Tnuva moooves into Romania

Israeli dairy company invests 55m. Euros in milk plant.

moo cow 88 (photo credit: )
moo cow 88
(photo credit: )
In the fields south of Bucharest, Tnuva has found fertile ground in which to plant its first foreign offspring. Israel's biggest dairy producer has launched its maiden venture abroad with the construction of a dairy and expansive milk farm on the outskirts of the capital city at an investment of some 55 million Euros, half of it coming from Romanian commercials banks. The venture was expected to be Tnuva's "new engine of growth," according to Tnuva Romania Dairies (TRD) Ltd. CEO Yoram Israeli, who sees Romania as a land of opportunities. After seeking out "new markets with untapped potential" in which the company's technical expertise would give it a serious edge, Israeli said the company found that Romania's dairy industry fit the bill. Dairy forms an important part of Romania's village life - a "dairy culture" that Tnuva plans to join. Forty-five percent of Romanians are village-dwellers, and a romanticized village life forms an important component of Romanian identity, with many villagers living off autarchic, private micro-farms. Much of the country's milk production comes from these family plots, on which 1.1 million Romanian households own 1.7 million cows. Driving south down the main highway from Bucharest to Hungary, one sees small homesteads hugging the winding roadsides. By the entrances to the small hovels or tiny vegetable farms stand old Coca-Cola bottles filled with fresh, unpasteurized milk. For some categories of Romanian dairy products, 50% of total national production takes place on such countryside microfarms. Yet, this picturesque scene is fading fast. The past decade has seen vast growth in supermarket and hypermarket chains, with immense Wal-Mart-style stores such as Metro and Cora opening up in the major cities. At the same time, a steady rise in income has enabled the top fifth of Romanian consumers to consume international brand-name products. In sharp contrast to the countryside, Bucharest is modern and stylish with glitzy store displays, monumental government buildings left over from the communist era and Jay Leno on prime time TV. This economic growth, which has reached 15% per year, has not left the dairy industry far behind. The numbers are spectacular. Between 2004 and 2005, plain yogurt sales in supermarkets rose by 41%, while fruitfilled yogurt sales surged 74%. The following year continued the trend by a factor of 27% and 53%, respectively. The sales of sweet dairy products, such as puddings, rose by 45% between 2004 and 2005, and another 41% the following year. Tnuva expects this tremendous expansion to continue for a long period. Yet the company's entrance into the Romanian markets is important for Romania, as well. Two-thirds of the country's milk does not yet meet EU hygiene standards. Tnuva's entry comes ahead of Romania's hoped-for January 2007 entrance into the European Union. While Romania's timely entry into the EU is all but assured, the dairy industry's only partial compliance with EU standards poses a significant problem in the integration of the Romanian economy into the eurozone. Yet, EU integration likely will be disastrous for many Romanian families as dairy exports must be compliant with EU standards by January 1, 2007. By 2009, noncompliant dairy products will be banned even from internal sale throughout Romania. According to Valeriu Steriu, president of the Romanian Association of Dairy Processors and a former senator from the Olt province and Secretary of State for European Integration and International Relations in the Ministry of Agriculture, Forestry and Rural Development, this will devastate the small family farms, which no longer will be able to sell the product of the family cow. While the young people will adapt quickly, he says, the government is scrambling to find solutions, from welfare to educational programs, for the generation of middle-aged and elderly Romanians who will be unable to survive on the micro-farms. For Tnuva, the entry into the EU has advantages and disadvantages. While it gives the company a foothold inside the European commercial zone, this is not a position TRD will be able to exploit for a long time. Romania's population numbers 22 million, while the average Romanian consumes far less dairy than his French or Dutch counterpart. The company expects to have its hands full in Romania for quite a few years before it will look toward expansion into Europe. But Romania's accession into the EU also allows other European countries to enter the Romanian market more easily, potentially increasing the competition Tnuva will face in that market. Israeli isn't concerned about this scenario, however. "Importers of dairy goods face disadvantages," he said, particularly in terms of understanding local tastes. "Dairy production is a local industry" by its very nature, Israeli believes, since "every nation has its own dairy flavor." For that reason, he noted, Tnuva's entry into Romania was done through the establishment of a Romanian subsidiary with local control over product development. Despite the optimism, however, challenges within Romania abound - the country's roads are poorly maintained and difficult to navigate, and TRD will have to establish its own refrigerated transportation system. And while the market is growing rapidly, it is not free of competition, Tnuva officials noted. The main competitor, French food giant Danone, holds 41% of the market in dairy products and milk, backed by well-planned ad campaigns. Romania's media and advertising industries are as modern and sophisticated as its large cities, and in those arenas Tnuva will be competing with equals. Yet, for Israeli, the modernity of the country's large cities, coupled with the rapid development in the countryside, makes for a winning combination. "This is a very developed country," he said. And contrary to the perception in the West, its governmental bureaucracy "works." It is worth noting that Tnuva's Romanian venture follows in the well-worn footsteps of several large Israeli food companies that have come into Romania in a big way over the past decade. "The average Romanian already believes that Prigat and Elite are local brands," Israeli said. The writer was a guest of Tnuva in Romania.