Required Report - public distribution

**Date:** 10/26/2005

**GAIN Report Number:** RO5014

RO5014

**Romania**

**Dairy and Products**

**Annual**

**2005**

**Approved by:**

![](media/image1.wmf)Brian Goggin

U.S. Embassy Bucharest

**Prepared by:**

Cristina Cionga

**Report Highlights:**

A national reference quantity for milk of 3,057,000 MT (to which a
"Reserve" quota may added in 2009) negotiated with EU, continues to
attract investors Romania's dairy industry. Romania requested a
transitional period until December 31, 2009 for modernizing and
re-vamping the milk processing units, as well as for organizing the milk
collecting and standardization centers in order to comply with the EU's
structural requirements. It is, nonetheless, officially expected that
about 70 percent of the currently over 500 operating dairy plants will
be closed down by the time of accession. Consumption of milk and dairy
products is low by Western standards, but steadily increasing.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Unscheduled Report

Sofia \[BU1\]

\[RO\]

Table of Contents

[Production 3](#production)

[Production, Supply and Demand Table
3](#production-supply-and-demand-table)

[Production, Supply and Demand Table
5](#production-supply-and-demand-table-1)

[Production, Supply and Demand Table
6](#production-supply-and-demand-table-2)

[Consumption 6](#consumption)

[Trade 7](#trade)

[Import Trade Matrix 7](#import-trade-matrix)

[Export Trade Matrix 8](#export-trade-matrix)

[Export Trade Matrix 8](#export-trade-matrix-1)

[Import Trade Matrix 9](#import-trade-matrix-1)

[Import Trade Matrix 9](#import-trade-matrix-2)

[Table 1. Import Duties on Selected Dairy Products, 2005
10](#table-1.-import-duties-on-selected-dairy-products-2005)

[Prices 11](#prices)

[Prices Table 11](#prices-table)

[Policy 12](#policy)

# Production

Milk production continues to mainly come from small farms in Romania and
is down in 2005 compared to 2004, because of the reduction in the cows
in milk inventories and in the reproductive stock. Data for the first 8
months show an increase in the average per head productivity (due
primarily to abundant feed grains at prices below the world market
reference). We anticipate a 3 percent decrease of domestic supplies.

Milk sanitation and collection continues to improve, driven by both the
presence of large multinationals and the increased access to EU
equipment subsidies that support small rural operators. Nonetheless, it
is still an important constraint to the processing industry: if the
maximum number of germs per ml of raw milk should not exceed 100,000 by
EU standards, most Romanian farmers supply milk with a contamination of
over 1 million germs/ml[^1]. Supply is very dispersed (raw milk being
supplied by about 1.2 million producers, of which just about 1000 hold
more than 15 cows) and has a strong seasonal trait. The important
absorption potential of the industry (triggered by the over 3 billion
liter quota negotiated with EU) is expected to be reached soon.
Consequently, a number of priorities are likely to be addressed:
improvements in feed and forage practices at farm level for specialized
dairy breeds, advanced techniques for animal husbandry, etc.

In order to ensure some control over both milk quantity and quality,
some of the large processors provide additional incentives and services
to their suppliers. One example is to give farmers dairy heifers, with
future payment in milk.

## Production, Supply and Demand Table

  ------------------ ----------- ------------------- ----------- ------------------- ----------- ------------------- ----------
  **Romania**                                                                                                        

  **Dairy, Milk,                                                                                                     
  Fluid**                                                                                                            

                     **2004**    **Revised**         **2005**    **Estimate**        **2006**    **Forecast**        **UOM**

                     **USDA      **Post              **USDA      **Post              **USDA      **Post              ** **
                     Official    Estimate\[New\]**   Official    Estimate\[New\]**   Official    Estimate\[New\]**   
                     \[Old\]**                       \[Old\]**                       \[Old\]**                       

  **Market Year                  01/2004                         01/2005                         01/2006             MM/YYYY
  Begin**                                                                                                            

  **Cows In Milk**   1694        1694                1690        1587                0           1650                (1000
                                                                                                                     HEAD)

  **Cows Milk        5680        5723                5700        5500                0           5700                (1000 MT)
  Production**                                                                                                       

  **Other Milk       363         375                 355         390                 0           400                 (1000 MT)
  Production**                                                                                                       

  **TOTAL            6043        6098                6055        5890                0           6100                (1000 MT)
  Production**                                                                                                       

  **Intra EC         0           0                   0           0                   0           0                   (1000 MT)
  Imports**                                                                                                          

  **Total Imports**  2           2                   1           2                   0           2                   (1000 MT)

  **TOTAL Imports**  2           2                   1           2                   0           2                   (1000 MT)

  **TOTAL SUPPLY**   6045        6100                6056        5892                0           6102                (1000 MT)

  **Intra EC         0           0                   0           0                   0           0                   (1000 MT)
  Exports**                                                                                                          

  **Total Exports**  0           0                   0           0                   0           1                   (1000 MT)

  **TOTAL Exports**  0           0                   0           0                   0           1                   (1000 MT)

  **Fluid Use Dom.   3770        3840                3755        3700                0           3819                (1000 MT)
  Consum.**                                                                                                          

  **Factory Use      1550        1528                1575        1475                0           1550                (1000 MT)
  Consum.**                                                                                                          

  **Feed Use Dom.    725         732                 726         717                 0           732                 (1000 MT)
  Consum.**                                                                                                          

  **TOTAL Dom.       6045        6100                6056        5892                0           6101                (1000 MT)
  Consumption**                                                                                                      

  **TOTAL            6045        6100                6056        5892                0           6102                (1000 MT)
  DISTRIBUTION**                                                                                                     

  **Calendar Yr.     0           0                   0           0                   0           0                   (1000 MT)
  Imp. from U.S.**                                                                                                   

  **Calendar Yr.     0           0                   0           0                   0           0                   (1000 MT)
  Exp. to U.S.**                                                                                                     
  ------------------ ----------- ------------------- ----------- ------------------- ----------- ------------------- ----------

When EU negotiated the milk production quota with Romania, the reference
period used was 2000-2002, since the quality of statistics has generally
improved after 2000. This resulted in a total national reference
quantity for milk set for Romania at 3,057,000 MT of which 1,093,000 MT
for deliveries and 1,964,000 MT for direct sales. This, together with
the "Reserve" quota that might add in 2009 in order to count for current
on-farm consumption, reflects Romania's potential to improve milk
collection, cold storage and processing facilities.

In August 2005, the GOR approved an Ordinance relevant to the milk
market, according to which individual producers are, by the time Romania
joins EU, to be attributed raw milk production quotas based on
historical figures from the reference period. Those producers whose
production exceeds their quota, will be subject to paying penalties for
the extra milk delivered. Those farmers who are not granted a quota,
will be not eligible for commercial sales after accession. The system is
particularly difficult to administer, given the poor quality of
statistics at farm level.

Romania requested a transitional period until December 31, 2009 for
modernizing and re-vamping the milk processing units, as well as for the
organizing the milk collecting and standardization centers in order to
comply with the Community structural requirements regarding cow milk
farms and quality of raw milk obtained.

Romania provided EU a list of 28 milk-processing establishments,
approved by the national veterinary authority, where transitional
measures are requested until December 31 2009. Another 27
milk-processing establishments are expected to comply with EU
requirements by the date of accession, approved by the General
Veterinary Inspectorate. Whether transition periods were granted,
products from establishments subject to transitional arrangements will
not be sold to other Member States and will be clearly identified with a
special health mark. Those establishments which do not benefit from a
transition period and which are expected to fully comply with the
*acquis* by the time of accession but fail to do so, will have to
terminate their activities.

The EU documents show that Romania is required to improve staffing,
staff training and to ensure greater involvement, monitoring and
supervision by the central authorities.

As regards the request for a transitional period relating to raw milk,
the EU notes that the delivery of such milk is channeled only to
establishments located in Romania and controlled by the General
Veterinary Inspectorate. The EU reiterates that the length of the
transitional period requested for each premises should be related to the
parameters for which the transitional period is requested and should be
as short as possible. The EU underlines that non-compliant raw milk and
raw milk from non-compliant farms can be delivered for processing only
to establishments benefiting from a transitional period. In addition,
the EU stresses the importance of ensuring the effective nature of the
controls on raw milk separation.

The EU also emphasizes the need to introduce the HACCP system in dairy
establishments in Romania at the latest by the date of accession
(Article 14 of Directive 92/46/EEC).

There are currently 522 dairy processing operators nation-wide, after
the veterinary authorities closed down 33 in 2005. It is officially
assessed that 70 percent of them (unlikely to comply with the EU food
safety requirements) will be closed down by the time of accession.

Industry representatives assess that Romania has the potential to cover
the quota negotiated with EU with an average number of 826,216 cows in
milk[^2]. If after accession the country is not able to fulfill the
whole production quota allocated by EU, the unsupplied amount will be
lost and quota diminished accordingly.

Romania requested, for the traditional cheese brands Nasal, Bradet,
Homorod (smoked cheese, etc), the application of the provisions of
Decision 97/284/EC relating to the conditions for the production,
products characteristics and placing on the market.

The EU notes that Romania has provided information and clarification
concerning the production of traditional milk based products.

## Production, Supply and Demand Table

  ------------------ ----------- ------------------- ----------- ------------------- ----------- ------------------- ---------
  **Romania**                                                                                                        

  **Dairy, Cheese**                                                                                                  

                     **2004**    **Revised**         **2005**    **Estimate**        **2006**    **Forecast**        **UOM**

                     **USDA      **Post              **USDA      **Post              **USDA      **Post              ** **
                     Official    Estimate\[New\]**   Official    Estimate\[New\]**   Official    Estimate\[New\]**   
                     \[Old\]**                       \[Old\]**                       \[Old\]**                       

  **Market Year                  01/2004                         01/2005                         01/2006             MM/YYYY
  Begin**                                                                                                            

  **Beginning        5           0                   5           0                   5           0                   (1000 MT)
  Stocks**                                                                                                           

  **Production**     26          26                  28          28                  0           29                  (1000 MT)

  **Intra EC         0           0                   0           0                   0           0                   (1000 MT)
  Imports**                                                                                                          

  **Total Imports**  2           3                   2           2                   0           3                   (1000 MT)

  **TOTAL Imports**  2           3                   2           2                   0           3                   (1000 MT)

  **TOTAL SUPPLY**   33          29                  35          30                  5           32                  (1000 MT)

  **Intra EC         0           0                   0           0                   0           0                   (1000 MT)
  Exports**                                                                                                          

  **Total Exports**  3           4                   4           4                   0           4                   (1000 MT)

  **TOTAL Exports**  3           4                   4           4                   0           4                   (1000 MT)

  **Human Dom.       25          25                  26          26                  0           28                  (1000 MT)
  Consumption**                                                                                                      

  **Other Use,       0           0                   0           0                   0           0                   (1000 MT)
  Losses**                                                                                                           

  **Total Dom.       25          25                  26          26                  0           28                  (1000 MT)
  Consumption**                                                                                                      

  **TOTAL Use**      28          29                  30          30                  0           32                  (1000 MT)

  **Ending Stocks**  5           0                   5           0                   0           0                   (1000 MT)

  **TOTAL            33          29                  35          30                  0           32                  (1000 MT)
  DISTRIBUTION**                                                                                                     

  **Calendar Yr.     0           0                   0           0                   0           0                   (1000 MT)
  Imp. from U.S.**                                                                                                   

  **Calendar Yr.     0           0.5                 0           0.5                 0           1                   (1000 MT)
  Exp. to U.S.**                                                                                                     
  ------------------ ----------- ------------------- ----------- ------------------- ----------- ------------------- ---------

## Production, Supply and Demand Table

  ------------------ ----------- ------------------- ----------- ------------------- ----------- ------------------- ---------
  **Romania**                                                                                                        

  **Dairy, Butter**                                                                                                  

                     **2004**    **Revised**         **2005**    **Estimate**        **2006**    **Forecast**        **UOM**

                     **USDA      **Post              **USDA      **Post              **USDA      **Post              ** **
                     Official    Estimate\[New\]**   Official    Estimate\[New\]**   Official    Estimate\[New\]**   
                     \[Old\]**                       \[Old\]**                       \[Old\]**                       

  **Market Year                  01/2004                         01/2005                         01/2006             MM/YYYY
  Begin**                                                                                                            

  **Beginning        0           0                   0           0                   0           0                   (1000 MT)
  Stocks**                                                                                                           

  **Production**     9           9                   10          7                   0           9                   (1000 MT)

  **Intra EC         0           0                   0           0                   0           0                   (1000 MT)
  Imports**                                                                                                          

  **Total Imports**  3           3                   2           3                   0           3                   (1000 MT)

  **TOTAL Imports**  3           3                   2           3                   0           3                   (1000 MT)

  **TOTAL SUPPLY**   12          12                  12          10                  0           12                  (1000 MT)

  **Intra EC         0           0                   0           0                   0           0                   (1000 MT)
  Exports**                                                                                                          

  **Total Exports**  0           0                   0           0                   0           0                   (1000 MT)

  **TOTAL Exports**  0           0                   0           0                   0           0                   (1000 MT)

  **Domestic         12          12                  12          10                  0           12                  (1000 MT)
  Consumption**                                                                                                      

  **TOTAL Use**      12          12                  12          10                  0           12                  (1000 MT)

  **Ending Stocks**  0           0                   0           0                   0           0                   (1000 MT)

  **TOTAL            12          12                  12          10                  0           12                  (1000 MT)
  DISTRIBUTION**                                                                                                     

  **Calendar Yr.     0           0                   0           0                   0           0                   (1000 MT)
  Imp. from U.S.**                                                                                                   

  **Calendar Yr.     0           0                   0           0                   0           0                   (1000 MT)
  Exp. to U.S.**                                                                                                     
  ------------------ ----------- ------------------- ----------- ------------------- ----------- ------------------- ---------

## 

# Consumption

Commercial use of domestic raw milk supply continues to stand at roughly
one forth of the total.

Sales of raw, non-pasteurized milk to final consumers in open markets
were forbidden by the veterinary authorities at the end of 2003.
Although shrinking, this channel still makes up about 33 one third of
the marketed domestic production, especially in the rural areas.

Another 12 percent of the total production is used as feed, while the
balance, still very significant, covers the household self-consumption.

The dairy product market registered an average growth rate of 2.5
percent over the past three years. Industry representatives expect that
in 2005 this growth will exceed 3 percent, taking the overall value
market to almost EURO 700 billion.

Milk and dairy product consumption is still low by Western standards
(reaching, in 2004, 231 liters/capita, according to Ministry of
Agriculture statistics), but with an upward trend (the growth rate was
1.5 percent in 2004). Urban demand is increasingly sophisticated and
product diversification targeting certain population segments (e.g.,
women: low fat, high vitamin and fiber content) is the core of the
efforts made by companies to better position themselves on the market.
Yogurt and other sour milk products continue to be one of the most
dynamic

Companies assess that consumption of fresh milk, white cheese
(Feta-like), and pressed (sheep) cheese will steadily grow.

Butter consumption has increased steadily from 2003, narrowing the
margarine share, basically because the former is a dairy product -
perceived as "natural" and consequently healthier than the latter, a
processed product with abundant use of food additives.

The overall value of investments made in the dairy industry over the
past seven years is assessed by the industry association at roughly EURO
250 million. Sector's revamping accelerates as accession is approaching
(including via SAPARD funding), but European Union integration, although
bringing with it major changes in dairy products, will not lead to
investments in production from companies that have not entered the
Romanian market yet, believe some industry representatives.[^3]

Nonetheless, this industry continues to attract investors' interest and
is still experiencing dramatic changes: consolidation through mergers
and acquisitions, new entries etc., mainly attributed to the pretty
solid processing quota negotiated by Romania with EU, which opens
players' appetite for this market.

Companies with a major presence are: Dorna Lactate (with investments
estimated at EURO 30 million), Danone (French, over EURO 20 million in
ivestments). Friesland (Dutch), Campina (Dutch, which invested in the
local Covalact), Hochland (Dutch), Prodlacta Brasov. The most recently
launched project is the Tnuva (Israeli-based) one, which began with
investments in a large dairy farm operation close to Bucharest and is
planned to reach \$50 million in the coming years.

## 

# Trade

In 2005 Romania continues to import small quantities of raw milk for
processing brought from the neighboring countries, although local
companies have opened their way into the EU market (La Dorna began
shipping milk to Greece, a member country which was allocated a modest
milk quota). Hungary, Germany, the Czech Republic and Slovakia have
already consolidated their position of suppliers of both raw milk and
processed, packed milk to Romania. Fluid milk imports increased by
almost 25 percent in 2004, to over 2,500 MT.

## 

## Import Trade Matrix

+------------------+-----------------+----------------+---------------+
| ###### Coun      | Romania         |                |               |
| try {#country-1} |                 |                |               |
+------------------+-----------------+----------------+---------------+
| **Commodity**    | Dairy, Milk,    |                |               |
|                  | Fluid           |                |               |
+------------------+-----------------+----------------+---------------+
| Time Period      |                 | Units:         | MT            |
+------------------+-----------------+----------------+---------------+
| Imports for:     | 2004            |                | **Jan-Jul     |
|                  |                 |                | 2005**        |
+------------------+-----------------+----------------+---------------+
| U.S.             |                 | U.S.           |               |
+------------------+-----------------+----------------+---------------+
| Others           |                 | Others         |               |
+------------------+-----------------+----------------+---------------+
| Hungary          | 963             | The Czech Rep. | 523.2         |
+------------------+-----------------+----------------+---------------+
| Germany          | 696.7           | Hungary        | 486.2         |
+------------------+-----------------+----------------+---------------+
| Slovakia         | 422.4           | Germany        | 329.4         |
+------------------+-----------------+----------------+---------------+
| The Czech Rep.   | 336.8           | Slovakia       | 190.6         |
+------------------+-----------------+----------------+---------------+
| Poland           | 92.2            | France         | 21.6          |
+------------------+-----------------+----------------+---------------+
| France           | 41.4            | Belgium        | 13            |
+------------------+-----------------+----------------+---------------+
| Bulgaria         | 15.8            | Bulgaria       | 7.2           |
+------------------+-----------------+----------------+---------------+
| Italy            | 3.1             | Italy          | 2.1           |
+------------------+-----------------+----------------+---------------+
| Spain            | 4.3             | Poland         | 0.8           |
+------------------+-----------------+----------------+---------------+
| Belgium          | 0.2             |                |               |
+------------------+-----------------+----------------+---------------+
| Total for Others | 2575.9          |                | 1574.1        |
+------------------+-----------------+----------------+---------------+
| Others not       |                 |                |               |
| Listed           |                 |                |               |
+------------------+-----------------+----------------+---------------+
| Grand Total      | 2575.9          |                | 1574.1        |
+------------------+-----------------+----------------+---------------+

  -----------------------------------------------------------------------

  -----------------------------------------------------------------------

## Export Trade Matrix

  -------------------- -------------------- --------------- --------------
  **Country**          Romania                              

  **Commodity**        Dairy, Milk, Fluid                   

  Time Period                               Units:          MT

  Exports for:         2004                                 **Jan-Jul 05**

  U.S.                                      U.S.             

  Others                                    Others          

  Greece               36.5                 Greece          473.5

  Hungary              20.6                 Malta           2.1

  Bulgaria             10                   Bahamas         1.2

  Panama               9.2                  Germany         1.2

  Total for Others     76.3                                 478

  Others not Listed    16.6                                 3.1

  Grand Total          92.9                                 481.1
  -------------------- -------------------- --------------- --------------

Country's cheese exports (mainly of feta-type) totaled almost 4,000 MT
in 2004 (shipped to Greece (under preferential arrangements with EU),
US, Germany, Lebanon, Italy) and are expected to remain fairly stable in
2005. According to Romanian Customs, in 2004 Romania increased its
feta-type cheese exports to US by 42 percent, i.e. to 530 MT. In 2004
imports exceeded 2,500 MT and are likely to reach similar levels by the
end of 2005, consisting mainly of special cheeses (different varieties
of pressed cheese, Suisse cheese, blue cheese) primarily from EU, which
benefits from a duty-free quota (see Table 1).

## Export Trade Matrix

+------------------+--------------+------------------+---------------+
| ###### Coun      | Romania      |                  |               |
| try {#country-2} |              |                  |               |
+------------------+--------------+------------------+---------------+
| **Commodity**    | Dairy,       |                  |               |
|                  | Cheese       |                  |               |
+------------------+--------------+------------------+---------------+
| Time Period      |              | Units:           | MT            |
+------------------+--------------+------------------+---------------+
| Exports for:     | 2004         |                  | **Jan-Jul     |
|                  |              |                  | 2005**        |
+------------------+--------------+------------------+---------------+
| U.S.             | 529.3        | U.S.             | 302.8         |
+------------------+--------------+------------------+---------------+
| Others           |              | Others           |               |
+------------------+--------------+------------------+---------------+
| Greece           | 1987         | Greece           | 1060.5        |
+------------------+--------------+------------------+---------------+
| Germany          | 596.4        | Germany          | 292.7         |
+------------------+--------------+------------------+---------------+
| Lebanon          | 375.7        | Lebanon          | 278           |
+------------------+--------------+------------------+---------------+
| Italy            | 237.8        | Italy            | 221.2         |
+------------------+--------------+------------------+---------------+
| Australia        | 61.5         | Bulgaria         | 120.8         |
+------------------+--------------+------------------+---------------+
| Bulgaria         | 60.3         | Australia        | 27            |
+------------------+--------------+------------------+---------------+
| The Netherlands  | 50.4         | The Netherlands  | 20.2          |
+------------------+--------------+------------------+---------------+
| France           | 25.3         | The Russian Fed. | 15.4          |
+------------------+--------------+------------------+---------------+
| Poland           | 11.5         |                  |               |
+------------------+--------------+------------------+---------------+
|                  |              |                  |               |
+------------------+--------------+------------------+---------------+
| Total for Others | 3405.9       |                  | 2035.8        |
+------------------+--------------+------------------+---------------+
| Others not       | 11           |                  | 1.6           |
| Listed           |              |                  |               |
+------------------+--------------+------------------+---------------+
| Grand Total      | 3946.2       |                  | 2340.2        |
+------------------+--------------+------------------+---------------+

## Import Trade Matrix

  -------------------- ---------------- ------------------ ----------------
  **Country**          Romania                             

  **Commodity**        Dairy, Cheese                       

  Time Period                           Units:             MT

  Imports for:         2004                                **Jan-Jul 2005**

  U.S.                                  U.S.               0.1

  Others                                Others             

  Germany              1457.3           Germany            977.9

  France               424.9            Poland             204.3

  Poland               217.8            Hungary            160.5

  Hungary              136.9            France             133.8

  Italy                124.8            Italy              98.1

  Australia            60               The Czech Rep.     97.4

  The Netherlands      13.9             Denmark            80.4

  Switzerland          10.6             Austria            7.5

                                        Spain              2.4

                                                            

  Total for Others     2446.2                              1762.3

  Others not Listed    147.1                               28.6

  Grand Total          2593.3                              1791
  -------------------- ---------------- ------------------ ----------------

Butter imports have stabilized at roughly 3,000 MT for the past three
years, mainly originating from EU countries, under preferential
arrangements (Table 1).

## Import Trade Matrix 

  -------------------- -------------- ------------------- ----------------
  **Country**          Romania                            

  **Commodity**        Dairy, Butter                      

  Time Period                         Units:              MT

  Imports for:         2004                               **Jan-Jul 2005**

  U.S.                                U.S.                 

  Others                              Others              

  Germany              1582.5         The Czech Rep.      583.4

  The Netherlands      671            Germany             527.5

  France               358            France              345.5

  Poland               119            The Netherlands     300

  Belgium              80.8           Poland              220

  The Czech Rep.       60             Hungary             38.1

  Portugal             48.3           Belgium             24

  Hungary              18                                  

  Italy                19.3                                

  Greece               0.3                                 

  Total for Others     2957.2                             2038.5

  Others not Listed                                        

  Grand Total          2957.2                             2038.5
  -------------------- -------------- ------------------- ----------------

### Table 1. Import Duties on Selected Dairy Products, 2005

+---------+---------------------------+--------+--------+------------+
| HS Code |                           | WTO    | MFN    | Special EU |
|         |                           | bound  |        | preference |
|         |                           | tariff | duty   |            |
|         |                           |        |        | Aug        |
|         |                           |        |        | 2004/July  |
|         |                           |        |        | 2005       |
+---------+---------------------------+--------+--------+------------+
| 0401    | Milk and dairy cream,     | 248    | 45     | 15-18.8    |
|         | concentrated              |        |        | for        |
|         |                           |        |        |            |
|         |                           |        |        | 1500 MT    |
+---------+---------------------------+--------+--------+------------+
| 0405    | Butter                    | 200    | 45     | 18.8 for   |
|         |                           |        |        | 1900 MT    |
+---------+---------------------------+--------+--------+------------+
| 0406    | Cheese                    | 270    | 45     | 0 for      |
|         |                           |        |        |            |
|         |                           |        |        | 2900 MT    |
+---------+---------------------------+--------+--------+------------+

A new phase of bilateral liberalization of the agricultural trade regime
was concluded between the Government of Romania and the European Union
in May 2005 and promulgated by the Romanian Parliament in July in the
form of an Additional Protocol to the "European" Association Agreement.
The document includes a list of products for which increased in-tariff
quotas apply from August 1, 2005. Ministerial Order 428 of the Ministry
of Economy and Trade lays down the following TRQs for products
originated from EU, effective within August 1- December 31, 2005:

+----+--------+----------------+--------+--------+---------+---------+
|    | HSC    | Product        | TRQ    | Date   | Import  | Unitary |
|    |        |                | (MT),  | of     | duty    | all     |
|    |        |                |        | o      | (%)     | ocation |
|    |        |                | if not | pening |         | (%/MT   |
|    |        |                | oth    |        |         | if not  |
|    |        |                | erwise | (      |         | ot      |
|    |        |                | spe    | m/d/y) |         | herwise |
|    |        |                | cified |        |         | spe     |
|    |        |                |        |        |         | cified) |
+----+--------+----------------+--------+--------+---------+---------+
| 1  | 0402   | Milk and sour  | 1,500  | 1/0    | 15      | 1.34/20 |
|    | 1019   | cream, in      |        | 1/2005 |         |         |
|    |        | powder or      | 300\*  |        | 18.8    | 6.66/20 |
|    | 0402   | other solid    |        | 8/0    |         |         |
|    | 2111   | forms          |        | 1/2005 | 18.8    |         |
|    |        |                |        |        |         |         |
|    | 0402   |                |        |        | Ex.     |         |
|    | 2119   |                |        |        |         |         |
|    |        |                |        |        |         |         |
|    | 0402   |                |        |        |         |         |
|    | 2191   |                |        |        |         |         |
+----+--------+----------------+--------+--------+---------+---------+
| 2  | 0403   | Yogurt, plain, | 416    | 8/0    | Ex.     | 4.81/20 |
|    | 1011   | no sugar or    |        | 1/2005 |         |         |
|    | to     | cocoa added    |        |        |         |         |
|    |        |                |        |        |         |         |
|    | 0403   | Other, plain,  |        |        |         |         |
|    | 1039   | no fruit or    |        |        |         |         |
|    |        | cocoa added    |        |        |         |         |
|    | 0403   |                |        |        |         |         |
|    | 9011   |                |        |        |         |         |
|    | to     |                |        |        |         |         |
|    |        |                |        |        |         |         |
|    | 04     |                |        |        |         |         |
|    | 039069 |                |        |        |         |         |
+----+--------+----------------+--------+--------+---------+---------+
| 3  | 0405   | Butter and     | 1,900, | 1/0    | 18.8    | 2.2/20  |
|    | 10     | other fats     | o/w:   | 1/2005 |         |         |
|    |        | derived from   |        |        | 18.8    | 2.1/20  |
|    | 0405   | milk           | 950    | 7/0    |         |         |
|    | 90     |                |        | 1/2005 | Ex.     |         |
|    |        |                | 950    |        |         |         |
|    |        |                |        | 8/0    |         |         |
|    |        |                | 0\*\*  | 1/2005 |         |         |
+----+--------+----------------+--------+--------+---------+---------+
| 4  | 0406   | Cheese and     | 2,900, | 1/0    | Ex.     | 1.38/20 |
|    |        | curd           | o/w:   | 1/2005 |         |         |
|    |        |                |        |        | Ex.     | 1.38/20 |
|    |        |                | 1,450  | 1/0    |         |         |
|    |        |                |        | 1/2005 |         |         |
|    |        |                | 1,450  |        |         |         |
+----+--------+----------------+--------+--------+---------+---------+

\*TRQ made of imports actually made after August 1, based on licenses
issued prior and post August 1, 2005.

\*\*For those imports made after August 1, but based on licenses issued
prior to this date, the import duty will be the one specified in this
table.

# Prices

Prices for milk in 2005 have followed the multi-annual pattern, strong
appreciating strongly in winter and depreciating in summer (see Prices
Table). The gap between farm-gate raw milk prices and retail prices has
grown larger and is considered by farmers a disincentive for farmers to
sell to the processing industry. However, the still high additional
costs (related to difficult collection from small farms, with precarious
sanitation and poor transport infrastructure, which depreciated even
further in a year with unrelenting floods), contribute to keep
acquisition prices suppressed.

## Prices Table

  ----------------- ------------------- ---------------- ------------------
  **Country**       Romania                              

  **Commodity**     Dairy, Milk, Fluid                   

  Prices in         US\$                per uom          HL

                                                         

  Year              2004                2005             \% Change

  Jan               23.0                29.2             27%

  Feb               23.4                31.9             36%

  Mar               23.0                21.8             -5%

  Apr               20.6                23.2             12%

  May               19.3                17.5             -9%

  Jun               17.9                15.2             -15%

  Jul               16.5                13.5             -18%

  Aug               17.9                14.0             -21%

  Sep               20.8                14.0             -33%

  Oct               22.8                                 

  Nov               26.1                                 

  Dec               27.7                                 

                                                         

  Exchange Rate     monthly average     Local            
                                        Currency/US \$   
  ----------------- ------------------- ---------------- ------------------

Farm-gate prices, no VAT added.

# Policy

Although the main type of support for milk producers continues to be
provided by the GOR in the form of procurement payments (i.e., market
price support, counting in the aggregated support measurement), there
are also a number of subsidies exempted from the reduction commitment
("Green Box"-type). The latter include measures to help recovery of the
livestock sector (lump sum for heifers bearing calves for the first time
and for newly born calves resulted through artificial insemination).

In the beginning of 2005, 1,800 billion 180 million RON (approximately
\$60 million at the current exchange rate) were budgeted for procurement
payments to farmers who deliver their production to processors. This
amount is below the *de minimis* level Romania is entitled to according
to its WTO commitments. The unit subsidy for standard cow milk 3.5% fat
sold to processors was increased from July 2005 to RON 0.155/liter for
average production conditions and, respectively, to 0.2/liter in winter.

[^1]: Dairy Industry Employer Association chairman quoted by *Bursa*
    daily.

[^2]: Ibid.

[^3]: Friesland Romania, one of the main players on the dairy product
    market with over 70 million euros in turnover last year, quoted by
    *Ziarul Financiar*.