The cautious scenario is because the group cannot implement its plans as a result of the uncertainty in the economy and the entrepreneurs behind it are reluctant to develop by taking on more loans.
“Had we budgeted an increase in revenue, we would have needed to make investments this year but we have no funds. We’ve got the loans we took for the slaughterhouse in 2007 and two years left to repay them, that is about EUR2 million of a total EUR5 million,” explains Puiu Ilisei, chairman of the company and one of the chicken farmers involved in EuroAvi project. “I think the market decline will continue this year, too, considering the poultry subsidies were only paid 80% last year.”
The company ended 2012 with EUR23 million in revenue, slightly up on the EUR21.7 million of 2011, despite the difficult year for the companies in the poultry business. Local companies have had to deal with a fast-paced increase in feed prices in the last six months, which account for two thirds of the cost of running of a poultry farm.
“We have a strange market in Romania. The price of day old chicks rose by 20% last year and feed became 30% more expensive, while we could only raise our chicken meat price by about 7% or 8%,” EuroAvi’s chairman said.
Given the difficult chicken market, the slow economic growth and a lack of significant improvement in consumer spending, Puiu Ilisei says he decided to postpone plans to build a feed plant, which should have processed the corn EuroAvi buys and turn it into feed for farm poultry.
“We did our calculations for a feed plant but there is no money. It would have cost EUR3 million, but we do not have enough funds, not even if we turned it into a EU-funded project and had to pay only half.”
Other companies in the poultry business have focused on investments in feed facilities to be able to keep this part of poultry farming under control and be able to make business forecasts. Such an investment also protects poultry farms to a certain extent against the fluctuations on the grain market, which this industry uses as feed.
Whereas three years ago, when the EuroAvi started operating, Puiu Ilisei was optimistic about sales to countries like Netherlands, China, Thailand and talks with African countries, the entrepreneur is not that optimistic now.
“We have our traditional domestic clients and if we do not boost the number of poultry farmed we cannot grow. We could see some growth from exports, but we do not get our VAT back in this case, which means we sell at 24% less. We already have EUR2 million to get back from the government and there is nothing we can do.”
As a result of the VAT reimbursement problems EuroAvi entrepreneurs decided to export less and less therefore this segment of the business dropped from 30% to 10% in total sales.
EuroAvi was formed in 2006 as a poultry producers group. Six shareholders pooled their farms and another one contributed a plot of land, which they used to build a slaughterhouse on. The idea to team up and create their own processing facility was because they wanted to no longer depend on the slaughterhouses they used to send live poultry to.
They decided to pledge the farms as collateral and submitted a EUR9 million project applying for EU funds, half of which financed by bank loans.
EuroAvi’s business model is atypical for the local poultry processor industry. The companies in this business usually own both processing facilities (slaughterhouses and convenience food or cold cuts plants), as well as actual poultry farms. The entrepreneurs in this industry preferred to build integrated business from scratch investing in processing facilities and farms at the same time.
The EuroAvi entrepreneurs took a different route in that they initially built poultry farms that supplied live chicken to other processors and then teamed up and integrated production with a processing facility.
(English version by Loredana Fratila-Cristescu)