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Friday, February 25, 2005

Romania struggles to compete in sugar sector

Romanian sugar producers face a hard time in the run-up to the country's predicted accession to the EU in 2007, with few firms capable of the high level of investment that will be necessary to compete with other companies from the rest of the Union – especially given Romania's current sub-quota production levels.

Romania is unique among current EU member and accession states in being unable to meet the sugar production quotas set by the Commission in Brussels, and with few companies able to afford the high price of modernising production, the market remains dominated by imports.

But with possible accession just two years away, Romanian sugar processors are becoming increasingly concerned that other EU producers will look to take advantage of their quota shortfall – not least because imminent reform of the European sugar regime will see existing quotas slashed by around 16 per cent.

"Romania's EU sugar quota is 329,000 tons of white sugar a year, of which 109,000 tons is processed from beet. We are the only country in Europe that will have to increase production to reach its quota by the time Romania enters the EU in January 2007," Emilian Dobrescu, head of the Romanian arm of Austrian company Agrana,told CEE-foodindustry.com.

"Joining the EU will lead to such steep competition that only four or five local sugar factories will stay in business, in my personal opinion," Dobrescu said. "The Romanian sugar market is pretty fragmented."

Agrana is the market leader with 33 per cent, followed by Zahar Oradea and Zahar Liesti, both with 16-17 per cent each, while the rest of the market is controlled by five smaller processors in the towns of Corabia, Urziceni, Calarasi, Bod and Ludus.

Agrana has just arranged for a new EUR 30 million line of credit from Raiffeisen Bank and BA-CA of Austria which it will add to the EUR 50 million it has already invested in Romania in a bid to strengthen its position there. The money will be invested in "raw materials, increasing productivity and quality and diversifying products and services," said Dobrescu.

Currently Agrana has three sugar factories in the rural towns of Roman, Tandarei and Buzau, a starch and glucose factory (AGFD Tandarei) and a raw sweets factory in the town of Roman, called Romana Prod. Agrana also has a fruit division that owns a fruit processing plant in Carei called Caraobst and one in Vaslui called WINK Romania.

Romania's sugar consumption in 2004 was 570,000 tons, but only 50,000 tons of this came from local beet. Some 80,000 tons was processed in Romania from imported beet, and the rest from imported raw sugar.

Romania also struggles with its competitiveness, with several EU countries able to produce sugar as cheaply as it can, despite higher labour costs, partly because any financial support from Brussels tends to reach the new EU member states more quickly than Romania, where red tape slows down its effectiveness.

Despite still falling short of quota, 2004 was a record year for Romanian sugar production, which reached five tons per hectare compared to just 2.6 tons/ha in 2003. The problem will be maintaining this forward momentum.

"I think that 2005, a post-electoral year, will see a stagnation in sugar consumption, as energy costs in particular are expected to rise, in turn affecting consumers' purchasing power and driving up production costs. The price of raw sugar on international markets, where Romania sources much of its supplies, is also likely to increase," said Dobrescu.

Source: cee-foodindustry.com

Posted by Mihai : 2/25/2005 12:27:00 pm