EUROPEAN AND ROMANIAN TRADE IN FRUIT AND VEGETABLES EVALUATIONS OF EFFECTS OF THE RUSSIAN EMBARGO

LUCRĂRI ŞTIINŢIFICE, SERIA I, VOL.XVIII (1) EUROPEAN AND ROMANIAN TRADE IN FRUIT AND VEGETABLES EVALUATIONS OF EFFECTS OF THE RUSSIAN EMBARGO CAMELIA GAVRILESCU 1 1 Institute of Agricultural Economics, Romanian Academy, Bucharest, Romania, e-mail:cami_gavrilescu@yahoo.com Abstract: The paper aimed to present the evolution of vegetables and fruit trade during the period 22-215 in the European Union and Romania, as well as the effects of the Russian embargo enforced in August. The data have been extracted from Eurostat and Romanian National Institute of Statistics databases. The paper is analysing the EU and the Romanian export and import flows in terms of values, quantities and directions. The EU exports and imports of vegetables and fruit have increased since the crisis year (29). Russia is a major destination for EU agrifood exports: 26% of all EU vegetables exports and 34% din all EU fruit exports went to Russia in -213. Thus, the embargo hit severely the major exporting countries. Romania is a net importer of vegetables and fruit, and its exports to Russia are rather low, therefore it is not likely to be severely affected by the embargo. The paper is evaluating the expected effects of the Russian embargo upon the EU and Romanian vegetables and fruit international trade and markets. Key words: vegetables and fruit international trade, EU, Romania, Russian embargo INTRODUCTION Romania has good soil and climate conditions for growing fruits and vegetables. Yet, due to the overall breakdown in the land ownership in agriculture, and the privatization of all other enterprises upstream and downstream agriculture at different paces, the agrifood supply chains were disrupted and they are still not functioning as efficient as in other Member States. For labor-intensive sectors such as fruit and vegetable production, most of the producers are still small-scale and their penetration on the modern retail market is difficult. Exports developed at a low pace, but imports, needed to cover urban consumption through large retail chains required massive imports. In the last two decades, demand and supply for organic products increased continuously [2], and fresh vegetables and fruit are the largest organic product group sold on the the European market [1]. The present paper is analyzing the evolution and achievements of the fruit and vegetable production sector in terms of capability of presence on the international market, both inside and outside the EU. MATERIALS AND METHODS The value and volume of trade flows were studied, in relation with the domestic production, for both fruits and vegetables. Where needed, subgroups at 4-digit level breakdown were used, for chapters 7 (vegetables) and 8 (fruits) in the Combined Nomenclature. There are methodological issues, since Eurostat does not distinguish exports from re-exports. Therefore, countries such as Romania may appear as a net orange exporter, although oranges are not produced locally, there are merely re-export operations. Another issue relates to the fact that organic products do not have separate codes in the Combined Nomenclature, and cannot be distinguished in trade statistics from conventional agricultural products. 95

FACULTATEA DE MANAGEMENT AGRICOL RESEARCH RESULTS In Romania, before 199, the production of fruit and vegetables was covering the domestic demand for consumption, and the surplus was exported, mainly to Russia. The important changes occurred in the transition period broke the previously established supply chains. The large farms producing fruits and vegetables disappeared and these activities went into private but small and very small households. Larger farms that were established subsequently cultivated mostly cereals and oilseeds due to the fact that techonologies are less demanding in terms of inputs and labor, as compared to commercial vegetable and fruit growing. Thus, in the last two decades, various obstacles appear to hinder an efficient and modern development of vegetable and fruit supply chains: - they are very much labor intensive (low capital-intensive) and labor is not always readily available in the rural areas; - intensive technologies require large amounts of inputs (fertilizers, pesticides and irrigation), thus increasing production costs while working capital is scarce, and credits are expensive; - in case of fruit trees, the old orchards are less and less productive, while their replacement is very costly, since, as in the case of vines, a new orchard requires a large capital investment for a few years consecutively, until the new plantation becomes mature and productive; - the collection side of the supply chain is virtually non-existant: there are very few dedicated wholesale markets and specialized storage facilities; - there are very few producer groups or other associative forms (such as cooperatives) which would increase significantly the bargaining position of ther farmers in relation with buyers, either processors, wholesalers or retailers; - many of the old processing units closed in the early nineties, and only a small number survived, generally with foreign direct investments. Yet, some new processing units were established, using funding from pre-accession support programmes (SAPARD) and from the national Rural Development National Plan; - the permanent presence of peasant markets in all urban areas towns (and not once or twice a week as in other Member States) allows for semi-subsistence farmers to continue their activity without any incentive to enlarge their farms and become true efficient commercial farmers. As a consequence, despite the fact that the domestic fruit production did not diminish significantly (figure 1), and the vegetable and potato production had a slight upward trend (figure 3), imports increased (figures 2 and 4), especially after 2, when modern retail chains entered massively the Romanian market. Since the domestic supply chains were then (and mostly still are) not organized and are not able to supply fresh vegetables and fruits continuously and at required quality standards, the retail chains (super and hypermarkets) which are presently holding more than half of the urban market pushed up more and more the imports of such products. Another factor influencing strongly the domestic output is the draught, and its significant negative impact upon all crops, but fresh vegetables and fruit in particular. Between 22 and (in the pre-accession period), fruit imports increased 1.82 times (in value terms), but after Romania joined the EU, the fruit imports increased 1.5 times in just one single year. The economic crisis that hit the economy in 29 resulted in a sharp decrease of consumption and hence, of imports (by 28%) (fig. 2). 96

22 23 25 27 28 29 211 213 215 199 1992 1994 1996 1998 2 22 28 1 metric tons LUCRĂRI ŞTIINŢIFICE, SERIA I, VOL.XVIII (1) 2,5 2, 1,5 1, 5 Apples Plums Other fruits Source: author s calculations using Tempo On-line data Figure 1. Romanian fruit production Fruits represent 3.3% of the total agrifood exports, and 6% of imports (average 22-215). Both export and import fruit shares decreased after accession, more sharply in the case of exports, since the cereals became the largest agrifood export commodity. But in absolute terms (value and quantity), trade in fruit and vegetables increased significantly after accession (figure 2 and 4). Most of the fruit production is consumed domestically, with high shares of on-farm consumption. Only about 5% of the fruit output is exported, out of which half are walnuts, hazelnuts and almonds. The picture is quite different for imports, since 33% are citrus fruit, 23% bananas and 8% apples (mostly from Poland). 5 4 3 2 1-1 -2-3 -4 Total export Total import Total balance Figure 2. Romanian fruit trade Vegetables and potatoes productions showed a far less yearly variation as compared to fruits, driven most probably by the fact that vegetable gardens are more almost always irrigated as opposed to orchards (fig.3). 97

199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 25 27 28 29 211 213 1 tons FACULTATEA DE MANAGEMENT AGRICOL 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, Vegetables - total Potatoes - total Source: author s calculations using Tempo On-line data Figure 3. Romanian vegetables production Vegetables are representing about 3.5% of the total agrifood exports and imports respectively (average 22-215); the share of exports decreased from 6.4% in the preaccession period down to 1.9% after accession. The imports showed an opposite trend, so after accession, the share of vegetable imports in the total agrifood imports increased. Most of the Romanian vegetable production is consumed domestically. Exports varied, but in absolute value and quantity terms it increased about three times after accession (figure 4). Romania is exporting mainly cucumbers (about 12, t) worth about EUR 8 million (in ), but exports decreased since the scandal of the contaminated cucumbers with E.coli. Although the Romanian exports were eventually proved clean, the mere suspicion made the exports fall. A quarter of the imports are tomatoes, about 1% potatoes, 7% peppers and 6% onion, garlic and edible roots (carrots, celery etc.). In 29 only, due to the crisis, imports decreased, by 21% as compared to the previous year, subsequently the upward trend resumed; in 215 fruit and vegetables exports and imports were about 3 times higher than in (last year before access). Also the degree of import coverage by exports remained similar for both fruit and vegetables: about 35% only. The main consequence is that Romania remained a net importer of fruit and vegetables. 98

22 23 25 27 28 29 211 213 215 22 23 25 27 28 29 211 213 215 22 23 25 27 28 29 211 213 215 LUCRĂRI ŞTIINŢIFICE, SERIA I, VOL.XVIII (1) 3 2 1-1 -2 Total export Total import Total balance Figure 4. Romanian vegetables trade In terms of flows directions (figure 5), 66% of Romanian vegetable exports went in 215 on the Single Market (Italy, Germany, France), while 3% went outside the EU (Switzerland, Republic of Moldova). 8 6 4 2-2 -4-6 -8 25 2 15 1 5-5 -1-15 Extra-EU export Extra-EU balance Extra-EU import Intra-EU export Intra-EU balance Intra-EU import Figure 5. Intra-EU and extra-eu Romanian vegetables trade Imports came mainly (81%) from the Netherlands, Germany, Spain, Hungary and Poland, and only 19% from outside the EU (mainly from Turkey). Romanian fruits are going as much as 76% to the EU (figure 6) (Italy, Germany and France), and are imported maily from outside the EU (69%), mostly from Turkey, Moldova and China. 99

22 23 25 27 28 29 211 213 215 22 23 25 27 28 29 211 213 215 EUR billion EUR billion 22 23 25 27 28 29 211 213 215 22 23 25 27 28 29 211 213 215 FACULTATEA DE MANAGEMENT AGRICOL 15 1 5-5 -1-15 5 4 3 2 1-1 -2-3 -4 Extra-EU export Extra-EU balance Extra-EU import Intra-EU export Intra-EU balance Intra-EU import Figure 6. Intra-EU and extra-eu Romanian fruit trade In the EU-28, the fruit sector accounts for 7% and the vegetables sector for 15% of the total agricultural. The largest producers are in the Southern part of the EU (Spain, Italy, Greece). Most of the EU's production of fresh fruit and vegetables is consumed internally: exports to non-eu countries represent about 7% of the vegetable production and 15% of the fruit production. While for vegetables, the EU is net exporter, for fruit (mainly citrus fruit and bananas), EU is net importer (figure 7). 5 4 3 2 1-1 2 15 1 5-5 -1-15 -2 Vegetables export Vegetables balance Vegetables import Fruit export Fruit import Fruit balance Figure 7. EU trade (extra-community) in vegetables and fruits Before, Russia represented the main export market for the EU's fruit and vegetables production, and was importing (before the embargo) about one third (34%) of the fresh fruit exports (EUR 1.2 million) and about 26% of the fresh vegetable exports (EUR 734 million) (average values for -213). Data extracted from EU The Member States which were mostly hit by the embargo enforced in August and prolonged subsequently, were for vegetables: Lithuania, Poland, Netherlands, Belgium, Spain, and Germany, and for fruit: Lithuania, Poland (maily for apples), Spain, Italy and Netherlands (table 1). 1

LUCRĂRI ŞTIINŢIFICE, SERIA I, VOL.XVIII (1) Table 1 Losses incurred by the main exporters of vegetables and fruits to the Russian Federation () Country Average export value -213 Export value * Export value 215** Losses in Losses in 215 Vegetables EU-28 total 925.1 82.2 96.4 122.9 828.6 Lithuania 22.1 198.9 38.5 21.2 181.6 Poland 195. 184.2.4 1.8 194.6 Netherlands 125.4 15.3.1 2.1 125.3 Belgium 124.2 94.9 1.1 29.3 123.1 Spain 68.8 71.1. -2.3 68.8 Germany 64. 62.1 53.8 1.9 1.2 France 56.8 36.4.2 2.5 56.6 Fruits EU-28 total 72.2 55.4 68.5 196.8 633.7 Lithuania 254.2 26.1 16. 48.2 238.3 Poland 147.1 14.5 1.3 42.7 145.9 Spain 139.8 92.9 38.5 47. 11.3 Belgium 47.1 2.4.4 26.7 46.7 Greece 44.7 46.3. -1.7 44.6 Netherlands 2. 8.5 5.9 11.5 14.1 Italy 11.4 4.5 1.2 6.8 1.2 Notes: * embargo enforced in August for 1 year (August July 215) ** embargo prolonged for another year (August 215 July 216) Romania was not affected by the embargo, since it does not export fruit and vegetables to the Russian Federation. CONCLUSIONS Romania was not yet able to make its vegetables and fruit sector effeicient and competitive enough in order to satisfy its domestic consumption. It managed, however, to penetrate the international markets with some special types of fruits: nuts, walnuts, almond and red fruit, mostly organic. Among the countries which are severely hit by the Russian embargo, Lithuania, and Poland are in the worst position, but they started already exporting on alternative markets. However, the Russian embargo hit both the exporting countries, and also the other ones, since extra production destined to the Russian market is flooding the European Single market, pushing down the prices. 11

FACULTATEA DE MANAGEMENT AGRICOL REFERENCES 1. GAVRILESCU, CAMELIA, FLOREA, ADINA, DAVID, SAIDA, POPESCU A., MATEOC-SÎRB, NICOLETA, 216, Agri-food organic products a fast increasing market, European Biotechnology Congress, Riga, May 216, Conference Proceedings, under print. 2. GORUN, LAURA, OTIMAN, P.I., DORNEA, M.M., MATEOC-SÎRB, NICOLETA, RAICOV, M.,, The evolution of the ecological area in Romania, 13 th International Multidisciplinary Scientific Geoconference SGEM 16-22 June 213, Albena, Bulgaria, Ecology, Economics, Education and Legislation Conference Proceedings, Vol I, pag.971-978, ISBN 978-619-715-4-9, ISSN 1314-274. 3. -http://epp.eurostat.ec.europa.eu/newxtweb/ 4. -http://www.insse.ro/cms/ro/search/node/tempo 12