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Market analysis for the milk market

( 2010 )






Name: Irina Achim
Antonia Calinet-Petre


Group: 942,
Year:II, REI,ASE


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Introduction

The market for milk and dairy products in Romania is developing in a dynamic way. Our
country has a big potential for raising the production of milk because of the fact that there are
almost 5 million hectares of grassland, being the main source of food for cows. Because of this, in
the following years, Romania may become one of the major producers of dairy products.

1) Market area
The milk represents a basic product for romanians in general, no matter what area they live
in. In other words, you cant make a good delimitation of the geographical space in which the milk
is sold, because this takes place all over Romania.
At the level of 2010, the reference year, in Romania the milk is produced mainly by milk
factories and sold in shops, because starting from 2009 all the milk production has to correspond to
EU requests. This is why in the urban area, the production and selling of processed milk has raised
because the number of milk factories has gone up to 250; while in the rural area the peasants are
preferring direct selling because this way they skip the obligations towards the state.


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In what concerns the sales structure, the market for processed milk in Romania is owned in
a proportion of 80% by only a few companies like Napolact, Albalact, LaDorna, Raraul and
Danone. With their strong distribution line they cover all the territory of Romania.


Napolact

Is one of the major producers of dairy products in Romania. It has 4 factories at Baciu,
Huedin and Taga, and one (the biggest) is at Cluj. So as you can see the area of Transilvania is all
covered, and from Cluj the products are spreading all over the country.



Albalact

It has one of the most modern factories in S-E Europe at Oiejdea, Alba-Iulia. With such a
powerful production line, in 2010 Albalact was having a share of 19% of the dairy products market.
Its products are delivered all over the country but mostly in Transilvania. It has a lot of products,
around 60 under only 3 brands: Zuzu, Fulga and Albalact.




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LaDorna

LaDorna is a dairy company in Romania. The company was sold in 2008 to Lactalis group,
for an estimated 80-90 million.LaDorna group includes companies involved in the food sector -
Dairy Dorna, Dorna Cheese, Cheese LaDorna, LaDorna Agri, Dairy Dobrogea, ICPPAM Baloteti
and two companies in the services sector, Carpathian Production Systems and Narcisa.
LaDorna has a network of 15,000 outlets. Lactalis Group, the largest European producer of
dairy products, has a portfolio of brands president, yellow, Lactel and Rochefort-society, is present
in 150 countries around the world.

Danone

It is present on the romanian market since 1999. It is producing in Bucharest, after Danone
has bought an old milk factory. It produces over 60 references of products which are sold all over
the country and not only; also in Bulgaria, The Republic of Moldavia and in the countries from the
Adriatic area.






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Raraul

Located in Bukovina, Rarau foothills, the company Raraul from Campulung Moldovenesc
has a tradition of over 40 years in the dairy industry. It was known as the largest producer of milk
powder in the country since 1961, and over time has diversified its portfolio, also becoming a major
producer of cheese recipes specific area, such as cheese. All these products were and are present in
the market under the brand Raraul.

So as you can see, the market for processed milk in Romania is covered only by a few
companies which satisfy the need for dairy products. They are located in different parts of
Romania(Transilvania, Bucharest, Bukovina) so you cant find an urban area where you dont find
milk or dairy products. We said urban area, because these are the places where these factories
deliver their most products because in the rural areas people take care of themselves by consuming
milk from their own production (around 1,5 billions litres of milk).

2) Market structure
Being a healthy product, necessary in one way or another for every person, the milk
market has more segments to which the product is adressed.
Those who consume it are individuals, with different ages because milk is an indispensable
product in a childrens diet (0-12 years), for pregnant women( no matter what age) and for old
people (over 60 years). These are the main categories which consume the most milk; there are also
other factors which contribute to the quantity bought concerning the place where they live ( urban-
rural), the money they have, their habits because they can prefer a glass of juice instead a glass of
milk.
Living in a rural area people can produce for themselves the milk they need so they have
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the possibility to consume more, no matter how old they are, how healthy they are or how much
money theyve got. On the other hand, those who live in the city they have to face more pollution,
so milk should be consumed every day; it depends of their incomes because there may be
individuals who cant afford as much milk as they need. Also, another important category which
consumes a lot of milk is that for persons working in toxic environments. Milk is necessary for
them because it combats the bad effects of toxic substances.
The milk market in Romania has to offer 3 main types of milk: ultrapasteurized
milk(UHT), pasteurized milk and milk which is not processed. Although milk is very important, the
average in our country is only 6 l/person from the european average of 65-70 l/person.

Factors which influence the milk consumption

In the last few years the consumption of milk has raised, a tendency determined by the
fact that the population has realized the beneficial influence of milk and dairy products. Milk is
used because of its components.

3) Market capacity
In 2010, the domestic consumption for milk raised from 5,8 l/person(in 2009) to
5,92/person.
Even if the romanians are still behind other europeans in what concerns the milk
consumption and the aplication of the standards for colecting, imposed by EU, producers have no
reason to complain. The market is increasing and reinforcing the new-onset niches such as
premium, which means milk fortified with vitamins and minerals.
For the milk market, we cant specify a specific number of potential or effective consumers
because milk is used at a large scale and you can find it in everybodys basket of goods. Also, on
this market there is a lot of self production and self consuming in what concerns the people in the
rural areas.
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Although we cant determine these numbers, we can state that the number of potential
consumers has dropped because surely the population of Romania has dropped and consequently
the effective number of consumers has dropped.

4) Market dynamics
The average variation rhythm of the sales of the product(service) during the period 2008-2010
is:

R = 100 * ) 1
1
(
1

n
Y
Yn
where: Yn is the sales volume in 2008
Y1 is the sales volume in 2010
n is the number of years taken into consideration.
So R= 100 * ) 1
2010
2008
(
1 3

Y
Y
= 100 * ) 1
2 , 1
1 , 1
( =-20,21%
The average variation shows the increase or decrease in percent of the phenomenon or
process, studied as an average evolution from one period to another. In our case, the sales
volume on the milk market has decreased with 20,21% from year 2008 to year 2010.
Although its an important product for every consumer, the results show a decrease with
almost a quarter because of the unfavorable period. The economic crisis brought up a decrease in
earnings, so people started to buy less because of the shortage of money. Also among factors that
contribute to the decrease in net sales, there is the method used for quite a lot of peasants to sell
directly to the consumer. This way they dont pay any kind of obligation to the state, so the state
loses aproximately 280 million euros per year.

5) Market evolution
In 2010, EU-27 raw milk production is stimulated by stronger domestic and international
markets for dairy products. Food processors are diverting increased supplies of raw milk to
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production of cheese which generates a higher profit margin than on the manufacture of butter, non-
fat dry milk or whole dry milk. Conditions that are spurring the dairy sector in 2010 are expected to
prevail into 2011. Current market prices should enable the European Commission to avoid having
to intervene in the butter and non-fat dry milk markets as occurred in 2009. Intervention stocks of
butter and non-fat dry milk are disappearing under food assistance programs authorized for 2010
and 2011 and enhanced trade opportunities created with Oceania's lower profile on these markets.
Romanian milk and dairy market registered significant changes over the last years and it is
foreseen to be emphasizing in the next period. The most important event which influences the
market is the integration of Romania in European Union. In the structure of expenses for food
products, the milk and dairy products hold the 3rd position (12%) after meat and bread. Except for
cheese, Romania is a net importer of dairy products. Milk quota for Romania was established at
3,057,000 tonnes per year, out of which:1,251,000 tonnes to processing (36%) and 1,806,000
tonnes direct sales (64%). Romania was also entitled to a reserve quota of 188,000 tonnes allocated
in 2009 (added to the quantity of national reserves up by withholding a percentage of the quantity of
milk sold). For 2010, of the three million tonnes of milk quota allocated to Romania, the producers
requested an amount of about 2.47 million tonnes or 82%.
This slow developing in the market has been afected also by the fact that the processors have
confronted with a high price of the raw material and also with an increase in costs.
More recently, Romania had a yearly sheep flock growth of 5 to 6% in 2008 and 2009, when
Greece was estimated to slow in this period and even had a decrease of 5% estimated in 2010 for
instance (Institut de lElevage, 2010a). Romania could rapidly become the European leader for the
sheep milk production.
In conclusion, the milk market has passed through a difficult period because the market as a
whole has suffered a lot.

6) Market conjuncture
The gross domestic product for 2010 was 513.6 billion lei in current prices,
with 4,4% down from 2009 according to estimates of the National Institute of Statistics. The
decrease was determined by the reduction of the volume for the gross value added in all sectors of
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activity. Therefore, we will assign to GDP the unfavorable qualification (-1) because of the fact that
it gone down in 2010 from 2009. The market of milk is a business to consumer market so we have
to analyze the wholesale production. In 2010 from 2009 the sales have dropped as we have shown
before at previous points, so its understandable having in mind that the GDP has dropped in the
same period with 4,4%.

The inflation rate in 2010 was 7,9%, which brought increases in prices for products in the food
sector, so by default to milk. Thus, the inflation rate was unfavorable (-1) for the market studied.
The unemployment rate in 2010 was 7,3%, a high value. This was also unfavorable (-1) for the milk
market.
The exchange rate leu/euro has been in 2010 4,3 lei/euro. Studying the data from the BNR the
right qualification for this indicator is so and so (0).

Indicators Qualifications
Unfavorable -1
Unfavorable -1
Unfavorable -1
So and so 0
Average score -0,75


Seeing that the average score is -0,75 we can say that in 2010 the market conjuncture was
unfavorable for the milk market, after analyzing the 4 indicators.


7) Demand and offer
In 2009, the total offer of milk was estimated at 1 million tonnes.

Milk quota deliveries 2009/2010
According to official EU press release on 29th October, Romania had 136,735 active
producers delivering milk to processing plants with a total of 927,854 tonnes of raw milk (i.e.
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918,992 tonnes of milk corrected on fat content. This delivery was 59,922 tonnes/milk below quota
limit.

In 2010, growing domestic and international demand for dairy products combined with an
improving overall economic situation in the European Union (EU) stimulated higher raw milk
production. This expansion in output is expected to continue into 2011 in response to stronger farm-
gate prices and higher world dairy product demand. EU dairy herd inventory numbers continue to
decline. Though total animal numbers are on the decline, average milk yields are on the rise as the
extensive culling of poorer performing cattle in 2008 and 2009 has left animals from stronger
genetic stock in production.
Both Bulgaria and Romania have extended the derogation period for deliveries of non-
compliant raw milk to processing establishments until December 31, 2011. These extensions
concern both milk quality standards (hygiene) and structural requirements. Noncompliant milk and
its derivates can be traded on the domestic market only. Of the total amount of milk delivered to
dairy plants in Romania and Bulgaria, an estimated 60 and 50 percent, respectively, complies with
EU standards. In part as a consequence of quality concerns and economic conditions fluid milk
consumption in each country is expected to decline in 2010.
8) Prices and tarrifs

The average price of selling in 2010 is 4,2 RON/liter.
The average price dynamic during 2008-2010:

R=(
3
2 . 4
-1) * 100 = 18 %
The minimum price in 2010 was 3 RON/liter.
The maximum price in 2010 was 6 RON/liter.

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9) Imports and exports
Romania is a net importer of dairy products.

Value in Mill. US$
Product: DAIRY PRODUCTS
Importing Country: Romania

2009 2010
Exporting Country Qty Value Qty Value
Germany 29,997.10 70.38 31,994.81 75.00
Hungary 74,754.48 53.75 90,558.20 62.96
Poland 33,809.96 41.62 30,537.52 39.25
Bulgaria 6,723.04 14.52 6,001.55 10.39
Netherlands 5,841.27 15.49 4,491.90 14.42
France 2,348.08 8.77 2,104.32 9.46
Czech Rep. 4,887.44 8.71 1,430.57 3.24
Denmark 790.06 3.47 1,230.69 4.01
Italy 1,498.33 6.01 957.49 4.78
Slovakia 13,235.35 12.32 17,433.52 11.31
Austria 2,333.42 4.27 3,346.32 4.46
Greece 1,222.08 4.17 1,644.22 4.36
Belgium 1,119.11 3.10 1,179.03 3.46
Ireland 10.80 0.01 65.27 0.21
Lithuania 284.00 0.33 250.00 0.37
Sweden 32.15 0.17 81.80 0.33
Portugal 309.79 0.92 301.53 0.82
USA 41.43 0.71 32.17 0.45
Spain 412.74 0.83 282.53 0.49
United Kingdom 78.05 0.36 255.66 1.17
Croatia 102.64 0.09 204.30 0.16
Cyprus 0.00 0.00 71.66 0.26
Serbia 0.00 0.00 0.00 0.00
Slovenia 0.00 0.00 20.00 0.08
Canada 0.00 0.00 0.00 0.00
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Imports of milk and milk products increased significantly after accession, especially in
category materials for processing milk and dairy products, and the trend is increasing.
Iraq 0.00 0.00 0.00 0.00
Switzerland 16.74 0.07 11.62 0.03
Japan 0.00 0.00 0.00 0.00
Syria 0.00 0.00 0.00 0.00
Finland 0.00 0.00 0.00 0.00
Other Europe, nes 0.00 0.00 0.77 0.00
Israel 0.00 0.00 0.02 0.00
Latvia 0.00 0.00 0.03 0.00
Estonia 113.00 0.38 0.00 0.00
Egypt 0.00 0.00 0.00 0.00
Luxembourg 47.14 0.04 0.00 0.00
Total 1,80,008.20 250.49 1,94,487.50 251.47
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