By John Costello & Rod Beason
Moldova, strategically located between western and eastern Europe, has the potential to be a key producer of agricultural products in the NIS. Currently, agriculture is the basis of the Moldovan economy, comprising some 40 percent of GDP. Agricultural production accounts for 75 percent of the country’s total exports. Important Moldovan products are apple juice, wine, sugar beets, and milk and dairy products.
Major economic, legal, and structural reforms are currently being implemented by the new government, but the transition has presented new challenges for Moldovan agriculture. As a result of massive land privatization, a new set of farmers and farmer groups are emerging debt free, but cash and equipment poor. They now own their land, which can be sold, mortgaged, leased, or passed to heirs. The distribution system that formerly served the collective farm system has all but disappeared, and a new one is still developing. Market-oriented reforms are making way for an emerging crop/livestock inputs sector. Participation in the restructuring of Moldova’s agricultural and food processing systems represents a unique opportunity for U.S.-based agribusinesses.
USAID Assistance to Moldovan Agriculture
The U.S. Agency for International Development (usaid) has played a major role in land reform in Moldova. The usaid land project is assisting Moldova’s land privatization effort by creating new landholding patterns resulting in new small-plot farmers, family farmers, farm associations, and farm cooperatives. Over half of Moldova’s former state and collective farms have been privatized with the balance scheduled for privatization by the end of year 2000. Land titles alone, however, will not assure the success of these new private farmers. Farmers will need a credit system that will provide capital through land mortgages and a marketing and distribution system that can turn farmers’ produce into cash in a reasonable period of time.
The Citizens Network for Foreign Affairs (cnfa), through the usaid Agribusiness Partnership Program, began helping Moldova rebuild its agricultural system in 1996. The program links private farmers, agribusinesses, and agroprocessors to Western sources of inputs, technology, credit, and output marketing by providing financial support (up to $500,000) to new agribusinesses or joint ventures. Through the program, cnfa has helped launch 11 new projects in Moldova, including four with U.S.-based companies. Enterprises established include two joint-venture dairy plants, a milk collection system for small-plot farmers, three farm service centers, a farm machinery dealership, a packaged fruit juice marketing association, a walnut processing plant, a model apple orchard, and a vegetable collection/marketing association for small-plot farmers.
Addressing the Problem of Credit
Lack of credit is a serious and persistent problem for the Moldovan agricultural sector. Currently, strong agribusinesses can obtain bank guarantees and, in a few cases, credit for working capital, but local banks impose tough conditions for loans to agricultural enterprises often requiring excessive collateral, complicated application documents, high interest rates, and short-term repayment schedules. Without a reliable source of credit to purchase the necessary crop inputs and modern farm machinery, Moldovan farmers are more at risk from problems that affect crop quality and quantity. For example, in 1997, the cereal grain harvest suffered because of the lack of combines and subsequent rain damage to over half of the crop. Grape production is dwindling in part because of the lack of phosphate fertilizers and other crop input products. Also, Moldovan companies do not have strong marketing skills and operate with a chronic shortage of cash, often moving goods through a complicated barter system.
Compounding these problems is the Russian financial crisis that hit in August 1998. Not only did the value of Moldova’s currency drop by half since last autumn, but the traditional Russian market for Moldovan agricultural products collapsed. Cumulative inflation in 1998 was 18.3 percent, and the government forecast of 13-15 percent inflation for 1999 is considered optimistic. To help weather the economic crisis, the Government of Moldova and international donors are taking additional steps to assist Moldova’s private farmers, agribusinesses, and banks.
In 1998, the World Bank extended a $5 million credit for a rural finance project to assist in developing credit mechanisms for private farmers and a $15.9 million credit for a project to support the institutional framework for a land market. The European Bank for Reconstruction and Development and usaid are also implementing banking and finance reform programs in cooperation with the Moldovan Government, the National Bank, and the country’s strongest private banks. With farmers’ new ability to mortgage land, some Moldovan banks are becoming more willing to lend to farmers and are even taking land mortgages as collateral for crop input supplies. But, generally, banks are still reluctant and progress will be slow.
Farm Service Centers Initiative
A new USAID/cnfa initiative is aimed at organizing Farm Service Centers (fsc) in Moldova. Three centers are now operational and another 15-20 centers are planned. Small farmstores will be created in each village surrounding the fsc to augment the distribution system. The system will supply farmers and other customers with crop protection products, fertilizers, fuel, seeds, machinery, technology, and commodity credit. Usually, payment for these goods and services is made with harvested crops and requires fsc operators with the expertise to monetize agricultural commodities.
As Moldova’s banking system evolves, it is envisioned that a credit system will develop between the fscs and farmers, but current economic reality requires most transactions to be barter. The prevalence of the barter payment system is one of the primary reasons multinational input providers are reluctant to enter the Moldovan marketplace. The fscs, which will comprise a strong Moldovan company and a Western input or machinery supplier, and will enjoy the support of the Agribusiness Partnership Program, should yield positive results. The program continues to develop new projects for Western investor consideration.
John Costello is President of cnfa and Rod Beason is cnfa Country Director for Moldova.
To contact cnfa in Moldova, call +373 (2) 241-321, email Beasor@cnfa.moldnet.md, or visit its website at www.cnfa.com.