Market analysis for the milk market( 2010 )

Name: Irina Achim Antonia Calinet-Petre

Group: 942, Year:II, REI,ASE

Introduction

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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 can’t 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 Baloteşti

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 can’t find an urban area where you don’t 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 they’ve 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 can’t 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 can’t 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 can’t 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 dynamicsThe average variation rhythm of the sales of the product(service) during the period 2008-2010

is:

R =

(n−1√ YnY 1

−1)∗100

  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=

(3−1√ Y 2008Y 2010

−1)∗100

  =

(√ 1,11,2

−1 )∗100

  =-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 it’s 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 don’t pay any kind of obligation to the state, so the state

loses aproximately 280 million euros per year.

5) Market evolution

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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

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 l’Elevage, 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 conjunctureThe gross domestic product for 2010 was 513.6 billion lei in current prices,

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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

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 it’s 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 QualificationsUnfavorable -1Unfavorable -1Unfavorable -1

So and so 0Average 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 offerIn 2009, the total offer of milk was estimated at 1 million tonnes.

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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.

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=(√ 4 . 23 -1) * 100 = 18 %

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The minimum price in 2010 was 3 RON/liter.

The maximum price in 2010 was 6 RON/liter.

9) Imports and exports

Romania is a net importer of dairy products.

Value in Mill. US$

Product: DAIRY PRODUCTS

Importing Country: Romania2009 2010

Exporting Country Qty Value Qty ValueGermany 29,997.10 70.38 31,994.81 75.00Hungary 74,754.48 53.75 90,558.20 62.96Poland 33,809.96 41.62 30,537.52 39.25Bulgaria 6,723.04 14.52 6,001.55 10.39Netherlands 5,841.27 15.49 4,491.90 14.42France 2,348.08 8.77 2,104.32 9.46Czech Rep. 4,887.44 8.71 1,430.57 3.24Denmark 790.06 3.47 1,230.69 4.01Italy 1,498.33 6.01 957.49 4.78Slovakia 13,235.35 12.32 17,433.52 11.31Austria 2,333.42 4.27 3,346.32 4.46Greece 1,222.08 4.17 1,644.22 4.36Belgium 1,119.11 3.10 1,179.03 3.46Ireland 10.80 0.01 65.27 0.21Lithuania 284.00 0.33 250.00 0.37Sweden 32.15 0.17 81.80 0.33Portugal 309.79 0.92 301.53 0.82USA 41.43 0.71 32.17 0.45Spain 412.74 0.83 282.53 0.49United Kingdom 78.05 0.36 255.66 1.17Croatia 102.64 0.09 204.30 0.16

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Cyprus 0.00 0.00 71.66 0.26Serbia 0.00 0.00 0.00 0.00Slovenia 0.00 0.00 20.00 0.08Canada 0.00 0.00 0.00 0.00Iraq 0.00 0.00 0.00 0.00Switzerland 16.74 0.07 11.62 0.03Japan 0.00 0.00 0.00 0.00Syria 0.00 0.00 0.00 0.00Finland 0.00 0.00 0.00 0.00Other Europe, nes 0.00 0.00 0.77 0.00Israel 0.00 0.00 0.02 0.00Latvia 0.00 0.00 0.03 0.00Estonia 113.00 0.38 0.00 0.00Egypt 0.00 0.00 0.00 0.00Luxembourg 47.14 0.04 0.00 0.00

Total 1,80,008.20 250.49 1,94,487.50 251.47

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.

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