The EU will do away with the milk quota system that has contained production growth for three decades on April 1. Therefore, Romania will become an interesting market for European companies with overproduction, and this means additional pressure on local dairy farms.
All European cattle farmers are under pressure to raise volumes because the price can no longer be used as leverage in negotiations, once deflation and Russian embargo sent prices downwards.
“It’s never been this bad. Since we no longer have any industry, we will no longer have any agriculture, either,” says Mozer Francis, 70, of Societatea Agricola Petresti in Satu Mare, a 1,300 cattle farm.
“It’s the same thing with our without milk quotas, prices are still going down.”
The farmer says local livestock farming is lagging behind the rest of the sector in Europe because of the uneven competition on the European feed market, as feed makes up most of the cost in any livestock farm.
“Farmer Hans in Germany gets EUR330/hectare subsidy, a Dutch gets EUR800/hectare, and even a Greek gets EUR800/hectare. I get EUR150/hectare (…).”
The deregulation of the European milk market comes at a difficult time for local livestock farms. The extreme polarization in this business, where farms of less than 5 hectares cover 40% of the market and generate half of the production sold directly in markets, makes it vulnerable in the competition with the more productive economies of other European countries.
The equal share of the two segments of the market is completely atypical for Europe, considering 97.6% of the quota so far has been allocated to farms that sell their milk to industrial processors and only 2.4% for direct sales of farms.
Moreover, the price leverage has limited potential to generate profit, considering the deflationary trend and the Russian embargo induce the need to boost sales volumes and find new markets. The farm gate price of Romanian milk fell by almost 9% last year, according to European Commission data.
The main risk for Romanian cattle farmers is no longer being able to sell as much to processors as they used to because cattle farmers in other countries in the region will look for new destinations for their milk.
Local farmers sell about 90% of the milk processors in Romania use, with the remaining 10% imported. The liberalization of the market will make it harder for farmers to sell their milk, considering the yield of local farms, both small and industrial, is the lowest in European Union. Each of the 200,000 small farmers selling directly in markets deliver 4 tons/year, while industrial farms’ average is double that level.
Under the circumstances, Romanian milk will have to compete with milk coming from Hungary, Poland or Germany.
Two thirds of the milk imported in Romania last year came from Hungary, while the rest from Poland, Germany and Slovakia.
Cattle numbers have gone down by one third in the past decade, with two thirds of the decline due to the drop in the number of cattle in dairy farms. Dairy farms now number 1.1 million head, half of the total cattle stock in the country.
(English version by Loredana Fratila-Cristescu)