Monday, May 30, 2011

Oxford Business Group Latest Briefing: Romania: Centre stage

Funding from the European Union continues to support the structural transformation of Romania’s agricultural sector, which has historically served as one of Europe’s leading breadbaskets, interrupted only by mismanagement during the Communist era.

Romania’s wheat production is set to rise 7% this year to more than 6m tonnes, up from 5.6m tonnes in 2010, according to the agriculture minister, Valeriu Tabara. This is despite the country reducing its area for wheat cultivation to 1.8m ha, down from 2m ha in 2010. Wheat production has been growing steadily in recent years, rising from 5.2m tonnes in 2008.

Both rising output and regional market factors point towards increasing export potential. Russia and Ukraine, two huge agricultural exporters in the Black Sea region, have imposed limitations on grain exports, Russia banning them outright and Ukraine issuing quotas. The curbs have provided an opportunity for Romania, along with other countries, to fill the gap on the world markets.

Romania, together with its significantly smaller neighbours Bulgariaand Moldova, is forecast to boost its wheat exports to 5.5m tonnes for the full agricultural year 2010-11, up from 4.4m tonnes in 2009-10, while maize exports are expected to grow from 3m tonnes to 4.1m tonnes and those of barley from 1.1m tonnes to 1.5m tonnes, according to Dian Donev, the director of Scanwel, a Bulgaria-based trading company with interests in the agricultural sector.

Russia may resume exports in June, the beginning of the 2011-12 agricultural year, though there is considerable uncertainty over the issue, and it seems likely that some form of export cap will be retained. In any case, with global and domestic demand for food continuing to rise, Romania’s farmers are likely to have a healthy market outlook for the foreseeable future.

While it exported 2.4m tonnes of wheat in 2010, at €150-€170 per tonne, the country only covered 70% of its domestic demand, according to Aurel Popescu, the president of the Romanian Employers’ League of the Milling, Bakery and Flour-Based Products Industry. Popescu told local press that Romanian mills and bakeries are currently importing wheat at €300-€320 per tonne.

The sector’s recovery has been strongly supported by the EU.Brussels has long focused on developing the agricultural sectors ofaccession countries before and after they join the EU, including through the Special Accession Programme for Agriculture and Rural Development. In 2010 Brussels increased direct payments to Romanian farmers to RL680 (€165) per ha, up from RL475 (€115) in 2009. In 2011 the EU is granting Romania €907m, or €101 per ha, and this will be augmented by Romanian state funds.

The World Bank is also supporting Romania’s agricultural growth. AsPeter Harrold, the bank’s country manager for Central and Eastern Europe, noted in a recent interview with the international press, rural areas of Romania are home to a significant proportion of Europe’s poorest people, making it a priority sector for future development.

Harrold called for Romania to adopt a strategy to boost agricultural productivity and yields to stimulate investment in the sector. Consolidation of land into larger farms, including cultivation of land currently left fallow, would also be beneficial, enhancing economies of scale and output. Harrold also highlighted the potential for harnessing foreign investment in agriculture and the role it could play in increasing exports.

However, Harrold warned that Romania must also improve its process of external fund absorption, drawing attention to a long-term malaise in the country that has seen large sums from the EU either unused or wasted. While Romania has made considerable progress in tackling corruption and administrative inefficiency, there is still some way to go.

In the longer term, though the EU is likely to continue giving financial support to agriculture across the continent, Romania will need to be weaned off some agricultural funding as its smaller farms grow and become strong enough to stand on their own feet. Recent evidence suggests that, if the current cash supply is spent wisely and partnered with a strong flow of private investment, Romania can build its position as a European breadbasket.

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