Economic effects of food supply chain re-localization on the Croatian economy

Abstract

Securing the availability of healthy food at affordable prices is of fundamental public interest. The formerly prevailing paradigm of the absolute superiority of free trade in the global food market is changing in favour of re-localization after vulnerabilities were exposed by the war in Ukraine, the COVID-19 pandemic and the recent disorder in the global food market. Re-localization of food production could also have a positive impact on the environment, public health and sustainable local development. This paper analyses the trends and current conditions in the Croatian food market regarding the potential economic benefits of re-localization of food production. The purpose of the paper is to estimate the economic benefits of food re-localization in Croatia. The method of input–output analysis is applied to test hypotheses. Direct, indirect and induced effects of re-localization of food production are estimated and the results compared with other countries. The results confirm previous findings that re-localization of food production could stimulate the domestic economy. The multipliers estimated for Croatian agricultural and food production do not deviate significantly from the results published for other economies. Output multipliers related to the Croatian food sector are slightly lower than those estimated for new European Union members, while multipliers for the Croatian agriculture sector are in line with those estimated for the same group of countries. It is found that expenditures on domestic food products induce significantly larger economic effects in Croatia than expenditures on imported food. Import substitution and re-localization would also positively affect public finances. Re-localizing 10% of imports of agri-food products could increase the Croatian GDP by 0.32%. The employment effects would be even larger since labour intensity in the food and agriculture sectors is high.