-ordinates with other government authorities present at the border, including the Ministry of Agriculture and the Ministry of Health (responsible for official controls regarding food and feed safety, food quality, animal health, animal welfare and plant health) and the State Inspectorate (in charge of sanitary, phytosanitary and veterinary inspections).
The competent national authority for receiving applications and issuing import and export licences for agro-food products is the Paying Agency in Agriculture, Fisheries and Rural Development (APPRRR, see Section 2.1.3 above). The APPRRR also plays a role in the control and enforcement of tariff quota regulations, ensuring that importers respect the quantitative limits and conditions specified in their licences. The Customs Administration publishes information on the quotas in force in the European Union and other measures for individual products. Applications for import or export licences can be submitted in paper form or electronically through the AGRONET system (APPRRR, 2020[87]).
In the area of SPS, the Ministry of Agriculture is responsible for establishing rules and measures concerning plant varieties, plant health and the use of pesticides and fertilisers, as well as for the detection, monitoring, prevention, control, and eradication of animal diseases and zoonoses. The national enquiry point for sanitary issues and animal health is the Service for Border Veterinary Inspection (part of the State Inspectorate) and the International Trade Division at the Veterinary and Food Safety Directorate of the Ministry of Agriculture. For phytosanitary issues and plant protection, the national enquiry points are the Sector for Agricultural Supervision and Phytosanitary Supervision and the Sector for Sanitary Inspection (part of the State Inspectorate) and the Directorate General for Agricultural Land, Plant Production and Market of the Ministry of Agriculture.
In the area of food safety, the Ministry of Agriculture is the contact point for communication and reporting to the European Commission. It is in charge of defining food safety policy in terms of basic principles, basic hygiene rules, rules for official controls, microbiologic criteria, labelling and consumer information, traceability of food and animal feed, fraud prevention, certifying of laboratories, registration and approval of operators of food of animal origin and animal feed, pesticide residues, and rules related to animal feed. The State Inspectorate is responsible for food safety inspections and official controls and is the national contact point for the Rapid Alert System for Food and Feed (RASFF), which is initiated in the event of an identified risk.
The Croatian Agency for Agriculture and Food (HAPIH) also plays a role in the implementation of SPS and food safety policies, providing professional and scientific support to the Ministry of Agriculture and participating in the implementation of official controls.
The Ministry of Health is responsible for establishing the rules related to food contact materials, contaminants in food, food additives, auxiliary substances in the production process, food supplements, nutritional and health claims, novel foods and genetically modified food and feed, among other aspects. It is also in charge of taking temporary emergency measures when a serious risk is identified.
The national enquiry point for the WTO TBT Agreement is the Croatian Standards Institute (Hrvatski zavod za norme - HZN), which is in charge of providing information to other WTO Members on the technical regulations and standards effective in Croatia.
Croatia has a very good trade facilitation performance, but could improve co-operation among agencies
Policy related to the trade of agro-food products involves a complex array of policy objectives that are equally important, and their enforcement often involves multiple agencies (Moïsé and Sorescu, 2021[88]). While the trade policies applied in Croatia are defined at the European Union level, their implementation is charge of national agencies, including those outlined above. The OECD Trade Facilitation Indicators36 benchmark country performance along the full spectrum of border procedures.
In 2022, Croatia had an overall average trade facilitation performance of 1.79 (of a maximum of 2), which put it in the top-25 of the 163 countries covered. The overall score improved from 1.553 in 2017, and Croatia’s performance has consistently improved in most areas covered by the indicators. Performance scores were at or close to best practice in areas such as consultations with the trade community, automation of border processes, and streamlining of border procedures (which covers measures relevant for the treatment of perishable goods at the border in terms of inspection, storage, and release prior to the final determination and payment of duties, taxes, fees and charges). However, performance is lower in the case of internal agency co-operation (among agencies at the national level), where the score of 1.46 was below the OECD average of 1.62. Similarly, the score for external border agency co-operation (with neighbouring and third countries) at 1.55 is slightly lower than the OECD average of 1.6 (OECD, n.d.[89]).
Different public and private actors perform export promotion activities
Increasing the productivity and competitiveness of the agro-food sector is one of the strategic goals of Croatia’s agriculture, and increasing the efficiency and added value and the market diversification for Croatian agricultural and food products are among the authorities’ key priorities.
The Ministry of Foreign and European Affairs has the general responsibility for trade policy in Croatia. When carrying out this work, it consults with the Ministry of Economy and Sustainable Development (MESD) and with the Ministry of Agriculture for matters related to agro-food products. One of its tasks is providing support and advisory services to companies interested in exporting. This includes an export portal offering relevant information on accessing foreign markets and the publication on the Ministry’s web page of opportunities in the European Union and third countries for the procurement of goods, including from the agro-food sector.37
The Internationalisation Directorate at the MESD also has a mandate for export promotion, along with other mandates such as the promotion of foreign investment. This Directorate was established in 2020 in the context of a wider government reform that included the absorption of the responsibilities of the previously existing Agency for Investments and Competitiveness (OECD, 2023[90]). As part of its work, it provides advisory and operational support to companies in the process of internationalization and entering foreign markets.
Private sector groups such as the Croatian Chamber of Economy (HGK), the Croatian Exporters Association and the Croatian Chamber of Agriculture also provide support and information to their members and promote the participation of Croatian companies in conferences, meetings with foreign business entities, and sector fairs.
2.7.1. Producer Support Estimate of the European Union
Reforms to the Common Agricultural Policy (CAP) over the last decades have reduced the European Union’s support to agriculture and shifted its composition to less production- and trade-distorting measures (Figure 2.8). In 2020-22, EU support to producers38 as a share of gross farm receipts stood at 16%, close to the OECD average.
Level and composition by categories of the Producer Support Estimate for the European Union, 1986-2022
Notes: A/An/R/I:Area planted/Animal numbers/Receipts/Income. “Payments not requiring production” include Payments based on non-current A/An/R/I (production not required) and Payment based on non-commodity criteria. “Other payments” include Payments based on non-current A/An/R/I (production required) and Miscellaneous payments. European Union refers to EEC12 for 1986-94, EU15 for 1995-2003, EU25 for 2004-06, EU27 for 2007-13, EU28 for 2014-19, EU27 and the United Kingdom for 2020, and EU27 from 2021.
Source: OECD (2023), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.
Most of the European Union’s support to agriculture goes to producers: in 2020-22, the Producer Support Estimate (PSE) represented 87% of its total support estimate (TSE). The majority of this support to producers (84% in 2020-22) is budgetary, granted mostly in the form of decoupled direct payments. Market Price Support (MPS) accounted for 16% of support to producers in 2020-22, down from 46% in 2000-02. On average, nearly half of budgetary support in 2020-22 was based on historical entitlements, while around 29% was based on current area or animal numbers requiring production, and 20% on input use.
In 2020-22, general services expenditures (General Service Support Estimate, GSSE) represented 12.9% of total support to agriculture, equivalent to 2.8% of the EU’s value of agricultural production. This is a decrease compared to 3.7% of the value of production in 2000-02 and is below the OECD average. That said, the European Union’s GSSE expenditure actually increased in monetary terms between 2000-02 and 2020-22, but the value of agricultural production more than doubled in the same period. Expenditures on agricultural knowledge and innovation systems −the most important of the EU GSSE’s components− increased over the past two decades, and their share of GSSE rose from 42% in 2000-02 to 52% in 2020-22. The share of expenditures on marketing and promotion also increased, while the share of support for infrastructure and public stockholding decreased.
In its 2023 review of EU policies, the OECD made recommendations related to the structure and design of the CAP. Specifically on CAP payments, it recommended aligning budget allocations with stated priorities and addressing disincentives, linking payments that focus on sustainability, resilience and innovation objectives to monitorable performance, transitioning to targeted income support and introducing a clearer separation of income support from measures targeted towards environmental sustainability, and ensuring that CAP payments do not create barriers to entry (OECD, 2023[21]).
2.7.2. Budgetary support to agriculture in Croatia
As detailed in previous sections, budgetary support to agriculture in Croatia comes through both European Union policies (from the EU budget, in some cases with national co-financing) and national programmes. The annual average budgetary expenditures for agriculture in 2018-2239 amounted to EUR 789 million (Table 2.12). Most (91.5%) of these expenditures supported producers. Out of all budgetary expenditures, EUR 583 million (74%) came from the European Union budget, and EUR 206 million (26%) from Croatia’s budget.
EU-financed budgetary expenditures include CAP direct payments (EUR 316 million, most as decoupled income support) and market measures (EUR 12 million) under Pillar 1, as well as rural development support under Pillar 2 (EUR 295 million). Most of this support is provided to producers individually, but some rural development and market measures provide general services to the sector, such as knowledge transfer or infrastructure services. EU funds also co-financed some expenditures on veterinary and phytosanitary inspection services that were not part of the CAP.
Out of the EUR 206 million of expenditures financed from the Croatian budget, EUR 65 million corresponded to national top-ups provided during the phasing-in of Pillar 1 direct payments. This complementary support ceased in 2021. As of 2022, all direct payments were fully financed from the EU budget. A further EUR 57 million was provided by Croatia to co-finance CAP Pillar 2 and market measures. Fully national programmes amounted to an average of EUR 84 million. These include payments to support sensitive agricultural activities, state aid provided in response to crises, and revenue foregone from the tax exemption on agricultural diesel, as described in previous sections.
Annual average budgetary support to agriculture in Croatia, 2018-22 (million EUR)
1. Includes the basic payment, the redistributive payment, the young farmers' payment and the “greening” payment.
2. During the phasing-in of direct payments (2013-21), Croatia could top up EU-financed payments with national funds, as detailed in Section 2.2. From 2022 onwards, direct payments are fully funded by the European Union.
3. Includes programmes for the conservation of native breeds, to respond to the COVID-19 crisis and to Russia's invasion of Ukraine, and compensation to producers for losses due to natural disasters or pests and diseases, among others.
4. Includes expenditures on agricultural inspection services that were co-financed by the European Union.
5. Includes expenditures on agricultural research and inspection services that were financed exclusively from the national budget.
Source: Authors, with data from the Ministry of Agriculture and the Ministry of Finance of Croatia.
After independence, Croatia faced the enormous challenge of at once managing the transition from a centrally planned agriculture and dealing with the devastating effects of war. The country chose a path of integration into the multilateral trading system and strengthened ties with the European Union that entailed significant – and rapid – changes to its laws, policies, and policy paradigms.
The agricultural policy path has been determined by converging with the EU Common Agricultural Policy and at present policies are largely decided at the EU level. Nevertheless, the most recent CAP reform gives Croatia more leeway to adapt the CAP to national needs and priorities.
In 2023 Croatia started its second CAP cycle. Having fully phased in direct payments in 2022, it now has access to the entirety of the funds, and benefits from the experience of the 2014-22 CAP and the EU pre-accession funds. This experience, together with the input of experts and stakeholders and a comprehensive analysis to prioritise national needs, has informed the choices of the CAP Strategic Plan.
Some choices are similar to those of the 2014-22 CAP. Funds will again be transferred from the rural development budget to direct payments, but at a lower share. Croatia will continue supporting young farmers through direct payments and rural development funds, thus harnessing policies to attract young people to the sector. The plan also intends to use the redistributive payment to better target small and middle-sized farms. Coupled support will continue to be deployed up to the maximum share allowed.
Rural development support continues to give priority to investments for improving the sector’s productive and processing capacity and value addition, and to measures to improve the situation of rural areas. In the environmental domain, the largest funding allocations go to organic farming and animal welfare. The funding allocated to other measures such as those on innovation continues to be low, and in the previous CAP period some of the measures had a low uptake.
Croatia funds other programmes − including coupled support to sensitive sectors – fully from its national budget. The EU-funded Recovery and Resilience Plan is another source of investments for improving logistics, land consolidation, monitoring soils, improving digitalisation, and reducing food waste.
The legal framework for the disposal of state-owned agricultural land has suffered many changes. The processes advance at a very slow pace, creating a bottleneck in the conclusion of land disposal contracts, uncertainty for farmers, and a potential obstacle to increasing land ownership by young farmers, potentially affecting their access to finance. A 2022 legal reform aims to speed up land disposal processes, particularly for young farmers, but its impact on the rate of contract conclusion is still to be seen.
Beyond agriculture, social policies are deployed to combat the abandonment of rural areas and contribute to their revitalisation. Policies seek to encourage the return of the diaspora to rural areas, employ women, improve access to at-home care services, strengthen services in areas inhabited by minorities, and relax the requirements for employing foreign labour so as to remedy labour market gaps.
Insurance is the most important agricultural risk management instrument. Despite improvements and administrative simplifications, it has a relatively low uptake. Ad hoc assistance to sectors in crisis is often applied. Other risk management and resilience measures have limited scope and less funding.
Croatia’s agriculture is fully integrated into the EU single market, with free trade among the 27 EU Member countries. Trade policy with non-EU countries is defined at the EU level, with agro-food generally facing higher protection than other sectors, with market price support accounting for 16% of total producer support in the European Union in 2020-22 (OECD, 2023[20]). Croatia has made progress in implementation at the domestic level through trade facilitation improvements and could further strengthen inter-agency co-operation.
Promoting market diversification for agro-food products is an important national objective. At present, different public and private institutions perform export promotion activities but with no specific export promotion strategy for the agro-food sector. More targeted trade promotion could improve co-ordination and make the most of the efforts made by the different actors.
Going forward, Croatia could consider ways to make better use of the room for manoeuvre in the CAP and is invited to take account of relevant recommendations in the OECD review of EU policies in the sector (Box 2.3, (OECD, 2023[21]).
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← 1. Guaranteed prices were eventually abolished and by 2010 no longer in place (World Trade Organization, 2010[13]).
← 2. LEADER (Liaison Entre Actions de Développement de l’Économie Rurale) is an approach in the framework of EU rural development policy. It seeks to engage local actors from rural areas in the design and delivery of strategies, decision-making and resource allocation through Local Action Groups (LAGs) that bring together public, private and civil society stakeholders in a particular area. It is implemented under the Rural Development Programme of each EU Member State and co-financed by the European Agricultural Fund for Rural Development (EAFRD). See https://ec.europa.eu/enrd/leader-clld/leader-toolkit/leaderclld-explained_en.html.
← 8. See https://dirh.gov.hr/.
← 9. Calculated based on the CAP expenditure by Member State reported in the EU’s agriculture statistical fact sheet of June 2021 (https://agriculture.ec.europa.eu/system/files/2022-01/agri-statistical-factsheet-eu_en_0.pdf) and the gross value added for agriculture, forestry and fishing from the Eurostat indicator Gross value added and income by A*10 industry breakdowns (NAMA_10_A10).
← 10. Hungary, Malta, Poland and Slovakia.
← 11. Along with Denmark, Latvia, Romania, Greece, Lithuania, and Portugal.
← 12. Hungary, Luxembourg, Malta, Poland and Portugal.
← 13. This includes the crop-specific payment for cotton, which is mandatory in selected Member states (Bulgaria, Greece, Spain and Portugal).
← 14. Small amounts of support that are exempted from notification to the European Commission under EU rules on state aid, since they are deemed to have no impact on competition and trade in the Single Market. Under the most recent regulation applicable to agriculture (Commission Regulation (EU) 2019/316), the total amount of de minimis aid that a single beneficiary may receive in any period of three fiscal years is EUR 20 000, which may be increased to EUR 25 000 provided that the country has in place a central register of de minimis aid and that it does not spend more than 50% of its total de minimis aid envelope on one particular agricultural sector.
← 15. The CSP originally included seven eco-schemes. The eight eco-scheme, related to the use of organic fertilisers in permanent plantations, was added as a first amendment to the CSP at the end of 2023.
← 16. Articles 42 and 43 and Annex VII of Regulation (EU) 2021/2115.
← 17. This intervention covers a wide range of measures such as the European Innovation Partnership for Agricultural Productivity and Sustainability (EIP Agri), LEADER, smart villages strategies, producer groups, producer organisations, inter-branch groups, and participation in quality schemes.
← 18. This was the status at the time this report was finalised (October 2024).
← 19. The REPowerEU Plan, of May 2022, seeks to reduce the European Union’s dependence on Russian fossil fuels though actions to save energy, diversify supplies and accelerate the roll-out of renewable energy (European Commission, 2022[92]).
← 20. As the adoption of the euro is recent, many figures for Croatia are still expressed in Croatian kuna (HRK). When applicable, support figures in HRK have been converted using an exchange rate of EUR 1 = HRK 7.5.
← 21. Gorivo u poljoprivredi i ribarstvu (Fuel in agriculture and fisheries).
← 22. See https://carina.gov.hr/dokumenti/10?trazi=1&tip2=&datumod=&datumdo=&pojam=PLAVOG%20DIZELA&page=1 (accessed January 2024).
← 23. Vukovar was heavily damaged during the war of independence. For this reason, special regulations have been established for its reconstruction and development.
← 24. Article 38 of the Law on Value Added Tax.
← 25. Regulation on the method of calculating the initial rent of agricultural land owned by the Republic of Croatia and fees for the use of water for the purpose of performing aquaculture activities (NN 89/2018 of October 2018).
← 26. Of a total of 466 programmes submitted by local self-government units. Municipalities and towns that do not have state-owned agricultural land in their territory must only notify this to the Ministry.
← 27. Reciprocity refers to allowing investments from residents of another country under terms similar to those applied by the other country. It is considered a form of discrimination among adherents to the OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations.
← 28. Foreigners who are not nationals of the European Union, Iceland, Liechtenstein, Norway or Switzerland.
← 29. The list for 2023 is available at: https://www.hzz.hr/app/uploads/2023/03/Lista-zanimanja-izuzetak-od-provedbe-testa-trzista-rada_2023.pdf (accessed in January 2024).
← 30. Article 42 of Regulation (EU) 2021/2115 and Article 18 of Commission Delegated Regulation (EU) No. 2022/126.
← 31. Yugoslavia had been a member of the GATT since 1966.
← 32. Current members of CEFTA are Albania, Bosnia and Herzegovina, Moldova, Montenegro, North Macedonia, Serbia, and Kosovo. Like Bulgaria and Romania previously, Croatia terminated its membership in CEFTA as a consequence of its accession to the European Union.
← 33. A more detailed discussion of agricultural market access, including a comparison of tariffs prior to and after EU accession, is taken up in the Market Openness Review prepared by the OECD Secretariat as background for the Trade Committee accession review process.
← 34. Non-ad valorem (NAV) tariffs are those in which the duty rate is expressed in a form different that a percentage of the product’s value. They can include specific, compound, mixed or technical tariffs. Their use can make the analysis of tariff rates more challenging, as they cannot be directly compared or aggregated and must first be converted into ad-valorem equivalents (AVEs), for which methodologies differ (González Marentis and Deuss, 2023[91]).
← 35. The calculation of this average tariff rate requires obtaining ad valorem equivalents (AVE) for tariffs expressed in non-ad valorem form. There can be variations of the average rate depending on the methodology used.
← 37. Export portal: https://izvoz.gov.hr/. Export opportunities: https://mvep.gov.hr/o-hrvatskom-izvozu/izvozne-prilike/244678?sektor=40
← 38. The current Producer Support Estimate (PSE) database calculates support at the European Union level. Estimates at the Member State level can vary.
← 39. As agreed by the Committee for Agriculture in May 2024, this table presents data on budgetary expenditures underlying policies which support agricultural production, provided to producers individually, producers collectively (expenditures for general services) or to consumers. The planned expenditures for 2023-27 under the CAP Strategic Plan (including the budgeted national co-financing) were summarised in Table 2.2, and details on the specific measures presented in Sections 2.3.3 and 2.3.4.