table of contents oil market- romania.pdf · internal production of edible oil and margarine, 2001...

Table of Contents

1. EDIBLE OIL MARKET .......................................................................................................2 1.1. Market characteristics ...............................................................................................................2

1.1.1. Market size and general characteristics .....................................................................2 1.1.2. Internal production of edible oil and margarine, 2001 – 2005 ...................................6 1.1.3. Imports and exports of edible oil and margarine, 2001 – 2005 ..................................7

1.2. Forecasts for 2006 – 2010.........................................................................................................10

1.3. Market drivers .........................................................................................................................10

1.3.1. Market lifecycle phase and the power of distribution channels................................10 1.3.2. Entry as new investment and barriers to entry.........................................................10 1.3.3. Key trends in the sector ..........................................................................................11 1.3.4. Future developments ..............................................................................................12

1.4. Market players .........................................................................................................................12

1.4.1. Main players...........................................................................................................12 2. PALM OIL MARKET.........................................................................................................14 2.1. Market size and characteristics .....................................................................................................14

2.2. Foreign trade..................................................................................................................................14

2.3. Palm oil related regulations ...........................................................................................................22

2.4. Consumption patterns....................................................................................................................23

2.5. Main importers and distributors ...................................................................................................25

3. CONCLUSIONS..................................................................................................................30 3.1. Sector opportunities and challenges ........................................................................................30

3.2. Recommendations for marketing palm oil ..............................................................................30

Palm Oil Market in Romania CONFIDENTIAL

of 31 Embassy of the Republic of Indonesia

and

1. Edible Oil Market 1.1. Market characteristics

1.1.1. Market size and general characteristics

Comparison with CEE/EU markets

The consumption of edible oil per capita has

increased during the last years, but Romania

ranks only 50 th in the world in this respect. In

2004, the consumption of edible oil was

around 12 kg per capita, similar to the level in

China and below the European average.

Consumption is expected to remain at similar

levels for the next 5 years.

Local market

The Romanian edible oil industry is worth an estimated €230 million, of which €185 million is the value of

the domestic market and about €45 million is the value of exports. Quantitywise, the market was estimated

at around 250,000 liters in 2006. 1 This shows that the internal production is sufficient to satisfy the

mainstream market and some of it is even exported. This reasoning does not apply for types of edible oil

which are not produced in Romania (basically, it applies for sunflower oil as this is by far the dominant type

of oil produced locally).

Just over half of the processed edible oil produced in Romania (5355%) is distributed for household

consumption, while the rest is used as raw material in other industries, mainly in the food sector.

Products derived from processing are used in various fields: bird and animal feeding, textile industry,

constructions or the chemical industry (soap, cosmetics, lecithin, phosphates, etc.).

The industry developed rapidly in the past couple of years, while concentration increased dramatically,

driven by the entrance of large international players (especially from the US), which currently account for

more than two thirds of the country’s production of edible oil.

1 Wall Street Romania, 8 May 2007, 10 April 2007, http://www.wallstreet.ro/articol/Companii/28592/PrutulSAavandutcu81maimultuleiin primultrimestru.html (page only available in Romanian)

Oil and vegetable fats consumption per capita Central and Eastern Europe

17 .6

16

17 .5

19 .5

18.6

10

15.7

16.9

17.6

12

16

16 .1

19 .7

N /A

N /A

0 5 10 15 20 25

Hunga ry

Romania*

Czech Rep

S lo vakia

P o land

2004 2003 2002

*e s tima ted da ta So urce : WIIW, MAP DR

kg pe r capita



and

The sunflower oil has the largest share of the market, although other types of oil are marketed as well:

olive oil, soy oil, palm oil, coconut oil etc. Romanian producers of edible oil are mainly active in the

sunflower and soy oil segments. The soy and olive oil segments are the fastest growing ones, albeit from a

small base.

Geographical concentration of the industry

The edible oil industry is

concentrated in the

Eastern, Southern and

NorthWestern regions of

the country. Large

manufacturing facilities

were opened in areas with

abundant and readily

available raw materials:

the counties of Iasi, Vaslui,

Galati, Constanta, Ialomita,

Dolj, Bucuresti, Bihor and

Satu Mare.

Capacity and utilization

The total processing capacity for oil seeds in Romania is a significant 1.6 million tons per year. The

industry has an excess of capacity 2 and the utilization rate is poor (it now stands at approximately 40% to

60%) despite the exports.

Processing capacity (per year)

thousand tons Seeds (raw material) Refined oil Packaged oil

Capacity 1,612 679 430

Actual usage 700 300 250

Capacity utilization 43.4% 44% 58%

The excess capacity suggests that the local processing industry is under some pressure to increase output and

efficiency.

2 About 25% of the existing processing capacities are supported by SAPARD investments.

Geographic distribution of the edible oil industry in Romania

Source: Interbiz Group



and

Regulatory framework

.1.1.

These laws stipulate that:

For oils, fats and combinations thereof, destined for human use, as well as for compound

food products in which oils, fats and combinations thereof represent over 5%, the maximum

level of erucic acid allowed under Romanian law (Act 388/2002) is 5% (calculated as

percentage of the total level of fatty acid in the fat component)

Lab tests for identifying the level of erucic acid in products containing oils and fats are

compulsory, and the law describes the way these tests are undertaken

In terms of packaging, the Act 454 of 2001 stipulates that vegetable oils must be packaged in

bottles made of glass or polyethylene tereftalat, boxes made of metal or waxed carton.

Vegetable oils must be stored in metallic tanks. The presence of copper or copper alloys in

the storage tanks, as well as the use of mercury thermometers and glass equipment, is strictly

prohibited. It is also mentioned that during storage it should be made sure that the oil is not

in contact with the air in the loading and unloading units.

Products must be labeled according to current laws. All necessary information must be

present on the labels, so that the consumer is well informed when purchasing the product. In

the case of vegetable oils, it is prohibited to write on the labels: “double refined”, “no

cholesterol”, in the case of oils obtained through cold pressing it is prohibited to present the

product as medicine.

Regulatory framework in Romania: Act 388 of May 30, 2002 which sets the maximum level of erucic acid in oils and fats

destined for human consumption, as well as in some food products with added oils or fats

Act 454 of November 22, 2001 regarding the nature, content, origin, manufacturing,

packaging, labeling, marking, storing and the quality of vegetable oils, spreadable fats –

margarine – and mayonnaise, destined for human consumption

Regulatory framework in the EU: R 2991/94 Council Regulation (EC) No 2991/94 of 5 December 1994 laying down

standards for spreadable fats

R 1562/78 Council Regulation (EEC) No 1562/78 of 29 June 1978 amending Regulation

No 136/66/EEC on the establishment of a common organization of the market in oils and

fats



and

Selection of associations with some implication in the Edible Oil Industry

Institution Activity

Interprofessional organizations

Organizatia Interprofesionala Nationala de Produse Grasimi Vegetale si Sroturi Furajere Organizaţia patronala a industriei uleiului si grăsimilor vegetale (ULPROD) Business organization in the edible oil and vegetal fats industry.

Product Council

"Oleaginoase şi produse procesate"

Association of various parties involved in oleaginous products as well as other processed products of this kind; market research; makes legislative recommendations; makes recommendations concerning financial aid in the sector; ensures that market organization resembles that in the EU.

Other

Ministerul Agriculturii, Padurilor si Dezvoltarii Rurale

Public body that oversees the Romanian agriculture, forestry and rural development.

Agentia de Plati pentru Dezvoltare Rurala si Pescuit

Public body in the Ministry of Agriculture. Following Romania's accession to the EU, the Agency will fund investment projects out of the European Agricultural Fund for Rural Development, the European Fisheries Fund and also the SAPARD projects which have been contracted until the end of 2006.

Agentia Nationala de Consultanta Agricola

Public body within the Ministry of Agriculture. Provides information, consulting, technical assistance and professional training services to private agricultural producers; implements the strategy and programs of the Ministry of Agriculture; provides support in applying for financing; advises foreign investors with respect to possibilities and opportunities of investing in the agricultural sector.

Autoritatea Nationala SanitarVeterinara si pentru Siguranta Alimentelor

Public body within the Ministry of Agriculture. Coordinates the nationwide provision of veterinary services; organization and supervision of public veterinary activity.

Autoritatea Nationala pentru Protectia Consumatorilor

Enforces consumer protection; prevents and fights against all practices which prejudice consumers' life, health, safety or economical interests and estimates the efficiency of the market surveillance system for products and services provided.

Romalimenta Professional association of producers in the food and drinks industry in Romania.



and

1.1.2. Internal production of edible oil and margarine, 2001 – 2006

i The total production is decreasing; in particular, the production of margarine has reduced by almost half in the last 2 years.

Production by value

The total production of edible oil 3 has decreased

slowly in the 4 years between 2001 and 2004,

but started to increase again afterwards.

Sunflower oil represents the majority of total

production, followed by soy oil. Production has

decreased by a compound annual rate of 2.8%

during 20012006.

Structure of production by value

The share of soy oil in total oil production has

been increasing in the past 4 years, from 7.2% to

12.2%. Domestic production of oil is starting to

diversify as consumers diversify their tastes as

well.

3 The edible oil production analysed includes the following categories: Sunflower oil (Raw sunflower oil, Refined sunflower oil), Soy Oil (Raw soy oil, Refined soy oil), Linseed oil (Refined technical linseed oil)

Edible oil the structure of production by value (€)

94 .5% 90 .1% 92 .7% 91.1% 90 .0% 87.8%

9 .8% 7.2% 12.2%

0.1% 0 .1% 0 .0%

9 .9% 8 .8% 5.4%

0 .1% 0 .0% 0 .0%

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006

Sunflo wer o il So y o il Lins eed o il

Source : The Na tio na l Ins titute o f S ta tis tics

Edible oil the evolution of production by value (€000)

231,477 220 ,576 194 ,596 176 ,722 185,081 186 ,800

24 ,079 15,123 25,887

2 33 2 22

31 13 ,129

17,137 20 ,414

98 70 135

0

50,000

100,000

150,000

200,000

250,000

2001 2002 2003 2004 2005 2006

Sunflo wer o il So y o il Lins eed o il

Source : The Na tio na l Ins titute o f S ta tis tics

000€



and

1.1.3. Imports and exports 4 of edible oil and margarine, 2001 – 2006

Imports

i Imports of edible oil are on an ascending trend. 2002 can be considered an atypical year.

Imports by value

Total imports of edible oil increased 28% in

2006. The most significant increases were

recorded in sunflower oil and olive oil.

Imports of palm oil increased 4.8% in 2006, after

a slight decrease registered in 2005.

Structure of imports by value

Palm oil owns the lion’s share in the total

imports of edible oil. However, its share seems to

be rather unstable. Since import prices for palm

oil have been fairly stable in the past five years,

this fluctuation mainly comes from fluctuating

quantities imported. The large shares in 2004 and

2005 coincide with a Malaysian government plan

to subsidize the Romanian palm oil industry

which led to higher imports from this country.

4 15.07 Soy oil, 15.08 Peanuts oil, 15.09 Olive oil, 1510.00 Other oils, 15.11 Palm oil, 15.12 Sunflower oil, 15.13 Coconut oil, 15.14 Rape and mustard oil, 15.15 Other vegetable fats and oil, 15.17 Margarine, mixes and other products from vegetable oil and fats

Edible oil evolution of imports by value (000€)

14 ,8 22 23 ,8 3 1 24 ,9 73

11,6 84

5,6 91

2 ,59 7

18 ,9 37 23 ,9 67

8 ,14 6

6 ,913 3 ,42 9 9 ,36 8 11,353

1,515

2 ,83 1

1,50 8 9 9 9 786

9 20

2 ,88 2 3 ,711 19 ,28 3

9 82

5,3 07

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

2001 2002 2003 2004 2005 2006

P alm o il Sunflowe r o il Olive o il Othe r fats and vegetable o il

So urce : The Natio na l Ins titute o f S ta tis tics

000€

Edible oil the structure of imports by value (€)

70%

3 2%

59% 75% 64%

52%

2 5%

2 9% 25%

8%

2%

12% 4 2%

11%

13% 11% 19%

3% 5% 8% 8% 8% 9% 10%

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006

P alm o il Sunflo wer o il Olive o il Othe r fats and vegetable o il

Source : The Na tio nal Ins titute o f S ta tis tics



and

Import prices

The large share owned by palm oil in total

imports seems to be determined mainly by large

volumes as total prices for the category are low

(second lowest in 2006 and the lowest in 2005).

Olive oil is imported at very high prices; its price

levels are comparable to none of the other

categories and they are steadily increasing at a

fast pace.

Exports

i Exports are increasing, mainly as a result of the sunflower oil category.

Exports by value

Exports of oil have boomed in 2004 and 2005 –

mainly within the sunflower oil category – and

then decreased quite abruptly in 2006.

In 2004, the total export value for sunflower oil

was 4 times higher compared to the one recorded

the previous year.

Edible oil the evolution of import prices*

2 ,3 22 2 ,44 4 2 ,6 35

3 ,188 3 ,355

3 ,88 0

1,131 9 4 7

1,722 2 ,114

1,072

52 4 528

554

560 56 4 575

50 5 38 9 50 3 48 9 570 58 4

557

0

1,000

2,000

3,000

4,000

2001 2002 2003 2004 2005 2006

Olive o il P alm o il

Sunflo we r o il Other fa ts and vege table o ils

So urce : The Na tio nal Ins titute o f Statis tic s

€/tonne

*CIF

Edible oil evolution of exports by value (000€)

5,952

43 ,932

31,721

2 ,965

57

18 ,096

4 5,920

20 ,793

5,465 2,984

599

1,503

173

35 6 5

102

49

19

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

2001 2002 2003 2004 2005 2006

Sunflo we r o il Othe r fats and vegetable o il P a lm o il

Source : The Na tio na l Ins titute o f S ta tis tic s

000€



and

Structure of exports by value

Sunflower oil owns the lion’s share in total

exports – a normal situation if we take into

account the structure the oil production in

Romania.

Export prices

Prices for all categories are increasing. This

trend has been maintained for the last 4 years

and is expected to continue in the years to come.

Edible oil the structure of exports by value (€)

9 9% 79%

96% 9 4% 8 9% 91%

2 0% 9%

0% 1% 0%

3% 1% 6% 11%

1% 0% 0%

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006

Sunflo wer o il Other fa ts and vegetable o il P alm o il

So urce: The Natio na l Ins titute o f S tatis tics

Edible oil the evolution of export prices*

1,044

2 ,789

5,538

2 ,132

2,936

703 620 416

652 566 689

505 511 503 489 570 584 15

114 219 110 43 507

0

1,000

2,000

3,000

4,000

5,000

2001 2002 2003 2004 2005 2006

Olive o il P a lm o il

Sunflo wer o il Othe r fa ts and vegetable o ils

So urce: The Na tio nal Ins titute o f S tatis tic s

€/tonne

*CIF



and

1.2. Forecasts for 2006 – 2010

The forecast of the edible oil production value is based on the expectations of industry players that the oil

market will grow at an annual rate of 4% for the next 5 years. Even though the capacity allows for much

higher growth, the internal consumption takes time to increase and exports are potentially held back by the

fluctuating exchange rate (and the strengthening of the local currency).

Edible oil forecast of production by value (€000)

2 05,62 9 2 12 ,717 22 1,22 6 23 0 ,075 23 9 ,278 2 4 8 ,84 9

0

50,000

100,000

150,000

200,000

250,000

2005 2006 2007E 2008E 2009E 2010 E

So urce: The Natio na l Ins titute o f S ta tis tics

000€

1.3. Market drivers

1.3.1. Market lifecycle phase and the power of distribution channels

The edible oil market is concentrated and it is expected to further consolidate around the producers with the

financial power to make the required investments. The industry is an oligopoly, as the top 4 players control

80% of the market in terms of value and volume. However, retailers manage to put significant pressure

on prices and some producers resort to vertical integration to deal with this.

In terms of product variety, the edible oil industry is rather mature and stable, making differentiation a

difficult task for producers. That is especially true for the sunflower oil which constitutes the bulk of the

market. On the other hand, the market of specialty products (i.e. olive oil or palm oil) is only just beginning

to emerge.

1.3.2. Entry as new investment and barriers to entry

During the last years, the edible oil market underwent significant mergers and acquisitions which

concentrated the industry around 4 large companies. These players have all launched campaigns to increase

efficiency at local production sites and invested heavily in advertising (Bunge alone allocated for ATL

communication programs more than $1 million). This degree of industry consolidation is an entry barrier for

new producers.



and

1.3.3. Key trends in the sector

Factor Our assumption Impact Effect on the market*

Certainty of assumption

Romania joins the EU

Romania has joined the EU in 2007.

High. Joining the EU will have a significant impact on the structure of the market, finalizing the consolidation phase. Also, there will be stronger competition from imported products, as in the case of Hungary and Poland.

↔ 100%

EU biofuels strategy

According to European norms, biofuels should account for 2% of the total consumption in Romania in 2007 (230,000 tons).

High. This is a major opportunity for the industry to use its production capacity.

↑ 80%

Large retailers increase activity

Modern forms of retail will represent an increasingly larger slice of the retail market.

Moderate. This will favor companies with efficient operations and important marketing resources.

↔ 95%

Adjacent sectors

The food industry overall is growing, and many subsectors use oil as raw material to manufacture their products. Some of the adjacent sectors with the highest increases are: canned food, sweets, bakery, HoReCa.

Moderate. The demand for bulk deliveries from these sectors will increase.

↑ 90%

Market dominated by large foreign players

This is a serious threat to local producers, which usually lack the financial resources to make investments to compete with large companies.

Moderate. If local producers cannot expand or keep their market share, some of them will close or sell their businesses.

↑ 85%

Advertising

Producers of edible oil invest in building brands, which is important in a market that becomes more and more competitive.

Moderate. Spending increases the costs of industry players. Those producing value added products will benefit financially, while the others will simply have to cope with increased costs.

↔ 80%

Purchasing power

The purchasing power of the population will increase.

Moderate. Margarine is seen as a cheaper substitute for butter, and the butter market is now ~5 times smaller than the margarine market. Butter could gain ground in the future if the buyers have more money to spend.

↑ 80%

Source: Visionwise Consulting



and

1.3.4. Future developments

The edible oil market is expected to increase at an average rate of around 4% per year until 2008, in

contrast to the negative evolution from 20002004.

There have been important increases in production capacities in the last couple of years and processors are

starting to learn how to make efficient use of their production capacities. The reorganization and

modernization of existing facilities and equipments is important for this industry. Independent producers will

most likely be taken over by multinationals, thus improving the utilization rate of production capacities.

In a market pressed by low margins, several large players have already invested in or announced plans to

invest in biodiesel production (e.g. Prutul, Bunge, Ulerom, Ultex, Expur, etc), as they expect this market to

significantly increase in the future.

1.4. Market players

1.4.1. Main players

Oil

The most important players are Bunge, Argus, Cargill and Agricover. Bunge has a share of ~36% in the

edible oil market and operates two factories (Interoil Oradea and Unirea Iasi). Argus is the second player on

the market, with a ~20% share of the market volume. The third player is Cargill, which has acquired the oil

business of Topway (including the “Bunica” brand) for $30m and aims for the top position in the industry.

Top producers in the industry

The profitability and turnover CAGR of companies placed in the upper right quadrant is above industry

average. Prutul, Agricover and Mika Quatro are star performers.

Comparatively, companies placed in the lower left quadrant have both net margin and turnover CAGR

below industry average. This is the worst spot to be placed in. Businesses placed in this quadrant – Olpo

Ulei and Unirea need either to make investments or ensure that their investments will start to pay off. The

majority of top producers in the industry are being placed in the lower right quadrant (Margarita, Orkla

Foods, Argus and Interoil). These companies have above average profitability and under average growth

rates – these are the cash cow type of business.



and

Turnover growth and profit margins in the industry in 2005

Agricover

In teroi l

Argus Unirea

O rkla Foods

Margarita

Ultex

Mika Quatro

Prutu l

O lpo Ule i

30%

20%

10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

60% 50% 40% 30% 20% 10% 0% 10% 2005 Net Margin

Industry average 7.7%

Turnover CAGR 20032005

Industry average 14.0%



and

2. Palm Oil Market 2.1. Market size and characteristics

The palm oil market is valued at around €25 million, consisting exclusively of imports. This represents

around 10% of the total domestic market for edible oil. The market has been steadily increasing in the past 6

years, with the exception of 2005 when it decreased 4%.

A good part of the palm oil products coming on the local market are vegetable fats aimed at industrial use.

On the consumer side, the market is dominated by one particular brand, OLINA, which distributed by

Render Com. It is mainly distributed through key accounts, especially through bulk retailers like Metro Cash

& Carry. The product comes in matte 3liter plastic containers, which are not particularly well designed for

consumers, as they are unappealing and rather unpractical for the domestic user.

Since the market is dominated by one distributor, it could be that they have a significant power over their

distribution channel. However, key accounts still have the strongest negotiating power, regardless of the

importance of the distributor or manufacturer.

2.2. Foreign trade

Imports

i Imports of edible oil are on an ascending trend. 2002 can be considered an atypical year.

Imports by value

Total imports of edible oil increased 28% in

2006. The most significant increases were

recorded in sunflower oil and olive oil.

Imports of palm oil increased 4.8% in 2006, after

a slight decrease registered in 2005.

Edible oil evolution of imports by value (000€)

14 ,8 22 23 ,8 3 1 24 ,9 73

11,6 84

5,6 91

2 ,59 7

18 ,9 37 23 ,9 67

8 ,14 6

6 ,913 3 ,42 9 9 ,36 8 11,353

1,515

2 ,83 1

1,50 8 9 9 9 786

9 20

2 ,88 2 3 ,711 19 ,28 3

9 82

5,3 07

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

2001 2002 2003 2004 2005 2006

P alm o il Sunflowe r o il Olive o il Othe r fats and vegetable o il

So urce : The Natio na l Ins titute o f S ta tis tics

000€



and

Structure of imports by value

Palm oil owns the lion’s share in the total

imports of edible oil. However, its share seems to

be rather unstable. Since import prices for palm

oil have been fairly stable in the past five years,

this fluctuation mainly comes from fluctuating

quantities imported. The large shares in 2004 and

2005 coincide with a Malaysian government plan

to subsidize the Romanian palm oil industry

which led to higher imports from this country.

Import prices

The large share owned by palm oil in total

imports seems to be determined mainly by large

volumes as total prices for the category are low

(second lowest in 2006 and the lowest in 2005).

Olive oil is imported at very high prices; its price

levels are comparable to none of the other

categories and they are steadily increasing at a

fast pace.

Edible oil the structure of imports by value (€)

70%

3 2%

59% 75% 64%

52%

2 5%

2 9% 25%

8%

2%

12% 4 2%

11%

13% 11% 19%

3% 5% 8% 8% 8% 9% 10%

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006

P alm o il Sunflo wer o il Olive o il Othe r fats and vegetable o il

Source : The Na tio nal Ins titute o f S ta tis tics

Edible oil the evolution of import prices*

2 ,3 22 2 ,44 4 2 ,6 35

3 ,188 3 ,355

3 ,88 0

1,131 9 4 7

1,722 2 ,114

1,072

52 4 528

554

560 56 4 575

50 5 38 9 50 3 48 9 570 58 4

557

0

1,000

2,000

3,000

4,000

2001 2002 2003 2004 2005 2006

Olive o il P alm o il

Sunflo we r o il Other fa ts and vege table o ils

So urce : The Na tio nal Ins titute o f Statis tic s

€/tonne

*CIF



and

Category analysis

i In some categories, imports come to a great extent from intermediary countries like Italy, the Netherlands, Germany, Greece or Turkey, instead of producers of palm oil like Malaysia. This could be due

to the fact that the EU had better trade conditions at that time for imports from producing countries like

Malaysia or Indonesia. Since the common EU foreign trade policy now applies for Romania too, we expect

intermediary imports to decrease and direct imports from producing countries to dominate most categories.

Palm oil, raw, for technical or industrial usage:

Import structure in 2006

In this product category, Turkey

clearly dominates imports with 98% of

volume and 98.4% of value. Israel is

also present, but quite insignificant

both in volume and in value share.

Evolution of imports and exports in 2001 – 2006 (€ thousands)

Exports in this category are only present

in 2005 and 2006 and are insignificant,

representing only 1% of imports in 2006.

The price per ton is superior for exports;

however given the low export level this

fact is insignificant.

Palm oil, raw, for technical or industrial usage Import structure by country of origin, 2006

TURKEY 98.0%

TURKEY 98.4%

ISRAEL, 2.0% ISRAEL, 1.6%

0%

20%

40%

60%

80%

100%

Quantity (tons) Value

590

1,328

1,809

2,030 1,866

1,679

1 16

670 657 645 681 696

1,141

950

604

0

500

1,000

1,500

2,000

2,500

2001 2002 2003 2004 2005 2006

€ '000

0

200

400

600

800

1000

1200

Imports Exports

Imports average price per ton Exports average price per ton



and

Palm oil, raw, for other usages:


This product category is dominated by

imports from Malaysia, which

represent 65.1% of the total volume

and 54.8% of the total value. Romania

also imports from Turkey, at a higher

price per ton as compared to Malaysia.

Evolution of imports and exports in

2001 – 2006 (€ thousands)

Import levels in this category are

fluctuating quite heavily, as do prices per

ton. Exports are insignificant compared to

imports but the price per ton is

significantly higher for exports than it is

for imports.

Palm oil, solid fractions, packaged (1 kg):


Greece dominates the category with

around 69% in both value and volume

terms. Indonesia is a significant import

partner in this category, representing

31.9% of imports in volume terms and

30.8% in value terms. The price per ton

was similar in both countries, around

€600.

Palm oil, raw, for other usage Import structure by country of origin, 2006

MALAYSIA 65.1% MALAYSIA

54.8%

TURKEY, 34.9% TURKEY, 45.2%

, , , , , , , , , , , , , , , , , ,

0%

20%

40%

60%

80%

100%


188 177

66

15

336

1 8

147 503

373

719

1,141

820

506 456

324

0

50

100

150

200

250

300

350

400

2001 2002 2003 2004 2005 2006

€ '000

0

200

400

600

800

1,000

1,200

Imports Exports


Palm oil, solid fractions, packaged (1 kg) Import structure by country of origin, 2006

GREECE 68.1%

GREECE 69.2%

INDONESIA, 31.9% INDONESIA, 30.8%

0%

20%

40%

60%

80%

100%




and


Imports in the category only started to

show significant levels in 2005 and 2006.

In 2005 imports came only from Greece,

at a higher price per ton than in 2006. In

2002, Romania imported solid packaged

palm oil from Norway. There are no

exports for this category.

Palm oil, solid fractions, other presentations:


This category is clearly dominated by imports

from Malaysia, which represent 76.4% of the

total volume and 71.9% of the total value of

imports. Indonesia comes next with 11.8% of

imports in volume terms and 10.3% in value

terms. Imports from Turkey come at a price

per ton higher than the average.


Imports are very high compared to other

categories, at €11.6 million. Imports have

increased steadily over the last 6 years, at

an average rate of 28.4% per year. The

average price per ton for imports is quite

constant at around €500. As in all other

categories, exports, when present, are

insignificant. The average price per ton

exported is constantly above the average price per ton imported, usually around €600 – 650.

1 18

84

0

778

0

855

610

0 0

10

20

30

40

50

60

70

80

90

2001 2002 2003 2004 2005 2006

€ '000

0

200

400

600

800

1,000

Imports Exports


Palm oi l, sol id fractions, othe r pre sentations Import structure by country of origin, 2006

MALAYSIA 76.4%

MALAYSIA 71.9%

INDONESIA, 11.8% INDONESIA, 10 .3%

NETHERLANDS, 6 .7% NETHERLANDS,

6 .7%

TURKEY, 8.1%

OTHER , 2.4% OTHER , 3.0% TURKEY, 2.7%

0%

20%

40%

60%

80%

100%

Quant ity (tons) Value

7,003 8,196

11,023 11,316 11,629

2 49 35 31 32

3 ,332

499 510 542 496 493

884

651

0

639 591 602

501

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2001 2002 2003 2004 2005 2006

€ '000

0

200

400

600

800

1,000

Imports Exports




and

Other solid fractions of palm oil, for technological and industrial usage:


Imports in the category come from

Malaysia and Italy, with Malaysia clearly

dominating, at 96.3% of volume and

93.1% of value. Imports from Italy are

made at a higher price per ton.


There were no imports or exports in this

category for 4 years, but in 2006 Romania

imported €26,000 worth of this product.

Other fractions of palm oil:


Imports in the category come mainly from the

Netherlands, Malaysia and Germany, with the

Netherlands dominating, at 44.4% of volume

and 44.9% of value. Imports from Germany are

slightly more expensive than the average.

These three countries have been constantly

dominating this import category, with Germany

being the most important in most years, while

the Netherlands were the dominator only in

2006.

Other solid fractions of palm oil, for technological and industrial usage

Import structure by country of origin, 2006

MALAYSIA 96.3%

MALAYSIA 93.1%

ITALY, 3.7% ITALY, 6.9%

0%

20%

40%

60%

80%

100%


4

26

203

0 0 0 0 0 0 0 0 0

707

0 0

5

10

15

20

25

30

2001 2002 2003 2004 2005 2006

€ '000

0

200

400

600

800

1,000

Imports Exports


Other fractions of palm oil Import structure by country of origin, 2006

NETHERLANDS 44.4%

NETHERLANDS 44.9%

MALAYSIA, 26.8% MALAYSIA, 23.5%

GERMANY, 25.8% GERMANY, 27.6%

OTHER, 2.9% OTHER, 3.9% , , , , , ,, , , , , , , ,

0%

20%

40%

60%

80%

100%




and


Imports have constantly increased over

the last 6 years, reaching €14 million in

2006. The price per imported ton does not

fluctuate a lot, however it shows a

tendency to decrease. Exports in the

category are very low, representing under

1% of imports.

Solid fractions of palm oil, babasu, other presentations:


Imports in the category are clearly

dominated by Malaysia, with 99.8% of

volume and 99.5% of value.


Imports show a slightly decreasing

trend and the price per ton as well.

There are no exports in this category.

4 ,032

8,866

10,898 10,484 11,219

17 9 31 1 0

6,313 600 545 539

0

755 767

597 617

631

910

647

395

0

2,000

4,000

6,000

8,000

10,000

12,000

2001 2002 2003 2004 2005 2006

€ '000

0

200

400

600

800

1,000

Imports Exports


Solid fractions of palm oil, babasu, other presentations Import structure by country of origin, 2006

MALAYSIA 99.8%

MALAYSIA 99.5%

NETHERLANDS, 0.0%

NETHERLANDS, 0.1%

SWEDEN, 0.2% SWEDEN, 0.4%

0%

20%

40%

60%

80%

100%


1,085

1,951

1,624 1,624 1,472 1,486 547

509 516 478 472

516

0

500

1,000

1,500

2,000

2,500

2001 2002 2003 2004 2005 2006

€ '000

0

200

400

600

800

1,000

Imports Exports




and

Other solid fractions of palm kernel oil / babas:


This is the only category which is

clearly dominated by Indonesia – 59.2%

of imports in volume terms and 64% in

value terms. Greece is also an important

import partner in this category, while

Malaysia and some other countries have

low shares. Imports from Indonesia are

made at prices per ton which are higher

than the average.


Imports are fluctuating quite heavily,

from the high values of 2001 and 2002,

to low levels in 2004 and 2006 or no

imports at all in 2003 and 2004. The

price per ton imported is now around

€800.

Other solid fractions of palm kernel oil / babas Import structure by country of origin, 2006

GREECE, 37.3% GREECE, 32.3%

MALAYSIA, 3.1% MALAYSIA, 2.2% OTHER, 0.4% OTHER, 1.5%

, , , , , , , , , , , , ,

INDONESIA 64.0%

INDONESIA 59.2%

,

0%

20%

40%

60%

80%

100%


2,353 2,398

3 130 6

564 528

803

0 0

310

0

845

0

500

1,000

1,500

2,000

2,500

3,000

2001 2002 2004 2006

€ '000

0

200

400

600

800

1,000

Imports Exports




and

2.3. Palm oil related regulations

Palm oil imports from Indonesia into EU countries (including Romania) enjoy a 0% customs duty. Imports

of palm oil to the EU now have to comply with certain environmental requirements, due to concerns about

the effects of heavy palm exploitation in South East Asia.

Order number 46/235/461/135 of the president of the National Sanitary Veterinary and Food Safety

Authority, of the minister of agriculture, forestry and rural development, of the minister of health and of the

president of the National Authority for Consumer Protection, in regards to establishing emergency measures

about chilly, chilly based products, curcuma and palm oil (Official Monitor issue 425 of May 17, 2006) 5 .

This order is based on the European Commission ruling number 402/2005 with regards to emergency

measures for chilly, chilly based products, curcuma and palm oil, published in the Official Journal of the

European Communities (issue L 135 of May 28, 2005).

Communication from the Commission to the Council and the European Parliament – Brussels, 10

January 2007 6 – this text outlines EU’s plan to gradually increase the share of bio fuels to 20% by 2020

from 2% in 2007, as well as the reasons behind this decision. Although acknowledged that bio fuels cost

more than other forms of renewable energy, it is stressed that these are currently the only form of renewable

energy which can address the energy challenges of the transport sector, including an almost complete

reliance on oil and the fact that greenhouse gas reductions in this sector are particularly difficult to obtain.

Therefore, the Commission proposed legally binding minimum targets for bio fuels, which are related to the

availability of sustainably produced feedstock, car engine and bio fuel production technologies. This target

is fixed at 10% of overall consumption of petrol and diesel in transport. To ensure a smooth

implementation of this target, the Commission, in parallel, intends to propose the appropriate modifications

to the fuel quality directive (98/70/EC) including the means of accommodating the share of bio fuels. The

growth would come both from bioethanol (which in Sweden has already achieved a 4% share of the petrol

market and in Brazil, the world leader, more than 20%) and from bio diesel, which in Germany, the world

leader, has already achieved a 6% share of the diesel market. Domestically grown cereals and tropical sugar

cane would be the main ethanol feedstock, later complemented by cellulosic ethanol from straw and wastes.

Rapeseed oil, both domestically grown and imported, remains the main bio diesel feedstock,

complemented by smaller quantities of soy and palm oil and later by secondgeneration bio fuels, i.e.

FischerTropsch diesel mostly from farmed wood.

5 http://www.monitoruloficial.ro/monitoare/2006/mon0425.htm 6 http://eurlex.europa.eu/LexUriServ/site/en/com/2006/com2006_0848en01.pdf



and

2.4. Consumption patterns

The benefits of palm oil are little known in Romania, which puts it into a worse competitive position vs.

sunflower oil than a normal “exotic” product would be. The trend seems to have been that people started

using it out of curiosity because of the low price per unit (especially during heavy promotions by the main

retailers, e.g. Metro Cash & Carry), and then discovered some benefits that are now passed on through word

of mouth. Some women’s magazines and websites have published articles about the health benefits of palm

oil; the main benefits presented being those of “cholesterol free”, “free of nonsaturated fats”, “rich in

Vitamins A (beta carotene) and E”. We also found that some importers and distributors choose to explain

these benefits on their websites (e.g. Render’s website, http://www.render.ro/arbori.htm).

Domestic consumption of palm tree oil in Romania is driven by the following perceived attributes of the

product:

§ Durability – it oxidizes slower so it lasts longer; you can cook with it more times before it

burns

§ Odorfree – no strong smell detected; also does not borrow the smell of the food you cook –

e.g. you can cook fries after having cooked fish in the same oil without the fries smelling

like fish

§ Non absorbing – it gets absorbed into the food cooked to a far smaller extent as compared

to other types of oil

The biodiesel opportunity

The use of palm tree oil to produce biodiesel is starting to be talked about in Romania too, on the

background of high demand especially in Western European countries. However, the use of biodiesel is

becoming debated, as shown by a study released in December 2006 by Wetlands International in the

Netherlands. This study revealed a strong environmental impact due to deforestation of the rainforests in

Asia Pacific (especially in Malaysia), in order to make way for palm tree plantations. According to this

study, in the quest for a place in this expanding market Indonesia became the world’s thirdleading producer

of greenhouse gases, behind the US and China. In Indonesia, the amount of land devoted to palm oil has

increased by 118% in the past 8 years. 7 Following the results of these studies, many governments are

rethinking the large amounts in subsidies that aimed to encourage the development of these “ecofriendly”

fuels, for use in power vehicles and factories. The 2003 European Union Biofuels Directive, which demands

that all member states aim to have 5.75% of transportation using biofuel by 2010, is now under review.

7 International Herald Tribune – “Scientists are taking 2nd look at biofuels. Dutch efforts verge on nightmare”, 31 January 2007 http://www.iht.com/articles/2007/01/30/business/biofuel.php



and

This way of thinking has also been reflected in the decisions of utilities companies. A representative of

RWE 8 has declared "We spent more than a year investigating the sustainability issues with palm oil. The

company decided against palm oil because it could not verify all its supplies would be free of the taint of

destroyed rain forest or peat bogs.”

The strategy of Malaysia

In 2003, the Malaysian government decided to subsidize by $10 million the development of the palm oil

business in Romania. 9 Malaysia is the largest palm oil producer and exporter in the world, with a share of

around 50% in the world exports. The sum could be spent for business development in several ways:

subsidizing Romanian imports of palm oil

an exchange involving palm oil and other products (possibly edible sunflower oil)

Malaysia exported palm oil to Romania through a third party, and Romanian importers were not getting a

very good price. In this context, their subsidizing strategy might have created some results by helping them

establish a foothold on the market. However, we cannot evaluate how well this strategy performed in terms

of efficiency (return on investment).

8 Leon Flexman; RWE is a large utilities company (e.g Britain’s largest electricity supplier) 9 Ziarul Financiar – “10 million dollars for palm oil”, 20 May 2003, article only available in Romanian http://www.zf.ro/articol_25187/10_mil__dolari_pentru_ulei_de_palmier.html



and

2.5. Main importers and distributors

RENDER COM

The company was started in 1996. It imports and markets engross palm oil and fats as well as cocoa

products and is one of the main suppliers of such raw materials to many food manufacturers in Romania.

RENDER COM is the exclusive representative for Romania of the palm tree vegetable fats department of the

CARGILL Malaysia group. Cargill owns two refineries in Malaysia, specialized in palm oil.

The company’s net sales have been steadily increasing

since 2002, at an average annual growth rate of 22.6% in

Romanian currency and 16.7% in Euros. Net sales reached

€4.1 million in 2005.

The operating margin is quite low, however, still positive

every year.

Like any nonmanufacturing company, the main cost

component of RENDER COM is goods purchased for

sale, as can be seen in the graph on the side. “Other

operating expenses” include raw materials and

consumables, energy and water and other operating costs

Sales and profit margin evolution

4,118

2,594 3,034

3,764

2.6%

1.3%

3.4%

1.5%

0 500

1,000 1,500 2,000 2,500 3,000

3,500 4,000 4,500

2002 2003 2004 2005

€ thousand

0%

1%

2%

3%

4%

5%

Sales Operating profit to sales Linear (Sales)

The structure of operating costs, 2005

86 .2%

9 .1 %

4 .7 %

Cost of goods purchased for sale

Other operating expenses

Salary costs



and

G.C.C.

Address: 18, Dr. Ernest Djuvara Street, Sector 6,

Bucharest

Email: [email protected]

Website: http://www.gcc.ro

Number of employees: 9

CUI: 6183276

The company imports vegetable fats and oils used in food and nonfood industries. Among the products

imported: palm oil, shortening, coconut oil, RBD (Refined, bleached and deodorized oil), olein, biodiesel

and other types of vegetable fats and oils.

The company’s net sales are strongly fluctuating from one

year to the other. Net sales reached €1.1 million in 2005.

Revenue has decreased both in Romanian currency and in

Euro, however the decrease in Euro terms was stronger –

an average decrease of 7.3% yearly, as compared to an

average decrease in RON terms of 2.6% yearly.

The cost of goods purchased for sale represents the main

cost component for the company. Energy and water costs

are quite insignificant and are included in “other

expenses”. The largest component of “other operating

expenses” is represented by expenditures for damages,

donations and asset disposal.


1,111

1,393

630

950

27.0%

22.1%

12.3%

49.4% 0

200

400

600

800

1,000

1,200

1,400

1,600

2002 2003 2004 2005

€ thousand

50%

40%

30%

20%

10%

0%

10%

20%

30%



2 9 .8%

2 .8%

6 6 .2 %

1 .2%

Cost of goods purchased for sa le


Raw materials and consumables costs

Ownership structure

5 0 .0%

5 0 .0%

POHUS DUMITRU

WOLFGANG NOTHACKER HEINZ



and

ROMETKIN IMPEX

Address: 60, Rodnei, Complexul Deha Street,

Sector 3, Bucharest


CUI: 14566272

The company imports and distributes raw materials used in patisseries and sweets shops. Among its most

important products: palm oil and industrial chocolate

Sales decreased in the past year by 39% in Euro terms and

by 45% in Romanian currency. Net sales reached €1.15

million in 2005, as compared to €1.9 million in 2004. The

operating margin however maintains at a strong double

digit level.

The cost of goods purchased for sale is by far the most

significant cost component for Rometkin Impex as well.

Other expenses include raw materials and consumables

costs, energy and water costs, as well as adjustments to

intangible and tangible assets.


1 0.2% 1 .0%

88.8%



Salary costs


1,154

1,901

15.9%

12.0%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2002 2003 2004 2005

€ thousand

5%

7%

9%

11%

13%

15%

17%

19%


Ownership structure

20%

1 0% 5%

5 5%

1 0%

DURGUN FEVZI

IHSAN YORGANCI

OZSAHIN KAMIL

KAGITCI MUGE

KAGITCI BULENT



and

M & SONS INTERNATIONAL TRADING AND LEASING SRL

Address: 59G, Arh. D. Harjeu Street, Sector 2,

Bucharest

Phone: +4021326.28.53 / +4021262.854


CUI: 3619053

Foreign trade company, deals in the palm oil sector

Net sales have strongly increased between 2002 and 2005,

to reach €10.6 million in 2005. The company has a history

of a strong double digit operating margin, which has been

varying around 30% for the past three years.

As in the case of the other companies active in this field,

M& SONS has as major cost component, the cost of

goods purchased for sale. All other costs, like energy and

water and even salaries, represent under 1% of the total

costs each.


2 .3 %

9 7 .7 %




10,610

700 884

5,779

88.7%

28.0% 32.1% 23.3%

0

2,000

4,000

6,000

8,000

10,000

12,000

2002 2003 2004 2005

€ thousand

0%

20%

40%

60%

80%

100%


Ownership structure

20%

2 0%

60%

MINCULETE ION

MINCULETE DAN

MINCULETE ION



and

TRIUMF COM

Address: 1, George Cosbuc Street, Pitesti, Arges


CUI: 4228886

Supplier to the food manufacturing and catering sectors; distributes palm oil, frozen poultry, frozen fries,

frozen vegetables. Brands: OLINA, Puiu Mihailesti, Lider, Regina, Farm Frittes

Net sales reached €280,000 in 2005, 8.4% less than in

2004 in Euro terms and 18.2% less in Romanian currency.

The operating margin, however, at 8.9% of sales, indicates

a fairly good situation compared to other companies we

looked at.

The cost of goods purchased for sale represents almost

90% of the total operating expenses of the company.

Ownership structure

5 0%

5 0%

CIOCANAU ELENA

CIOCANAU VICTOR DANUT


4 .2%

3 .8%

8 9 .2 %

2 .8%



Raw materials and consumables costs

Salary costs


280 306

8.9%

11.7%

0

50

100

150

200

250

300

350

400

2002 2003 2004 2005

€ thousand

5%

7%

9%

11%

13%

15%




and

3. Conclusions 3.1. Sector opportunities and challenges

According to the EU strategy, the quantity of biodiesel fuel consumed should increase continually over the

following years and the prospects of this product are very good. Palm oil is used to a large scale in the

production of biodiesel fuels in Europe and this sector is starting to take shape in Romania as well. The EU

demands that biofuels represent 2% of total fuel consumption in Romania by the end of 2007 (this means

approx. 230,000 tons) and 20% by 2020 (i.e. in case the EU strategy remains the same). 10 Due to recent

research showing a negative environmental impact of this development over rainforests in Southeast Asia,

the future of biofuels is uncertain as the European Union might reconsider its policy.

In order to be able to continue selling palm oil to European countries (including Romania) for the

manufacturing of biodiesel fuels, proof must be provided that the net effect of using it (including

environmental costs for the land etc.) is ultimately positive. Otherwise, most Western European countries

may cease a large part of their palm oil imports after governments cancel their heavy subsidies.

Palm oil has a good reputation among consumers in Romania, although it is not widely known since

penetration is still low. Industrial consumption is already quite heavy, especially in the food manufacturing

sector. There are opportunities in industries like chemicals, cosmetics and pharmaceuticals as well.

Since the common EU foreign trade policy now applies for Romania, direct imports (i.e. not via other

countries) from producing countries (Malaysia and Indonesia) could increase.

3.2. Recommendations for marketing palm oil

Industrial users

Industrial users are the largest users of palm oil. Industries like food manufacturing, chemicals, cosmetics

and pharmaceuticals are significant potential customers for palm oil, and they are all important industries in

Romania. Some large manufacturers already use palm oil in their production processes – e.g. McDonalds and

various restaurants, bread producers, etc. By targeting these industries and encouraging them to use palm oil

instead of the vegetable oils or fats they are currently using, palm oil can build significant market share. The

attributes to be communicated to industrial customers should be:

• Costeffectiveness – higher lifetime, stability at high temperatures, relatively lower price

• Product quality – better nutritional value, longer shelf life for fried products, rich in Vitamin E

(good for use in cosmetics), good for use in manufacturing biodegradable chemicals

10 Ziarul Financiar – “Michael Whitney, Bunge: Am cumparat uleiurile Agricover pentru pozitia puternica a brandurilor”, 20 March 2007, www.zf.ro/articol_116674



and

Distributors are key in the industrialuse palm oil business so any incentive strategy in this regard should be

targeted at them. Industrial use is easier to manage (fewer customers, most of which already know the

benefits) and should experience healthy growth as the local food processing industry develops.

As direct imports are expected to increase, it is important to facilitate the contact of Romanian distributors

and importers with their potential Indonesian partners. Perhaps even better would be to establish a trade route

through a Romanian sea port (most likely Constanta), in order to try to replace the imports which are

probably coming through other ports (from Netherlands, Turkey or Greece) 11 .

Individual consumers

At the level of individual consumers, there seems to be a widespread lack of consistent information about the

product. Palm oil is being discovered on a “trial and error” pattern, whereas consumers try it out and then

spread the word about what they noticed during the usage. Palm oil has the advantage of being relatively

cheaper as compared to other established types of oil in Romania. However, price itself will not make this

product a serious competitor on the market. Importers or distributors could invest in an educational

campaign, a thing which has lacked so far. Once the benefits over other types of oils are made known and the

product becomes more available, consumers should increasingly favor it.

Retailers are the key in the consumer business and the main barriers to entry are the listing & shelf fees

practiced by modern retailers and their reluctance to list any product that they are not convinced will sell in

large volumes. In this situation, an investment in communicating the affordable price and multiple benefits of

palm oil may help retailers decide to list such products.

With its 10% share, the palm oil is becoming an established niche in the edible oil industry and a question

must be answered: will it grow further and become a mainstream product, or will it remain a niche? The

implication of the global players in the local industry both in Romania and in Indonesia / Malaysia (e.g.

Cargill is present in all three places), gives them little incentive to cannibalize their sales with imported

products. Moreover, the local culture is much oriented towards sunflower oil and this gives certain inertia to

change. Judging by these factors, we believe that in the short and medium term, palm oil will remain a niche

product.

The consumer side can be reached by:

a partnership with an established oil distributor (one which has links with key accounts) in

Romania for the rights to exclusively import and distribute Indonesian palm oil. The

distributor would bring local market connections but it must be well motivated financially

for the deal, such as by longer payment terms

directly through key accounts, which may be harder to succeed since they are reluctant to

add products which they are not sure of.

11 An exact calculation still needs to be made – while palm oil is most likely cheaper for example in the Rotterdam port vs. the Constanta port, adding the transportation to Romania may rise the price to a level that can be beaten by a direct trade route.

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