Romanian Agriculture - Potential vs Reality

LUCIAN ANGHEL - Chief Economist BANCA COMERCIALĂ ROMÂNĂ S.A.

Executive summary:

1. High potential along with rising prices of agricultural products on international markets are likely to maintain foreign investors’ interest towards Romanian agriculture

2. Romania has the highest level of family labour force in agriculture in EU 27; low investment rates have left the local agriculture sector at the nature’ mercy and induced an erratic development

3. Highly fragmented land holdings represented a major setback in attracting new investments and affected significantly productivity gains

4. The sector is characterized by a considerable segment of economically and socially vulnerable farm population, who face difficulties in complying with the new and complex set of agricultural requirements

5. External financing is crucial for agriculture as government’s support for this sector will be modest in the coming years, in line with increased pressures upon public spending from areas with an important social component

6. Banks have so far focused on large customers, rather than small ones to which some national programmes have been addressed and this is very much related to risk taking

7. Current international turmoil is no good news particularly for agriculture

Soaring food prices are an opportunity for countries with strong agricultural sectors

Food prices increased strongly on international markets during the last years, following some specific developments: increasing food demand due to population growth and higher living standards in Asia, increasing biofules demand especially in USA and EU, severe weather conditions that slashed agricultural output in many countries. Important structural changes in global economy, including fast growing GDP in China and India, have been closely reflected by commodity price increases – food, energy, metals.

Wheat price went up by nearly 200% between 2001 and 2008 on world markets. The upward trend is likely to continue in the coming years, although at a moderate pace, as the supply will adjust slower to the increased demand.

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