Pigs in Romania
50% of the investment in the pig sector procurement can obtained as a non-refundable funds. This article is intended to create a clear picture of the current situation in Romania anno 2008. In 2003, we have tried to bring larger investors but it was too early. today it is the right time. The non-refundable grants are given till the end of 2013.
PBS is a specialist in applications for non-refundable grants: www.pbsworldwide.com
The Camera Imobiliara Belgia Romania searches farms and land in Romania: www.cibr.be
Romania is engaged in a catching up in terms of living standards, scale, chain development and quality standards. The meat industry has great players, who are still under development. The industry is largely dependent on imports. The pig industry offers room for family businesses, provided that the disease risk is limited. As a result of swine fever outbreaks may Romania currently no meat export. In terms of feed, Romania has sufficient supply and favorable access to the seaport. The feed production is in its infancy.
The study is a summary of a study that is done by the Ministry of Agriculture in the Netherlands. It is an ideal tool for a first orientation.
Land and population
Romania borders the Black Sea, Ukraine, Moldova, Hungary, Serbia and Bulgaria. The country has access to the black Sea via the prot of the city of Constanta. The capital is Bucharest. Romania has an area of 238,000 km and 21.7 million inhabitants in the year 2007. By 2020 the number of inhabitants in Romania will shrink with an expected rate 0.37% per year. More than 40% of the population lives in rural areas. Romania has a continental climate with an average temperature in Bucharest in the winter from -3 ° C and in the summer of 23 ° C. The presence of the Carpathians ensures diversity in landscape and regional climate differences. The average rainfall is 637 mm per year.
After the execution of Ceausescu in 1989 the first free elections were held in Romania in 1992. Until 1996 the former communists dominated the government. Since then, Romania follows a pro-western course. Romania is a member of the WTO and the UN and joined the EU in 2007. The country is still in the process of implementation of EU regulations. Romania was in 2006 in a 84th place of least corrupt countries on the corruption perception index, behind Hungary (41st), but for Ukraine (99th) and Russia (121st). Romania has firmly deployed to combat corruption. At the end of 2006 gave the EU that significant steps have been put in the fight against corruption, both in the form of improved legislation and prosecutions through a public campaign. The reform of the system of jurisprudence is on the right track. However, the European Commission has threatened Romania with a discount of 25% on the payment amount of € 443 billion for direct payments to farmers and market-supportive measures, due to insufficient guidance to the control of subsidy payments and lot identification.
The role of the agriculture
The Romanian agriculture is of great importance for employment. In 2006 the agriculture generated 31.6% of the employment and 10.1% of the GDP. 60% of the land is utilized as cropland, 25% as grazing land and the rest as meadow, orchard and vineyard. 71% of the arable land was used for cereals in 2004 and 13% for oilseeds and sugar beet. Major agricultural products are wheat, conr, barley, sugar beet, sunflowers, potatoes, grapes, eggs and sheep.
In 2007, the agricultural is divided in a large-and small-scale production. There were approximately 4.5 million farms with an average area of 3.1 hectares in 2003, of which over 3.4 million micro enterprises, 1.0 million semi commercial companies and 0.1 million small-scale commercial farms. The micro enterprises have 38% of the area. They hardly have other sources of income and production for own consumption and barter. The small-scale private companies jointly own 31% of the area. These companies produce as well as micro businesses for their own supply, but also for the local market. The commercial companies jointly own the remaining 31% area. The number of large firms is 23,000. These are state-owned enterprises, private enterprises and collectives, of which a part is otherwise empty. One of the main private companies in the pig sector is the American Smithfield with an integration in western Romania.
Romania needs to be the center of the European strategy for Smithfield. The low cost of labor, feed, buildings and land, combined with European and American brands notify the company sees benefits in Romania towards Western Europe. In 2004, Smithfield bought 80% of the shares of the former state-owned Comtim in Timisoara county. By utilizing the existing chain structure Smithfield has already set up an integration with its own breeding, propagation and production of pigs. In addition to contracts with local farmers, the company has 33 pig farms in western Romania, of which 25 companies in the Timis region, 7 in Arad region and 1 in the Bihor county. The company has 486,000 pigs. Smithfield produces feed with its own resources and partly has its own slaughter and processing site. Altogether wants Smithfield to 2010 for USD 850 million to invest in pig production in Romania. In 2006 Smithfield acquired Agroalim for 49 million Euro and completed the integration towards “retail” distribution (Carrefour, Metro, Cora, etc…).
The arrival of Smithfield to Romania is controversial. The municipal environmental consequences of Timisoara because the original planned number of 4 million pigs on 250 pig farms to around 1 million pigs and a maximum of 100 companies. Smithfield had to deal with outbreaks of swine fever in august 2007 on farms in a region that was assumed to be free of swine. Investigations revealed that some of the companies produced without proper sanitary-veterinary and environmental and work permits. Smithfield got many negative messages in the press.
Smithfield will be able to sell fresh meat to regions inside and outside Romania (apart from the current border closure by swine fever) once that the manage to run the integration. It is however not easy to convert the location advantages into actual profits.
Agriculture plays a major role in the social life in rural areas, partly because their own production for a large proportion of the population is the only way of survival. A large part of micro and small enterprises remains even after the retirement age due to the absence of social-provisions.
The economic efficiency of agriculture is anno 2007 lower than in the other countries examined. This is firstly because the Romanian agricultural sector produces bulk products with low added value. The second reason is the poor agricultural infrastructure. Only half of the farmers have access to public roads, 10% have access to to running water and 90% have no training or education. Thirdly, the privatization of agriculture led to a fragmentation of the agricultural plots. Romania has the potential to produce a quantity of food that can feed three times the population. Especially the south of Romania is very suitable for pig production. This region cultivates grain. The very good agricultural land is cheap and it is geographically favorable to the Danube, close to Bucharest and close to the port of Constanta.
The Romanian government has plans for the structure, quality and productivity of agriculture through favorable loans to farmers and a pension plan that is intended to free up land for the structure of agriculture. With EU membership, Romania has access to EU subsidies. Until 2007 the country received € 1 billion from the EU programs PHARE, ISPA and SAPARD. SAPARD played a key role in the development of the Romanian agriculture, with grants of up to 50% of the investment. Incidentally, these remained largely untapped because many farmers cannot afford to invest. Romania has agreed in principle for the period 2007-2013 to over 12 billion Euro of CAP funds been allocated, of which 4.3 billion euros for direct income support and programs for market support (the first pillar of the global agriculture policy of the EU) and 8 billion Euro for rural development ( the second pillar of the global agriculture policy of the EU).
In the period from 1990 to 2004, the livestock halved. The number of pigs fell from 12 million units in 1990 to 4 million units in 2001, after which the number again increased to 6 million (Figure 3.3). In 2006 and 2007 the number of pigs around 5.1 million.
The number of poultry halved from 1990 (115 million) to 1998 (65 million), after which the number gradually rose again to 90 million units in 2004, in 2006 there were around 80 million birds, of which 44 million laying hens. The number of cattle halved from 1990 (6 million) to 2001 (3 million) until 2006 and remained at this level. The number of sheep /goats halved from 1990 (16 million) to 2001 (less than 8 million) and then increased to more than 9 million units in 2006.
The role of the government
After years of stagnation in the development of agriculture, the Romanian government now plans to adjust the structure, productivity and quality. Next to the EU subsidy schemes are the following support measures take effect from the Romanian government:
1. Loans for a duration of 5 years at low interest rates and a 2-year deferred payment for 5000 farmers;
2. A pension plan for farmers, allowing them during their life to get annual benefits by selling or leasing their land. With this arrangement the government aimed at a social service in rural areas and the wanted to free land to restructure the agriculture. But the farmers are not able to live with this revenue and it is expected that a small number of farmers will participate;
3. Special fiscal and economic measures for small and medium-sized enterprises;
4. Tax benefits for companies in 32 disadvantaged areas and industrial parks.
Before the accession there wase a direct subsidy in the form of a contribution of € 65 for the purchase of breeding sows and direct aid of € 0.23 per kg (live) carcass. This support was canceled after the accession to the EU
Political on land ownership
Romania is the only one of the four countries where foreigners can buy land, provided they live in Romania. Non-Romanians who live abroad can acquire land from 2012 (farmland from 2014), or directly through a Romanian legal entity with 100% foreign capital. The selling price of the land land is depending on region, location and the lot size. The prices of agricultural land are expected to rise next five years. Possession of buildings is not prohibited for foreigners.
For keeping livestock environmental, animal health and work permits required. Romania has to do with significant environmental problems due to inadequate sanitation, insufficient water and runoff of nitrates from agriculture. There are several transition periods agreed with the EU to tackle these problems. The policy on animal health and food security is safeguarded by the veterinary and food safety authority ANSVSA. This service is coordinated by the agriculture ministry, but under the direct authority of the Prime Minister, which indicates the importance that the Romanian government proposes in this topic. Especially for foreign companies is key to obtaining licenses in order to have. It is important to have good contacts with local authorities (mayor, prefect, local and regional representatives of the Romanian Ministry of Agriculture and Rural Development and veterinary and environmental inspection, etc.). Romania is currently working to implement the EU policy, including animal welfare and the environment. These issues have attention but they are not a priority. A Phare Twinning project runs in 2008 with a view to further improving animal welfare.
Consumer and retail
The consumption of meat was fairly stable from 1995 to 2001 between 42 and 45 kg per person per year. Thereafter, the consumption has grown to 59 kg in 2007, mainly due to the increased average income. From the consumption is about half the pork, with 21 kg per person per year before 2001 and 30 kg in 2007. The consumption of poultry meat rose gradually from 8 kg per person in 1995 to 17 kg in 2005. Due to the avian influenza and stagnant growth combined the consumption decreased to 16 kg in 2007. The consumption of beef fell from 12 kg per person in 1995 to 7 kg in 2001, after which they increased to 9 kg in 2007. The consumption of mutton from 1995 to 2007 fluctuated between 3 and 4 kg per person per year. Incidentally slaughter by-products are also eaten in 2006 around 4 kg per person. The Romanian meat consumption was 20 kg per person lower than average in the EU-25 and the pork consumption at about two-thirds of the average in the EU-25.
Given the income level for meat is a luxury many Romanians. A large part of the pork consumption in the form of smoked sausage. Pork is sold at the same price as beef. Consumption of pork has shown a seasonal pattern with peaks in May-June and September-October. For Romania is a question of pork elasticity of income of 0.35 calculated, so to increase income by 1%, the pork consumption rose by 0.35%. The pork consumption is expected to increase to 33 kilograms per person in 2015.
In 2005 in Romania were 17 major retailers asset and the top-5 a share from 14.9% had. Metro was the biggest in 2005 with a turnover of € 1.24 billion, followed by Rewe (€ 660 million), Carrefour (€ 435 million) and Cora-Louis Delhaize (€ 187 million). In 2004 and 2005 had a retail sales growth of 60%. Romania in 2006 stood at the 22nd place in the ranking of retail investment most interesting countries, similar to Hungary (23th), but well behind Russia (2nd) and Ukraine (4th). The market is not saturated yet for retailers and the investment risk is comparable to Russia and Ukraine. The attractiveness of the market is, be limited. The Romanian news agency Rompres reported in April 2007 that in the next seven years 350 hypermarkets and discount stores to come. This represents an attractive market, but also lack of skilled personnel and rising land prices on the good sales locations. There may be opportunities for logistics service providers in order to set up distribution chains for retail in Romania.
Meat in Romania is 40% cheaper than average in the EU-27 and is compared to the overall price of food even more low-priced. Beef and Veal Anno 2007 has an equally high price as pork. The retail price pressure from major exercises on the present links in the chain.
In Romania, especially in the larger cities have a growing interest in healthier food, such as organic products, meal replacements and light products. It is doubtful whether this to the expected income levels in the near future more than a niche market will be. Retailers use the policy to maximize Romanian products in the store to have. Due to the lack of quality and quantity of Romanian Fresh products most of the products are imported.
Each year, approximately 6 million slaughter pigs are produced, of which 1 million in industrial enterprises. The pork production has grown since 2001 from 400 to 490 kilotons in 2007. The beef and veal production was between 1998 and 2002 fairly constant around 150 kilotons and 200 kilotons of around since 2003, while poultry meat production since 1998 has risen from 160 to 240 kiloton in 2007. The mutton production is approximately 60 kilotons. In 2005, 21% of domestic pork production companies supplied meat for further processing. The rest was processed locally.
After 1989, there is a shift occurred in integrations of abattoirs to slaughterhouses in private hands. These private slaughterhouses have a capacity of 1 to 40 tons per day. The total turnover in the meat industry in 2002 amounted to € 959 million and there were 31,000 people employed. The meat industry is (partly) united in the Asociatia Carnii Romana.
The meat industry is moving, by scaling, consolidation and integration. The top-5 in red meat processing industry has a market share of approximately 60% of the industrial processing. Cristim (15 to 18% market share, production 23 kilotons) is the largest, followed by Aldis and Tabco-Campofrio, each approximately 20 kilotons. Other major players are Angst Ro, Principal Construct, Kosarom Pascani, Karoli, Caruz and the Spar Group.
These large companies are diverse in size and market share but also the degree of specialization. Many large meat processing companies are integrated forward (Sicalex), backward integrated (Romsuintest, Aldis, spokes), or both the front and rear integrated (Euro Pigs, Smithfield). From the production on a commercial pig farms 75 to 80% takes place in integrations. The forecast is that integrations and consolidation continue.
Besides the big companies there is a large group of medium-sized processors with a capacity of around 2,000 tons per year and a large group of small private businesses meat with a very small capacity. The number of meat processors in recent years is not much decreased, because the declining domestic production has been absorbed by increased imports. Medium-sized processors will in the coming years will be difficult to meet the EU rules, while the small there is not expected to be able to comply. It is expected therefore that 30% of the meat companies for 2010 is stopped. In the Romanian meat is a need for money, knowledge and management.
Import and export
Romania has since 1995 become increasingly dependent on imports of meat and especially pork and poultry. Within the EU-27, Romania is the third meat importing country. In 2007, the self-sufficiency of beef and veal was 88%, 77% for pork and for poultry meat 64%. The self-sufficiency of sheep / goat meat in 2006 was 139% (GMC, 2006). The import of pork has been boosted by large variation in the quality of domestically produced slaughter pigs in combination with the increasing quality The pork imports in 2005 came mainly from Germany (21%), Canada (15%), U.S. (13%), France (11%), Spain, Poland, Hungary and the Netherlands (each 5-8%). By joining the EU it is expected that the import of pork from Canada and the U.S. will fall, because there are only three U.S. meat companies with EU approval. Due to this decline in foreign (non-EU) offer the price of pork rose. Important import products for pork are 70/30-trimmings, carcasses and slaughter by-products.
The export of pork meat has fallen almost to zero: in 2006 475 tons were exported. By January 2007 there were 208 meat companies approved for red meat exports to other EU Member States. The swine fever is export of live pigs and pork (products) to other Member States not allowed.
Delivery of pigs
The introduction of the EUROP-classification by joining the EU, according to the Romanian Meat Product (RMA) led to rapid improvements to the quality of pigs. There is also an end to ongoing discussions between the slaughterhouses and on quality of pig slaughter. Nevertheless, according to RMA payout for live weight is still leading. The average live weight of slaughtered pigs was 105 kg (carcass).
The Romanian meat market copes with insufficient slaughtering which often have a poor quality. The industry wants reduced the slaughter of fat pigs and they want to have a bigger rentability in the cutting and deboning units, lower production costs and lower selling prices. Slaughter of micro enterprises have an average of 20-30% more fat than slaughter in western countries.
The accession to the EU companies obliged to comply with EU requirements. Only 1,000 of the 15,000 companies in the food industry met in January 2007 to European food safety standards. Of the 367 red meat processors, 101 complied with European standards. Romania has with the EU a transition period until the end of 2009 agreed for modernization of abattoirs and meat processing companies. All companies are categorized according to the deadline so that they meet the EU requirements will be met. Meat is not yet adapted from companies may not be exported to other Member States.
In addition to the statutory standards, the Ministry of Agriculture launched a plan to improve quality of industrial food products. Production Standards such as retail or HACCP requirements are not widely applicable in the Romanian meat processing industry. With the expected growth in sales of meat through the retail it will have to be deployed.
There are few foreign investors in the meat industry in Romania. The most important is the American Smithfield. There are also some Dutch investors in the meat processing industry as Darimex, Plus Food, Meat Products International / Hejaco and Promessa, as well as Arab investors fractional interests in Karoli and Agroalim.
For Romania is a continuing dependence on imported pork expected. As a result of the accession to the EU the import of meat from outside the EU will be limited and in 2007 the net imports are lower than in previous years. Domestic production is expected to grow and, with some delay, the consumption will increase. The expected domestic production in 2015 was 560 kilotons and 160 kilotons of net imports. Compared with 2007 is that 80 kilotons of higher production and 10 kilotons of higher net imports.
The number of pigs fell by two thirds between 1990 (12 million units) and 2001 (4 million units). The first major decline was due to the dismantling of agricultural cooperatives in 1990 and 1991. The second major decline began in 1997 due to closure of non-viable state enterprises and the elimination of guaranteed prices and compensation premiums for the pig sector. Since 2001 the number of pigs rose to over 6 million units in 2004, after which it decreased to 5.1 million units in 2006. Of this there were 3.8 million in small and micro enterprises and 1.4 million commercial enterprises. It cannot be that many pig farms or difficult to compete with the EU market, so there will be a shrinkage in mainly small-scale pig farming.
There are 43 active privatized pigs complexes that emerged from former state-owned enterprises. In addition, many complexes are empty or even canceled. The active complexes are often integrated with pig farming, slaughter, processing and sometimes selling their own facilities. In 2007 there were a total of 93 companies with more than 500 pigs in Romania, with an average of 9.900 present pigs. Besides Smithfield also Danish and French companies active in the pig industry in Romania.
Productivity and economy
Labor is cheap and environmental costs for pig farmers are low. The feed price is low. The productivity on farms and feed conversion are unfavorable, as well as the health situation (disease pressure because of the large numbers of micro enterprises that promote the spread of diseases. Welfare and the environment play no significant role. The European legislation imposes no actual holdings are restrictions.
Production costs at the best companies are € 1.12 / kg. For a pig farm in western Romania with his management of production in the year 2006 is calculated at € 0.97 per kg carcass excluding VAT, compared with € 1.11 in the Netherlands and Belgium.
The selling was logical accession in 5500 RON / kg + 1.200 RON in grants, totaling € 1.85 / kg.
Swine fever is frequent in Romania with outbreaks throughout the country, especially micro enterprises. There are an estimated 2000 sites in Romania where swine fever is endemic. To be free of this disease is in agreement with the EU decided all pigs in Romania, including micro-enterprises, to be vaccinated. The vaccination campaign was started in December 2006. The EU pays the vaccine, a total of € 45.3 million. Pig farmers have to RON 3.80 per pig pay for the veterinarian. The meat of pigs vaccinated with a special stamp and after additional investigation can be sold on the local market.
The concern was that by August 2007 the first regions free of swine fever, so that the export of pork per again in February 2008 would be possible. However, by three swine fever outbreaks in August 2007 in freely assumed regions export of pork from Romania slowed down, what a setback in the quest for eradication and the possibility of export of pork from Romania.
Land, crops and productivity
Romania has been in years with 'normal' weather self-sufficient in wheat, corn and sunflowers. The production in the crop year 2005/2006 amounted to 5.9 million tons of wheat, 10.3 million tons of maize and 1.3 million tons of sunflowers. The level of yield of wheat was in 2004 at 3.4 tons /hectare of grain and averaged nearly 3 tons /hectare. The allotment is unfavorable in Romania with many small lots. However, there is development in the plot structure, as foreign investors plots merge.
The production of feed in Romania is between 1.8 and 1.9 million tons per year. In 2004, production was 1.055 kilotons poultry feed, 726 kilotons of pig feed, 70 kilotons of cattle feed and 1 kiloton other food. Concentrates and premixes are imported, as part of the required soya. We Estimate that 10-20% of the pigs get an industrial feed-mix.
The main consumers of feed are large companies. But also small scale and micro enterprises by feed. LNB that was acquired by Cargill in 2007 sells a substantial part through existing distribution channels throughout Romania. Other foreign investors are not known.
The genetic quality of breeding sows is lower than in other EU countries. Furthermore, the productivity of sows limited by bad food, bad farming systems and poor overall health. Using modern pig breeding material PIC, JSR, Rattlerow or genetics from France.
Given the large amounts of aid that the Romanian agriculture receives from the EU, including more than one billion Euro per year for rural development, there are certainly opportunities for suppliers of livestock housing, manure storage facilities, feed systems, slaughter lines and housing.
With a feed consumption of 726 kilotons on 5.1 million pigs, the present average feed consumption per 142 kg pig. In the Netherlands and Belgium, on 518 kg per pig. Taking into account the difference in feed conversion of 3,7-5,0 in Romania and 2,6-2,8 in the Netherlands and Belgium we estimate that 10-20% of the pigs get a feed-mix.
I hope that the summary of this study will motivate you to invest in Romania. Do not hesitate to contact us.
freddy M.E. Jacobs
email@example.com - 0032-478-331-799