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Romania Agribusiness Report Q2 2009Published by: Business Monitor International Published: Apr. 24, 2009 - 60 Pages Table of Contents
AbstractRomania is a rural and relatively poor country, which, helped by EU accession and subsidies, is makingpositive, if sometimes gradual strides towards modernisation and improving the lives of its citizens.Romania is an important agricultural producer. Corn is usually the most important grain and in 2006Romania was the third biggest corn producer in Europe. Wheat, sunflower seeds, rape and barley are alsoimportant crops. In 2008, of the figures available, Romania was the fourth biggest producer of tomatoesand the fifth biggest producer of potatoes. BMI is expecting growth in production and consumption ofpoultry until the end of the forecast period in 2013, although production of pork and beef is forecast todecline reflecting the fall in national herd numbers, problems with disease and limited investment. However, the number of sheep is on the rise, up to 9.4mn in 2008, making Romania the third biggestsheep producer in the EU. It is the fifth biggest producer of sheep and goats meat combined. In 2005 45.3% of the population was classed as rural and just under a third of the country's populationworked in agriculture. Many of these people live on small, family run farms where they grow crops andrear livestock for their own use or to sell directly locally. Fragmentation in land ownership creates anumber of serious problems for Romanian agriculture and production has suffered. Small scale ownershave not been able to invest in modern technology or inputs. According to a report by Banca ComercialaRomana SA 45% of farms are even smaller than one hectare (ha) and are therefore not eligible for mostEU Common Agricultural Policy (CAP) support schemes. The report says average yield per hectare formain crops is well below EU norms, only about 40% of those in France. The report adds that a significant proportion of the farm population find it difficult to comply with thenew and complex set of agricultural requirements and so have been unable to fully utilise marketopportunities and EU and domestic financial support to manage their income and assets. Also fragmentation has dissuaded some foreign investment. The report notes that investors usually wantto buy sizeable amounts of land, but the red tape involved in buying up individual plots has madeRomanian agriculture a less attractive option. Nonetheless, improvements are being made in the sectorand given time, the situation will improve and a level of consolidation will occur allowing propereconomies of scale and attracting further investment. Indeed, Ziarul Financiar reported in February 2009that the recession was pushing land prices down which could provide opportunities for those who are in aposition to invest. The top five entrepreneurs and their companies in the agricultural sector own 2% ofRomania's arable land area. According to the report, Culita Tarata, owner of agricultural and industrialenterprise TCE 3 Brazi, has the largest area of farmed land, over 55,000ha. The percentage of the population classed as rural is forecast to drop to 36.9% by 2030, as people move tothe towns attracted by work and better money. According to a United States Department of Agriculture(USDA) report published in March 2008 Bucharest has a per capita income of more than three times thenational average. Increased disposable income (before the recession hit wage growth had beenaccelerating quickly and the labour market had tightened in recent years) helped fuel a massive growth inthe mass grocery retail (MGR) sector (total sales of which are expected to grow by 149% between 2008and 2013) which has in turn encouraged investment in the food and drink industry, and providedincentives to agricultural producers. For instance, in 2007 the European Bank for Reconstruction andDevelopment (EBRD) announced that it was investing EUR20mn to finance the construction of a newmalt plant in south east Romania, being built by Soufflet Malt Romania SA (part of French GroupeSoufflet). It will have a maximum annual capacity of 105,000 tonnes of malt and Soufflet has said that itaims to buy all malting barley from local farmers. Consumption patterns are gradually converging towards those of more developed economies in the regionand wider Europe. Customers are demanding a variety of good quality foods, healthier options andconvenience meals. This has presented new opportunities for manufacturers and their suppliers. One ofthe winners so far has been the dairy industry. Ziarul Financiar reported in January 2008 that the dairyindustry was the 'star' of the consumer goods sector, and some producers were forecasting increases of upto 25%, supported by the rising prices of end products and a growing consumer preference for healthierfood alternatives. Such growth potential has attracted foreign investment. In September 2008, leading European dairy groupMuller entered the Romanian market and announced its intention to become the leading yoghurt brand inthe country by the end of 2009. In April 2008 French dairy conglomerate Groupe Lactalis purchasedlocal dairy firm LaDorna. One of the key producers, LaDorna is mainly engaged in the manufacture ofliquid milk, dairy products and cheeses. In 2007 LaDorna posted a turnover of EUR40mn, collectingsome 35mn litres of milk. A good future is also predicted for local rice cultivation. Albeit starting from a low base, rice productionin Romania has grown rapidly in recent years. 2003-2007 production shot up 78 fold. BMI expects thatbetween 2007 and the end of the forecast period in 2013 production will continue to increase to 59,200tonnes. Investment in Romanian rice from western European companies and farmers has helped, and willcontinue to help, push up production. Even though the majority of Romania's poultry population is still kept on small, private agriculturalholdings, the poultry industry in Romania is relatively modern and concentration is high. According to theUSDA in mid-2006 the seven biggest operators accounted for about 50% of commercial production. Thelargest companies are fully integrated and foreign investors and suppliers are active in the industry. On alow note, the possibility of livestock disease is a constant threat to the industry. In addition to theClassical Swine Fever and avian flu outbreaks Romania's poultry has also recently experienced Newcastledisease. However, there hasn't as yet been a recorded case of BSE. Another potentially lucrative area is organic production. The growing demand for organic products inother European markets, combined with Romania's low-cost labour and plentiful and readily convertiblearable land means that organic cultivation and production could be extremely successful for localproducers and outside investors. According to a USDA report the Romanian Ministry of Agriculture hassaid that it would like to see 400,000ha under organic cultivation and production by 2010, double thecurrent rate. Problems remain which make development and investment difficult, such as run-down agriculturalinfrastructure and a transport system which lags behind much of the rest of Europe in terms ofmaintenance and modernisation. However, the ball has started rolling and given time the Romanianagricultural and food processing sectors will develop and expand. Even during recession some businesspeople are optimistic about the future of agriculture in the country. In February 2009 Ziarul Financiarquoted Culita Tarata as saying that he invests everything he earns because agriculture will endure. He saidthat Romanian farmland was currently only realising 35% of its potential. His company produced 370,000tonnes of grain in 2008. Of immediate concern is the state of the global and national economy. Global and domestic recession(BMI is expecting Romania's real GDP growth to contract by 3.2% in 2009 from a 7.1% expansion in2008 and unemployment rose to a two year high in February) is putting a break on consumer spendinggrowth, and negatively affecting food purchases in general. Foreign and private investment will slow inthe short term until confidence returns, so dragging down industry growth and impacting developments inMGR and other retail sectors. Credit tightening by the banks will impact companies' ability to invest andexpand and consumers' ability to spend. In January 2009, according to Ziarul Financiar, banks hadalmost entirely dropped the granting of unsecured consumer loans. The overall volume of consumer creditsaw a third consecutive decline in January 2009 to EUR20.65MN. Banks have seen a major contraction inlending since the autumn. BMI reported that on March 5th 2009 the Romanian leu was trading at RON4.2800/EUR and the risks offurther leu depreciation towards our end-2009 forecast of RON4.500/EUR are increasing. The slowing ofthe economy is weighing on the outlook for the currency. As the recession in the eurozone deepens - acontraction of 3% is forecast in 2009 - Romanian exports will be negatively affected since the region isRomania's main trading partner. At the time of writing Romania is in negotiation with the International Monetary Fund (IMF) discussingappropriate technical and financial support. The IMF issued a statement on its website saying an IMFprogramme would be part of a pro-active, insurance-based multilateral finance package, supported by theEU and World Bank and other international financial institutions. Get Full Details About This Report >> |
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