Romania’s ethernal and fascinating promise

The national under-regulation and the strict regulation at EU level are paradoxically both responsible for weak investments in Romania’s agriculture – which consequently lags behind potential

The lack of a predictable environment at home (plus atomised ownership inherited from the 90’s), added to the differential farming subsidies and discouraged foreign investors to pour their money in agriculture when their interest increased in the past decade


Lack of capital and infrastructure left Romania’s farmers vulnerable to the natural, unpredictable drivers – as it happened in the last 2011-12 marketing year and might happen again in 2012-13 if the weather remains adverse. On the upside, strong global demand generates broadly favourable circumstances for the sector as the prices are still high.


Change of paradigm: feeding people vs. generating value


Romania could feed up to 80mn people, experts conclude from time to time.  It is often evoked the “golden age” when the large fields provided the country with a competitive advantage at European level in the context of extensive farming at the beginning of last century. However, today’s farming is quite a different business. Indeed, hypothetically country’s natural resources could produce more food than its population needs.


Problem is that country’s agriculture should not effectively feed as many people as possible – but to optimise the utilisation of natural resources and generate as much as possible value. While the former paradigm is more of political nature, of the same nature of “food security”, the latter is what is generally defined as a well-posed problem. People-feeding paradigm is not a well-posed problem for many reasons. But it is followed by so many at microeconomic level that a shift in paradigm is unlikely to happen until the families actually feeding themselves from one-to-two ha plot of land effectively disappear: by either extinction, or migration to more developed European areas where their labour is better valued so they prefer trading it than using the plot of land back home.


Foreign trade: trading inputs for processed food


The foreign trade statistics for 2011 for the food sector shows one interesting fact: while “other” items account for 29% of exports, its share in imports is 54%. It means that while the exports is relatively dominated by several key [basic] items like maize and other grains, Romania imports a bit of everything. Local food producers hardly face the competition of foreign producers that have benefitted for decades of abundant subsidies extended by the EU under the Common Agricultural Policy.


The sunflower seeds exports increased markedly, doubling in volume to nearly 1.2mn tonnes in 2011, according to the government’s foreign trade agency.  . The imports were 0.24mn tonnes and indeed the net exports were slightly below 1mn tonnes – but this is still notable. The high records were supported by the record sunflower crop of nearly 2mn tonnes.


The domestic crop increased more precisely by 0.6mn tonnes to 1.86mn tonnes in 2011. The whole supplementary production went to export. The effects of record sunflower crop last year was enhanced by certain increase in the average FOB export maize price to EUR 434 per ton – in 2011 against EUR 391 per ton in 2010.


The wheat exports on the opposite plunged in volume terms by 63% y/y to 1.57mn tonnes. On base effects after the record crop harvested the year before. Hopefully, the average wheat FOB export price increased from EUR 154 per ton in 2010 to EUR 200 per ton in 2011.


The rise in imports was more moderated in 2011, only 12.5% y/y against 26.9% y/y rise of the exports. Romania imported mainly sugar and pork. The imports of sunflower surprisingly increased surprisingly in spite of the record crop. Imports of soy groats remain very high, as well as the imports of animal feed-like, prepared, as the cultivation of GM soy is still banned in the country.




2011-12: sound 2011 crops fuel country’s economy


Romania’s vegetal crop, but also the animal produce, must have decreased in 2012 because of the dry weather one year earlier and because of the farmers’ difficult financial conditions.


Maize crop drops by some 60% to 4.7mn tonnes in 2012, according to estimates of the agriculture ministry dated late September. The country was the second largest European maize producer last year with 11.6mn tonnes harvested from 2.6mn ha. In 2012, farmers increased their exposure to maize to 2.8mn ha after the rapeseed crop was severely damaged by the adverse weather.


Romania’s potential for maize exports have diminished dramatically this year [2012-13], but the actual exports will finally depend on the distribution of the crop between large farms [more inclined to put on the market their crops] and small-sized farms that use predominantly the output for own consumption.


Wheat crop has decreased 32.7% to 4.78mn tonnes this year. Country’s wheat exports will decrease to 1.3mn tonnes in the 2012-2013 marketing year from 2mn tonnes a year earlier, the country’s agriculture minister Daniel Constantin was quoted as saying. Yet, the wheat quality is very good, with 100% of it qualifying as milling wheat, Constantin stressed.


Sunflower crop is 1.3mn tonners, down from 1.87mn tonnes last year, EU official projections show.  Nonetheless, the line ministry announced that even at 1.5 tonnes per ha, the 0.65-0.7mn ha cultivates will yield enough sunflower to cover domestic demand.


Investors gain interest in Romania’s meat industry


The US Smithfield was the sole Romanian pork producer that received license to export fresh and processed pork from Romania to EU after January 1, when the Union lifted the ban on Romanian pork. The US company, which operates a large-sized farm in Western Romania, plans to export to EU and Asian countries.


Out of the 12 farms applying for the permit, only two qualified and Marex [the other one] gave up export plans meanwhile. The pork imports decreased significantly from nearly 250 thousand tonnes in 2008 to less than 160 thousand tonnes in 2011 – while the domestic pork production [weight in carcass] stagnated around 455 thousand tonnes.


Investors’ interest in Romania’s meat industry is witnessed by HKD Industries putting EUR 10mn into the takeover of Romanian meat processor Integra – a company that delivers its output mainly on the local market. Some 70% of the meat processed by Integra is of local origin, while the rest is imported from EU countries. The EUR 10mn include the cash injection as well as the service of Integra’s debt – in addition to the price paid for the 100% share to local owners.