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Romania’s ethernal and fascinating promise - Doing Business | DOINGBUSINESS.RO

  |  12.11.2012

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

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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.


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