Report Highlights:

Romania's dairy sector remains dominated by small-size farms. Despite unfavorable market conditions commercial farms are committed to develop further. Deliveries to dairies are projected to decline by 10 percent in 2015 as a result of strong foreign competition. The fiscal measure of reducing the Value Added Tax (VAT) from 24 percent to 9 percent supported an increase in consumer demand for dairy products, partially covered by imports.

Dairy Inventory

The Romanian Dairy sector development has been hampered for several years by several factors, such as high degree of fragmentation (small farm size), aging farm community, poor farm management practices, limited access to high-quality inputs, and lack of farmers' organization. These factors lead to lower productivity and farm efficiency.

The statistical figures on dairy cow inventory show an upward trend, from 1.163 million head since in 2012 to 1.169 million head in 2013 and 1.188 million head at the end of 2014. Current market conditions might end this trend, as farmers struggle with rising feed costs, due to the summer drought and limited demand from milk processors as they face strong competition from other EU member states in dairy products, after the EU milk quota elimination. The impact is likely to occur more drastically in the non-commercial segment, due to a lack of efficiency. On the other hand, commercial farms are anticipated to continue growing, but this increase might not offset reductions in the non-commercial segment at the end of 2015.

Cow milk production reached 4.371 billion liters in 2014, an increase of 3.1 percent against the previous year. According to the data provided by the Ministry of Agriculture and Rural development (MADR) for 2014, deliveries to dairies represent about a quarter of the total milk production (24 percent), direct sales hold more than a quarter (27 percent), while the largest portion goes for family consumption (39 percent), with the balance representing feed use. Average milk yields remain low compared to other EU member states overall. Although commercial farms made important progress in terms of genetics, animal nutrition and farm management, their low share of total inventory fails to reflect this progress in the national average.

Romania, Dairy cows Inventory

2011

2012

2013

2014

2015

Dairy Cow (head)

1,178,600

1,170,000

1,163,000

1,169,000

1,188,000

Total Cow Milk Production (liters)

4,372,865,633

4,182,311,805

4,238,157,289

4,371,325,854

4,200,000,000

Total Cow Milk / Cow (liters/head)

3,710

3,575

3,644

3,739

3,535

As previously stated, fragmentation remains a strong feature of the dairy sector. According to the Agricultural Survey conducted in 2013 by the National Institute of Statistics, about 561,840 agricultural holdings raise 1.147 million dairy cows, meaning an average of 2.04 head/holding. This average shows an improvement in comparison with the results of the agricultural census of 2010, when the average size of a holding was 1.84 head/holding. The large majority of cows are raised by very small holdings, about half of the herd being held by 83 percent of agricultural holdings with only 1-2 dairy cows.

Romania – Agricultural Survey, 2013

Dairy Farm size

(head)

No. of farms / share in total (%)

Number of dairy cows (head) / share in total (%)

1-2

467,124 / 83.1

583,003 / 50.81

3-9

85,524 / 15.2

339,038 / 29.55

10-19

6,249 / 1.1

80,707 / 7.03

20-29

1,504 / 0.3

34,216 / 2.98

30-49

790 / 0.1

28,707 / 2.50

50-99

410 / 0.1

26,707 / 2.33

100-499

223 / 0.0

42,042 / 3.66

>500

16 / 0.0

12,896 / 1.12

TOTAL

561,840

1,147,316

The total milk quota allocated to Romania by the European Commission for MY 2014/2015 was split almost equally between the direct deliveries (1.571 million MT) and direct sales (1.7 million MT). According to the figures published recently by the European Commission (Milk Market Observatory), more than 70,000 producers were approved for delivey to dairies in Romania. Alhough in terms of number of producers registered for direct deliveries, Romania counts for about 12 percent, only 0.6 percent of EU deliveries to dairies originate from Romania. Average Romanian milk delivery per producer was about 13.6 MT in MY 2014/2015, compared to 80 MT in Poland and 255 MT as the EU average. This very low volume reflects the small scale of the dairy sector in Romania. Another indication of the non-commercial features of the dairy sector is the fact that Romania accounts for 83 percent of the EU number of producers registered for direct sales, and contributing 40 percent of direct sales at the EU level with 4 MT/producer/year.

Regarding dairy holding organizations, it is worth mentioning the lack of interest in creating cooperatives or adhering to existing cooperatives. This is due to a lack of trust in such models, a lack of financial incentives, but also a fear of lessening independence in marketing milk production. Some efforts were made towards building such cooperatives to increase the bargaining power of members for purchasing inputs or finding outlets for milk sale. In a few cases, milk cooperatives considered entering the milk processing segment by purchasing idle plants, with the goal to add higher value to their milk production.

Farmers' preoccupation for improving herd genetics may be observed in the value of genetics imports. The import value of genetics (bovine frozen semen) doubled in three years, from U.S. $553,476 in 2011 to U.S. $1,032,504 in 2014. Over the same timeframe, United States frozen semen exports grew by 60 percent, reaching U.S. $118,000 in 2014. The trade data available for the first 8 months of 2015 show an even more spectacular accomplishment of the U.S. genetics industry on the Romanian market. The United States was the only supplier expanding exports during January - August 2015, increasing by 74 percent in terms of value and 24 percent in quantitative terms, and doubling its share from 13 percent in 2014 to 25 percent of frozen semen imports. The United States ranked first in the hierarchy of foreign genetics suppliers on the Romanian market during this timeframe (in terms of value), but fifth in terms of quantity of doses reflecting the recognition of high quality genetics of U.S. despite a higher price. Main competitors for United States are Belgium, Switzerland, Germany, and Canada.

In terms of export genetics, it is notable that Romania exports genetics to China, which reached 100,000 doses during the first 8 month of 2015, compared to 55,500 doses during the whole year of 2014.

In an effort to stimulate cattle herd improvement and farm size increase, in October 2014 the Romanian Government approved using the “Minimis-aid" for purchasing breeding cattle. According to this decision, the Romanian Government covered the price of breeding heifers from specific breeds purchased by a farmer within the equivalent of U.S. $1,400/head, which was roughly half of the breeding heifer price. The program had been oversubscribed, so the Romanian Ministry of Agriculture is considering its continuation in 2016.

Fluid Milk

The dairy quota allocated to Romania upon becoming an EU member has never been fullfilled, nor deliveries to dairies, nor direct sales. Therefore, it was expected that other more competitive EU member states exceeding their quota will supply more milk or dairy products to the market. Regarding other milk, although in lower volumes as compared to cow milk, milk collected from other species expanded significantly. Farmers anticipated consumers' tendency to move towards other types of milk/dairy products, hence a positive trend for all three species (sheep, goat, bufallo).

Romania, Milk Production, Trade and Consumption

Fluid Milk (MT)

2013

2014

2015*

Cow Milk Deliveries to Dairies

882,381

996,653

930,000

Other Milk Deliveries to Dairies

26,520

43,681

51,500

- sheep

18,122

27,280

31,000

- buffalo

1,282

1,400

1,500

- goat

7,116

15,001

19,000

Total milk deliveries

908,901

1,040,334

981,500

Imports

136,105

115,612

128,000

TOTAL SUPPLY

1,045,006

1,155,946

1,109,500

Exports

21,929

35,602

31,000

Total Available for domestic consumption

1,023,077

1,120,344

1,078,500

TOTAL DISTRIBUTION

1,045,006

1,155,946

1,109,500

Milk deliveries are expected to fall again after a significant increase in 2014, as a result of a milk surplus resulting from the EU dairy quota abolition. Data published by the National Institute of Statistics show a drop of 9 percent in milk deliveries to dairies during the first 9 months of 2015. Declining orders from dairy processors facing competition from abroad for dairy products, along with lower milk quantities produced by farms due to the summer drought, may be the possible reasons for this decline.

The farm gate milk price dropped in September 2015 by 13 percent as compared to a year before, from 1.29 RON/l (U.S. $0.38/l) to 1.12 RON/l (U.S. $0.28/l), and by 17 percent compared to January 2015, when the price was 1.35 RON/l (U.S. $0.35/l). In general, the milk price in Romania is below the EU milk price average, the gap varying over the past year from 6-27 percent. Romanian farmers receive one of the lowest milk prices among EU member states (for example, the fifth lowest in September 2015). Poor rural infrastructure and small-scale farms are the main factors which keep the purchasing prices down, in addition to other developments such as milk quota abolition and Russia's trade restrictions.

Trade

Farmers feared that following the milk quota elimination in April 2015 a massive volume of milk was going to be imported in Romania. According to the import figures for the first 8 months of 2015, milk imports grew by 10 percent after falling by 15 percent in 2014 compared to the previous year. In terms of fluid milk imports, Hungary remains the major supplier, followed by Poland and the Czech Republic. Since dairy processors face real competition from dairy products imports, it is not expected that fluid milk imports would surge significantly. On the other side, milk exports rose by almost 70 percent in 2014, from a small base though, but trade figures show a drop of 12 percent during the first 8 months of 2015. Among the major markets for the Romanian raw milk, Greece, Bulgaria and Moldova should be mentioned.

Romania, Fluid Milk Imports, Quantity (MT)

Partner Country

Calendar Year

Year To Date

2011

2012

2013

2014

08/2014

08/2015

%Change

TOTAL

120,803

120,009

136,105

115,612

76,551

84,525

10.42

Hungary

93,757

87,264

100,268

81,119

55,082

63,186

14.71

Poland

4,211

5,261

11,558

14,439

7,109

8,588

20.80

Germany

4,766

4,997

6,508

4,139

3,364

2,089

(37.90)

Czech Republic

3,338

11,662

10,780

11,978

7,496

8,561

14.21

Austria

3,854

531

566

612

502

213

(57.57)

Slovakia

4,411

1,549

2,500

1,829

1,809

820

(54.67)

Bulgaria

4,992

5,324

2,382

495

351

159

(54.70)

Other

1,474

3,421

1,543

1,001

838

909

8.47

Dairy Products

This report only takes into account the dairy production obtained in the commercial plants and which reaches consumers through commercial channels and does not take into consideration dairy products (butter, cheese) produced in the agricultural holdings for purpose of self-consumption or direct deliveries.

The recent VAT cut from 24 percent to 9 percent from June 2015 is viewed as a positive factor leading to a dairy consumption increase. Part of the additional demand is covered by imports, an increase in the array of imported dairy products on the retail shelves being noticed over the most recent months, not only on butter and cheese, but also for drinking milk. Production of other dairy products witnessed positive growth. For instance, sour cream output is anticipated to increase by 12 percent while acidified milk production is set to increase by 8 percent in 2015.

Butter

Butter production has been stable over the past years growing marginally every year. Butter production is expected in 2015 to increase by a modest 3 percent. Butter imports increased by 18 percent during the first 8 months of 2015. The surge in imports may be a result of both increasing consumer demand resulted from the VAT reduction and the generous EU supply. A rising trend may be noticed for butter exports in 2015, but they only amount to12 percent of the imports (800 MT).

Romania, Butter Production, Trade and Consumption (MT)

Butter (MT)

2013

2014

2015*

Production

9,801

10,588

10,800

Imports

5,401

5,827

6,800

TOTAL SUPPLY

15,202

16,415

17,600

Exports

300

284

800

Available for Human Domestic Consumption

14,902

16,131

16,800

TOTAL DISTRIBUTION

15,202

16,415

17,600

Romania, Butter Imports, Quantity (MT)

Partner Country

Calendar Year

Year To Date

2011

2012

2013

2014

08/2014

08/2015

%Change

World, of which

3,708

3,704

5,401

5,827

3,258

3,837

18

Poland

1,334

796

1,586

1,774

995

1,573

58

Germany

659

847

1,101

1,264

503

748

49

Netherlands

330

501

420

711

390

298

(24)

Slovakia

192

139

876

811

550

413

(25)

France

383

434

325

423

260

283

9

Czech Republic

41

41

206

210

176

37

(79)

Belgium

175

177

216

224

139

164

18

Bulgaria

258

319

271

220

138

170

23

Cheese

Cheese production grew constantly from one year to another. A similar increase to 2014 is projected for 2015, based on the 7 percent increase in cheese production during the first 9 months of 2015. Imports expanded by 18 percent during the first 8 months of 2015, while exports followed the same trend, rising by 25 percent. Germany, Poland, Hungary and the Netherlands have been the major cheese suppliers to the Romanian market. In terms of export markets, Greece accounted for almost half of the cheese exports (3,433 MT), followed by Italy, Bulgaria and Spain.

Romania, Cheese Production, Trade and Consumption (MT)

2013

2014

2015*

Production

70,477

74,654

79,000

Imports

40,000

42,000

48,720

TOTAL SUPPLY

110,477

116,654

127,720

Exports

10,978

8,965

10,400

Available for Human Domestic Consumption

99,499

107,689

117,320

TOTAL DISTRIBUTION

110,477

116,654

127,720

Romania, Cheese Imports, Quantity (MT)

Partner Country

Calendar Year

Year To Date

2011

2012

2013

2014

08/2014

08/2015

%Change

World

32,663

36,361

39,224

40,055

25,340

30,071

18.67

Germany

13,519

13,921

16,801

17,236

10,848

13,350

23.06

Poland

6,137

7,194

6,798

6,854

4,414

5,012

13.56

Hungary

3,174

3,211

3,681

3,107

1,925

2,747

42.74

Denmark

930

1,522

1,548

2,214

1,484

552

-62.81

Austria

958

1,553

1,776

1,733

1,123

1,152

2.62

Bulgaria

2,210

2,134

2,035

1,709

1,001

1,429

42.73

Italy

869

1,068

1,180

1,706

1,055

1,388

31.48

Netherlands

1,605

841

635

1,135

751

1,349

79.52

Czech Republic

763

1,464

1,177

877

625

748

19.7

Other

2,498

3,453

3,593

3,485

2,113

2,344

10.9

Domestic support

Over time, the dairy sector has received financial support in various forms with the purpose to increase milk productivity and maintain farmers' interest in this sector. In 2015 eligible farmers will roughly receive U.S. $24 /MT of milk delivered to dairies, assuming they deliver a minimum of 3 MT/year, a condition meant to stimulate farm size enlargement.

Another type of support is coupled support for cows. Eligible dairy cows have to be registered in the Heard Book and the applicant should raise more than 10 cows. Initially the support per head was estimated at U.S. $275/head. Given the expectation that a lower number of cows will be eligible for the support, as cows have to be enrolled in the official milk control program and registered into the Herd Book, it is possible that the actual payment per cow to be higher than originally.

The distribution of the recent EU package of U.S. $ 9.6 million (8.7 million EURO) allocated to Romania in response to the milk crisis is currently subject to analysis. Ideas for segments where funds should be directed to varied from milk promotion campaigns or dairy processing industry to genetics acquisition, milking equipment or small farmers which are not eligible for other types of support.