Drought leaves bakers with higher production costs

The heat wave that has dried Romania out in the last few weeks has taken its toll on the food industry. The drought puts corn production in danger. According to producer estimates, Romania has obtained 2.6 million tons of corn this year after harvesting 90 percent of the agricultural surface. This is compared with 5.2 million in 2006. The supply must meet the demand for almost 4 million tons of corn. Production has been judged by specialists the smallest since 1940. They also say that from this quantity at most 1.3 million tons will be available for bread manufacturers.
This situation has led to price increases. “While last year the corn harvest was EUR 105-110 per ton, this year the price will rise to EUR 170, a growth of more than 60 percent, with this trend continuing,” said Aurel Popescu, president of Rompan, an association of players in the milling industry.
According to him, Romania finds itself in the position of having to import expensive corn or to use reserves from the strategic national deposits of 1.5 million tons to cover the current demand. “Romania will have to import almost a million tons of corn. For example, corn imported from the US costs almost $300 per ton, almost twice as much as local corn,” added Aurel Popescu.
Producers have already announced that they will start raising prices due to supplementary costs for imports. Officials from Vel Pitar have said that beginning with the third quarter of this year the price of bread will increase due to an increase in the cost of raw materials and companies that buy at a lower price and several weeks later sell the corn at a higher price. “In less than two months we will raise the price of our products by 10 percent and for a long period the increase will reach 20 percent,” said Dan Trifu, vice-president of Vel Pitar. The company owns a network of 170 stores all over the country and has 12 production centers in 10 counties.
Other players on the market have also increased prices. “The price of locally-made flour has increased by 16 percent. From August 1st we will also introduce the new prices which are 6 percent higher,” says Alin Giurea, general manager of Pambac Bacau. According to him, the costs of flour represent 50 percent of the price of bread, the rest covering transportation, energy and salary expenses.
A possible price rise of almost 40 percent is being considered by Loulis Group officials, the company that has assured for itself corn deposits for three months. “We could raise the prices of our products in the immediate period by 5 percent,” said Alexandra Domokos, economic director of Loulis. Galmopan, a bread manufacturer located in Galati, announced that it would raise prices from August to reach 50 percent more by the end of the year.
Agriculture minister Decebal-Traian Remes said that there was no problem and these price increases were a product speculation from the companies. “There aren't any real reasons to increase the price of bread,” said Remes.
According to producers, the evolution of the cost of flour is also influenced by speculators. “The companies that bought the corn from the market for EUR 170 per ton will raise the price, adding the storage expenses to it. So the producers will buy the flour at an artificially increased price,” said Viorel Matei, president of the Romanian National Federation of Agricultural Producers (FNPAR).
At the end of it all, the loser is the consumer, who will have to dig deeper into his or her pockets to pay for the same bread.

Dana Ciuraru