The agriculture sector in Romania is emerging from fifty years of Communism, whereby the industry was nationalized and state controlled.Under the central government’s management, the agriculture sector in Romania – already mismanaged and with little real investment in infrastructure – went into a great decline in the 1970s, resulting in low productivity and shortages that persist to this day.Although once considered the breadbasket of Eastern Europe, half a century of Communism has left the Romanian agriculture industry extremely inefficient and unprofitable.
Over the past 17 years, however, this sector has moved to a free market structure where it now competes with the forces of the international marketplace.Unfortunately, now that Romanians have had their land returned to them, they do not have the appropriate tools, production expertise or financial wherewithal to establish and maintain commercially viable farming operations.
Investors are now encouraged, however, by the approaching EU integration as Romania is scheduled to become a member of the European Union in January 2007.As an incentive for Romania to elevate its agricultural production standards, opportunities for subsidies from the EU are significant and readily available.
For example, after the fall of the communist regime in 1989, the production of greenhouse vegetables decreased dramatically, but the situation has now changed and the growth rate in this industry averages 6.2% because market demand for fresh vegetables exceeds domestic production and the purchasing power in Romania has been steadily increasing during recent years.In addition, the demand for organic products in the European Union far exceeds the offer and Europeans are ready to pay a premium for healthy organic food.As a result, no production quotas exist for organic products.Recognizing the growth potential in this market, the Romanian government is encouraging organic farming by offering a subsidy for organic vegetable production.
The privatization process of the dairy industry resulted in tremendous fragmentation.There are 1.2 million dairy farms in Romania, but 95% are households with 1-2 head each.Farms with over 100 head represent only 0.01% of total farms and an overwhelming majority of these remain part of the state sector.Only about 24% of raw milk is delivered to the processing industry, resulting in greatly underutilized processing capacity; yet, milk consumption has experienced a 40% increase in recent years.As a result, there is a tremendous opportunity for a commercially-viable operation that produces a reliable source of high-quality raw milk.
Although the retail food sector, currently valued at $11.6 billion, has developed very rapidly, it is still in it infancy.Sales growth remains on a strong positive trend and the sector has attracted significant investment from multinational chains.The retail food trade is expected to grow by an average annual rate of 7.4% over 2004-2007.