September 17, 2013

 

Romania expects highest wheat production in 2013

 

 

For the last eight years, Romania is looking at its highest wheat production in 2013 but does not necessarily spell profit for local farmers, who are complaining of an unjustified drop in prices.

 

Traders currently buy wheat from Romanian producers for about €130-140 (US$174-187) per tonne, while in France and Italy they pay up to €200/tonne (US$267), complained Laurentiu Baciu, president of the League of Romanian Farmers' Associations (LAPAR) during a press conference last week. He accused traders of abusing their monopoly position with the collusion of the authorities, leaving farmers struggling to make ends meet.

 

In response to farmers' dissatisfaction, the traders denied that they are the ones who set the prices but clear-cut market conditions. Tensions between farmers and traders over acquisition prices are common in Romania during harvest campaigns. More so this year, when after the poor harvest and resulting high prices in 2012, wheat production is expected to bounce back to the record levels of 2011. Moreover, Romania is not alone in reporting good grain harvests, creating price pressure at a global level.

 

Grain acquisition prices have been a hot topic over the past few weeks, provoking comment from President Traian Basescu, who said the market was dominated by four-five large traders and urged the government and Competition Council to investigate the situation, as the difference between acquisition prices is very low at €1/tonne (US$1.34).

 

In late August, an investigation into suspected price fixing was initiated and 10 local traders stand to be fined up to 10% of their turnover if found guilty. The results have yet to be made public. One cannot talk about the local grain market without taking into account the global one, stressed representatives of the Romanian Association of Traders in Agricultural Products (ARCPA) during a press conference two weeks ago.

 

In a good agricultural year Romania exports between seven and 10 million tonnes of grain, which represents no more than 1% of global transactions. This means Romania is in a position to follow rather than set global trends, they said. Market developments in the Black Sea region – which is dominated by two larger players, Ukraine and Russia – are influencing prices too. Russia and Ukraine alone are expected to export 55 million tonnes of grain this year and an additional 30 million tonnes will be traded in the Black Sea region compared to last year, forcing prices even lower.

 

Moreover, the downward trend is not something that has occurred overnight, said Vasile Varvaroi, president of the ARCPA, adding that the prices started contracting as early as the beginning of the year. While refusing to make any comment on the actual prices they pay farmers, traders' representatives said that it all boils down to supply and demand in the regional and global context. The farmers' discontent comes after last year's poor harvest inflated prices to record levels of €240-250 (US$321-334) for a tonne of wheat. Prices are only now returning to 2011 levels, they added.

 

One way to make the market more transparent, which has often been mentioned over the past few years, is the setting up of a Romanian grain stock exchange. The measure is supported by EU agriculture and rural development commissioner Dacian Ciolos, who argued as early as 2011 that this is the only solution if Romania wants to become an important player on the grain market.

 

Baciu complained that acquisition prices for wheat have dropped sharply over the past few months, from about €227/tonne (US$303) in early June to €140/tonne (US$187) in early September, which cannot solely be explained by the rise in supply. Despite better harvests this year, farmers are not able to cover their costs, and for the first time in recent years, many of them will have to take out bank loans to prepare for next year's harvest.

 

The reason behind the price drop is the monopoly position the main grain traders in Romania enjoy, complained Baciu. Not only are the authorities doing nothing to remedy the situation but they are even lending traders a helping hand, the LAPAR president added. In his opinion, traders are taking advantage of the fact that Romanian farmers are undercapitalised and lack storage capacities. Traders can therefore buy crops shortly after harvest when prices are at their lowest.

 

Better protection from the state, more substantial financial support in the form of higher subsidies and the reintroduction of warehouse certificates are just some of the measures he says the authorities should implement to support farmers. The situation is also representative of the current state of the local agriculture sector and is a direct consequence of the way the authorities have gone about supporting farmers over the past years.