Price transmission in the Romanian agrifood chains in the context of market instability

1. CECILIA ALEXANDRI, InstituteofAgriculturalEconomics, email: cecilia@eadr.ro Price transmission in the Romanian agrifood chains in the context of market instability Conference SFER – Rural’Est: 20 ans de transition agricole et rural a l’Est: quelenseignements?

2. Presentation contents • Instability of world and European agricultural markets – evolutions and causes • Methodological elements, data sources, indicators for the analysis of Romania’s situation • Discussion of results regarding the agricultural prices, the processing prices and consumer prices evolution in Romania • The analysis of price volatility in different stages of the agrifood chains • Conclusions

3. Causes of price crisis on the agricultural markets Structural factors • Agricultural productivity trends stagnate or decrease • Lack of public funds invested in agricultural research • Fast growth of demand due to record development rates, urbanization and change of diet in the emergent countries • Other destinations given to the agricultural production (biofuels) • Seasonality of agricultural production constrains the adjustment possibility Conjuncture • Extreme weather conditions • Low level of stocks • Increase of energy and oil prices • Increased presence of speculative investment funds on agricultural raw materials markets • Economic crisis

4. Food prices evolution at world level(%)- FAO food price index-

5. Monthly prices evolution at world level inthe year 2010-2011

6. Influence of incomes growth upon change of diet in the emergent countries (FAO)-Meat consumption evolution per capita

7. How price transmission along the agrifood chains is investigated

8. What happens to the food prices in the European Union countries • Agricultural prices are volatile, mainly in the recent period- since 2007 there have been two price increase/decrease cycles. • Consumer prices are more stable. • On long term (in the last 50 years) : -Agricultural prices had a decreasing tendency, but many experts support the vision that the trend will reverse in the next years -Consumer prices had a slow increasing tendency, almost continuous

9. Magnitude of price variation along the agrifood chains in EU-27, in the period 2007 –November 2010

10. Food price variation in the European Union, Bulgaria and Romania (% February 2011 compared to February 2010)

11. Methodology and data sources used for investigating the prices along the food chains in Romania • Monthly series of agricultural price, processing price and consumer price indices, by sector and by main products • Perioad January 2006-November 2010 • Analysis of price transmission at the level of the entire agrifood sector and for the baking and meat and meat products chains • Analysis of price volatility in different stages of the chains and their dispersion evaluation, by certain time periods, through variation coefficients .

12. Price variation transmission along the agri-foods chains in Romania (%)

13. Evolution of agricultural commodity prices, of the processed products prices and of consumer food prices in Romania in the period 2006/2010 (2005=100) IPCa - 29%, Pret procesare - 54%, Pret agricol - 66%

14. Price variation transmission along the chain of milling and baking products, in Romania (%)

15. Prices evolution in the different stages of the milling and baking chain (2005=100)

16. Transmission of price variation along the chain of meat and meat products (%)

17. Evolution of prices along the chain of meat and meat products (2005=100)

18. Variation coefficients of the prices in the different stages of the agri-food chain (%)

19. Variation coefficients of agricultural prices in Romania and on the European market (period 2005-July 2010)

20. In the period of economic growth the incomes increased, but they experienced a great territorial dispersion Incomes evolution in real terms GDP IN PPP-S TERMS IN DIFFERENT REGIONS OF rOMANIA

21. The population’s food consumption in Romania improved in recent years in qualitative terms Annual average consumption per capita in 2009 Changes in the food consumption in Romania in the year 2009 compared to the year 2000

22. A few conclusions: • In the investigated period 2005- November 2010: • The agricultural prices experienced size variations higher than in EU , mainly prices of vegetable products, due to the instability of the Romanian agricultural supply and fragmentation of the regional markets. • The consumer prices were more stable, being restricted by the purchasing power, yet they have an almost constant increasing tendency at low rates. • Price transmission along the chains has an asymmetric character in the sense that the processing price and the consumer price increase even though the agricultural price decreases (for instance on the meat and cereal products chain) • The distortions in price variation transmission along the chains is mainly due to the asymmetry of the negotiation power between the economic operators on the agrifood chains and the farmers, and to the imperfect competition on the markets • A significant part of the consumed food products comes from import (for example: vegetables, fruit, meat preparations, even cereals in some poor agricultural years); that is why the world and European market evolutions are directly felt by the Romanian consumer • In November 2010, compared to 2005, in nominal terms: • -agricultural prices increased by 80% • -processing prices increased by 56% • - consumer prices by 30% • -the gross average salary income by 101%