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Agribusiness in Romania

BMI View: Skyrocketing grains prices resulting from export controls in major Baltic producers are producing serious effects across most Romanian agricultural sectors. High wheat flour prices are weighing on demand. High feed prices are likely to take their toll on dairy, livestock and poultry producers and we expect to see some production cutbacks in 2011. On the other hand, we expect corn and wheat plantings to rise in 2012 as farmers take advantage of favourable prices.

Key Views

- In 2011 heavy snow protected winter wheat from frosts, leading to fair yield expectations for 2010/11. We are forecasting production of 6.10mn tonnes this season, up 6.6% year-on-year.
* Conditions were favourable for winter barley sowing except in central areas, in which there were heavy rains. In 2010/11 we are forecasting production of 1.25mn tonnes, down 3.5% year-onyear.
- We have revised downwardly our milk production forecast for 2010/11 in light of soaring grains prices, which will raise input costs for farmers and likely result in production cutbacks. We forecast production of 5.12mn tonnes, down 0.7% year-on-year.
- We have revised down our poultry production forecast for 2010/11 on the expectation that rising feed prices and reduced demand due to government austerity measures will deter production. In 2010/11, we expect production to fall to 275,000 tonnes.
- We see much room for expansion for rice cultivation. In 2010/11, we expect to see a return to growth, forecasting production of 73,000 tonnes. By 2014/15, we forecast production will hit 125,000 tonnes, up 102% over our five-year forecast period from 2009/10.

Industry developments

To deal with soaring wheat flour prices, the baking and milling industry has demanded that 300,000 tonnes of wheat be released from the state reserve into the market. The agriculture ministry has so far refused to do so, claiming current stocks in warehouses are enough to cover industry needs until the next harvest. While we are cautiously forecasting wheat production of 6.10mn tonnes in 2010/11, with Russia looking likely to retain its export ban until the end of 2011, we believe prices are unlikely to fall any time soon.

On December 9, the European Commission (EC) released its proposals for dairy industry reform, having considered the High Level Group on dairy reform's recommendations. The measures would allow for written contracts between groups of milk producers and processors. This will give farmers a better idea of the price their product will fetch in advance of delivery. The EC also proposed to allow producers to negotiate collectively with dairies, in effect forming a cartel. The measure should to some degree improve the balance of power between producers and processors in farmers' favour.

Plans for a fast-food tax appear to have been shelved. In June, Minister of Health Cseke Attila announced that the plan would be delayed until 2011 because the economic conditions were not right. With the country in the middle of a severe fiscal austerity drive, we believe that to introduce such a tax now would be politically impossible. We are watching developments closely, but do not expect the tax to see the light of day in 2011.

by S. C.
06 april 2011, World News > Europe