Industry Snapshot

The food sector is enormous. In 2015, the food and agricultural industry accounted for 10% of global GDP, nearly EUR 6.9 trillion (Plunkett Research, Ltd. 2017). Global trade in food and agricultural items expanded to EUR 997 billion in 2010 from EUR 204 billion in 1980.

The Croatian food industry is vulnerable. Croatia’s exports of prepared or processed foodstuffs in 2015 were EUR 774 million. Croatia’s food industry lacks many of the modern service innovations that have made other food producing countries in Europe so successful. Instead, Croatia mainly cultivates cereal commodities. Food processors are trying to sell long-shelf life goods under brands developed for the former Yugoslavia.

Emerging consumer-focused strategies are necessary to capture value in an increasingly competitive market. As global incomes rise, they generate demand for new products that fit the lifestyle needs of consumers. Users are demanding more from their food providers in terms of quality, convenience, and experience.

Emerging Strategic segments

Two main factors distinguish strategic segments in the food sector: frequency of delivery and type of consumer.

The frequency of delivery for a given food product is a critical strategic factor. Items that require more frequent delivery—fresh items—often have a higher value and are more profitable. Because the shelf life of fresh products is short, the capacity to deliver to consumers is a barrier to entry for many of the world’s producers. Delivering fresh food requires logistics that can get products from farm to fork quickly.

The second critical strategic factor in the food sector is the consumer. There are three main types of consumers in the global food market. “Daily use” consumers eat food to meet their basic caloric needs. “Convenience” consumers want foods that are quick and easy to prepare. “Indulgence” consumers purchase food to engage in an “experience” (which may substitute for other forms of entertainment).

“Fresh convenience”

The emerging “fresh convenience” strategic segment is especially attractive for Croatian firms. Buyers in the “fresh convenience” strategic segment are seeking convenient fresh foods.

In the “fresh convenience” strategic segment, firms prepare and combine fresh ingredients from different suppliers. Typical products in this segment include fresh packaged pasta, pre-marinated fresh meat, pre-cut mixed fruit, and complete “ready to cook” meals with fresh ingredients.

Typical companies in the “fresh convenience” segment tend to be small- or medium-sized enterprises. Product differentiation is the key to survival. They invest in predicting trends in food consumption and cooperate intensively with logistics companies and retailers.

Consumers in the “fresh convenience” strategic segment may not have time or may not be inclined to prepare quality food themselves. Consumers in this segment are demanding in terms of quality, taste, and nutritional content. They will pay a premium price for convenience and ease of use.

Making Croatia Competitive

Where is the value chain weak?

The Croatian food production and processing industry is underperforming in a range of activities necessary for competitiveness in the sector:

  • Market and consumer research. Croatian food manufacturers are not investing in identifying suitable markets and recognizing the needs, preferences, and tastes that drive consumer behavior in those markets. Market research is particularly important in the “fresh convenience” strategic segment. A producer must determine where it will be feasible to deliver fresh products given the available logistical capacities. Understanding consumer preferences is inherently tricky in foreign markets, and consumer demands and behaviors are highly regionalized. A product that tests well in one location may not be viable in every market. Manufacturers must then also translate consumer research into improved solutions along their value chains. Collaboration with R&D institutions, primary producers, equipment manufacturers, branding agencies and packaging companies is key to success.
  • Primary production. Except for beet and potato, local farms are not producing high-value horticultural produce or animal products. They are producing cereal because cereal crops require the least factor-intensive inputs.
  • Logistics (aggregating, storing, and advanced shipping). Croatia performs poorly on a range of logistics indicators. For example, in 2013, the percent of products lost to breakage or spoilage during shipping to domestic markets was worse than the average for all other countries. It was more than twice as bad as the average of the (non-OECD) high-income countries. Many warehouses are not suitable for food, and most do not meet international standards.
  • Croatian firms are underperforming in activities that require processing machinery. There is little to no uptake of highly capital-intensive or knowledge-intensive processing activities. Examples include “high-pressure processing” (HPP) and “pulsed electric processing.” Both allow for preserving foods with minimal processing. Neither is commercially available in Croatia.
  • Bottling and packages. Bottling and packaging practices in Croatia are substandard. Traditional packaging using metal cans and basic plastic packaging are common. This outdated packaging is not adapted for portion control, ease of use, integration with labeling designs, or the movement of perishable products. Firms may need to invest significant amounts in bottling and packaging to produce products designed for ease of consumption and a distinctive high-end look. The firms must complement these investments with labeling informed by intensively focused consumer research.
  • Testing & certification. Croatia has not kept pace with the introduction and application of new food safety standards. Mandatory public standards continue to pose a high barrier to entry. Retailers are now paying more for firms that voluntarily prove that their product has an added level of quality.

Areas for reform

Certain aspects of the industry ecosystem limit Croatia’s competitiveness in the emerging “fresh convenience” strategic segment.

Demand conditions

Croatian firms need to shift from targeting tourists to targeting exports. Demand stemming from the tourism sector on the Croatian coast may be a stepping stone for convenience and indulgence food producers. However, export markets should be Croatia’s ultimate objective.

Factor conditions

Labor productivity is low. From 2000 to 2014, productivity increased by only 20 percent while real wages increased by over 70 percent.

Finance is hard to access. Typical short-term loans are charged interest rates of 4.7 percent in Croatia. There are no specialized financing institutions for the food industry.

Highly-qualified workers are scarce. Croatia needs to train and recruit agriculture and cold chain experts to facilitate production and transport. It needs to cultivate food technologists to create new products and adapt processing technologies. Finally, it needs consulting services to conduct consumer and market research.

Unskilled labor is also in short supply. Seasonal labor for harvest and labor-intensive processing activities (such as cutting, cleaning, and grading) is a significant constraint on productivity in the sector.

Strategy, structure, and rivalry

Croatian firms have limited participation in more advanced consumer (convenience/indulgence) and product (fresh) segments. Foreign suppliers account for supply and competition in these segments. Moreover, Croatian firms have few sources for business intelligence related to foreign competition.

Many Croatian firms are fixated on origin labeling laws to prevent competition. They could better benefit from collaborating to find solutions to logistical challenges. For example, making frequent exports financially viable requires building enough volume in the “fresh convenience” segment. To achieve that volume, Croatian companies may need to band together and jointly market to targeted geographies. Such pro-competitive cooperation between food production and processing companies is almost non-existent.


Croatia could improve its position in the emerging “fresh convenience” strategic segment by:

  • Organizing a competition to motivate firm participation in, and marketing for, the “fresh convenience” strategic segment. Competitions might center on tourist destinations, which offer convenient testing labs for high-value consumers from targeted foreign markets. The Ministry of Economy Entrepreneurship and Crafts (MoEEC) could implement this recommendation (via a ‘level 2’ fiduciary implementing body) as prize financing. Estimated timeframe: 2 years.
  • Providing a minimum usage guarantee to entice a sophisticated foreign HPP service provider to serve the Croatian market. Such providers have not opened facilities in Croatia because they would not have a critical mass of food manufacturing companies to service. The lack of HPP facilities creates a chicken-or-egg dilemma because Croatian firms cannot viably enter the “fresh convenience” sector and export without HPP facilities. A minimum usage guarantee would make up at least part of any shortfall in the HPP provider’s income. MoEEC could implement this recommendation (via a ‘level 2’ fiduciary implementing body) as a partial risk guarantee to cover a portion of private investment (whether from debt or direct capital investment). Estimated timeframe: 7 years.
  • Supplying business mentoring in product innovation, opportunity recognition, risk perception, entrepreneurship, and professional networking. MoEEC (through EBRD) or the Croatian Chamber of Economy could implement the mentoring program (through a technical assistance program) as a matching grants scheme. Estimated timeframe: 2 years.
  • Conducting market intelligence studies. Several types of market intelligence studies would be valuable. One is market reports on the “fresh convenience” strategic segment in Vienna, Milan, Venice, Frankfurt, Berlin, London, and Amsterdam. A second is market research to find locations where indicators (such as income, female labor force participation, the concentration of youth, and food prices) suggest demand for “fresh convenience” products. A third type of market report that would be valuable is research on buyer purchase criteria and retailer requirements for certification, labeling, and packaging in target geographic markets. MoEEC and other relevant agencies could implement this recommendation through private sector firms. Estimated timeframe: 5 years.


Ministry of Economy, Entrepreneurship and Crafts

Ulica grada Vukovara 78
10 000 Zagreb

tel.: 01/ 6106 111

Croatian Chamber of Commerce (CCC)

Center for Industrial Development (CIRAZ)

Nova cesta 7
10 000 Zagreb

tel.: 01/ 207 80 01


The production of the materials is co-financed by Technical Assistance from the Operational Program on Competitiveness and Cohesion, from the European Regional Development Fund.
The project is co-financed by the European Union from the European Regional Development Fund.
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