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Romania Agribusiness Report Q4 2009Published by: Business Monitor International Published: Sep. 25, 2009 - 71 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. However, a drought earlier this year is likely to help lead to a fall in crop production in2009. Ziarul Bursa quoted the president of farmers' organisation Agrostar Federation saying that a lack ofgovernment financial support is also to blame for the anticipated fall in wheat production and there arefears that regular seasonal work in autumn will be disrupted by lack of resources. Nonetheless, thepublication also reported that the government is introducing a 'First Silo' programme whereby grainproducers should be able to store crops in silos licensed by the agriculture ministry and receive acertificate of deposit which could act as collateral for a bank loan. BMI is expecting growth in production and consumption of poultry until the end of the forecast period in2013, although production of pork and beef is forecast to decline reflecting the fall in national herdnumbers, problems with disease and limited investment. However, for the pig industry at least, it is worthnoting that a corner may have been turned - according to the National Institute of Statistics in June 2009an estimated 324,000 pigs were slaughtered, up from 309,000 in June last year. The export ban to the EUimposed because of Classical Swine Fever is due to be reviewed in the second half of this year. Thenumber of sheep is on the rise, up to 8.9mn in 2008, making Romania the fourth biggest sheep producerin 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. In August Mihai Anghel,who manages 25,000ha of agricultural land through Cerealcom Dolj, was reported as planning to expandand farm over 40,000ha within three years. BMI reported in July 2009 that Romanian President Traian Basescu had invited entrepreneurs from theCzech Republic to invest in his country's agricultural sector. Basescu believes that there is enoughpotential in domestic agriculture to significantly redress the current situation whereby the majority ofdomestically consumed food is imported. 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. The permanent representation of Romania to the EUannounced in May 2009 that construction will be completed this year. 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. However, the recession is slowing down growth and profits. In June, Sergiu Mititelu,CEO of cheese producer Hochland Romania, was quoted by Ziarul Financiar as saying that the dairyindustry had been hit by the recession and consumption was about to stall this year. 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. BMI expects that between 2008 and the end of the forecastperiod in 2013 production will continue to increase to 85,000 tonnes, up 74%. Investment in Romanianrice from western European companies and farmers has helped, and will continue to help, push upproduction. 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. TheAgroli Group, which specialises in poultry production, notes on its website that the growingcompetitiveness of the Romanian economy following accession to the EU coupled with the problemsassociated with the recession, will lead to the disappearance of producers that haven't invested intechnology and can't operate rigorous price control measures. The market will include a small number ofbig companies that implement development strategies and can offer quality food at affordable prices. Ona low note, the possibility of livestock disease is a constant threat to the industry. In addition to theClassical Swine Fever and avian flu outbreaks (one as recent as February 2009 - although it was resolvedby March) Romania's poultry has also recently experienced Newcastle disease. However, there hasn't asyet 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. Eurostat notes that fully converted crop area rose from 65,111ha in 2006 to 71,597ha in2008. 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 5.7% in 2009 from a 7.1% expansion in2008 and unemployment to rise to 8.1% of the labour force from an estimated 4.4% in 2008) is putting abreak on consumer spending growth, and negatively affecting food purchases in general. Foreign andprivate investment has slowed in the short term until confidence returns and dragged down industrygrowth. Credit tightening by the banks has impacted companies' ability to invest and expand andconsumers' ability to spend. However, the IMF's approval of a 24 month EUR12.9bn Stand-By Arrangement should help. It is hopedthat the financial package will help cushion the effects of the drop in capital inflows, address the country'sexternal and fiscal imbalances and strengthen the financial sector. The Stand-By Arrangement, combinedwith other international financial support totals EUR19.9bn. Get Full Details About This Report >> |
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