Agriculture Report: Strengths – Opportunities – Survival

21 Septembrie 2009

BANCA COMERCIALĂ ROMÂNĂ S.A.

Summary

> Romanian agriculture has the potential to become a real playground for foreign investors: discounted land prices, expansive arable land and good quality soil could provide the perfect combination for a success story for any significant foreign investor willing to employ know how and  xpertise in a country that could feed more than 100 million individuals.

> Highly fragmented agricultural land coupled with low investments, an ageing and largely impoverished population living at subsistence levels and dominating the rural landscape leave only one major option for Romanian agriculture: FDIs and European Funds.

> The top 50 players in agriculture cover just 4% of the total arable land, which is about 430 thousand hectares; expectations of rising prices of agricultural land until recently have thrown a spanner into the land-merging process.

> Romania has so far not been able to establish effective distribution mechanisms in its domestic trade, while local producers struggle to sell their products on their own account (approximately 70% of total production according to some estimates).

> Approximately 15,000 projects have been presented within the Rural Development Program with a total value of € 9bn; only 3,000 contracts have been agreed to date, with a total value of € 1.6bn.

> Cereal crops (except for maize) are likely to contract 25-30% in 2009 following poor wheat harvest, according to figures as of end-August.

> With just a small number of employees, international grain trade giants such as Alfred. C Toepfer, Cargill and Glencore are managing to cut significant deals in Romania.

Bad weather conditions left their mark on cereal harvest

Cereal production (with the exception of maize) is expected to decline by 25-30% in 2009 following spoor wheat harvest (down more than 30% y/y); wheat accounted for 74-75% of the total cereal crop harvested up to August 31. The wheat crop is estimated by officials at approximately 5.2 million tonnes in 2009, while domestic consumption stands at 3 million tonnes per year. Under these circumstances, bread prices are not likely to come under any pressure in the next year, but a final assessment on the wheat quality cannot be revealed before the end of September.

The story remains the same for 2009, when unfavourable weather conditions had a strong effect on the agricultural crop. Besides droughts and floods - the main culprits for the poor results this year - the decrease in area of cultivated land should not be overlooked.

• Cereal crop

Source: BCR Research, NIS, local media

Note: Other include: autumn barley, Autumn two-row barley, Spring two-row barley, Oats

Although productivity gains have not improved in real terms over the past five years, available crop land has fallen by an average 10% between 2003 and 2008, mainly because of urbanisation and low working capacity of land. There have also been cases of foreign investors coming to Romania just to buy up agricultural land - which is between three and seven times cheaper than in Western countries - and then reselling it later at inflated prices.

• Productivity gains and agriculture - real-term developments

Source: BCR Research, NIS

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