# Agribusiness progressing in moldova

 

By John Costello & Rod Beason

 

Moldova, strategically located between western and easternEurope*,*has the potential to be a keyproducer of agricultural products in the NIS. Currently, agriculture is thebasis of the Moldovan economy, comprising some 40 percent of GDP. Agriculturalproduction accounts for 75 percent of the country’s total exports. ImportantMoldovan products are apple juice, wine, sugar beets, and milk and dairyproducts.

 

Major economic, legal, and structural reforms are currentlybeing implemented by the new government, but the transition has presented newchallenges for Moldovan agriculture. As a result of massive land privatization,a new set of farmers and farmer groups are emerging debt free, but cash andequipment poor. They now own their land, which can be sold, mortgaged, leased,or passed to heirs. The distribution system that formerly served the collectivefarm system has all but disappeared, and a new one is still developing.Market-oriented reforms are making way for an emerging crop/livestock inputssector. Participation in the restructuring of Moldova’s agricultural and foodprocessing systems represents a unique opportunity for U.S.-basedagribusinesses. 

 

USAID Assistance to Moldovan Agriculture

The **U.S. Agency forInternational Development**(usaid)has played a major role in land reform in Moldova. The usaid land project is assisting Moldova’s land privatizationeffort by creating new landholding patterns resulting in new small-plotfarmers, family farmers, farm associations, and farm cooperatives. Over half ofMoldova’s former state and collective farms have been privatized with thebalance scheduled for privatization by the end of year 2000. Land titles alone,however, will not assure the success of these new private farmers. Farmers willneed a credit system that will provide capital through land mortgages and amarketing and distribution system that can turn farmers’ produce into cash in areasonable period of time.

 

The **Citizens Network forForeign Affairs** (cnfa),through the usaid AgribusinessPartnership Program, began helping Moldova rebuild its agricultural system in1996. The program links private farmers, agribusinesses, and agroprocessors toWestern sources of inputs, technology, credit, and output marketing byproviding financial support (up to $500,000) to new agribusinesses or jointventures. Through the program, cnfahas helped launch 11 new projects in Moldova, including four with U.S.-basedcompanies. Enterprises established include two joint-venture dairy plants, amilk collection system for small-plot farmers, three farm service centers, afarm machinery dealership, a packaged fruit juice marketing association, awalnut processing plant, a model apple orchard, and a vegetable collection/marketingassociation for small-plot farmers. 

 

Addressing the Problem of Credit

Lack of credit is a serious and persistent problem for theMoldovan agricultural sector. Currently, strong agribusinesses can obtain bankguarantees and, in a few cases, credit for working capital, but local banksimpose tough conditions for loans to agricultural enterprises often requiringexcessive collateral, complicated application documents, high interest rates,and short-term repayment schedules. Without a reliable source of credit topurchase the necessary crop inputs and modern farm machinery, Moldovan farmersare more at risk from problems that affect crop quality and quantity. Forexample, in 1997, the cereal grain harvest suffered because of the lack of combinesand subsequent rain damage to over half of the crop. Grape production isdwindling in part because of the lack of phosphate fertilizers and other cropinput products. Also, Moldovan companies do not have strong marketing skillsand operate with a chronic shortage of cash, often moving goods through acomplicated barter system. 

 

Compounding these problems is the Russian financial crisisthat hit in August 1998. Not only did the value of Moldova’s currency drop byhalf since last autumn, but the traditional Russian market for Moldovanagricultural products collapsed. Cumulative inflation in 1998 was 18.3 percent,and the government forecast of 13-15 percent inflation for 1999 is consideredoptimistic. To help weather the economic crisis, the Government of Moldova andinternational donors are taking additional steps to assist Moldova’s privatefarmers, agribusinesses, and banks.    

 

In 1998, the **WorldBank** extended a $5 million credit for a rural finance project to assist indeveloping credit mechanisms for private farmers and a $15.9 million credit fora project to support the institutional framework for a land market. The **European Bank for Reconstruction andDevelopment** and usaid arealso implementing banking and finance reform programs in cooperation with theMoldovan Government, the National Bank, and the country’s strongest privatebanks. With farmers’ new ability to mortgage land, some Moldovan banks arebecoming more willing to lend to farmers and are even taking land mortgages ascollateral for crop input supplies. But, generally, banks are still reluctantand progress will be slow.

 

Farm Service Centers Initiative

A new USAID/cnfainitiative is aimed at organizing Farm Service Centers (fsc) in Moldova. Three centers are now operational andanother 15-20 centers are planned. Small farmstores will be created in eachvillage surrounding the fsc toaugment the distribution system. The system will supply farmers and othercustomers with crop protection products, fertilizers, fuel, seeds, machinery,technology, and commodity credit. Usually, payment for these goods and servicesis made with harvested crops and requires fscoperators with the expertise to monetize agricultural commodities. 

 

As Moldova’s banking system evolves, it is envisioned that acredit system will develop between the fscsand farmers, but current economic reality requires most transactions to bebarter. The prevalence of the barter payment system is one of the primaryreasons multinational input providers are reluctant to enter the Moldovanmarketplace. The fscs, which willcomprise a strong Moldovan company and a Western input or machinery supplier,and will enjoy the support of the Agribusiness Partnership Program, shouldyield positive results. The program continues to develop new projects forWestern investor consideration. ******

 

*JohnCostello is President of****cnfa**********and Rod Beason is **cnfa**Country Directorfor Moldova.*

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*Tocontact cnfa in Moldova, call+373 (2) 241-321, email [email protected], or visit its website atwww.cnfa.com.*