“A VAT cut could bring prices closer to those charged by farmers or the black market, and consumers would go for products in stores because they are safer,” Kivits told ZF in an interview.
The VAT on dairy products is about 6% or 7% in Netherlands and the highest level of the tax for certain products is 21%, said Kivits, managing director of FrieslandCampina Romania.
The dairy market has shrunk by EUR1.2 billion in the last few years, from about EUR2 billion in 2008 to about EUR800 million in 2012, and is one of the most affected industries by the black market. The main companies in this business are Danone Romania, the subsidiary of the French group by the same name, Dutch-held FrieslandCampina and Romanian-owned Albalact.
The first food category that got a VAT cut was bread and related products. The VAT reduction to 9% as of last September led to a decline in bread prices by as much as 18% in the first day the new tax was introduced.
Jan Willem Kivits says many countries use different VAT levels for certain products such as bread and milk.
FrieslandCampina operates via three companies in Romania: FrieslandCampina Romania, Napolact and Industrializarea Laptelui Mures and has three plants in Baciu (Cluj), Targu Mures (Mures) and Carei (Satu Mare). The brands of the group include Napolact, Milli, Oke and Campina.
The three companies posted about 767 million lei (EUR170 million) revenue and had more than 1,200 employees in 2012, according to ZF’s calculations based on the Finance Ministry website data. Napolact contributes EUR80 million to Friesland’s business in Romania, ZF has previously calculated. Kivits would not comment on FrieslandCampina’s 2013 revenue.
The executive says 2013 was challenging and the market was almost flat year-on-year because of the still low purchasing power of Romanian consumers. The increase in electricity and fuel costs, as well as in the price of milk sold as raw material did not help, either.
Friesland focuses on the product categories where it has a significant market share. It is also looking for ways to cut costs.
“Our goal is sustainable growth this year not by promotions, but through the growth of our brands. We also want to optimize costs and also grow in volume and value.”
The company raised prices twice last year because milk prices went up. The milk used as raw material was 25% more expensive in the fourth quarter of 2013 than in the year-ago period, according to the data supplied by FrieslandCampina.
“Making profit is increasingly difficult and that goes for all the companies in this industry.”
The executive does not see major changes this year, but does see some good signs in that most of Europe is recovering, people are starting to spend and companies to make investments again and believes the trend will reach Romania. Significant changes will not happen right away but he thinks the fourth quarter of 2014 will be much better than the first.
(English version by Loredana Fratila-Cristescu)