Moldova - Agriculture policy update

EC4NR AGRICULTURE POLICY NOTE #5 MOLDOVA AGRICULTURE POLICY UPDATE Natural Resources Management Division Country Department IV Europe and Central Asia Region September 30, 1996  CURRENCY EQUIVALENTS Currency Unit = Lei US $1 = 4.50 Lei (July 1996) Fiscal Yea January 1 - December 31 WEIGHTS AND MEASURES ha Hectare Kg Kilogram Kwh Kilowatt hour ABBREVIATIONS AIB Agroinbank ARA Agricultural Restructuring Agency CIS Commonwealth of Independent States ECU European Currency Unit EU PHARE European Union Assistance Program EU TACIS European Union Assistance Program FSU Former Soviet Union GDP Gross Domestic Product IMF International Monetary Fund NAGCC National Agency for Geodsy, Cartography, and Cadastre SAL Structural Adjustment Loan SME Small and Medium Size Enterprises USAID United States Agency for International Development VAT Value Added Tax  CONTENTS Main Report Sector Background ...................................................... I Reform Progress and Outlook ..................................................... 2 Acceleration of Land Reform and Farn Restructuring ........... ............................ 3 Return to a Liberal Course of Macro-economic and Trade Policies ............................. 7 Competitive Agro-processing, Input Supply, and Services for Agriculture ....................... 9 Completion of Other Critical Tasks of Transition ................ .......................... 11 The Overall Rural and Environmental Situation . ........................................... 13 World Bank Assistance . .................................................... 14 Policy Matrix ...................................................... 16 The Moldova Food and Agriculture Sector Review (Report # 1258 1-MD) provided a status report on the food and agriculture sector and an assessment of the ongoing sectoral reforms through late 1993, when the final version of the report was completed. This note covers agricultural policy developments in Moldova since then and gives a brief assessment of the sector performance in 1995. This report also provides agricultural policy perspectives, and an overall sector update and background for the forthcoming SAL II operation. This note was prepared by Csaba Csaki in cooperation with Viktor Moroz, Moldovan Institute of Agricultural Economics. Valuable background information was received from the Moldovan Ministry of Agriculture and Food, as well as from USAID, VOCA, and EU-TAC'IS. Assistance in preparation of the report was also provided by Antonio Nucifora, Barbara Pohl, Alan Zuschlag and Phyllis Harrison. Valuable comments were received from Brian Berman, Arup Bane rji, Florian Grohs, and Jim Parks.  Boxes: Box I Land Privatization ....................................... ... 3 Figures: Figure 1. Dynamics of Moldovan Agricultural Output. I Figure 2. Moldovan Agricultural Exports and Imports. 2 Figure 3. Output of Major Food Processing Industry Branches. 2 Tables: Table 1. Macroeconomic Indicators Table 2. Gross Agricultural Output, and Inputs Table 3. Consumption of Food Products per Head of Population (kg) Table 4. Agricultural Exports and Imports Table 5. Agricultural Exports by Volume Table 6. Agricultural Imports by Volume Table 7. Major Indicators of Agricultural Production Table 8. Livestock Inventory in Major Farming Categories Table 9. Agro-Processing Industry Production Table 10. Land Area and its Distribution by Use on 01.0 1.96 Table 11. Accumulated Debt of Agro-industrial Complex (July 1996) Table 12. Producer Prices of Agricultural Products per ton Table 13. Retail Prices (current Lei per kg) Table 14. Agricultural Budget Table 15. Customs Tariffs on Imports Table 16. Cereal Structure Privatization Status by Enterprise Table 17. The Main Indicators of New Development in Rural Social Services  Sector Background 1. Production Trends. Moldova is a small, densely settled country that relies heavily on agriculture. During the late Soviet period (mid-1980s), food and agriculture was responsible for about 50% of the Moldovan GDP. Since independence in 1991, the share of food and agriculture in the overall economy has declined. Nevertheless, the food and agriculture contribution to GDP is still high when compared internationally, about 42 % in 1995, and during that year the sector employed about one half of the total Dynamics of Moldovan Agricultural Output labor force (Table 1). Total agricultural output declined by more that 50% 100 compared to pre-transition levels. In 90 1995 agricultural output was only 47% 80 of the 1986/90 average when using 1983 70 -._ Total constant prices (Table 2 and Figure 1). so ...0.... Crops Agriculture output is expected to 50.\. t.. Lrvestock continue to contract. The Institute of 50 Agriculture Economics forecasts a 6% 4, decline of overall output in 1996 from > M- 1995 levels, on a 1994 price basis. 2. Consumption Trends. Figure 1 The per capita consumption of major food products, with the exception of potatoes, declined by roughly 30%40% between 1990 and 1994 due to declines in family incomes relative to food prices. As a result, the share of food-related expenditures in family budgets increased to over 60%. Consumption remained unchanged from 1994 to 1995 (Table 3). 3. Irad. Moldova traditionally has been a large exporter of food and agricultural products. The loss of former markets and the decline in production associated with the transition has resulted in a significant drop in agricultural exports initially. Even so, the country has remained a net exporter cf food and agricultural products during the transition period. By 1994, and especially in 1995, a partial recovery in export performance can be observed and the value of agriculture exports increased by 54.5 %. The largest export items are beverages (mainly apple juice concentrate) and spirits, which amounted to about 30% of total exports in 1995. In addition to export recovery in 1995, imports of food and agricultural products also increased significantly, a 70% increase in 1995 over 1994 levels (Figure 2). Even with this increase, the total amount of imports still remains rather modest, and had only 15% of the value of agricultural exports in 1995 (Tables 4-6). CIS countries are still the major destinations for exports, though Western and Central European countries are becoming increasingly important both for expoits and imports. 4. Primary Agriculture. Moldova's agriculture has traditionally focussed on viticulture, horticulture, and crop production (Tables 7-8). The cropping and orchard areas have remained more or less constant during the transition period. Despite the fact that 1995 was a good year for crop production, the overall output of major crops remained 20 - 40% lower than the level of output reached in the L980s. The contraction in production is more significant for the livestock sector (output in 1995 was 56.5 % less than 1986/90 levels) than for crop production (36.2%). The share of the livestock sector in overall  2 Moldova agricultural output was only 31 % in _______ 1995. Livestock declines were greatest Moldovian Agricultural Exports and Im ports in large collective farms, livestock kept 1994-95 by smallholders barely declined, and livestock holdings of private farmers i 3000 have showed a slight increase. 2500 2000 5. Agro-processing. In I 1500 general, agro-processing outputs E 1000 .EXpI,rts declined further in 1995 (Table 9). 500 Production in meat industries was about 0 15% of the pre-reform levels. Similar 1994 1995 tendencies can be observed in the rest _ of livestock-based industries (Figure 3). Figure 2 In 1995, the canning industry output was about 33 %, and wine production at 47%, of pre-reform levels. Grain-based industries Output of Major Food Processng Industry Sranchss (1990-100) showed some signs of recovery in 100 0 __ 1995 as compared to the 1994 0.0 performance. 800 Reform Progress and Outlook O S 400 : k 2 0 0 . : i lViirS- 0- 6. Macroeconomic, Stabilization and Reform. Moldova was one of the first FSU countries 1990 1991 1992 1993 1994 1995 to take decisive action to stabilize its economy. Since 1993 it has successfully implemented IMF Figure 3 programs. The introduction of the new currency, the Lei, was accompanied by a firm stabilization policy which reduced inflation and xesulted in significant progress in establishing the macro-economic and policy framework needed for the transition to a market economy. Price control and trade restrictions have been largely eliminated. An ambitious privatization program was implemented in 1994/95. Efforts to modernize the banking sector and introduce payment disciplines are also being made. Yet the response at the enterprise level remains limited and economic growth has been slow to emerge. The sudden surge of inflation at the end of 1995 indicates that macro-economic stabilization efforts will be ineffective unless consistent reforms are implemented in major sectors of the economy. 7. Reforms in Food and Agriculture. There has been progress in creating a market-based privatized food and agriculture sector in Moldova. The pace of agricultural reform process, however, has been characterized by a continuous struggle between pro-reform and conservative forces since independence. The result of this tension has been the inability of Government to implement a consistent set of policies to address the most critical transition issues. The creation of a liberal price and market regime for agriculture, the progress in the demonopolization of input supply and grain handling, and the  Agricultural Policy Update 3 completion of the first phase of privatization of agro-processing and beginning of land reform, represent the most important achievements in the reform process. Some of the most important tasks of transition, especially the creation of a land market and land reform, the demonopolization and privatization of the grain sector, and the emergence of a competitive input supply sector, remain unfinished. Additionally, there have been some recent fall-backs in the course of market and price liberalization in agriculture. There is a tendency to resolve social problems through agricultural policies at the expense of agricultural production. Agricultural reform and social problems related to reform are becoming some of the most important issues in the forthcoming presidential election, which makes consensus building on critical agricultural reform issues difficult in the short-term. 8. The most critical issues that will determine the further success of sector reform efforts and rural recovery in Moldova are: (a) accelerating the process of land reform andfarm restructuring; (b) maintaining a liberal course of macro-economic policies for agriculture; (c) progress in creating internationally competitive agro-processing industries and an efficient input supply for agriculture; and (d) progress in finishing other critical tasks of transition, namely creating an improved financial and institutionalframework. Acceleration of Land Reform and Farm Restructuring 9. In the first phase of land reform, household plots were increased and Box 1: Land Privatization land shares for land used by large-scale farms were given to about a million people. Agricultural Land Area by use in 1996 (%) Actual restructuring of large-scale farms, State 3.8 however, did not take place. At that time the Non Restructured Collectives 78.3 Government's intention was to maintain the Privatized Collectives 4.0 core of large-scale farming under state of which: control. This resulted in very complicated Associations of Peasant Farms 1.2 bureaucratic procedures for land privatization Independent Farms 2.8 and private farmn registration. The 1995 Household Plots 13.9 amendmnent of the land code thwarted the real restructuring of large-scale farms. Land reform remains controversial in Moldova, resulting in limnited progress. (Box 1). * Land privatization is at an early stage. The first phase of land reform increased the area of household plots and provided land ownership rights in the form of undifferentiated land shares to 983,000 beneficiaries; mainly large-scale farm workers. As a result, on paper, the share of permanently state-owned land in total agricultural area was reduced to 3.8% while the privatized land share was raised to 96.2%. Although formally privately-ciwned  4 M,sidova land, the bulk of this land is still used by large-scale collective farms, and only about 18% of land is under fully private management (14% household plots, 4% independent private farms). * Private farming still has a marginal, though increasing, role. The establishment of independent private farms began in 1992, but after a relatively quick start, the number of private farms remained stagnant until early 1996. The amendment of the Land Code prevented new exits of private farms from state and collective farms between November 1994 to early 1996. By mid-1996 the number of independent private farns reached 60,000. Significant increases in the number of applications are expected to continue through the end of 1996. The results of individual farming are promising in most cases. According to recent surveys, private farmers work more effectively and they are able to generate higher incomes than those in collective farms. * Less than 10% of large-scale farms are restructured. By late 1995, out of about 950 large- scale farms 185 kolkhozes were transformed into joint stock companies and 273 were "restructured" as producer cooperatives (Table 10), but these changes were not combined with substantive changes in operations. Only about 80 large-scale farms so far have been filly restructured into entirely private ownership-based operations. 10. By 1996, several things occurred which eased the way for farm restructuring: a Constitutional Court's decision allowed individual exit from large-scale farms; and, pressure created by the increased economic difficulties of unrestructured large farms, combined with progress in overall reform, resulted in a new push for restructuring. Unfortunately, during the last three years most large farms accumulated significant debt and their overall physical condition has deteriorated due to lack of capital investments, low worker morale, and stripping of assets. As a result, economic conditions for meaningful restructuring of large-scale farms are actually less favorable now than they were three years ago. Local restructuring initiatives now receive more support from the Government and they also receive international donor assistance. The ongoing pilot projects for farm restructuring have succeeded in developing new farming structures that are fully privatized. These pilot projects have distinctly positive features compared to earlier restructuring efforts in Moldova and compared to methods used in other FSU Republics. They all are based on full privatization of land which remains in private ownership) in the various forms of newly emerging farming organizations, and they provide opportunities for further restructuring and modifications in land use. Yet these pilot projects have had only limited impact, as they are restricted to relatively few collective farms. * Improved restructuring modes. The existing legal framework does not provide sufficient support for real restructuring of large-scale farns, other than individual exits. Beginning in 1995, however, several farms have opted for real change outside of the existing legal framework. Intensive donor supported pilot projects are currently generating examples for mass restructuring. USAID together with the Soros Foundation supports the restructuring of Nisporeni Collective Farm. The TACIS pilot project is located in the Orhei region and provides assistance to the restructuring of several farms. The USAID tearn will use the Nisporeni restructuring experience to expand the program to additional farms in 1997. Though details of these projects vary, the principal features are quite similar. It appears that 30% of beneficiaries are opting for fully independent farming, while the rest will continue to organize within the framework of smaller farmer  Agricultural Policy Update S associations, or provide their land through a leasing arrangement to newly formed I imited liability companies, or joint stock companies. These new units are not conunitted to provide employment to all large-scale farm members who currently cultivate the unit's land. The joint activity is generally restricted to arable land. The machinery is generally used in various forms of service cooperatives or divided among the emerging new farming units. * Increased farm debt is a serious obstacle to restructuring. The distribution of the value shares representing the ownership of physical assets (including machinery, etc), is one of the most critical issues of restructuring. Early exiting farmers left most of their value shares with the large-scale farms. Wholesale restructuring of farms provides an opportunity for the settlement of value shares and distribution of non-land assets in kind. The increased debt of the farming sector has introduced a new dynamic in this process and presents a serious bottleneck to the whole restructuring effort. The accumulated debt of food and agriculture enterprises (debts to the budget, the socia] fund, and to fnergy companies) by July 1, 1996 amounted to 710.5 million Lei (approximately US $170 million) not counting debt to banks and input suppliers (Table 11). To facilitate the settlement of the farm debt recent Government decisions have removed penalties oni debts to the budget and have created other ways (grain deliveries) to settle debts to the budget and the social fund. * State livestock complexes have not been privatized. The decline of livestock production has seriously downsized the large-scale livestock complexes. Only about 25% of the poultry, 40 % of pig farms, and 60% of dairy units are operating. The units inside state and collective farms and units operated as inter-enterprise ventures are being restnictured and privatized as a part of large-scale farm restructuring. The fully state-owned livestock units were transferred to the grain companies remaining in majority state ownership and they are now part of the Cereale structure. No plans have been made fcr their privatization so far. 11. Land reform is seriously constrained by the absence of a well-functioning land titling and registration system, as well as by the absence of a functioning land market. * Less than 0.5% of land owners have received titles. The current process of land titling is complicated and overly bureaucratic, with inadequate capacity to deal with existing and projected demand The Ministry of Agriculture and Food and the regional (rayon) Land Arrangement Services (LAS) under the Ministry manage the process. About 91 5 of the beneficiaries of the land reform have received land shares certificates, but only 4,000 land owners have obtained final title out of 983,000 potential title holders. The current capacity, given the existing rather expensive and time consuming procedures for registration and titling is about 25,000 land properties per year. The cost of land titling for private farms is about 100-200 Lei (US $20-$40), depending on the number of parcels owned by a particular farmer. * Need for a unified cadastre system. The establishment of a national cadastre system including land registration and titling has begun. The National Agency for Geodesy, Cartography, and Cadastre (NAGCC) was established recently to coordinate this process.  6 Moldova Such coordination is urgently needed. At present there are four independent donor- supported activities (World Bank, EU TACIS, and two USAID projects) in progress, in addition to the land titling activities controlled by the Ministry of Agriculture and Food. Beyond a clear institutional arrangement, an agreement on the basic design for land registration and cadastre is essential in the near future to guarantee a common system for the country and to guarantee the efficient use of scarce resources available for lancl titling and cadastre. The World Bank Resident Mission is helping to achieve such an agreement. * Land market is constrained by the moratorium of sales. normative land pricirig, and regulations on land leasing. There is a moratorium on the sale of agriculture land received by individuals from the large-scale farms. The sale of land shares among beneficiaries inside a given farm is however, allowed. There is, however, a draft law to lift the moratorium on the sale of agriculture land and the regulation of land markets after the moratorium is lifted, but the current draft regulations are not consistent with the conditions of a market economy and have been very heavily criticized by the international donor agencies. The moratorium was lifted for the sale of urban and household land in early 1995. By early 1996, 13.7% of dacha and small garden plots owners purchased their land, but only 14.7% of them (2306 persons) have received titles. The land market is also constrained by the Law on Normative Price for Land. This law, used when selling state or municipal land and to calculate tax on all land transactions, sets an unrealistica]ly high price for state owned land and for payments for land transactions (transfer fee is 2%-5 % of minimum price). For example, the set price for non-irrigated agricultural land is three times the price of similar agricultural land in the United States. The dacha and small garden plots were sold at 50 % of the normative price and even with this reduction, 85 % of users opted not to buy the plot from the state. The Law on Normative Price for Land states that leases cannot be less than 2% or more than 10% of the normative sales r rice for the land. If agricultural leases were regulated according to this formula, it would mean that annual rents could not be less than 423 Lei ($94) nor more than 1902 Lei ($423) per hectare. 12. To accelerate land reform andfarm restructuring, thefollowing actions are recomrnended: a) improvement of exit and registration procedures and performance standards (time limits, etc.) for private farms and procedures for farm restructuring in general; b) review farm restructuring pilot projects, dissemination of experiences with practical guidelines, and extension of these projects to the national level c) introduce an effective and well-targeted public information campaign on ihe laws regarding land rights and procedures for farm restructuring and estaMlish an independent ombudsman or appeals procedure for land privatization disputes; d) utilize the lessons offarm restructuring in other Central and Eastern European countries to improve procedures and practices; e) adoption and implementation of a program of debt settlement for large-scale farms by using the experience of the industrial sector;  Agricultural Policy Update 7 f) develop a program and procedures for privatizing state-owned livestock complexes currently under Cereale control; g) creation of a market for agricultural land and lease rights (removal of moraworium, normative pricing, and lease controls, and adoption of land market regulations consistent with the needs of a market economry); and h) acceleration of the process of land registration and the creation of a suitable property and land registration system. Return to a Liberal Course of Macroeconomic and Trade Policies 13. The macro-economic environment for agriculture has improved in recent years. The incomplete implementation of the SAL I reform package in agriculture, however, has left the market environment for agriculture distorted. The recent increase in Government interventions in the grain market has only added to the problems. These difficulties are exacerbated by rural and social problems related to the transition. There is increased pressure to resolve these complex problems in the "old fashioned way," i.e., greater state intervention and indirect subsidization of consumers, such as the current bread pricing policy. 14. Prices are still distorted. The country introduced a liberal price regime in 1993-1995. Most of the agricultural producer prices are determined by market relations and most of the consumer prices are not directly subsidized (Tables 12 - 13). The under-developed domestic marketing system and the limited competition, however, keep most of the domestic producer prices considerably lower than border prices. Although, as evidenced by the bread, grain, and milk pricing policies, government intervention still remains significant for a few key products. 0 Increased intervention on the grain markets. As a result of manifold government intervention, the grain market has remained the most distorted component of the agricultural sector, contrary to agreements made under SAL I with the World Bank: (a) the compulsory delivery of wheat of 0.7-0.8 tons per hectare for state reserves was reintroduced in July 1996 with prices of US $100 - $200 per ton graded according to quality. If farms have debts to the state, 50% of the price is transferred toward debt reduction; (b) The state reserve requirements for 1996 are 240,000 tons, which likely represents about 1/3 of domestic production. The state reserve requirements basically set the price for all wheat purchases. The majority of the wheat harvests this year are of the lowest quality, therefore the farms will probably receive between US $100 - $120 per ton; (c) The Govermment grain procurement system includes schemes to provide fanns with agricultural inputs in the spring in exchange for wheat in the fall. Under this scheme the partially privatized state structures act as one fully state controlled system; (d) The margins at the milling and baking firms remain controlled at 10%, despite the SAL I agreement to remove margin controls; and (e) Moldova receives donor wheat from the US and the European Union. All the wheat received through these programs was distributed to Cereale enterprises without any tendering process.  8 MWoldova * Milk prices are kept low. Milk procurement prices offered by large-scale dairy factories (0.5 Lei per liter) are informally controlled and kept low to provide low price dairy products for the population. As a compensation, milk suppliers receive Lei 40 million annual subsidy in the form of tax reduction (0.2 Lei per liter land tax reduction for the supplier). Private producers, however, prefer to sell milk on the free market for higher prices, causing the dairy industry to experience serious difficulty in obtaining raw materials under these pricing conditions. 15. Subsidies. The food and agriculture sector receives modest direct subsidies and these are supplemented with a complicated and excessive system of indirect subsidization * Direct subsidies. Total expenditures by the Ministry of Agriculture and Food do not appear excessive (Table 14) when compared internationally. There is a 30 million Lei agriculture support fund (about US $6 million) which is supposed to be used to fmance major works which range from anti-erosion, flood control, and land amelioration to purchases for pedigree stock breeding, viticulture, and improved seeds. A 32 mill ion Lei (US $6.5 million) energy subsidy for irrigation was also authorized in 1996. In acldition, significant amounts go to subordinate bodies of the Ministry which operate at local levels. m Extensive indirect subsidization. The modest direct budget is supplemented with a broad group of indirect subsidies to agriculture. It is difficult to estimate the total amount of these transactions. First of all, no Government guaranteed loans to the agriculture sector enterprises were repaid, resulting in 100% of these loans being paid off by budgetary outlays over a three year period. The subsidies provided to milk suppliers are supplemented with further subsidies to cattle-breeders,(estimated at 10 million Lei in 1996) out of the proceeds of land tax. Neither of these subsidies is recorded in the expenditure side of the budget. In addition, there have been special measures to assist harvesting, such as the release of fuel out of strategic reserves. Exemptions from VAT (estimated at least 40 million Lei in 1996) go largely to agriculture. State-owned and cooperative dairy farms and other breeding units receive energy with a lower tariff (0.08 Lei/kwh, as opposed to 0.21 Lei/kwh for most industrial and other agricultural consumers). 16. The foreign trade regime. The growth of food and agricultural product exports which is essential for the economic development of the country, needs to be supported by a conducive trade policy framework. Unfortunately this framework is still not fully in place. The government still sets minimum prices for the export of major agriculture products in the form of orientation prices, provided for the Customs Service. Currently grain exports are banned until the state reserves are fully procured. In 1995, only four Government controlled organizations (Moldresource, Moldenetgo, Moldovgaz, and Tirex Petrol) were licensed to export grain. The PL480 agreement with the US is used as an excuse to ban grain exports. Exports are also constrained by the inefficiency of customs services. Import tariffs have recently been reduced and are now around the 20% level, with the exception of alcoholic beverages and som, fruits where tariffs are still higher, 30 - 50% (Table 15). 17. Significant direct taxation of agriculture. Moldovan agricultural producers pay higher taxes than most other primary producers in the CIS. Agriculture producers pay a land tax of about $20 - $30 per hectare. The social tax is an additional $30 - $40 per hectare. Agriculture products are subject to VAT, however there is a wide range of exemptions. There is no refund of VAT on inputs. The  Agricultural Policy Update 9 collection rate of taxes from agriculture is around 60% and is decreasing. The food and agriculture sector accumulated 286 million Lei debt to the Social Fund by mid-1996. The food and agriculture enterprises also pay profit tax, road tax, and tax on water use. The amount of these taxes are marginal compared to the land tax, the contribution to the Social Fund, and the VAT. 18. Returning to a liberal and open course of macro-economic and trade policies in agriculture will require: a) removal of remaining price and trade distortions in grain, milk and other areas, including compulsory debt repayment and other grain deliveries; b) revision of tariffs and the foreign trade regime, including custom services to create a more transparent and less bureaucratic system; c) significant reduction of indirect subsidization and revision of support progrtams to agriculture to focus on efficiency enhancements rather than uniformity of transfers; and d) review of agricultural taxation to create a more comprehensive and enforceable and development-friendly system, and reduce overall taxation levels in line with international competitiveness criteria (the tax reduction can be budget neutral through the parallel reduction of subsidies to the sector). Competitive Agro-processing, Input Supply, and Services for Agriculture 19. The first phase of the privatization in agro-processing is nearly completed. The emergence of an efficient, competitive agro-processing sector is still to come. The majority of agro-processing enterprises, however, are unconsolidated financially and lack transparent ownership. * EPrivatization of agro-processing has not resulted in improved performance. Most of the privatization of agro-processing and input supplies enterprises was completed by the end 1995. The primary producers who received 51 % of ownership are unable to exercise real influence over management and they lack resources urgently needed for technological improvements. Out of 570 agro-processing enterprises, only two were fully privatized. In the rest, a significant share of ownership was not sold and still belongs to the state. In 38 of companies, no shares were purchased by the private sector or by the employees. Most of agro-processing enterprises are still operating in the Soviet mode and rnany of them are essentially bankrupt. Foreign participation in privatized agro-processing is very modest, even by FSU standards, as a result of the absence of reform or investment incentives. * Modest SME development. New entries and SME development in agro-processing are constrained by bureaucratic procedures, unfriendly attitudes of local officials, and the lack of start-up capital. 20. As required in the implementation of the agreement with the World Bank, progress has been made in the breakup and the privatization of Cereale and Fertilitatea. However, the changes in  10 Moldova ownership and formal organizational structures have not resulted in real competition in the grain and input markets. Government control and influence remains strong, especially at Cereale, thus preventing producers from receiving the right price signals. * Cereale still operates as a Government-controlled monopoly. The entities under the corporation were broken into two branches, one under the supervision of the Department of Cereal Production in the Ministry of Agriculture and Food, and the other under the supervision of local authorities. The individual entities were corporatized and included in the 1995/96 privatization program under various schemes of partial privatization (Table 16). Not surprisingly, the entities remaining under the management of the Departmrient of Cereal Production were the largest capacity enterprises. These entities still have a majority of their shares owned by the state, whereas in the entities under the supervision of local authorities, the majority of the shares are in private hands. Though partially privatized, the grain system still operates as a monopoly structure fully controlled by the Government. * Input supply and services are still not competitive. The Fertilitatea structure was demonopolized and privatized according to the World Bank's recommendations The Central Unit is still majority state owned and provides mainly services and coordination. In the rest of the enterprises the share of state ownership is around 30%. There are ansold shares in each of the enterprises. The Government has significant influence on the Fertilitatea enterprises, and these still control about 80% of the fertilizer and chemical input markets. The Government influence, however, is less dominant than in the grain sector. It is mainly related to the distribution of inputs received through inter-government agreement or purchased from Government guaranteed credits. There is an increased number of private firms offering input supply and services to agriculture, though their market share is still not more than 20-25 %. 21. A working and efficient agro-processing industry capable of producing competitive products for international markets, and efficient rural services are critical preconditions for the development of the Moldovan agriculture sector. Priority should be given to rural SME development and .further actions are needed to create independent owners of agro-processing enterprises who can efficiently control management and bring in additional investment: a) the emerging smaller-scale new processing and rural service enterprises should be assisted through improved registration procedures, advice, and facilitation of access to credit; b) the remaining agro-processing privatizations in process should be completed by providing increased incentives for domestic andforeign buyers as well as a clear share disposail plan prepared by the Ministry of Privatization; c) transparent ownership for agro-processing enterprises should be facilitated by the cireation of secondary markets for ownership shares; d) post-privatization programs shouldfacilitate the financial consolidation, the restructuring of management, and technical upgrading of privatized enterprises to increase product quality and competitiveness;  Agricultural Policy Update 11 e) remaining monopolistic features of Cereale and Facilitatea need to be removed and their privatization should be completed, including the individual privatization of large-scale livestock units; competition should be increased by the enactment and enforcement of anti-monopoly legislation; and g) strictly enforced bankruptcy legislation should be used to consolidate the newly established private sector. Completion of Other Critical Tasks of Transition 22. Improved Financing for Primary Agriculture. Agro-processing and Rural Enterprises. The limited availability of credit, particularly long-term investment credit, is a major constraint in the rural economy. To date, the creation of a new financial intermediation system for agriculture has progressed slowly and the total amount of credit offered to the sector has been modest. Financing for agriculture remains limited. The government has radically reduced state- sponsored programs offering subsidized credit. At the same time commercial banks have expressed only a limited interest in lending for farming and other rural activities, and farmers have been unable to borrow due to high interest rates and the limited avaLlability of collateral. There are 21 commercial banks in Moldova, the biggest of which are four formerly state-owned banks now completing privatization. Of these banks only Agroindbank (AIB) provides significant credit to the agricultural sector. The Banca de Economii, (Savings Bank) has by far the most extensive network of offices and the largest deposits from the public. It would seem to have the greatest potential for rural credits and savings operations. However, there is a lack of transparencies of ownership and limited interest in rural operations at this Bank. i Agroindbank (AIB) is the major supplier of commercial credit to the agriculture sector. Like all other commercial banks, AIB for the most part lends for the short-term As of January 1, 1996, AIB lending to the agriculture sector, including agro-industries and service companies, totaled Lei 200 million (US $45 million). AIB has 44 branches serving all rayons in the country. Each has one or two staff members with some agriculture experience. It has 110 field agencies. It operates a US $20 million line of credit facility for EBRD agriculture development loans, from which US $5 million has been disbursed so far. AIB was audited and meets the pre-qualification standards for on-lending demanded by multilateral financial agencies. AIB seems to be a good candidate for lending to larger enterprises in agriculture, and is planning to establish a special financing facilities for privatized farmers. It has limited technical potential, however, for dealing with smaller-scale rural borrowers. 23. Further progress in developing a rural financial system is urgently needed. ]'rimary attention should be paid to the development of new financial intermediation to provide credit for small-scale farmers and also with high priority to rural entrepreneurs.  12 Mc'ldova 24. Creation of Institutions Required by the Reformed Food and Agriculture Sector. The creation of institutions required by market-based private agriculture is progressing slowly. The institutional framework required by a privatized sector is not in place. * Adjustment of agriculture administration is delayed. Ministry of Agriculture and Food and its regional offices continue to operate based on past practices. The Ministry continues to respond in central planned terms when administering the sector's "production oversight" of primary and processed products, trade promotion, rural land reform, as well as providing some (minimal) regulatory functions and coordinating the sector's research system. Regulatory functions in the Ministry of Agriculture and Food are noi: well- developed and those that exist are inappropriate for a market economy. The legislative basis for a market economy regulatory regime is inadequate as is the Ministry's technical capacity for quality control and testing to give credibility to any regulatory authority. This will be a significant constraint to product certification requirements for export to the EU. The Government intends to reorganize the Ministry of Agriculture and Food as welli as the whole structure of government in agriculture. These intentions, however, have not led to any visible changes to date. e The establishment of the Agricultural Restructuring Agency (ARA) is an imt~ortant progressive step. With the support of the World Bank, the Government of Moldova decided to establish a non-governmental institution, the Agricultural Restructuring Agency (ARA) in order to: (a) develop policy reform recommendations for agriculture; (b) facilitate the farm restructuring and land reform field implementation; (c) develop a broad rural development framework for the recovery of rural economy and the suppori: of the restructured farms and communities; and (d) deepen the human resource skills for farm restructuring and rural development. ARA will begin its operations in early October, 1996. * Agriculture statistics are in disarray. The agriculture statistics system inherited fiom the FSU has practically collapsed and it cannot provide reliable data on agriculture production, trade, or other rural economic activities. The current system is not adequate to cover private sector activities and to monitor the constantly changing market siruation. Consequently, the Ministry of Agriculture and Food and the Government in general do not have the data base on which to develop agriculture sector policy and analyses. * No agriculture extension services exist. A Western-type agriculture extension system does not exist in Moldova. Emerging farmers' organizations provide occasional advice, but a nationwide system of agriculture extension supporting the private farrners hasi yet to develop. The regional offices of the Ministry of Agriculture and Food has the technical capability to provide the core of an agriculture extension service, but the concept of serving, rather than managing, the farming sector has yet to be accepted. * Modest reforms in agricultural education. Moldova has one university, 15 se.zondary special high schools, and 5 training schools devoted to training in agriculture. The university, which was one of the most prestigious agriculture institutions in the FSU, has implemented a reform curriculum adjusted to the new conditions and seems to provide a well-grounded agricultural education. The training at the lower levels has also been  Agricultural Policy Update 13 adjusted to conditions created by the transitions. The education is free, however, some of the students at the university are admitted on a tuition basis. The whole agriculture education system is constrained by declining budgets and the limited availability of funds for improvements of equipment and libraries. * The system of agricultural research remains unchanged. Agricultural research is mainly carried out by eighteen institutes, supplemented by the institutes belonging to the Moldovan Academy of Sciences. There has not been any reorganization or reform of this system since independence. The whole system has serious budgetary problems, though the government tries to safeguard the human resources concentrated in the system. Five major institutes receive priority assistance. The most critical areas such as viticulture and horticulture will receive World Bank loans for the most needed improvements in techniques and equipment. Under this loan, the government has agreed to review the structure of the whole research system. 25. To develop an efficient and effective public administration in agriculture the instizutional reforns of the sector need to be accelerated: a) agricultural administration at the Ministerial and regional levels needs to be adjusted to respond to market economy conditions; b) ARA should receive continuous attention and support to guarantee its operations according to its original objectives; c) further reform of the agriculture education system is needed by focussing on the reeds of the private sector; d) an agricultural extension system reflecting local conditions need to be established; and e) a thorough review and reform of the agricultural research system is strongly reconvnended. The Overall Rural and Environmental Situation 26. Historically, about one-half of the Moldovan population lives in rural areas. Although the Soviet era rapidly industrialized the country, the majority of the population remained rural dwellers. The post-Soviet transition period has had a negative impact on rural areas. The rural-urban income gap widened, and by 1994 the average wage in agriculture was only 76% of the national average, compared to 94% in 1992, and it was only about two thirds of the average wages in industry in 1995. The rural income situation worsened as a result of increased financial difficulties for large-scale farms. In several areas, farms have not been able to pay wages for 2 - 3 consecutive months. In July 1996 the farming sector owed 132.9 million Lei in wages to farm members, which is equivalent to about US $3 million or about 100,000 months of a single average salary. Declared rural unemployment is not high, only 3-5%. The increased speed in restructuring of large-scale farms will most probably lead to increased employment problems in rural areas, but the safety net of part-time farming and household plots will provide a basic subsistence level for most of those people in the short-term.  14 Moldova 27. Parallel with the restructuring of large-scale farming, most of the rural social services have already been transferred to local municipalities. At the moment most efforts are focussed on mainataining the level of these services, there has been little or no improvement or investment in this area. There was practically no new development in rural social services reported in 1994 and 1995 (Table 17). Th~.- rural infrastructure has also continued to deteriorate, with the exception of the gas delivery system. About 70 km of new gas networks were constructed in 1994 and 1995. 28. The Soviet regimne left Moldova with a serious legacy of eroded land, polluted water, improperly treated agro-industrial wastewater, and hazardous livestock units. About 700,000 hectares or almost 30% of total agriculture land suffer from some form of erosion, mostly due to water because of the topographical relief, rainfall patterns, and human activity. More than 310,000 ha are considered eroded to a medium to high degree. Soil erosion and degradation is progressing at a high rate. The productivity loss of soil erosion and loss of high quality agriculture land to urban development is estimated at IJS $32 million per year. Nitrates, ammoniumn, and pesticide residues are prevalent in water resources, as well as heavy metals, even though the use of agro-chemicals and industrial output have declined in recent years. Groundwater, the main source of drinking water for the majority of the rural population, is threatened by high levels of nitrates, pesticides, hydrogen sulfides, and fluorides. Polyphenols are discharged from the 100 wine producers and discharges from sugar factories and other agro-industries are cause for major concemn. 29. Integrated rural development is not a primnary focus of current government attention. There is little integration of the agricultural and the non-farm components of the rural economy. Design and implementation of an integrated rural development strategy is recommended. This would combine efforts to promote the emergence of competitive agriculture with programs to support the development of a rural service sector, as well as industries to provide off-farmn employment. It would also addres.; rural infrastructure needs and the development of appropriate social policies designed for the specific conditions and needs of rural areas. World Bank Assistance 30. During the first phase of the difficult task of macro-economic reform in Moldova the World Bank provided support via the Rehabilitation Loan and first Structural Adjustment Loan (SAL lo. The current World Bank assistance strategy, adopted in April 1996, aims to support implementation of fuirther reformn efforts focussed on sectoral reforms, and more specifically on private sector development. In July 1996, a World Bank miission discussed a program for a second Structural Adjustment Loan (SAL Th). This loan is designed to sustain the momentum of the reform agenda and provide a significant incentive toward increased progress in critical structural reform areas (energy, private sector development, including the food and agriculture sector). The reform agenda supported by SAL 11 is intended to establish a firnn basis for sustainable private sector-led growth based on: (a) increased competitiveness, notably in the export of agricultural goods and in agro-processing; (b) imnproved energy efficiency; (c) the rapid emergence of a service sector; and (d) quality investmnent in the country's human resource base. 31. The Bank intends to support the recovery of the agriculture sector with four projects. The First Agricultural Project (FAP) will become effective in late 1996. It concentrates on supporting agriculture research for key export commodities and assisting the Government in sectoral strategic planning. Support for agro-processing and post-privatization restructuring will be available under the  Agricultural Policy Update 15 Private Sector Development Project (PSDP), complemented by technical assistance for agro-enterprise management training funded by the FAP. The third project will focus on farm production support, rural entrepreneurship, farming services, and agro-processing development by creating improved rural financing facilities. The proposed fourth project will focus on selective rural water supply and irrigation schemes. Complementary sectoral assistance will be provided by IFAD, EU-TACIS, USAID, FAO, and bilateral donors.  MOLDOVA Total Population 4.4 million Food and agriculture in GDP (1995) 41.9% Decline of overall agriculture production Rural Population 52.5% Food and agriculture in active labour 50% 1995/86-90 47.1% (1995) Decline of livestock sector 1993/86-90 Total Area 3.4 million ha. Food and agriculture in export (1992) 55% Share of livestock (1995) 31% Agriculture area: 2.3 million ha. in import (1992) 14% Agriculture area in private use (1995) 17% Traditionally net exporter: wine, processed Share of independent private agricultural 5 % Arable land 76% and unprocessed fruits and vegetables, and farms in total cultivated land (1995) Orchards 14% pork. Share of private sector in total agricultural Irrigated 10% output (1995) 35% Forested 12% ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 1. Macro-economic Framework for Significant progress in price and market liberalization, with Minimal Government intervention in agricultural Agriculture recent setbacks. markets. A. Prices/Subsidies * Most of producer prices were liberalized in 1993-95. * Return to the liberal course of market and price policies. * State order for grain delivery for state reserves was reintroduced in July 1996. * Remove interventions from grain and milk markets. * Farms with debt to budget receive only 50% of USD 160-180/ton * Phase out indirect subsidies to agriculture. grain price. * Deregulate fully the processing and trade margins. * Margins in the bread production are controlled (10%). * Remonetization of the sector by proper treatment of * Milk producer prices are kept low with informal interventions interenterprise arrears, accumulated debt and revision of and by subsidies provides in the form of tax deductions. tax and social security payment policies. * Consumer prices are liberalized except bread and dairy products. * Direct producer subsidies are mainly phased out (30 million lei is budgeted for 1996). * Agriculture receives indirect subsidies via special energy tariffs and input supply schemes. l 16  ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED B. Trade Policies * Domestic trade is liberalized, but a competitive market structure is * Establishment of commodity exchange or promotion of not in place. the use of commodity exchange in other countries. * Government procurement is restricted to grain, purchased for * Introduction of market methods in procuring grain for state reserves. government purposes and for marketing of grain and input deliveries based on intergovernmental agreements. * Export of agricultural products require registration, and controlled by orientation (minimum) prices. * Revision of registration procedure regarding agricultural exports to remove all remaining features of * Non CIS imports are subject to 10-30% but occasionally higher licensing. (80-100%) tariffs. * Full liberalization of grain trade. * Grain export is restricted to Government controlled organizations. * Low and uniform tariffs and no quantitative restrictions * Grain and fertilizer received through intergovernmental agreements on exports. are distributed by non-market methods. * Development of a grain strategic stock and trade policy. C. Taxation * Agriculture is directly taxed at a higher level than other CIS * Develop a fair and non-discriminatory system of countries through land tax, social tax and road tax. agriculture taxation. * About two-thirds of social taxes are collected. * Improve tax collection rates. * Agriculture enjoys VAT preferences, the system, however, needs to be upgraded. 17  ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 2. Land Reform and Farm Slow process of farm restructuring and privatization with recent. Farming structure based on secure transferable land Restructuring use rights. Additional land was provided for household plots and for gardening. (In 1995, 13% of agriculture area.) * Facilitate the process of farm restructuring and improve the process of withdrawal of land and non-land assets * Land shares were allocated for the farming population and 91% of from collective farms. beneficiaries received certificate. * Make the establishment of new private farms, and * Number of independent private farms are increasing but their share farming enterprises based on partnership or cooperation as in land use is still small. (1996,5 % of agriculture area.) easy as possible. * Procedures are not conducive enough to support the real * Create market mechanism for rent, leasing and the restructuring of large scale farms and the establishment of private establishment of collateral should be developed as soon as farms. possible with the aim of facilitating land consolidation and financing efficient farming. * 59,000 private farms and 226 associations involve about 100000 of beneficiaries of land reform out of 983000. * Lift the moratorium on agricultural land sales earlier than 2001, and amend the Law on Normative Price for * Most of the large scale farmers (909 out of 956) are largely Land. operating without any significant restructuring and accumulating significant debt. * Adopt and implement a program of debt settlement for large scale farms. * February 1995 Amendment of Land Code allowing only group exit from large farm Wes eliminated by the Constitutional Court in * Accelerate the process of the creation of a suitable early 1996. property and land registration system. * There is a moratorium of agricultural land sales, up to 2001. Sales of land certificates inside the large farms and sales of urban and household land is allowed. * The emergence of land markets is seriously constrained by the Law on Normative Price for Land and the absence of a well functioning land titling and registration system. l 18  ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 3. Competitive A2roprocessing and Privatization and demonopolization is in progress. Private based competitive processing and input supply Services for Agriculture, industries. * Agroprocessing and input supply industries are privatized as part of the overall privatization framework. * Increased role of auctions in the privatization process. * Producers of agricultural row materials received 50% of * The shares of companies privatized based on ownership of agroprocessing. patrimonial bonds should be openly traded as soon as possible. * The initial privatization of agro-processing was completed by the end of 1995. The majority of enterprises, however, are * Promotion of the participation of foreign investors both unconsolidated and lacking of transparent ownership. in auctions and in the second round of privatization. * Large share of ownership of agroprocessing industries was not sold * Introduce post-privatization programs to facilitate the and still belongs to the state. restructuring of privatized enterprises. * Most the agroprocessing sector enterprises are still operating by the * Develop and implement effective antimonopoly old fashioned way and de facto bankrupt. legislation. * Cereale (grain corporation) and Fertilitatea (input supply * Strictly enforced bankruptcy legislation in order to corporation) are in the process of privatization after initial consolidate the newly established private sector. demonopolization but the process is not fully completed. * Complete the Privatization of Cereale and Fertilitatea * Anti-monopoly regulations are not fully in place. together with the appropriate restructuring and real privatization of Moldcoop. * Increasing but still limited entry of private sector into processing and input supply. * Limited foreign participation in privatizing agroprocessing. 19  ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 4. Rural Financing Lack of an appropriate financial system for food and agriculture. Viable financial institutions efficiently serving the food and agriculture sector. Financing in agriculture is not adjusted to the needs of a market based privatized agriculture. * Introduce processors or suppliers' credit schemes to finance farming inputs. * High interest rates and the lack of collateral seriously limits lending to agriculture. * Prepare an action plan to revitalize financial services. * Implement pilot projects to establish credit unions in the villages. 5. Institutional Framework Adjustment of the institutional framework is at a rather early Efficient and effective public sector administration and stage. support services. * Government administration reflects Soviet type structure. * Re-orient Government attention toward private agriculture. * Research/education system has not been adjusted to emerging new conditions. * Prepare and implement a program of re-organization of public administration in agriculture. * Public activities (government research-education) in agriculture are seriously hampered by budgetary difficulties. * Reorganize the Ministry of Agriculture and Food. * Western type of agricultural extension system does not exist. * Review the agricultural education and research system. * A non-Governmental Agricultural Restructuring Agency (ARA) is * Support the emergence of private farm advisory being created to support farm restructuring, services for landowners. Agriculture related ESW: WB lending projects * Agriculture Sector Review. (Grey Cover). 1995 * Emergency Drought Recovery FY 1993 Translated into Russian 1995. * Agriculture 1. USD 10 million; effective August 1996 * Review of Agriculture Trade and Trade Policy (Informal Report) 1995 * Agriculture II. Expected Board date early 1997. * Survey of Agricultural Privatization (Informal Report) Sept. 1996 * Agriculture Ill. FY 1998 20  Table 1: Macroeconomic Indicators Units 1990 1991 1992 1993 1994 1995 GDP at current prices mil.Lei 25.9 191.9 2210.4 5780.2 7636.2 Economic Output (change over production year) % -17.5 -29.1 -1.2 -31.2 -3.0 Unemployment trend (end of year) % 0.1 0.7 1.1 1.4 Consumer price index % 1209.0 1284.0 587.0 130.0 Trade balance mil.Lei -0.5 -33.1 -402.2 -348.6 -381.8 Exchange rate (annual average) per USD 3.8 4.1 4.5 Gross Industrial Product (current prices) mil.Lei 1186.3 3746.7 4265.2 Gross Industrial Product (change in volume) % 103.2 88.9 73.0 100.7 72.3 94.0 Total number of employed thousands 2071.0 2070.0 2050.0 1688.0 1681.0 Total number of employed in agriculture thousands 678.0 743.0 749.0 730.0 767.0 Total number of employed in agriculture % 32.7 36.0 36.5 46.3 45.6 Goverment budget deficit mil.Lei -9.1 -136.7 -274.7 -372.2 Goverment budget deficit as a % of GDP -4.7 -6.2 -4.8 -5.1 Annual interest rate % 400-350 380-100 70 Average share of household income spent on food % 34.5 36.7 43.5 46.2 45.5 65.0 Source: Moldovan Institute of Agricultural Economics Macro Indicators  Table 2: Gross Agricultural Output (GOA), and Inputs Units 1986-90 1991 1992 1993 1994 1995* Total GAO (Avg. 1983 prices) mil. Lei 4807.9 3964.4 3312.1 3640.8 2755.4 2282.5 Crops mil. Lei 2938.0 2386.2 2051.2 2618.1 1795.2 1585.5 Livestock mil. Lei 1869.9 1578.2 1260.9 1022.7 960.2 697.8 Change in volume of GAO % 82.4 83.5 109.9 75.5 Crops % 81.3 85.0 127.6 68.6 Livestock % 84.4 79.9 81.1 93.8 Share of crop in total GAO % 60.2 61.9 71.9 65.2 69.4 Share of livestock in total GAO % 39.8 38.1 28.1 34.8 30.6 Fertilizer use (applications in area sown) Total fertilizer use 000 tonnes 301.8 191.4 127.6 36.2 12.1 11.2 Total fertilizer use Kg/ha 170.0 124.0 86.0 27.0 9.0 9.0 of which N 000 tonnes 127.0 82.7 61.8 20.2 8.5 9.6 Kg/ha 71.5 53.6 41.6 15.1 6.3 7.7 P2 05 000 tonnes 95.9 75.2 43.4 10.6 2.4 1.1 Kg/ha 54.1 48.7 29.3 7.9 1.8 0.9 K2 0 000 tonnes 78.9 33.5 22.4 5.4 1.2 0.5 Kg/ha 44.4 21.7 15.1 4.0 0.9 0.4 * Without Transnistria Source: Moldovan Institute of Agricultural Economics GAO, Prices and Inputs  Table 3: Consumption of Food Products per Head of the Population (kg)* 1989 1991 1992 1993 1994 1995 1995/1989(%) Bread and bread products ** 171.0 174.6 170.0 170.0 136.0 140.0 81.9 Potatoes 69.0 68.7 66.5 95.0 80.0 80.0 115.9 Vegetables 112.0 112.8 95.0 94.0 72.0 75.0 67.0 Fruits, berries, grapes 79.0 78.9 63.0 80.0 53.0 50.0 63.3 Sugar 48.9 41.2 30.5 30.0 27.0 27.0 55.2 Vegetable oil 14.1 11.6 8.5 7.8 7.2 7.0 49.6 Meat and meat products 58.0 56.0 46.0 35.0 31.0 32.0 55.2 Milk and dairy products 303.0 258.6 198.0 174.0 161.0 165.0 54.5 Fish and fish products 12.0 6.7 2.3 1.3 1.3 1.8 15.0 Eggs, pieces 203.0 194.5 166.0 130.0 100.0 120.0 59.1 * throughout the Republic * bread and macaroni products recounted in flour, cereals, legumes Source: National Federation of Farmers' Associations in Moldova, April 1996 consumption  Table 4: Agricultural Exports and Imports (mil. Lei) Exports Imports 1994 1995 95/94 % 1994 1995 95/94 % Total 1599.4 2471.9 154.5 216.9 369.2 170.2 of which: Dairy produce, eggs, honey 48.9 69.7 142.5 2.2 7.1 322.7 Processed meat products 8.1 19.2 237.0 5.2 4.1 78.8 Meat and edible meat offall 133.2 201.2 151.1 0.6 5.3 883.3 Beverages, spirits and vinegar 407.0 783.7 192.6 29.7 86.4 290.9 Tobacco and manuf. tob. substitute 144.7 210.0 145.1 16.1 7.6 47.2 Sugar and sugar confectionary 154.2 293.6 190.4 8.5 21.7 255.9 Cocoa preparations 3.9 9.8 251.3 5.3 6.7 126.4 Fish and fish products 0.9 0.8 88.9 5.5 21.7 394.5 Processed vegetables, fruit, nuts 185.2 365.3 197.2 4.4 4.3 97.7 Live animals 2.9 33.0 1137.9 9.8 38.9 396.9 Cereals (without corn) 0.2 57.7 360tim. 35.8 52.3 146.1 Corn (incl. hybrid seeds) 124.5 55.4 44.5 40.0 28.7 71.8 Flour 0.7 16.8 26times 4.6 8.2 178.3 Fruits (fresh) 231.8 144.1 62.2 8.6 18.1 210.5 Vegetables (fresh) 27.8 27.0 97.1 10.5 14.2 135.2 Leather 29.9 58.0 194.0 10.5 14.2 135.2 Coffee, tea, mati and spices 3.1 2.4 77.4 Source: Moldovan Institute of Agricultural Economics Agr. Exp. and Imp.  Table 5: Agricultural Exports by Volume (000 Tonnes) 1991 1992 1993 1994 1995 1995/1991 (%) Crop products Total grain 6.3 29.0 0.3 45.9 138.1 2192.1 Oil seeds 21.2 9.6 8.7 20.6 25.0 117.9 Vegetable oil 46.3 4.3 10.0 16.0 13.6 29.4 Vegetables 83.1 68.4 39.0 30.1 21.3 25.6 Fruits 161.0 89.9 126.3 99.6 68.0 42.2 Grapes 16.6 13.2 6.9 13.7 13.7 82.5 Canned vegetables and fruits 12.6 12.9 Tomato products 95.1* 67.1* 96.8* 15.1 13.2 13.9 Wine (mio litres) 12.6 9.7 5.9 11.6 15.1 119.8 Wine materials (mio litres 12.6 16.4 7.3 1.6 9.3 73.8 Sugar 5.3 9.1 43.0 100.5 135.0 2547.2 Tobacco 17.3 17.8 Livestock Products Total Meat 32.3 28.4 28.9 29.9 37.0 114.6 Beef 23.2 29.6 Pig meat 5.7 5.0 Sheep meat 0.2 0.5 Poultry meat 0.6 Butter 2.8 7.2 3.5 33.5 1.7 60.7 Eggs (mio pieces) 53.6 10.2 9.8 2.2 5.9 11.0 Honey 1,074.2 258.7 236.0 197.5 122.7 11.4 Source: Moldovan Institute of Agricultural Economics Table 6: Agricultural Imports by Volume (000 tonnes) 1991 1992 1993 1994 1995 1995/1991 (%) Crop products Total grain 1264.9 749.4 362.2 119.1 113.3 9.0 Oil seeds 1.4 2.0 4.6 0.0 5.2 371.4 Vegetable oil 5.1 0.8 0.1 0.0 0.0 0.0 Sugar 1.9 1.1 2.4 4.0 9.2 484.2 Potatoes 33.2 38.4 10.1 13.9 14.8 44.6 Wine (litres) 0.3 2.4 4.7 82.7 614.3 204766.7 Fresh fruit 0.2 0.0 0.2 2.9 7.1 3550.0 Source: Moldovan Institute of Agricultural Economics Agr. Exp. by volume  Table 7: Major Indicators of Agricultural Production* 1990 1991 1992 1993 1994 1995^- Population (thou.), of which 4366 4359 4348 4353 4348 4335 Rural Population (thou.) 2293 2307 2309 2316 2315 2330 All Cereals Area 746 837 747 913 831 827 Production 2617 3197 2195 3340 1754 2483 Winter wheat Area 287 303 282 346 307 412 Production 1176 1114 980 1393 659 1192 Corn Area 258 310 259 344 285 260 Production 882 1492 644 1325 629 968 Sunflowers Area 134 127 131 130 139 143 Production 252 170 152 194 149 203 Sugar beets Area 82 80 83 83 83 82 Production 2372 2262 1784 2248 1527 1916 Tobacco Area 32 32 28 31 28 20 Production 66 63 42 50 42 25 Potatoes Area 41 47 56 71 63 56 Production 295 291 311 726 475 383 Vegetables Area 71 78 73 78 72 59 Production 1117 938 788 777 599 465 Fruits and Berries Area 236 242 244 251 233 185 Production 910 698 511 1088 665 528 Grapes Area 201 198 193 194 186 186 Production 940 774 824 928 670 852 Meat and Livestock (beginning of year, for whole republic) Cattle (thou. heads) 1112 1061 1000 970 916 832 of which Cows (thou.heads) 402 395 397 403 411 399 Pigs (thou.heads) 2045 1850 1753 1487 1165 1061 Sheep and Goats (thou.heads) 1338 1282 1289 1357 1445 1507 Poultry (thou.heads) 25003 24625 23716 17128 14544 14415 Total meat (carcass weight) 366 304 234 180 153 113 of which Cattle 114 97 75 68 62 Pig meat 177 145 114 79 61 Sheep and goatmeat 7 5 4 4 5 Poultry meat 66 56 39 26 24 Eggs (thou. pieces) 1129 1061 813 618 515 479 Eggs per hen (pieces) 207 195 152 145 152 191 Milk 1511 1292 1135 976 909 761 Yield per cow (kg) 3975 394 3026 2413 2245 1785 ' Areas in thou. hectares; production in thou. tonnes. Data without teft bank of Dnester (prelimiary). Population - for all Republic Source: Moldovan Institute of Agricultural Economics  Table 8: Livestock Inventory at Major Farming Categories * 1990 1993 1994 1995 1995/1990 (%) Cattle State and collective farms 767 480 381 282 36.8 Private 182 335 370 360 197.8 of which family farms . 1 11 17 Dairy cows state and collective farms 262 188 147 113 43.1 Private 95 189 220 228 240.0 of which family farms . 1 7 11 Hogs state and collective farms 1355 609 510 501 37.0 Private 316 404 436 409 129.4 of which family farms 2 13 22 Poultry state and collective farms 12150 2593 2416 2318 19.1 Private 9760 9233 10933 9647 98.8 of which family farms . 35 222 358 Sheep and Goats state and collective farms 439 289 245 203 46.2 Private 814 1131 1238 1191 146.3 of which family farms 5 37 63 Horses state and collective farms 38 28 26 24 63.2 Private 7 24 30 33 471.4 of which family farms 0 2 3 *Without left bank of Dniester Source: Moldovan Institute of Agricultural Economics Livestock Production  Table 9: Agro- Processing Industry Production (000 tonnes) 1990 1991 1992 1993 1994 1995* 1995/1990(%) Sugar 435.8 236.9 192.2 209.0 153.6 197.2 45.3 Meat 257.9 218.5 136.0 94.7 72.1 35.4 13.7 Confectionery products 70.2 56.5 31.7 34.1 13.7 13.7 1'9.5 Macaroni products 25.1 26.8 16.0 13.2 8.2 11.1 44.2 Vegetable oil 125.6 117.9 38.2 39.3 31.4 20.2 16.1 Conserves (mio. tins) 1813.9 1446.3 748.5 952.4 672.2 597.6 32.9 Whole milk 454.8 382.6 180.5 175.1 86.7 38.6 8.5 Butter 27.0 21.8 16.7 9.3 8.2 5.0 18.5 Cheese 12.2 10.0 3.7 3.8 2.5 1.5 1:2.3 Wine (mio.litres) 163 143 92 108 85 77 472.4 Coniac (thou. litres) 13940 14020 7500 5520 5280 5780 414.6 Fish 9.5 5.2 6.5 9.5 2.1 1.2 1:2.6 * Preliminary data of Ministry of Agriculture and Food Source: Moldovan Institute of Agricultural Economics Food Processing  Table 10: Land Area and its Distribution by Use on 01.01.96. (OOOhectares) Number Total area Agricultural land Arable Perennial Hay Pasture Total Orchards Vineyards Total 3385.3 2556.3 1774.9 412.6 199.6 195.9 2.3 367.4 Land at the disposal of farms and rural enterprises 2346.4 2169.4 1691.8 396.7 195.5 187.5 0.9 8.0 from which 1. Public 962.0 78.0 67.7 49.2 15.7 10.1 4.8 2.8 2. Private from which 2268.5 2101.7 1642.6 381.0 185.4 182.7 0.9 77.2 3. Kolhoses 490.0 1085.5 1004.9 814.0 148.5 94.0 48.0 0.2 42.1 4. Joint stock companies 132.0 252.7 230.5 166.8 55.6 22.6 31.1 0.1 8.0 5. Farmers associations 152.0 28.0 26.3 18.6 7.2 3.5 3.5 0.5 6. Peasant farms 48771.0 62.5 60.6 43.8 16.7 6.9 9.7 0.3 7. Household plots 899714.0 313.9 302.4 251.5 49.7 13.1 36.3 0.3 0.9 Source: Ministry of Agriculture and Food Land Area  Table 11: Accumulated Debt of Agroindustrial Complex (July 1996) mil. Lei To the Budget total 188.80 including: Excise Tax 40.80 VAT 83.90 Profit Tax 26.10 Tax on Buildings 0.40 Agriculture Land Tax 27.10 Non-Agriculture Land Tax 0.60 Road Tax 7.10 Water Tax 2.80 Wages 132.90 Social Fund 286.00 To Energy Companies 102.80 Total 710.50 Source: Ministry of Agriculture and Food Table 12: Producer Prices of Agricultural Products (Current Lei per tonne) 1993 1994 1995 1995 (US$) Grain 85.3 284.5 321.8 71.5 Sunflowers 137.3 484.6 653.6 145 2 Sugar beets 18.8 60.1 93.5 20.3 Tobacco 1151.6 1878.8 2458.3 546 3 Vegetables 73.2 404.4 355.8 79.1 Grapes 77.8 365.5 447.3 99.4 Milk 135.1 399.7 387.0 86.0 Beef (carcass) 450.4 1349.6 1834.5 407.7 Pig meat (carcass) 686.4 2396.7 3385.2 752.3 Sheep (carcass) 332.0 1060.0 1729.8 384.4 Poultry (carcass) 589.4 3877.2 3855.1 856.7 Eggs (000 pieces) 35.6 182.4 206.1 45 8 Source: Moldovan Institute of Agricultural Economics  Table 13: Retail Prices (Current Lei per kg) 1993 (avg.) 1994 (avg.) 1995 Dec. 07.07.96. Brown bread 0.09 0.88 1.04 1.08 White bread 0.09 0.88 1.60 1.70 Wheat flour 0.21 0.66 1.28 1.76 Beef 6.20 9.49 Pork 1.55 5.89 8.70 12.27 Poultry 9.90 12.50 Fish-lake and ponds 0.77 3.40 4.05 Milk 1.40 1.32 Butter 2.25 9.72 15.93 13.00 Sour Cream 8.10 7.00 Cheese 1.44 6.88 15.30 8.98 Eggs 10 pcs 0.74 3.00 4.38 3.06 Sugar 0.26 1.55 3.27 2.32 Potatoes 0.14 0.99 1.50 2.73 Cabbage 0.19 0.71 0.50 1.48 Apples 1.28 5.00 Source: Moldovan Institute of Agricultural Economics Retail Prices  Table 14: Agricultural Budget 1994 1995 1996 Actual Proposed Approved Actual Proposed Total state budgetary expenditure 47062.6 64286.3 3790.5 55556.1 8825C.1 1.State goverment offices (central staff) 1728.0 5100.0 4498.3 3452.0 3597.5 2.Total budget for education 10275.6 22416.3 16617.2 16213.1 2941t.9 2.1.Methodological job and other educational projects 40.3 60.6 71.5 64.5 56.5 2.3.Professional schools 103.3 199.2 213.2 177.1 272,.1 2.4.Colleges 5383.5 12632.3 9791.9 9599.1 13948.0 2.5.1MATA (training institute) 164.5 727.5 133.8 133.1 764.0 2.6.Agrarian university 4411.3 8403.3 6041.4 5878.2 13890.6 3.Production related economic activities 3.1.Maintenance and operating cegs of state institution 7063.0 33377.0 12077.0 11345.0 24777.0 3.1.1.State comission for plant protection 185.0 249.0 264.0 172.0 326.0 3.1.2.Veterinary center 249.0 367.0 364.0 258.0 490.0 3.1.3.Animal breeding inspection 101.0 140.0 140.0 126.0 154.0 3.1.4.Veterinary service on border 184.0 264.0 264.0 175.0 543.0 3.1.5.Quarantine service on border (for plants) 194.0 265.0 265.0 182.0 404.0 3.1.6.Seed inspection 82.0 103.0 103.0 144.0 139.0 3.1.7.Machine testing center 173.0 208.0 208.0 107.0 230.0 3.1.8.Radiactive control center 23.0 22.0 22.0 17.0 40.0 3.1.9.Anti-hail service 1964.0 6652.0 3870.0 3349.0 8378.0 3.1.10.State inspection of grain 92.0 40.0 127.0 3.1.11.State production laboratory of concentrated feed 190.0 3.1.12.Alcohol controling inspection 3.1.13.State technical control 120.0 537.0 360.0 127.0 6C0.0 3.1.14.Other current expenses 3788.0 24570.0 6125.0 6648.0 131 57.0 3.2.State investment 25160.0 18465.0 4.Research institutions 2836.0 22470.0 4768.0 4301.0 28673.0 Source: Ministry of Agriculture and Food Agricultural Budget  Table 15: Custom Tariffs on Imports 1994 1995 1996 1.01.-31.03 1.04-30.11 1.12-31.12 Sugar 100 0 0 0 20 Sunflower Seeds 10 0 0 0 0 Sunflower Oil 50 20 20 20 20 Grains 0 0 0 0 0 Live Animals 30 20 20 20 20 Meat 50 30 30 20 20 Eggs 50 30 20 20 20 Milk 50 30 20 20 20 Apples 100 50 30 20 50 Vegetables 50 50 30 20 20 Grapes 100 50 30 20 50 Wine 300 200 100 1.32ECU/I 1.32ECU/I Hard drinks 100 50 30 2ECU/litre 2ECU/litre Coffee, Tea 10 10 10 10 10 Tobacco 15 15 15 15 15 Wooden Boxes 30 30 30 20 20 Source: Ministry of Agriculture and Food Imp. Tariffs  Table 16: Cereale Structure Privatization Status by Enterprise Under Management of Cereal Department Nr. Name Place % Privatized 1 Biochemical Factory Balti 27 35 2 Grain Products Kombinat Balti 39 93 3 Elevator Causeni 39 82 4 Elevator largara, Leova 38 45 5 Grain Products Kombinat Cahul 64 01 6 Republican Expedition for Grain Protection Chisinau 38 03 7 Packaging Repair Factory Chisinau 36 69 8 Trucking Enterprise Moldova-Autotrans Cereale Chisinau 21 91 9 Cereal Construction Department Chisinau 39 86 10 Cereal Project Office Chisinau 43 59 11 Grain Products Kombinat (with its branches) Chisinau 39 48 12 Cereal Supplying Enterprise Chisinau 37 64 13 Grain Products Kombinat Comrat 8.-57 14 Grain Products Kombinat Ciadyr-Lunga 37 89 15 Grain Products Kombinat vil. Cupcini Edinet 39.36 16 Elevator vil. Rediul Mare Donduseni 39.85 17 Animal Feed Factory vil. Marculesti Floresti 27.69 18 Grain Products Kombinat Ungheni 39.98 19 Milling Kombinat S.A. Moara Balti 99.33 20 S.A. Morarul 96.35 21 Biochemical Factory Ungheni 98.88 Under Management of Local Authorities Nr. Name Place % Privatized 1 Elevator Goldeni 2 Grain Products Kombinat Falesti 69.92 3 Elevator Olanesti, Stefan-Voda 68.54 4 Elevator Bulboaka, Anenii-Noi 47.25 5 Elevator Prut Cantemir 69.39 6 Elevator Vulcanesti 59.68 7 Elevator Otaci, Ocnita 69.84 8 Elevator Lipcani, Briceni 65.62 9 Elevator Donduseni 69.41 10 Elevator Cimislia 68.86 11 Elevator Rogojeni, Soldanesti ? 12 Elevator Soldanesti 68.54 13 Grain Products Kombinat Floresti 14.86 14 Elevator Soroca 41.51 15 Elevator Unchitesti, Camenca 37.50 16 Elevator Drochia 69.57 17 Elevator Taraclia 68.89 Source: USAID Agriculture Market System Study Management  Table 17: The Main Indicators of New Development in Rural Social Services Average Expected Inaction Unit 1986-1990 1991 1992 1993 1994 1995 Dwelling OOOsqm. of total living space 710.60 442.00 418.00 284.00 8.41 - General education schools 000 places 14.20 6.80 2.70 1.20 - 0.16 Pre-schooling institutions 000 places 6.10 5.10 2.60 0.90 0.19 - Clubs and Palaces of Culture 000 places 4.80 5.40 3.00 1.10 - Hospitals beds 22.00 106.00 235.00 - - - Gas networks km - - - - 22.30 49.50 Source: National Federation of Farmers' Associations in Moldova, April 1996 Main indicators   OTHER REPORTS IN THIS SERIES INCLUDE: EC4NR Agriculture Policy Note #1: Armenia Agriculture Policy Update - December 1995 EC4NR Agriculture Policy Note #2: Land Registration and Land Titling Projects in ECA Countries - May 1996 EC4NR Agriculture Policy Note #3: Latvia Agriculture Policy Update - July 1996 EC4NR Agriculture Policy Note #4: Current Status ofAgricultural Reforms in EC4 Countries - July 1996 Additional copies of this report and the policy notes listed above can be obtained from Ms. Phyllis Harrison at extension 32189.