Romania benefits from some of the most fertile soil in Europe, but the agricultural sector has suffered heavily in recent years.
More than 80% of all agricultural land has been privatized, but the average size of each individually owned farm is fewer than 3 hectares, resulting in subsistence-style agriculture. A dire lack of money for farm inputs and modern grain harvesting, handling and storage technology also has seriously diminished agricultural productivity.
In January, Ioan Avram Muresan, head of the Ministry of Agriculture and Food, described an ambitious program designed to "lift the fog that covers the agricultural sector." Specific policy objectives include promoting larger private farms, developing capital resources and intensifying efforts to privatize agribusiness companies. Only a few grain elevators have been privatized, and high storage costs drive away processors as well as grain producers, whose on-farm facilities are inadequate and increase post-harvest losses.
The reforms include developing agronomy programs to reduce the estimated U.S.$3 million in annual losses from pests, weeds and disease. Organization of agricultural markets also is high on the government's priority list.
"The free market does not operate correctly in Romania because the rules of the game have not been specified and the purchasing power of the population is low," according to a municipal official in Bucharest.
A prime example of the market's lack of function was the recent wheat shortage. As of early June, a large number of flour mills had been forced to shut down because they were unable to locate and purchase wheat, according to ANAMOB, the association representing more than 170 Romanian milling and baking companies.
Romania has a two-tiered wheat market, with the government procuring some wheat for the state reserve. The average government wheat price in 1998 was about U.S.$80 a tonne, while the market price was about U.S.$93.
Although the M.A.F. declared that no "wheat crisis" existed, the government in late May did adopt an ordinance calling for a state wheat purchase from farmers for mill use. Under the plan, the government would pay farmers about U.S.$104 a tonne, and mills would pay the state about U.S.$85 plus transportation costs. But bureaucratic paperwork promised lengthy delays, and skepticism was widespread that sufficient wheat of acceptable quality could be located and purchased.
A few weeks later, the government authorized a wheat "loan" of about 120,000 tonnes over a three-month period from the state reserve to permit mills to operate until supplies from the 1999 harvest became available. The mills were required to "repay" the loan in wheat procured from the new harvest.
The reasons for the crisis are complex and include a lack of substantial mill storage space and the Romanian farmer's traditional reluctance to sell before harvest. The "disorganized wheat market" was a major element, according to ANAMOB.
M.A.F. officials already had conceded that policies affecting markets had been adopted and implemented haphazardly and often functioned at cross-purposes. In January, officials announced draft legislation to organize agricultural markets.
Under the announced plan, an inter-ministerial board will appoint a national market commission and will oversee formation of commodity-specific commissions representing farmers, distributors and processors. These groups will develop and coordinate policies on support and ceiling prices, export and import duties, area set-asides and the like to foster orderly markets.
Romania currently has 822 wheat flour mills with a total daily milling capacity of 24,824 tonnes. Capacity utilization in 1997 was 72%, according to the M.A.F.
Of the existing mills, 145 are large industrial-type mills, many formerly state operated. Of the 75 state-owned milling companies in 1990, only four remained in majority state ownership at the end of 1998, and these are in the process of privatization. The state retained minority ownership in nine others. The remaining 677 facilities are new private mills, in the small- to medium-sized category.
Before privatization, the equipment in many of the state mills was 50 years old, and 15 of those mills subsequently embarked on major modernization, including computer-controlled automation.
Wheat flour output falls into four main categories, mainly based on ash content, consisting of white, semi-white, black or whole wheat and dietary. Each has several sub-categories based on professional standards issued by the M.A.F.
Total wheat and rye flour production from 1994 to 1997 increased by 35% to 3.67 million tonnes, grain equivalent, while flour-based per capita consumption increased to 169.8 kg from 158.6 kg in the same period. Flour production figures for 1998 are incomplete, but output is expected to decline amid policy changes that hiked bread prices.
The Romanian flour milling industry has experienced some very rough times in the past few years, most recently evidenced by the wheat shortage. Until 1996, the milling and baking sector had expanded and flourished. But since 1997, the situation has changed, as several developments have led to a sharp decline in capacity use to 50% to 70% in the milling and baking sectors.
Although markets were liberalized in 1997, a measure advocated by millers and bakers, a new value-added tax of 18% was imposed for wheat and flour. In early 1998, the tax for those products was cut to 11%, but another 11% V.A.T. was imposed on bread and bakery products. These taxes created vast negative effects on the industry, including a drop in sales and production. An "underground" market also has surfaced, consisting of unlicensed operators who do not pay taxes or adhere to sanitary regulations.
Imports of wheat and flour have hurt the domestic industry. Romania's millers and bakers maintain they do not fear competition from imports, but export subsidies and a lack of customs enforcement have created an uneven playing field, they say. As a result, few new milling units have been established since 1997, and in 1998 many companies, for the first time, ended the year with losses.
The industry's problems are not expected to ease soon, and expectations for the 1999 wheat harvest are not optimistic. Wheat cultivated area has decreased as farmers fear a continuation of 1998's low prices. A government "safety net" that covers only 5% to 7% of production costs and lack of financing also has cut into planted area.