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The production of foods, beverages and tobacco products in the countries in Southeastern Europe is a leading branch marked by low technological level and high labour consumption.
The countries in the region register a high economic activity, a growth of consumption and of investments, and as a result Romania’s GDP stood at 7.8% in the second quarter of 2006, Turkey’s – at 7.5%q and Serbia’s – at 6.6% on an annual basis. For Bulgaria the analysts also register a good market environment for the development of the sector in the medium term in view of the accelerated growth of the country’s GDP which stood at 6.6% in the second quarter of 2006 and is expected at 5.5% and 6.0% in 2007 and 2008 respectively. The increased consumer activity is the result of the rise in the real income and the favourable condition of the labour market.
Production
According to UniCredit Group analysts, the countries in Central and Eastern Europe that are registering the most stable development of the food industry are Poland, the Czech Republic, Slovakia, Croatia, Bulgaria, Romania and Turkey, and the performance of Hungary is comparatively poor.
Within Southeastern Europe the industrial production index in the food industry is expected to grow most strongly in Turkey and Romania, while Bulgaria will outstrip Croatia alone. Bulgaria is also the only country where that index was negative (-5.0%) for 2006.
Real Value Added in Tobacco, Foods and Beverages Sector Measured According to Industrial Production index in %
| 2006 - preliminary results | 2007 - forecasts | 2008 - forecasts | |
| EU 15 | 2,3 | 2,0 | 1,9 |
| Poland | 6,0 | 6,6 | 5,4 |
| Bulgaria | -5,0 | 2,6 | 3,5 |
| Romania | 9,0 | 4,0 | 5,8 |
| Croatia | 4,4 | 3,5 | 3,0 |
| Turkey | 8,9 | 7,2 | 7,3 |
Source: UniCredit Group
The food production is a leading branch in EU-25 with a share of 13.6% of the processing industry and is the biggest employer with more than 4.0 million employed. The food and beverage production in the EU has marked a constant growth of some 1.8% annually for the past ten years. The largest share of the sector’s turnover (70%) belongs to Germany, France, Italy, Spain and the UK, while the countries that joined the Union in 2004 participated with 7.5%. That sector is characterized by a comparatively low investment level, high labour cost, with the predominant participation of small and medium-sized enterprises.
The number of the employed in the production of foods, beverages and tobacco products in Romania is 163,000, some 4.0% of the total employed, and in Bulgaria - 111,334, accounting for some 3.5% of the employed in the country. As in the EU countries, in the two EU newcomers the small and medium-sized companies are prevailing.
| 2005 | Number of Enterprises | Number of Employed in the Sector | Number of SMEs | Sector's share in FDI Volume (%) |
| Bulgaria | 23 360 | 108 627 | 22 997 | 3,6 |
| Romania | 10 917 | 203 578 | 10 792 | 6,5 |
| Croatia | 1 134 | 46 471 | 1 061 | 2,4 |
| Turkey | 552 | 90 595 | 519 | 3,2 |
Source: UniCredit Group
The most important sectors of the food industry in Bulgaria as per the end value of the production are the production of bread and bakery products – nearly 25% of the total output, beverages – 18% of the total value, meat processing – 16%, and tobacco products – 12%. For 1996 to 2005, the share of the output in the production of foods, beverages and tobacco products fell from 17.4% in 2000 to 16.7% in 2003 and to 15.5% in 2005. The same indicator in Romania stood at 13.7% in 2005.
The industrial production index of Romania marked an average annual growth of 5.3% from June 1999 to September 2006, which was fairly above the average growth of the country members of the EU-25 (1.9%) but below the average 6.8% growth in the index registered by the 10 countries that joined the EU in 2004. The growth of the index of the production volume of foods, beverages and tobacco products in Romania outstripped the index growth of the total production for 2003 to 2005. In October 2006 alone, Romania reported a growth of 16.9% in the production of foods and beverages compared to the corresponding period of the previous year, ranking the sector fifth by growth in the Romanian economy.
The large companies of the branch in Romania include chiefly producers of confectionery and sugar, dairy and bakery products, and beverage producers as Kraft Foods Romania SA, La Festa International SRL, Best Foods Productions SRL, European Food SA, Nestle Romania SRL, etc.
The production of foods and beverages is a leading branch in another country in the region – Croatia, where the sector accounts for 18.8% of the gross added value of the processing industry, and the tobacco products – for 2.7%. Some 2,600 companies and some 18% of all employed in the processing industry are involved in the production of foods, beverages and cigarettes.
The highest turnover is registered by the tobacco production and processing, the beer production, the processing of milk, tea, coffee and soft drinks. These segments attract the biggest share of the foreign investments in the sector. The 10 biggest operators in the sector are Vindija dd, Tvornica Duhana Rovinj dd, Lura dd, Podravka dd, Zvijezda dd, Coca-Cola Beverages Hrvatska dd, Kras dd, Zagrebacka Pivovara dd, Jamnica dd, Ledo dd и Franck dd.
Consumption
A trend of steady growth of the households’ income has been observed in Bulgaria in the last ten years, and the expenses have been growing simultaneously. Since 1999 a process of a gradual decrease of the share of the spending on food has started, and that spending reached its lowest level in November 2006 – 32.6% of the total expenses against 34.9% in November 2005, which, however, is still above the EU average of some 20%. In the Czech Republic for instance 26% of the monthly spending goes for food, in Slovenia – 15.53%, and in the UK – 8.49%.
Spending on Food and Soft Drinks (% of monthly disposable income)
| Year | Bulgaria | Romania |
| 2000 | 38,4 | 41,3 |
| 2001 | 39,8 | 42,2 |
| 2002 | 37,6 | 40,1 |
| 2003 | 35,4 | 39,6 |
| 2004 | 35,1 | 38,5 |
| 2005 | 34,7 | - |
| November 2006 | 32,6 | - |
Source: NSI and National Statistics Institute of Romania
Such a process is being observed in Serbia where the spending on food by a household fell from 32.34% of the total expenses in 2003 to 30.06% in 2005, and in Romania where that percentage is the highest.
The combination of the factors population and relatively high spending on food and beverages turns Romania into the second biggest market in Central and Eastern Europe after Poland, with a population of 21.7 million. According to a survey conducted by the market research company MEMBR, the food market registered a growth of 20.2% in volume and of 35.4% in value. In 2005, the consumption of pork stood at 32 kg per person, of poultry meat – 21.2 kg per person, and of mutton – at 1.8 kg. Pork was the best trading product in 2005. Romania produces annually 7.0 million pigs, however, some 65% of the pork on the market is imported, as in 2005 Romania imported some 200,000 tonnes of pork worth some 314 mln euro.
The consumption of poultry meat in 2005 was at 375,000 tonnes and 160,000 tonnes imported. According to data of the Association of Romanian Poultry Producers, the consumption of poultry meat has dropped by 40% since the detection of the first outbreak of bird flu in the country in October 2005.
The dairy sector is also developing fast with a year-on-year growth of 19.6% in 2005. The share of cereal products, chocolate, wafers and sauces also grew.
Average Annual Consumption of Basic Food Products per Capita
| Romania | 2000 | 2001 | 2002 | 2003 | 2004 |
| Grain Products in Flour Equivalent (kg) | 165,8 | 166,9 | 169,8 | 162,2 | 166,2 |
| Potatoes (kg) | 86,5 | 88,0 | 90,1 | 95,4 | 97,9 |
| Sugar and Confectionery (kg) | 23,0 | 24,0 | 23,5 | 24,3 | 25,6 |
| Vegetable Oils (kg) | 13,1 | 13,7 | 13,0 | 13,8 | 12,4 |
| Milk and Dairy Products (l) | 193,0 | 197,0 | 215,0 | 225,0 | 238,9 |
| Eggs (number) | 208,0 | 227,0 | 238,0 | 239,0 | 289,0 |
| Meat and Meat Products (kg) | 46,3 | 48,0 | 54,3 | 60,3 | 65,5 |
| Anumal Fats (kg) | 3,4 | 3,4 | 4,0 | 3,4 | 3,8 |
| Bulgaria | 2000 | 2001 | 2002 | 2003 | 2004 |
| Bread and Bakery Products (kg) | 134,8 | 133,1 | 130,2 | 124,2 | 126,6 |
| Rice (kg) | 5,5 | 5,9 | 5,9 | 5,8 | 6,1 |
| Potatoes (kg) | 26,3 | 26,9 | 28,2 | 27,9 | 28,8 |
| Milk (l) | 28,9 | 27,7 | 26,9 | 26,0 | 24,0 |
| Cheese (kg) | 9,2 | 9,2 | 9,9 | 10,2 | 10,0 |
| Meat (kg) | 22,1 | 20,9 | 22,7 | 24,8 | 24,2 |
| Eggs (number) | 127,0 | 129,0 | 138,0 | 140,0 | 134,0 |
| Sugar (kg) | 8,4 | 8,4 | 8,6 | 8,9 | 8,9 |
| Milk Butter (kg) | 0,4 | 0,4 | 0,4 | 0,4 | 0,5 |
Source: NSI and National Statistics Institute of Romania
Imports - Exports
Bulgaria is registering a positive trade balance in the area of foods, beverages and cigarettes compared to the neighbouring countries. By that indicator the country nears the sector’s condition in the EU and registers the competitiveness of the Bulgarian production in foreign markets. Bulgaria exports the output of its food industry chiefly to the neighbouring countries, Russia, Ukraine and the CIS countries, and also to the EU countries. In 2005, Bulgaria reported 6.6% of the total exports of the country and 5.0% of the imports.
For the 10 months of 2006, Romania exported foods, beverages and tobacco of a total value of 137.7 mln euro, up 24.9%, and imported foods and beverages worth 890 mln euro, up 31.9% year-on-year. The exports of foods and beverages accounted for 2.7% of the total exports for the first ten months of 2006, and the imports of foods and beverages accounted for 4.7% of the total imports. For the same period, the sales volume of foods, beverages and tobacco products grew by 28.8% compared to the corresponding period of 2005.
Croatia exports foods and beverages chiefly to neighbouring countries, with Bosnia and Herzegovina having the biggest share (31%), Italy (19%), Slovenia (7.0%), and Serbia and Montenegro (6.0%). The country exports chiefly sugar, cigarettes, Vegeta seasoning, soups and soup additives, beer, confectionery, canned fish, chocolate and canned meat. The chiefly imported goods are butter loafs, meat, cheese and soft drinks. Croatia imports some 30% of the foods and beverages from European countries – Italy, Germany and Austria. For 2000 to 2005, the foreign trade in foods and beverages marked a steady growth of 22% in the exports and of 24% in the imports. The exports of food industry products accounted for 10.5% of the total exports of Croatia in 2005.
Foreign Trade in Foods, Beverages and Tobacco Products in Southeastern Europe in mln euro
| 2002 | 2003 | 2004 | 2005 | 2006* | |
| Exports | |||||
| Bulgaria | 337.9 | 389.6 | 443.9 | 506.5 | 490.6 |
| Of them : foods | 247.4 | 299.5 | 348.6 | 405.2 | 393.9 |
| :beverages | 74.7 | 73 | 72.4 | 84.2 | 81.7 |
| :cigarettes | 15.8 | 17.1 | 22.9 | 17.1 | 15 |
| Romania | 112 | 111 | 116 | 139 | - |
| Croatia | 330.82 | 456.67 | 469.48 | 609.65 | 779.95 |
| Serbia | - | 2076.87 | 2654.86 | 3377.54 | - |
| Imports | |||||
| Bulgaria | 235.2 | 264.5 | 306.1 | 386.9 | 409.8 |
| Romania | 569 | 623 | 730 | 864 | - |
| Croatia** | 514.69 | 658.63 | 776.19 | 857.57 | 1265.26 |
| Serbia** | - | 5634.51 | 8103.24 | 7860.59 | - |
* The data are by November 2006
**Recalculated at exchange rate 1.0 euro= USD1.327
According to data by the statistics institute of Serbia, the exports of foods and livestock in 2005 accounted for 17.3% of the total exports, and the imports represented 5.7%. Like Bulgaria, Serbia also registered a positive balance in its trade in foods and livestock although as a whole the country’s trade balance was negative.
Serbia exports alcoholic beverages, vegetable oils, frozen fruit and vegetables chiefly to the neighbouring Balkan countries, and also to Austria, Italy, Germany and Hungary. The main imported products are fresh and dried fruit from Macedonia, Turkey, Greece and some countries in South America, and also coffee from Brazil, Uganda, India, Vietnam and Colombia.
Investment Activity
For 1998 to 2004, the processing industry in Bulgaria attracted the largest share of the foreign direct investments (FDI) in the country – 29.5% or more than $1.0 bln. Some 30% of the FDI were directed to food and beverage production.
The investments in the food industry in Bulgaria accounted for 3.6% of the total FDI in 2005, according to a report of UniCredit Group, and the total investments in the sector for 2000 to 2005 added up to $631.31 mln, accounting for 6.86% of the total FDI in the country for that period.
The investments in the country’s food industry for 2006 probably accounted for nearly 11.2% of the total investments, and for 2007 are expected to account for some 10.2%. The big investors in the sector include chiefly producers of beer, soft drinks and confectionery as Brewinvest – Greece, Carlsberg – Denmark, Interbrew – Belgium, Klarina Holding – Luxembourg, Kraft Foods – USA and Nestle – Switzerland.
Romania registered 21.885 bln euro FDI in 2005, of which 1.427 bln euro investments in the production of foods, beverages and cigarettes, which was 6.5% of their total volume.
Compared to Bulgaria and Romania, the share of the investments in the production of foods and beverages in Croatia was lower – 4.0% of the total FDI for 2000 to September 2006, and the total investments in the sector for 1993 to 2006 stood at 429.5 mln euro. In 2005, the investment activity in the sector totalled 2.4%.
Serbia also registered a growth in the FDI from $50 mln in 2000 to $4.0 bln expected FDI in 2006. The biggest investors in Serbia for 2002 to 2006 in the production of foods and beverages included Coca-Cola HBC that acquired Vlasinka mineral water producer, Interbrew with the acquired Apatin brewery, etc. Many of the world large producers of foods and beverages (Cargill - USA), Nestle (Switzerland), Procter and Gamble (USA), Unilever Plc (The Netherlands), Kraft Foods Inc (USA), PepsiCo Inc (USA), Bunge (USA), Coca Cola Co (USA), Diageo Plc (UK), group Danone (France), SABMiller (USA), Inbev SA (Belgium), Heineken NV (The Netherlands) are already present in nearly all countries in Southeastern Europe or have announced interest in investing.
The retail trade in foods and beverages is also developing dynamically. The restructuring in that type of distribution channels is expected to continue by a decrease in the number of small shops in the neibourhood due to the introduction of European requirements for storage and trade in foods and the respective growth in the share of hypermarkets. A fast growth is being observed in the number of food stores at the filling stations - by nearly 50% for 2001 to 2006. For January to November 2006, the retail trade in Bulgaria grew by 12.9% year-on-year, and the increase in the trade in foods, beverages and tobacco products was at 6.9%. The retail sales volume in Romania marked a fall at the end of 2002, but later grew, while Bulgaria registered a continuous growth according to data by Eurostat. The sales in the modern trade centres in Romania grew to 21% in 2004 versus 15% in 2003 and a mere 10% in 2001, which was a very small share compared to Poland (47%) and the Czech Republic (70%). The analysts expect a 44% growth in the retail sales in the trade centres in 2007.
The analysts forecast a steady growth in the sector in the countries in Southeastern Europe in the next two years, although the production of foods, beverages and tobacco products is still marked by low technological level and high labour consumption. The experience of the countries that joined the EU in 2004 shows good opportunities for a growth in the sector.
The fastest developing categories of foods and beverages are the gourmet products, the healthy and dietary products and the convenient to use foods including semi-finished and frozen foods. The higher consumer culture of the buyer provides the basis for the increased demand for organic and more luxurious foods and drinks. The price levels of the local production are expected to rise due to the still comparatively low production efficiency, the need of investments and the necessity to meet the high requirements of the systems for control on the quality both of the raw materials and the end product.
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