We published this study on the 20th of July this year and are now sharing it with you in English.
Recently there has been a tendency to have a panic-inducing discourse, and the subject of the export of raw materials, especially grains, arouses hot debates.
Especially in times like these, loaded with events over which we have no control, it is advisable to keep an open mind and curiosity to look at any matter from several perspectives.
We want to present our perspective and conclusions about Romania’s grain exports. (Our study is based on data from the National Institute of Statistics, Allianz Trade and EU Data and was not meant to become an exhaustive study)
- First of all, we analyzed for the year 2021 Romania’s top 10 export sectors and top 10 export destinations:
The data for the year 2021 is not yet finalized, and data at the National Institute of Statistics for 2021 will only be available at the end of 2022.
As we can see from the data valid as of today, July 2022, the Agrifood sector ranks 4th in the top export sectors with an amount of USD 1,492.45 million, half of our electronics export.
Our EU neighbours look like this:
Hungary & Bulgaria were analyzed:
2. We analyze the historical exports and imports of products, focusing initially on the top 10, exports vs imports, in the years 2018-2020 and the top countries from which we import and export.
Cereal exports ranked 6th in total exports in 2020 (valued at 18% of the value of exports of machines, appliances and electrical equipment), 6th in 2019 and 8th in 2018.
3. We specifically analyze the quantities and values of imported Agrifood (vegetables, plants/edible fruits/cereals/seeds and oleaginous fruits) exported from 2018 to 2020.
4. One last table that we submit to your attention, before drawing some conclusions, is the situation of the storage facilities in our country:
According to the data available, wheat production will be slightly above 10 million tons (according to EU Data), decreasing by approximately 10, a maximum of 15% compared to 2021.
The level of exports was located in the last four years at levels between 36%-50%, registering a significant surplus of production compared to the level of consumption.
The quality of wheat production also generated significant variations in exports. In some years, they were not suited for bakery quantities, leading to a transfer of the non-compliant quantities to the consumption intended for animals.
From the point of view of storage capacities, the comparison should also include corn production, with Romania recording higher production than wheat production in terms of output per hectare and total production. Thus, the production of these two crops, which represent the main cereals produced by Romanian agriculture, is somewhere at the level of up to 25-27 million tons annually, compared to a level of storage capacities of approximately 29 million tons throughout the country. (see storage capacities table).
Back to wheat, a simplistic arithmetical conclusion can lead to the conclusion that a wheat supply crisis is unlikely in Romania, considering that the supply level is much higher than domestic demand.
Furthermore, there is a significant internal potential for crop restructuring (for example, by reducing the areas of maize and proportionally increasing those of wheat due to rising prices for this crop).
We need to consider more essential elements that contribute to the existence on the market of a sufficient supply of wheat for the population’s consumption, originating from domestic production.
- The grain market is fully connected to the international grain market, which negatively influences the supply of produced wheat/the destination of produced wheat in the event of a substantial price increase, which will lead to pressure on exports and a proportional decrease in available quantities for the domestic market. Control over this trend can only be achieved through administrative measures (measures to limit exports taken by the government). However, these measures would not be beneficial, producing significant market imbalances and directly and devastatingly affecting farmers. Many may even end up bankrupt due to the aggressive increases in input costs (especially in fertilizer).
- Even if the capacity level of the warehouses can, in theory, cover a large part of the grain production, they are not distributed according to the productions obtained, a fact that leads to the transfer of additional quantities directly to export.
Not all warehouses can ensure proper storage conditions, which also leads to their transfer to export, especially from the country’s south and west, where the largest productions are.
An essential part of the storage capacities belongs to international grain traders who are strongly connected to the global market and sell impressive quantities exclusively on an economic basis (I emphasize this aspect), at the best price, usually for export.
Despite all these influences, given the strong domestic production, it is unlikely that there will be supply problems at the wheat supply level.
Regarding the price, however, it will be connected to the international one, and its growth forecasts at the level of the next agricultural year are very likely.
In our opinion, the additional quantity existing at the production level compared to the level of demand will not lead to a decrease in price but a transfer of surplus quantities to foreign markets.
As we understand the phenomena presented above, the most important thing to remember is the continuation of investments in processing raw materials (including wheat). The establishment of production facilities could lead to an additional supply of processed products, for which the demand is not fully covered by domestic production.