Transcript Enterprise Performance

Agricultural Policy Issues
in Moldova: An Overview
William Sutton, World Bank Team Leader
The World Bank, Chisinau
14 June 2006
1
Importance of Agriculture
 Agriculture is the most important sector in
Moldova




30 % of GDP, including Agroprocessing
59% of exports
43% of employment
69% of poor live in rural areas
 Faster growth in Agriculture is essential to
sustained and accelerated growth in the economy,
and poverty reduction in rural areas.
2
Agricultural Policy Notes
 Objective: advise the Government of
Moldova and inform World Bank decisionmakers on agricultural policies for economic
growth and poverty reduction in three key
areas
1.
2.
3.
Markets
Land
Public Expenditures
3
Good News for Agriculture
 The Sector is no longer in decline
Agricultural Value Added (constant million Lei)
7000
6000
5000
4000
3000
2000
1000
0
1991
1993
1995
1997
1999
2001
2003
2005
4
Serious Challenges Remain
 Agriculture continues to underperform
compared to the rest of the economy
Figure 1.5
Changing Sectoral Composition of Economy
(percent of GDP at factor costs)
70
60
Services
50
40
Agriculture
30
20
Industry
10
0
1994
1995
1996
1997
1998
1999
Source: Statistical Yearbook of Republic of Moldova
2000
2001
2002
2003
2004
5
Q
19 uar
te
97
Q r2
19 uar
te
98
Q r4
1 9 uar
te
98
Q r2
1 9 uar
te
99
Q r4
19 uar
te
99
Q r2
20 uar
te
00
Q r4
2 0 uar
te
00
Q r2
2 0 uar
te
01
r4
Q
u
20
a
01 rter
2
Q
20 uar
te
02
Q r4
20 uar
te
02
Q r2
2 0 uar
te
03
Q r4
2 0 uar
te
03
Q r2
20 uar
te
04
Q r4
20 uar
te
04
Q r2
2 0 uar
te
05
Q r4
ua
rte
r2
19
97
Percentage points
Rural Poverty Is Rising Again
90.0
80.0
70.0
60.0
50.0
Sources: National Statistical Bureau and World Bank Poverty Update
GoM -M ET
World Bank
40.0
30.0
20.0
10.0
0.0
6
Exploiting New Opportunities
 Reforms resulted in a new dual farm structure


Individual farms – labor intensive, high value added products
Corporate farms – extensive crops requiring less labor but more
land and machinery
Figure 4.6: Total Factor Productivity for Individual and Corporate Farms, 1990-2003.
 Total Factor Productivity -
higher in small individual farms
25
lei output per unit aggregated inputs
20
15
Individual
Corporate
10
5
0
1990
1992
1994
1996
1998
2000
2002
Source: Agricultural Sector Note.
7
Emerging Comparative Advantage
 High value added crops produced by smaller,
family farms.
Figure 4.7: Comparative Advantage Estimates for Selected Major Moldovan Crops, Domestic
Resource Costs
1.20
1.04
1.00
0.80
0.60
0.45
0.40
0.17
0.15
0.14
0.20
0.12
0.00
Wheat
Sunflower
Maize
Table grapes
Tomato
Apple
Note: the lower the number, the greater the comparative advantage. Source: DSS, Customs, FAO, Agrex; see Agricultural
Sector Note. Figures are an average of DRCs calculated for 2000 and 2003.
8
Disincentives in Agriculture
 Low prices for Outputs, high prices for inputs
Figure 4.8: Prices Moldovan Farmers Receive for Outputs and Pay for Inputs Relative to World
Prices, %
Wheat
Maize
Sunflower
Tomato
Apple
Table grape
40%
24%
22%
20%
6%
16%
11%
8%
0%
-20%
-18%
-18%
-25%
-26%
-40%
-41%
-48%
-60%
Ouptuts
Inputs
Source: DSS, Customs, FAO, Agrex; see Agricultural Sector Note. Calculated as the average of Nominal Rates of Protection
from 2000 to 2004 for outputs, and the average for 2000 and 2003 for inputs.
 Policy distortions and market imperfections
result in economic transfers from farm sector
9
Benefiting from New Structure
 Remove counterproductive government interventions
 Export restrictions (Universal Commodities Exchange)
 Access to improved technology (seeds)
 Increase Market Competitiveness
 Improve quality to international standards
 Increase vertical coordination
 Increase market information, diversify markets
 Invest in infrastructure: storage, transport, wholesale
 Encourage development of producer organizations
 Policy priority – not increased production but
improved prices
 Develop markets and reduce distortions
10
The Need for Investment
 Improved market conditions will create the
incentives to invest in the sector

Investors must also be confident investments are secure
 Need increased access to credit



Strengthen Savings and Credit Associations
Address collateral constraints
Implement grain warehouse receipts program
 Increase FDI by stabilizing policy environment
11
Developing Efficient Land Markets
 Market Based Agriculture - individual not corporate farms
 Preserving large-scale corporate farm structures has not
produced positive results
 Land Fragmentation – should be addressed through land
markets


Land sales market growing
Land lease market already very active
 Facilitating land sales:
 Simplify administrative procedures
 Reduce transaction costs (notary)
 Improve information on markets and rights
 Re-parcel to facilitate land markets by improving location,
shape
12
Public Support to Agriculture
 Total spending on Agriculture is low
 2-4% of GDP vs. 6-8% in other developing countries
 Current agriculture support encourages production
where productivity is lowest.

Create a neutral policy environment that allows the most
efficient farms to succeed, no matter size
 Need to reallocate spending
 Growth-enhancing investments and services instead of
subsides. Recurrent cost subsidies are most wasteful.
 Build upon reforms to take advantage of
emerging opportunities.
13