In BMI’s revised Food and Drink Business Environment Ratings for Q109, Serbia has slipped back tooccupy the bottom position within the table of 14 markets in Central and Eastern Europe (CEE) by a clearmargin. Investors have reasons to be wary of unresolved political and economic issues, which includewidespread corruption as well as large-scale grey economy activities. Serbia also continues to be let downby a low score for current as well as forecast food consumption per capita, held back largely by modestGDP per capita. On a positive note, per-capita consumption of beverages, both soft and alcoholic, is high,with opportunities in these subsectors clearly being recognised by foreign players. Another factorworking in favour of companies willing to risk involvement in Serbia’s food and drink market is thecountry’s slow but steady progress towards reintegration into the wider European community.In terms of industry developments, Q408 has shown less dynamism than the previous parts of the year,under the cloud of the global economic crisis and resultant lowering of consumer confidence. A numberof deals - or the lack of thereof - indicate troubled times ahead. For example, in October 2008,confectionery maker Bambi Banat announced a buyout of a further 3% of its shares, having previouslyreacquired around 6.5%. The move was prompted by the desire to stop a further slide of its stock price.Shortly prior to this, UK-based Salford Investment Fund postponed the planned sale of its share in theSerbian water producer Knjaz Milos, quoting the global financial crisis as the reason. PepsiCo as well asThe Coca-Cola Company have been rumoured to be among the list of possible buyers of the Serbianwater bottler, although the latter refuted any such connection in March 2008.Nevertheless, there are reasons for optimism. A report published by Zenith International in October2008 revealed that the sales of water in Eastern Europe continued to rise, reaching EUR5bn in 2007. InSerbia, volume sales rose by 22% year-on-year (y-o-y), with the country recording the highest growth ratewithin the Eastern European region. The beer segment has also received a considerable investment in theform of a joint venture - United Serbian Breweries (USB) - between Dutch Heineken and EfesBreweries International (EBI), which is owned by Turkish beer company Anadolu Efes Biracilik veMalt Sanayi. The two companies will close one of the three breweries and scale down manufacturingcapacity at the remaining two, in order to adjust to market needs and improve profitability. Nevertheless,the new entity is to invest EUR50mn (US$67mn) over the 2008-2011 period, as well as look to increaseits export business.Economic difficulties are also not holding back investment in Serbia’s mass grocery retail (MGR) sector,with German retail operator Metro Group in November 2008 confirming that it will continue to invest inSerbia, having already ploughed EUR100mn into the country since its 2004 entry. The announcementshortly followed the news that Idea, a subsidiary of Croatian food company Agrokor already present inthe Serbian MGR market with two hypermarkets, will use a loan from the European Bank forReconstruction and Development (EBRD) to expand its presence in the country.