Romania Agribusiness Industry Update Quarter 3 2012

Includes 3 FREE quarterly updates

BMI View: We maintain our cautious outlook for a recovery in the Romanian agricultural industry in 2012 on the back of continued weakness in private consumption and supply-related issues. Freezing temperatures and dry ground are threatening crops, and poor investment management is holding the industry back. Over the longer term, however, we hold a relatively positive outlook on the Romanian consumer, largely owing to the country's large population and low base effects. We expect the poultry and dairy sectors to be particularly well placed to benefit from these dynamics over our forecast period to 2016.
Key Forecasts - Milk consumption growth to 2016: 9.6% to 5.5mn tonnes. Milk consumption, forecast to reach 16kg per capita by 2016, will still be starkly lower than the European average of 75kg per capita, suggesting much more room for consumption upside.
- Wheat production growth to 2015/16: 18.8% to 8.5mn tonnes. Growth will be buoyed by EU agricultural subsidies, foreign investment and increased plantings in response to higher prices.
- Pork production growth to 2015/16: 11.5% to 282,600 tonnes. The lifting of a ban on pork exports to the EU poses upside risks to this growth outlook.
- 2012 GDP growth: 1.0% (down from 2.5% in 2011) - 2012 end-year consumer price inflation: 3.3% (down from 8.0% in 2011) Key Industry Developments In May 2012, new health minister Vasile Cepoi revealed the government's plans to introduce a fast-food tax in Romania in order to supplement incomes in the health care system and also help to curb health problems. The idea was first floated by the government in February 2010 but was delayed. If implemented, the tax will put downside pressure on our already cautious outlook for sugar demand in the country. Indeed, our core scenario for the sugar industry envisages consumption slowly declining as greater awareness about health issues encourages people to seek healthier alternatives to high-sugar and high-fat foods.
In the same month, the directorate-general for health and consumers of the European Commission decided to lift the ban on chicken meat imported from Thailand. The ban had been effective since 2004 in response to the outbreak of avian flu in Asia. We do not expect the lifting of the ban to affect local producers, as they are focused on the fresh chicken market and are protected by strict marketing standards. The entry of Thai poultry products on the EU market could decrease Brazilian and Argentine companies' market share of the EU's non-fresh chicken market, which they have been dominating since 2004.
In February 2012, Romanian dairy producer Covalact opened a EUR1.1mn logistics centre in Sfantu Gheorghe. The firm plans to spend a further EUR4mn over the coming years to boost capacity and launch new products. In December 2011 Israeli dairy producer Tnuva pulled out of the country after having invested EUR60mn in its business there. Tnuva had intended to use Romania as one of its launch pads for international expansion, establishing a system from milk production through distribution under the Tnuva and Yoplait labels. While Covalact's investment can be viewed positively and its timing perhaps more fortuitous than Tnuva's, it is nevertheless much less significant compared with the Israeli company's original investment. The demise of Tnuva's Romanian story perhaps points to a business environment that still holds pitfalls for the foreign investor.