Abstract
Romania is a rural and relatively poor country, which, helped by EU accession
and subsidies, is making
positive, 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 2006
Romania was the third biggest corn producer in Europe. Wheat,
sunflower seeds, rape and barley are also
important crops. However, a
spring drought which is forecast to continue into the summer has led to
fears
for 2009' s crop output. According to local press reports over 1mn ha
of crops have been affected, about
15% of sown arable land. The government
has said that it is looking for a solution to supply cheap
electricity to
irrigation systems. It is not thought that the drought will be as severe as in
2007.
In 2008, of the figures available, Romania was the fourth biggest
producer of tomatoes and the fifth
biggest producer of potatoes.
BMI
is expecting growth in production and consumption of poultry until the end of
the forecast period in
2013, although production of pork and beef is
forecast to decline reflecting the fall in national herd
numbers, problems
with disease and limited investment. However, the number of sheep is on the
rise, up
to 8.9mn in 2008, making Romania the fourth biggest sheep
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 population
worked in agriculture. Many
of these people live on small, family run farms where they grow crops and
rear livestock for their own use or to sell directly locally. Fragmentation in
land ownership creates a
number of serious problems for Romanian
agriculture and production has suffered. Small scale owners
have not been
able to invest in modern technology or inputs. According to a report by Banca
Comerciala
Romana SA 45% of farms are even smaller than one hectare (ha)
and are therefore not eligible for most
EU Common Agricultural Policy
(CAP) support schemes. The report says average yield per hectare for
main
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 the
new and complex set of agricultural
requirements and so have been unable to fully utilise market
opportunities
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 want
to buy sizeable amounts of land, but the red
tape involved in buying up individual plots has made
Romanian agriculture
a less attractive option. Nonetheless, improvements are being made in the
sector
and given time, the situation will improve and a level of
consolidation will occur allowing proper
economies of scale and attracting
further investment. Indeed, Ziarul Financiar reported in February 2009
that the recession was pushing land prices down which could provide
opportunities for those who are in a
position to invest. The top five
entrepreneurs and their companies in the agricultural sector own 2% of
Romania' s arable land area. According to the report, Culita Tarata, owner of
agricultural and industrial
enterprise 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 to
the 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 the
national average. Increased
disposable income (before the recession hit wage growth had been
accelerating quickly and the labour market had tightened in recent years)
helped fuel a massive growth in
the mass grocery retail (MGR) sector
(total sales of which are expected to grow by 149% between 2008
and 2013)
which has in turn encouraged investment in the food and drink industry, and
provided
incentives to agricultural producers. For instance, in 2007 the
European Bank for Reconstruction and
Development (EBRD) announced that it
was investing EUR20mn to finance the construction of a new
malt plant in
south east Romania, being built by Soufflet Malt Romania SA (part of French
Groupe
Soufflet). It will have a maximum annual capacity of 105,000 tonnes
of malt and Soufflet has said that it
aims to buy all malting barley from
local farmers. The permanent representation of Romania to the EU
announced
in May 2009 that construction will be completed this year.
Consumption
patterns are gradually converging towards those of more developed economies in
the region
and wider Europe. Customers are demanding a variety of good
quality foods, healthier options and
convenience meals. This has presented
new opportunities for manufacturers and their suppliers. One of
the
winners so far has been the dairy industry. Ziarul Financiar reported in
January 2008 that the dairy
industry was the ' star' of the consumer goods
sector, and some producers were forecasting increases of up
to 25%,
supported by the rising prices of end products and a growing consumer
preference for healthier
food alternatives. However, the recession is
slowing down growth and profits.
Growth potential has attracted foreign
investment. In September 2008, leading European dairy group
Muller entered
the Romanian market and announced its intention to become the leading yoghurt
brand in
the country by the end of 2009. In April 2008 French dairy
conglomerate Groupe Lactalis purchased
local dairy firm LaDorna. One of
the key producers, LaDorna is mainly engaged in the manufacture of
liquid
milk, dairy products and cheeses. In 2007 LaDorna posted a turnover of
EUR40mn, collecting
some 35mn litres of milk.
A good future is also
predicted for local rice cultivation. Albeit starting from a low base, rice
production
in Romania has grown rapidly in recent years. 2003-2007
production shot up 78 fold. BMI expects that
between 2007 and the end of
the forecast period in 2013 production will continue to increase to 59,200
tonnes. Investment in Romanian rice from western European companies and
farmers has helped, and will
continue to help, push up production.
Even though the majority of Romania' s poultry population is still kept on
small, private agricultural
holdings, the poultry industry in Romania is
relatively modern and concentration is high. According to the
USDA in
mid-2006 the seven biggest operators accounted for about 50% of commercial
production. The
largest companies are fully integrated and foreign
investors and suppliers are active in the industry. The
Agroli Group,
which specialises in poultry production, notes on its website that the
growing
competitiveness of the Romanian economy following accession to the
EU coupled with the problems
associated with the recession, will lead to
the disappearance of producers that haven' t invested in
technology and
can' t operate rigorous price control measures. The market will include a small
number of
big companies that implement development strategies and can
offer quality food at affordable prices. On
a low note, the possibility of
livestock disease is a constant threat to the industry. In addition to the
Classical Swine Fever and avian flu outbreaks (one as recent as February 2009)
Romania' s poultry has
also recently experienced Newcastle disease.
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 in
other European markets, combined with Romania' s
low-cost labour and plentiful and readily convertible
arable land means
that organic cultivation and production could be extremely successful for
local
producers and outside investors. According to a USDA report the
Romanian Ministry of Agriculture has
said that it would like to see
400,000ha under organic cultivation and production by 2010, double the
current rate.
Problems remain which make development and investment
difficult, such as run-down agricultural
infrastructure and a transport
system which lags behind much of the rest of Europe in terms of
maintenance and modernisation. However, the ball has started rolling and given
time the Romanian
agricultural and food processing sectors will develop
and expand. Even during recession some business
people are optimistic
about the future of agriculture in the country. In February 2009 Ziarul
Financiar
quoted Culita Tarata as saying that he invests everything he
earns because agriculture will endure. He said
that Romanian farmland was
currently only realising 35% of its potential. His company produced
370,000
tonnes 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 in
2008 and unemployment to rise to 8.1% of the labour force
from an estimated 4.4% in 2008) is putting a
break on consumer spending
growth, and negatively affecting food purchases in general. Foreign and
private investment has slowed in the short term until confidence returns and
dragged down industry
growth. Credit tightening by the banks has impacted
companies' ability to invest and expand and
consumers' ability to
spend.
However, the IMF' s approval of a 24 month EUR12.9bn Stand-By
Arrangement should help. It is hoped
that the financial package will help
cushion the effects of the drop in capital inflows, address the country' s
external and fiscal imbalances and strengthen the financial sector. The
Stand-By Arrangement, combined
with other international financial support
totals EUR19.9bn.
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