August 23, 2016
Low beef prices challenge restoration of Romania's cattle inventory
By Vladislav VOROTNIKOV
An eFeedLink Exclusive
Various factors including competition from rising meat imports from European Union (EU) members amid the Russian embargo, coupled with export restrictions over the recent bluetongue disease threat, and steadily high feed prices, continue to complicate prospects of Romania's cattle industry. After two decades of decline, there is good chance that these factors would undermine efforts of the Agricultural Ministry to restore the country's cattle inventory.
To start off, Romanians are not consuming a lot of beef, with the domestic market of 20 million in 2015 estimated at only 129,000 tonnes, according to data from the Romanian Institute of Statistics. And according to data from the National Federation of Agricultural Producers of Romania (FNPAR), at the moment the average Romanian consumes less than 7 kg of beef per capita.
Over two decades after the fall of socialism, the inefficient beef industry has been generally reducing in size, with the first signs of restoration taking place only after 2009.
From 1991 to 2011, the cattle inventory plunged from 5.82 to 1.98 million head, with its share of agriculture in the country's GDP dropping four-fold to 4.4%, the lowest ever for the industry. However, slight relief was provided for the industry in 2014, when the herd size was raised to 2.07 million head, following government measures to support farmers with EUR830 million, according to the Agricultural Ministry.
Data from the Romanian Institute of Statistics suggests that over the past few years Romania was importing annually about 25,000 tonnes of beef, but recently this figure has significantly jumped, due to the rising supplies from other EU members. So according to preliminary forecasts this year, the figure could reach 38,000 tonnes, primarily contributed by Germany, Poland and Italy, and potentially leading to serious oversupply problems on the domestic market.
In 2015, Romania showed the highest pace of growth in cattle slaughter rates among all EU members – of 35% compared to 2014, while on average in EU-28 it was only about 3.7%. For a more specific comparison, there were also major increase in slaughter rates in Poland, Hungary and Bulgaria, but pace of growth in none of these countries exceeded 15%.
This was clearly not the consequence of organic growth, but has been provoked by dairy and beef farmers being forced to cull their livestock.
In the first quarter of 2016, carcass weight prices on the market amounted to EUR2.2 to 2.6 per kilogram, with price per head of live cattle ranging from EUR300 to 340. This was believed to be the lowest prices in the industry since January 2013.
Specifically, the oversupply problem in 2015 had resulted in a serious crisis in the first two months of 2016, with large stocks of meat piling up in the warehouses of processors, and farmers waiting for weeks to bring their animals to slaughterhouses, which were not willing to pay more than EUR0.51 to 0.60 per kg in live weight.
Even though in the second quarter prices in general slightly rose, they remained relatively low. The beef industry also has not seen support from exports, since according to the Romanian Institute of Statistics, in 2015, Romania exported 11,000 tonnes of beef, primarily to the Scandinavian countries and the Netherlands, and this figure has no reason to grow in the near future.
At the same time, beef farmers are feeling some support from the decision of the government to reduce VAT from the middle of 2015 from 24% to 19%. This has cut consumer prices and within the coming several years, in the opinion of officials of the Agricultural Ministry, should contribute to some growth of red meat consumption in the country.
Separately, according to the Romanian Institute of Statistics, the country is a traditional exporter of live cattle with dozens of specialised trading companies across the country which purchase calves and young bulls for export purposes. In 2012, Romania exported 3,000,000 head of cattle to China and the Middle East.
However, exports of live cattle have been undermined by bluetongue disease outbreaks which emerged in the country in the August of 2014 and lately in September of 2015, causing restrictions from most importers. As a result, exports of live cattle from the country plummeted 24% in 2014 to 250,000 head and will probably go below 200,000 head in 2016.
As of the middle of 2016, Romania had conducted negotiations with importers on the rules of renewal of live cattle imports, and according to the Sanitary Veterinary Authority (ANSVSA), it has managed to achieve some success. A group of the Middle East countries, including Egypt, the United Arab Emirates, Iraq, Kuwait, Oman and Saudi Arabia, has agreed to the import of Romanian cattle in cases where ANSVSA would be able to apply zoning practices and identify safe regions of the country.
Also, part of the problem in the beef industry is associated with the ban on the cultivation of GM-soybean in the EU. Several political parties in the country for a long time have been lobbying for cancellations of such restrictions, since prior to joining the EU, Romania had been the largest manufacturer of GM-soybean on the continent.
According to estimations of the Agricultural Committee of the Romanian Parliament, these restrictions force Romania to import about 500,000 of feed protein from Brazil annually. If the restrictions could be lifted, it would bring the country's farmers up to EUR1 billion of additional income per year, including cattle farmers.
The situation for feed reserves has become especially complicated this season, since drought has significantly cut the ability of cattle farmers to apply grazing as a way of animal feeding in several regions of the country, bringing feed prices to new record highs.
According to the livestock department of the FNPAR, despite all the challenges, there are still significant opportunities for the development of the domestic beef industry, primarily from the use of hilly regions of the country. FNPAR representatives believe that there are several such areas in the country perfectly fit for cattle growing, but they are still not used due to the lack of necessary infrastructure.
In addition, despite some consolidation over recent decades, the beef industry has remained rather weak, since according to the FNPAR, 92% of beef in the country is produced by small-scale farms of the citizens and only 8% by farms of large companies. Private farmers generally suffer from the lack of floating capital and lack of ability to invest in modernisation. As a result, a significant share of facilities in the industry is dilapidated.
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