MARKET OVERVIEW
Agricultural land, as a share of Romania`s land area, accounts for almost 58%, outbalancing EU-27 average by 14%, whereas the ratio of arable land per inhabitant reaching 0.41 ha is- almost double the EU-27 average. From Romania`s total land area of approximately 23.8 million ha, 13.9 million ha are land usable for agriculture out of which only 9 ha million are arable land.
According to the National Institute of Statistics1, in 2012 the agricultural production fell by 16% compared to the previous year, with crop production significantly declining (by approx. 26% y-o-y), due to severe weather conditions such as drought and floods that have taken their toll on grain crops. Production of cereals for grain dropped by 39.1% compared to the previous year (12.7 million tonnes compared to 20.8 million tonnes in 2011). The decrease is attributable to lower yields (i.e. average production per hectare) for each type of cereal. As opposed to the negative evolution of crops production, the highly dynamic livestock component has improved by 8%, being mainly driven by an increase in the domestic consumption (supported by the Romanian per capita income growth with 5% in 2011 and 2% in 2012).
MAJOR DEALS IN AGRICULTURE
With respect to last year’s market deals in agriculture, we note the joint-venture between Bunge and Prior Foods, amounting to a value between EUR 15 million and EUR 20 million and the acquisitions of Pambac and Zaharul Ludus, the latter ones being equal in value (EUR 10 million). The most unexpected transaction, though, was the sale of several brands belonging to giant Cargill, including Untdelemn de la Bunica and Olpo, to Expur – part of French group Sofiproteol.
Due to land fragmentation, small value M&A and land concession transactions are encouraged within the agricultural sector. Almost 50% of the arable land in Romania is worked by holdings under 10 ha (small farms), which usually are poorly endowed while the top 50 agricultural holdings in Romania cover less than 5% of the total arable land as observable in table 1.
LOOKING FORWARD
The current economic situation on the domestic market presents a series of factors and trends that could be taken into consideration, as follows: the cut in VAT rate for bakery products starting with Q4 2013 aimed at reducing tax evasion and the overall grey segment of the grain and bakery industry; the Government proposed measures aimed at reducing tax evasion in agriculture which may include the restriction of shops through which bakery products are sold, in order to allow for more effective tax controls; grain prices are expected to increase throughout 2013-2014 in spite of the good 2013 yields.
On the long term, the 20-year-old problem of land fragmentation (over half of the entire agricultural area being divided in plots smaller than 10 ha) is considered to be one of the main factors affecting productivity on the local market, by not allowing for a full scale deployment of modern agricultural techniques. The issue is expected to subside at a more noticeable pace in front of the ever increasing number of small and mid-sized associations. As the land plots are passed-down to a generation less likely to move from cities to rural areas and more likely to agree to a sale or long term lease.
