October 30, 2003
Outlook of Romania's Dairy Industry in 2003
Raw milk production was stable over the past five years in Romania, though feed shortages caused by the extreme drought in 2003 might trigger animal slaughter and reduce herds towards the end of the current year.
Milk quality continues to constrain expansion of the commercial sector because of deficient sanitation in farms and insufficient cold storage facilities. Supply has a strong seasonal trait and is very dispersed in the territory, as the number of raw milk producers is around 1.2 million, of which only less than 900 hold more than 15 cows. Moreover, average yield per cow is very low, significantly below the genetic potential because of deficient feeding and husbandry practices.
In order to ensure some control over both milk quantity and quality, some of the large processors provide additional incentives and services to their suppliers. One example is to give farmers dairy heifers, with future payment in milk. The western type of co-op practically does not exist.
Romania requested a 7.7 million MT of milk quota in its EU accession negotiations, based on historical total production figures. Nonetheless, in Romania's position paper it is admitted that the dual structure of the domestic dairy sector, where market-oriented operations coexist with small subsidence farms, require deep restructuring. Under the current circumstances, marketable production cannot reach the requested quota.
Of the about 5.5 million MT of milk (of which some 350,000 MT is sheep and goat milk), the processing plants absorb only 22-24 percent. Milk collection is expected to improve slowly, as investments (including under EU-Sapard funding) in cold storage and processing facilities emerge.
Sales of raw, non-pasteurized milk to final consumers in open markets have been allowed until the end of 2003. Though a health hazard, this channel traditionally absorbs about 24 percent of domestic production. Despite the adoption OF food safety regulations in line with EU principles, such practices are likely to continue, as legislation enforcement is still precarious. This is also encouraged by consumer behavior, for who such "natural" whole milk is healthier and who consequently is willing to pay more than the processors, immediately and in cash.
Household self-consumption is also high, around 41 percent. Another 12 percent of the total production is used as feed.
Though still very low (about 30 percent less than in EU), dairy products consumption is stable and urban demand is increasingly sophisticated.
There is no dominant single player in the market, but a number of international players: Danone (French). Friesland (Dutch), Parametru (Greek) are present. Approximately 900 companies make this sector one of the most dynamic in the food industry (the growth rate in 2001 compared to the previous year was 154%). Nationally recognized brands are very few, since the market is still immature.
Per capita consumption of main dairy products has not varied much over the last three years.
Romania remains a net importer of dairy products, including raw milk for processing brought from the neighboring countries, from which transportation costs are bearable to make this commodity tradable. Hungary remains the main important supplier, after Moldova was banned in mid-2002 to export to Romania, as a consequence of adoption by of the "third country requirements" (only countries and plants approved to export to EU can export to Romania). For 2003 AgBucharest expects import of fluid milk (including processed, packed milk) to stay fairly stable, at about 2,000 MT.
Imports of fruited, flavored fresh dairy products increased by 40 percent in 2002 versus 2001.
Prices of raw milk for processing climb in fall and winter and decrease in summer. Farm-gate prices varied between $13 - 16 per HL in 2003. Though generally higher in real terms than a year earlier, these still depressed levels continue to be a disincentive for farmers to sell to the processing industry. On the other hand, processors cannot afford to pay more because of their high additional costs: difficult collection from small farms, with precarious sanitation and poor transport infrastructure.
Processed dairy products are sold at stable prices.
Throughout 2003 GOR has continued its procurement subsidy program for several commodities, including milk. State subsidy for cow milk sold to processors is currently at $0.05/liter in summer and 0.06/liter in winter. These payments are set for the standard 3.5% fat milk, with no reference to protein content, dry matter or germ number.
Additional legislation was passed in order to help recovery of the sector and prevent drops in the livestock number. Thus, farmers are eligible for a lump sum for heifers bearing calves for the first time and for newly born calves resulted through artificial insemination.