S P E C I A L R E P O R T

FAO/WFP CROP AND FOOD SUPPLY ASSESSMENT MISSION TO MOLDOVA

25 September 2007

• Mission Highlights
• 1. OVERVIEW
• 2. SOCIO-ECONOMIC CONTEXT
• 3. PERFORMANCE OF THE AGRICULTURAL SECTOR
• 4. FOOD CROP PRODUCTION IN 2006/07
• 5. MARKET SYSTEMS CONDITIONS AND PRICES
• 6. FOOD SUPPLY DEMAND BALANCE, MARKETING YEAR 2007/08
• 7. HOUSEHOLD FOOD SECURITY AND NUTRITION
• 8. ASSISTANCE REQUIREMENT AND RESPONSE OPTIONS


• APPENDIX 1     APPENDIX 2    APPENDIX 3     APPENDIX 4      APPENDIX 5
• APPENDIX 6     APPENDIX 7    APPENDIX 8

Mission Highlights

1. OVERVIEW

In response to a request by the president of the Republic of Moldova to the UN Secretary-General and to the Director-General of FAO, an FAO/WFP Crop and Food Supply Assessment Mission (CFSAM) visited Moldova between 13 and 22 August 2007. The Mission was requested to assess the impact of the drought on the agricultural and livestock sectors as well as the population at large. In addition, the Mission was tasked to devise immediate and medium-term rehabilitation measures to mitigate the impact of drought. Officials from the Ministry of Agriculture and Food Industries (MAFI) accompanied the Mission and a representative from the European Union (EU) participated as an observer.

The Mission held extensive discussions with various relevant Government institutions, in particular the staff of MAFI, the National Bureau of Statistics (NBS), the Ministry of Economy and Trade, the Ministry of Social Protection, the Department of Agro-meteorology and the National Task Force for Drought headed by the Deputy Prime Minister. In addition, the Mission held extensive consultation with all UN and other international and bilateral organizations, including the World Bank (WB), the International Monetary Fund (IMF), the European Union (EU), UNDP, UNHCR, UNICEF and USAID among others. Two highly successful and important national NGOs deserve specific mention for assisting the Mission in its findings, the National Agency for Rural Development (ACSA) and the National Farmer’s Association.

Following initial briefing in the capital, the Mission split into two teams to cover as many Raions (Districts) as possible in the limited time available. The Mission visited at least 4 Raions in each of the three regions of the country, the North, South and Centre. Discussions were also held with deputy Mayors from each of the 32 Raions, who happened to gather in one of the central Raions to discuss this year’s drought and its impact with the Minister of Agriculture and Food Industries. MAFI staff in each one of the Raions annually prepare a three-stage crop forecast for all major crops. Their methodology for crop forecasting and estimation was reviewed in all the Raions visited. Though methodologically questionable, the overall forecasting was found to be sound and in line with crop estimates made by other agencies and the Mission spot-checks using Participatory Rural Appraisal (PRA) methods.

The Mission visited a number of Raion markets and held extensive discussions with large and small farmers throughout the field visits. Preliminary Mission findings were presented to the Government and the international community present in the country, before the Mission left the country.

The drought this year is compared with 1946, the worst drought in living memory when many Moldovans starved to death. The Mission witnessed that many lakes and rivers, usually full to capacity at this time of the year, were dry and water table in some areas had receded by almost two meters. Precipitation since early March has been less than 40 percent of the Long Term Average (LTA) throughout the country, except 3 Raions in the North. Not only was the monthly average precipitation far below the LTA but the rainfall frequency was also highly volatile. Irregular and far below average precipitation proved devastating for both winter and summer crops.

Cereal production this year is the lowest in the past decade. Aggregate cereal production is down by 63 percent compared with 2006, and 70 percent down on the average production of the past five years. This aggregate includes some 464 000 tonnes of wheat, 86 000 tonnes of barley and 276 000 tonnes of maize. Other important crops include vineyards, sunflower, sugar beet, fruits and vegetables.

2. SOCIO-ECONOMIC CONTEXT

2.1 Population

The National Bureau of Statistics (NBS) estimates the 2007 beginning-year population at 3.58 million, nearly one percent down from the last census in 2004 and about 10 percent down since independence. A census held around the same time in the breakaway region of Transdniestr reported a population of 580 000 in 2004, down from 700 000 reported in the previous census of 1989. The natural increase in population has consistently been negative since late 1990s and the current rate is about 1.5 percent decline year on year. Urbanisation is relatively stable and the urban population account for about 30 percent of the total.

Moldova: Population by Gender

The IMF in January 2005 quoting survey results conducted in late 2004 estimated that more than 10 percent of the population (400 000 people) was working abroad and a further 290 000 people intended to migrate in the following months¹. The 2007 drought may compel much larger numbers to migrate in search of work outside the country. The total migrant potential estimated in 2005 accounts for about 50 percent of the economically active population, without taking into account this year’s potential migration following drought. This is bound to further deteriorate the demographic balance with significant social and economic consequences for the country, since almost all of the migrant workers are young men and women.

2.2 Macro-economic situation

A prolonged recession throughout the 1990s, following the break up of the Soviet Union, helped turn Moldova into the poorest country in Europe. By 1999 nearly 70 percent of the population was considered poor and more than 60 percent lived in extreme poverty. Rapid economic growth between 1999 and 2003 reduced poverty by about 37 percent, which was broad based and felt across the country. Economic growth since 2003 has, unfortunately, not been coupled with poverty reduction. Poverty in the rural areas, where nearly 70 percent of the poor reside, has actually been rising since 2003, while in the smaller towns it has stagnated. Only in the large cities has poverty been declining at a slow pace. Agriculture being the main source of informal employment and income for many households, poverty, currently estimated at about 29 percent, is likely to rise, following this year’s devastating drought.

Moldova’s official economy, despite a modest cumulative growth of 50 percent since the end of 1990s, is still 60 percent of its size at the time of independence. This reflects the severity of economic collapse suffered following the break-up of the Soviet Union. Unfortunately, economic recovery has been delayed by slow restructuring of the energy sector, the agricultural sector and the underdevelopment of the financial sectors, in particular rural finance. In addition, the 2002/03 drought and frost also compromised economic recovery and this year’s drought may further delay recovery. The robust economic recovery in the Russian Federation, at least until recently, played a key role in reviving Moldova’s export earnings. High energy prices, gas, fuel and electricity, and Russia closing down its market to Moldovan products, in particular wine and spirits, the Moldovan economy still managed to grow by about 4 percent. Domestic demand has been a major source of growth – household consumption and construction fuelled by large remittances from workers abroad, officially estimated at about 30 percent of GDP.

Public sector investment has remained very low, about 2 percent of GDP, resulting in deteriorating public infrastructure, roads in particular, with negative consequences for economic growth. Private investment, on the other hand, has slowly increased since the recovery, averaging 17 percent of GDP per year.

Consumer price inflation has remained in two-digit figures since 2002, reaching 12.5 percent in 2006. The International Monetary Fund (IMF) and the Economic Intelligence Unit (EIU) forecast the CPI inflation to drop to a single digit by the end of 2007 and remain so in 2008 and 2009. However, the 2007 drought that has devastated the agricultural and livestock sectors may increase pressure on prices and a single digit inflation rate may not be a realistic forecast under the circumstances. The exchange rate (Lei:US$) remains stable and the strengthening of Lei against the US$ during the second half of 2006 and the first quarter of 2007 reflects the high volume of remittances flowing into the country. In addition, the interventions of the Central Bank (the National Bank of Moldova) in the foreign exchange markets have been praised by various international organisations, including the IMF, the WB and EIU, as prudent monetary policies.

The Russian Federation remains Moldova’s strong trading partner despite the ban on Moldovan agricultural exports in 2006, in particular wine. Russia accounted for nearly 40 percent of the total Moldovan exports in 2003, which declined to just over 17 percent of the total in 2006. Romania ranked second in the export destination for Moldovan exports (14.8 percent of total), which has also been restricted since the former joined the European Union (EU). Russia has gradually eased restrictions on Moldovan fruit imports, while negotiations still continue to ease restrictions on wine imports. The IMF and the EIU predict that the current trade deficit, estimated at over 40 percent of GDP, will continue to persist despite the promised easing of import restrictions by Russia. On the import side, remittances from workers abroad will continue to strengthen demand for imported consumer goods and foodstuffs, pushing up the trade deficit in 2007-08. The IMF and the EIU also predict that the remittances and the increase in foreign grants may narrow the current-account deficit from 12 percent of GDP in 2006 to around 6 percent in 2007-08. However, this optimism in a narrowing of the current account deficit may have also been compromised by this year’s drought.

The 2007 drought has had severe impacts on the agricultural sector, which directly or indirectly support more than 60 percent of the population. In addition, more than 70 percent of the poor live in the rural areas mostly depending on kitchen gardens and small land areas under their management (1-6 hectares/household) or earn their living from casual farm labour. All categories of farms, large farms, small individual farms and kitchen gardens have all suffered reduced output by an average of 60 percent and in some cases the entire crops are compromised. In addition, relatively high prices for food products, in particular vegetables and bread prices have eroded the purchasing power of households in both rural and urban areas. Pensioners and wage labourers are particularly vulnerable to high food prices.

Table 1: Key Economic Indicators, 2002–2006

Most of the rural households have leased their land to large farms or producers’ associations and the rent received is usually a significant part of their income. This year many land owners will either not receive anything or a fraction of the agreed rent, since the landowners bear most or all of the natural calamity risks as stipulated in the contract. In addition, most of the farm labour and those employed in agricultural related activities (marketing, processing and trading) have seen their employment decline since the start of summer this year. Many rural households have already sold the majority of their livestock and are precariously holding on to their best stock, owing to lack of feed (grass and concentrates). Livestock, a significant source of rural household nutrition and income, has been severely de-stocked, further weakening household food security.

3. Performance of the Agricultural Sector

Agriculture’s share of the economy has declined since independence, both in absolute and relative terms, with agricultural value added shrinking by 50 percent. However, it remains the largest real sector of the economy, accounting for more than 20 percent of the GDP (30 percent if agro-processing is included) and employing more than 40 percent of the labour force. The agricultural sector also suffers from policy uncertainty, lack of access to adequate farm inputs, extension services and limited access to financial and insurance services. Inefficient farm sizes, some exceeding 2 000 hectares, and the continued squeeze on small farmers through lack of access to sufficient farm inputs (credit, farm power, improved seeds and extension services) as well as markets have contributed to the underperformance of the agricultural sector.

Land entitlement and ownership security is considered one of the pillars of a market driven agricultural economy. As part of reforms the government adopted the Land Code and the Law on Peasant Farms in early 1992, which provided the legal tools and mechanisms for land privatisation and the establishment of individual private farms. The reforms were half-heartedly implemented until the USAID-supported National Land Programme (NLP) was initiated in 1997, which primarily focused on individual land entitlements, carved out of the former collective farms. Unfortunately, the NLP was not accompanied by efforts to address the agricultural service industries, including input supply and agricultural marketing. The second phase of the NLP, which was initiated only in late 2000 and financed by the World Bank and USAID, attempted to address agricultural servicing. It has been argued that focusing only on land distribution, without paying due attention to agricultural skills, extension services, marketing for inputs and outputs and rural finance institutions, had a severe impact on the agricultural sector as a whole. The agricultural and livestock sectors are still recovering from the shock in the 1990s and ignoring the agricultural servicing sectors are said to be one of the contributing factors to the shock.

Limited options, lack of adequate access to input and output markets as well as agricultural finance and farm machinery, have compelled many small holders to lease their land to corporate farms on unfavourable terms. The terms of the land lease in most cases are such that the landowners have borne most of the risk. Therefore, a re-collectivisation of farms has taken place, with very large farm sizes, reminiscent of the former collective farms. It is estimated that half of the agricultural land is used by 300 000 individual family farms and the rest is managed by 300-400 new corporate farms. The average farm size in Moldova is already 4-5 times larger than in Western Europe, owing to the rapid spread of leasing arrangements. A World Bank study (Agricultural Policy Notes: Agric. Land, December 2005), using Total Factor Productivity measure, has conclusively established that small farms are significantly more efficient than the large farms, yet, small farms cannot thrive in the current context.

Figure 2.

Public expenditure on agriculture in Moldova is relatively low, about 3 percent of the total budget, which accounts for about 0.9 percent of GDP. Public expenditure in developing countries is typically 6-8 percent of the total budget, and in the developed industrialised countries the figure is 3-5 percent. The Medium Term Expenditure Framework (MTEF) agreed with the IMF and other donors does not envisage room for any increase in the near future.

Agriculture remains the main source of foreign exchange earnings in Moldova, after remittances from Moldovans working abroad. In 2005 aggregate earnings from agriculture-based exports (US$528 Million) accounted for more than half the total export value. In 2006, despite the ban from Russia on Moldovan exports, in particular wine, total agricultural-based export revenue was US$412.8 million, nearly 40 percent of total export earnings. Prospects are good for easing restrictions on Moldovan exports to Russia, while the European Union is increasingly becoming an important trade partner. Improved market outlets are essential for any improvement of the agricultural sector in Moldova.

Agricultural capital and infrastructure have suffered a dramatic decline during the economic crisis of the 1990s. Recovery, though significant, have not been able to reach the pre-crisis productive levels. Nearly 50 percent of the orchards and vineyards are out of production, irrigation is only 7 percent of the pre-crisis capacity, farm machinery has declined by 50 percent and existing machinery is on the average a decade old. Most of the high value crops are converted into high-volume-low-value crops such as cereals and sunflower. Significant investment through a comprehensive agricultural strategy is necessary to revitalise the agricultural sector.

4. Food Crop Production in 2006/07

The Ministry of Agriculture (MOA) in Moldova prepares preliminary crop forecasts about 4 times during phonological stages of crop development. All large-scale farms are provided with specific forms to record specific data, which is then shared with the Raion (district) department of agriculture. The data is then aggregated in the MOA and forecasts made accordingly. The small farmers (below 10 hectares) are left out of the survey, which make up nearly 50 percent of the total land area. However, inferences are made to estimate output on small farms from the data provided on large farms, covering more than 50 percent of total agricultural land area, which is a significantly large sample size.

Table 2: Output of Main Crops, 2004-2007

For example, wheat forecast is made in four stages: (i) right after seeds germinate – the germinated plants are counted per square meter of land, (ii) when plants are about 10 cm tall – number of plants per square meter just before snowfall, (iii) when crowns have developed and grains are in milky stage, and finally (iv) just before the crop is harvested – number of crowns per square meter of land and number of grains per crown and weight per 100 grains are estimated. Similar procedures are followed for other crops as well.

The Mission held extensive discussions with relevant staff of the MOA both at central and Raion levels to assess the efficacy and appropriateness of the methodology used for crop estimation. The Mission found that a great amount of data is collected in each Raion without necessarily following a common methodology throughout the country. The sample size is very large but not representative of all farms since it completely ignores the small farmers. More importantly, the MOA only receives a small fraction of all data collected and even then average figures for the whole Raion for each crop being shared with the MOA. The rest of the data remains at the Raion level, unprocessed and not put to any other use or shared with other interested agencies.

FAO/GIEWS has found over the years that Government estimates, though methodologically questionable, are, by and large, close to actual figures. Therefore, the Mission will use the data provided by the government, which is rigorously checked with auxiliary remote sensing data and other relevant information such as the type of varieties used, the amount of fertiliser application, precipitation, air temperatures and reports on pest and disease outbreaks. The Mission was fielded at a time when all winter crops were already harvested. Therefore, winter crops could not be directly measured on the ground, as is the usual CFSAM methodology, but the Mission had to rely on information obtained from farmers, staff from the MOA in the Raions and other relevant organisations such as ACSA, National farmer’s association among others. Nevertheless, the Mission was able to spot check all summer crops such as maize, vegetables, sunflower, sugar beat and perennial crops.

4.1 Main factors affecting production in 2006/07

Rainfall

According to the State Hydrometeorological Service, the frequency of severe dry spells and droughts in Moldova has increased markedly in the last few years. Nine significant dry periods or droughts have been recorded since 1990², the most severe ones before this year being 1990, 1992 and 2003. The length of dry spells in 2007, in terms of the number of continuous rainless days was 30 in the Central Region, and 35 days in the Southern one, with local extremes of 60 days (Vulcänesti, Basarabeasca).

Figure 3 below presents rainfall for the three regions of the country. Average monthly precipitation in all regions has been far below Long Term Average (LTA) as well as 2006 and 2005, since early spring. In the Southern zone rains practically stopped during July and the first two dekads of August. Spring and summer precipitations are crucial for both winter and summer crops, which were not sufficient to support crop development. Winter cereals, mainly wheat, barley and rye, were at the stage of grain development in spring when rainfall significantly fell below critical levels to support crop development. Important summer crops such as maize, sunflower, sugar beet and vegetables as well as perennial crops (vineyards and fruit trees) also suffered to the extent that some of the annual crop areas (maize and sunflower) are prepared to be replanted with winter crops. Only part of the crop residues are good enough to be fed to livestock. The drought this year is compared with 1946, the worst drought in living memory when many people starved for lack of food.

Not only were average monthly rains significantly below LTA throughout spring and summer, but they were also erratic within the month. Most of the rain in June and July fell in a few days causing flash floods and significant damage to crops while failing to improve soil moisture. In some areas heavy rains and hail that fell within two days at the start of winter cereal harvest in July completely devastated wheat and barley crops as well as sugar beet.

Late August and September precipitation is necessary for winter crop planting. The current soil moisture content is critically inadequate and if rains fail in September, winter crops may not be able to germinate for harvest next year.

In addition to critically low precipitation, air temperatures have been on average 3-5 degrees higher than LTA, 2005 and 2006. Not only were rains insufficient, but higher temperatures increased the crop demand for water - a combination that severely compromised large areas of winter and summer crops.

Figure 3. Rainfall by Region, 2005-2007 and Long Term Average (LTA), in mm

Since early 2007, satellite imagery showing a Normalized Difference Vegetation Index for Moldova, updated every ten days, have shown a consistent deficit in vegetation compared to previous years for the south-eastern part of Romania and the western part of Ukraine. Moldova, however, has consistently shown a global and increasing vegetation deficit from the very first months of 2007, to a much larger extent than its neighbour countries. NDVI images for selected ten-day periods are shown in the Appendix.

Area Planted

Total agricultural land is estimated at about 2.5 million hectares and on average some 750 000 hectares (ha) are planted with winter and spring cereals. Aggregate area planted with cereals in 2006/07 cropping season was estimated at about 925 000 ha, some 67 000 ha up on the preceding year and some 26 000 ha down on the average of the past five years. This aggregate includes some 305 000 ha of wheat, 494 000 ha of maize and some 126 000 ha of winter and spring barley.

Sunflower, vineyards, fruits, sugar beet and vegetables are important cash and industrial crops, accounting for a large proportion of foreign exchange earnings. Sunflower was planted on 235 000 ha this year compared with just over 279 000 ha on average in the past five years. This year Sugar beet was planted on some 32 000 ha, vegetables on 38 000 ha and potatoes on more than 40 000 hectares, all slightly up on the area planted over the past five years (average of 2001-06). Expectations were for a bumper crop this year in lieu of the above average planted area, but most of the planted area could not be harvested following drought this year; see Appendix 1 for details of area planted, yields and output of main crops.

Crop Yields

Crop yields have been steadily recovering over the past several years with high fluctuations owing to increased volatility in weather conditions and adverse agricultural terms of trade. Cereal yields over the past tens years have fluctuated between just over one and five tonnes per ha of planted area. This year wheat yield is estimated at about 1.5 tonnes per ha, which is 40 percent down on the average yield of the past three years. Maize yield this year is estimated at about 0.6 tonnes/ha compared with about 3 tonnes/ha.over the past three years. Barley yield is also down by about 55 percent compared with the average of the past three years.

Agricultural Inputs

Farm machinery is only 50 percent of the pre-crisis capacity and the existing machinery is on average a decade old with high maintenance costs. Small farmers entirely depend on large cooperative farms for their farm power and the former enjoys second priority, which sometimes causes delays in planting and harvesting. The Ministry of Agriculture estimates fertilizer use to be on average less than one-third of the pre-crisis levels. More importantly, mineral fertiliser use, NPK as well as micro-nutrients, are highly imbalanced and soil nutrient mining is visible in some areas. Supplies of farm power and mineral fertilisers have significantly improved compared with 1990s. However, access to purchased inputs, especially by small farmers, remains an issue, as do product market access, input-output terms of trade, and rural finance.

Seeds

The seeds sub-sector in Moldova shared similar fate to other sub-sectors in the agricultural and industrial sectors. Some of the causes for the collapse of the seeds sub-sector include fragmentation of land holding, reduced use of fertilizers and chemicals, collapse of the irrigation systems, lower yields, vulnerability to weather conditions resulting in striking variations in yields, dilapidated agricultural machinery, inadequacy of modern equipment and low labour productivity. In addition, a lack of adequate and appropriate equipment at the research stations and nascent seed enterprises exacerbated the effect of the recent drought on the availability of seeds. Relatively high grain prices have created a situation whereby the bulk of the early-generation seed of cultivated crops may be lost to the grain market. According to the seed loss assessment information compiled by the Ministry of Agriculture, seed requirements for the 2007/08 year ranges from 205 tonnes for sugar beet to 105 000 for winter wheat. Appendix 3 provides some estimate of seed needs for various crops. A more serious effect of the drought is the decimation of the seed stock of the National Agricultural Research system, which may have long-term consequences. Without urgent seeds assistance, many farmers will not be able to plant winter cereals (mainly wheat and barley) and some of the main seed farmers may sell early generation seeds to the grain market.

The GOM over the past several years have made significant efforts to revitalise the seeds sub-sector with notable achievements. Currently, the seed sector in Moldova is characterised by a well organised system for varietal evaluation and a systematic limited generation of seed production comprising super elite, elite, generation I and generation II. All crop varieties used for crop production in Moldova are registered and comprise varieties bred by the National Agricultural Research Stations (NARS) and those imported by seed companies for production in the country. The latter group of varieties are subjected to compulsory two-year test in Moldova before being allowed for cultivation. The system for varietal release and registration functions very well and in recent time more than 100 hybrids of maize, sunflower and more than 200 vegetable varieties have been released after rigorous testing of locally bred or imported advanced germplasm materials. Despite these achievements, under-equipped NARS, inadequate capacity both at NARS and the private sector as well as relatively low seed variety basis renders the seeds sub-sector highly vulnerable and insecure.

4.2 Food crop production estimates

The main staple food crops are wheat, barley and maize (which is also extensively used for livestock feed), followed by potatoes and vegetables. Cereal production this year is the lowest in the past decade. Aggregate cereal production is down by 63 percent compared with 2006, and 70 percent down on the average production of the past five years. This aggregate includes some 464 000 tonnes of wheat, 86 000 tonnes of barley and 276 000 tonnes of maize. Total cereal production for 2007 is estimated at 835.2 thousand tonnes. Over the 1998-2006 period, the long-term average has been 2.34 million tonnes, with a standard deviation of 427 000 tonnes.

Other food sources include potatoes, production from household vegetable gardens and orchards, as well as cow milk and meat from pigs and poultry. Potato production has been severely affected by weather, and vegetable garden production, which includes maize, beans, cabbage, carrots and rootcrops, tomatoes, etc. has been cut by at least half, overall.

4.3 Other crops

Other important crops include sunflower, sugar beet, table and wine grapes, fruit and field vegetables. Sunflower production is the most important industrial crop, and with 244 000 tonnes, losses are estimated at 32 percent compared to the average of the last four years. Sugar beet output is estimated at 552 000 tonnes, compared to 1 094 000 last year. Field vegetables may reach the 265 000 ton level, compared to 470 000 in 2006.

Grape output is estimated to be slightly over half of normal, but the fate of the grape and wine sector remains unclear; wine companies have had difficulty selling their output, and the purchases of grapes from last year are yet unpaid. It is not clear whether they will be able to purchase this year’s lower production, even if it is of good quality.

Even orchards show signs of major stress and are not likely to produce more than half of average output, further reducing farm incomes. The scarcity (real and anticipated) of fruit is such that walnuts are being harvested precociously.

4.4 Livestock

Livestock is a key component of household financial and food security, providing nutrition and income to the majority of rural households. It is estimated that more than 90 percent of the livestock is owned and managed in small numbers by rural families. As shown in table 3 cattle population has been slowly declining, while swine, sheep and goat population has been stabilising following the dramatic decline of the 1990s. Poultry population on the other hand has been increasing steadily. Much of it is kept in household backyard system. Most of the households process dairy products at home for self-consumption and local markets. A few surviving large farms supply milk directly to processors and function as collection points for small livestock owners. The main sources of livestock feed are grass, alfalfa, crop residues and feed concentrates. The latter is usually mixed with hay and dry alfalfa in winter.

The 2007 drought caused severe shortage of alfalfa, grass and hay as well as crop residues, while feed concentrates are prohibitively expensive and inaccessible to many households. The government estimates over 25 percent of livestock have been slaughtered in distress sales by households³. The Mission forecasts of the 2007 end year livestock population is presented in Table 3 below, which is similar to the Government estimates of livestock losses.

Meat production, as a result of distress selling has increased by more than 11 000 tonnes, which reflects the reductions in livestock numbers. Beef prices, as shown in Figure 4 remained stable, owing to increased meat exports and processing. However, the Mission found that meat prices have begun to rise on most markets, since de-stocking has peaked out and most households are now trying to save whatever little livestock is left.

Table 3: Livestock and Poultry Population 2003-2007 (‘000 heads)

5. Market Systems, Conditions and Prices

The most important export market for the Moldovan high value agricultural products, mainly wine, fruits and vegetables, remains the CIS, in particular the Russian Federation. A ban by Russia on the imports of Moldovan wine and fruits in 2006 had caused tremendous problems for the latter’s agricultural and agro-industrial sectors. A study by the USAID (Moldovan High Value Agricultural Export Competitive Study, 2004) predicts that, at least in the near future, the CIS will remain the most important market for Moldovan high value agricultural products (HVAP). Some of the reasons cited for this are:

• The large and growing size of the CIS markets, in particular the Russian Federation, for the HVAP.
• A familiar business environment and trading relations, including trading routes.
• Favourable reputation of the Moldovan HVAP quality and an existing market niche.
• Competitive prices for the Moldovan HVAP.

Further negotiations are underway to improve trading relations between Russia and Moldova, which may result in easing current trade restrictions. However, more dialogue and measures are necessary to ensure the reliability of market outlets, necessary for investment in the HVAP sector. In addition, more dialogue and investment is needed to target the EU market and reach the necessary produce standards to supply for the niche in EU. It is vital for agricultural development and poverty reduction to identify and supply markets for products in which Moldova enjoys comparative advantage in production and processing. However, sanitary and phytosanitary as well as commercial standards are said to be major impediments to Moldovan agricultural exports to the EU and more recently to Russia.

High logistic costs, the requirement that all exporters use the state transportation, high administrative and handling costs, dilapidated road networks and lack of adequate storage and cold room facilities have combined to reduce profitability and impede further trade development. Investment in HVAP production, processing and trading is also hampered by lack of adequate access to credit. The banking system considers the agricultural sector as a risky investment and interest rates typically range between 20 percent and 30 percent, well beyond the reach of most farmers.

Domestic market for fruits and vegetables are relatively small and saturate rather quickly during the harvest season. Cold room capacity is very low and only a fraction of the pre-crisis capacity. Therefore, most of the harvest has to be sold in a relatively short period of time or wasted, which is reflected in the highly variable seasonal prices (see Figure 4 below). Off-season vegetables and fruits are imported and distributed through a small number of supermarkets and small shops in towns. Domestically produced fruits and vegetables are, by and large, directly marketed by small farmers in small towns and weekly markets. Relatively large-scale fruit and vegetable production are usually for export markets or larger towns, which require further sorting, packaging and processing.

Kitchen garden and livestock are the most important elements of household food security both in terms of nutrition and income. Most households directly sell their produce in the local weekly markets involving little or no marketing costs, i.e. intermediaries, packing and sorting. Dairy products are marketed either directly by households in the local weekly markets or sold to processors. The collection points for milk is usually situated closer to a large dairy farm and households with small number of livestock usually rely on large producers to supply to processors.

Markets throughout the country seem to be well integrated despite deteriorating road networks. A WB study (Moldova, Agricultural Policy Notes: Agricultural Markets, December 2005) shows that domestic input and output prices are highly distorted and there is a net transfer from producers to consumers. Producers receive significantly lower prices for their output, while paying much higher prices for purchased inputs compared with international prices. The indirect taxation of farmers was found not to be the result of Government revenue taxation but rather other distortions such as (a) inefficiencies and monopoly elements in processing, trading, marketing and transport (e.g. sunflower seed is bought, transported, processed and traded by only one company), (b) low product standards and (c) inefficient and distorting government interventions and regulations.

Wheat bread is the main staple in Moldova and annual consumption, estimated at about 110 kg per person per year, is similar to the high levels consumed in some Central Asian countries. Large mills dominate the market for wheat flour and bread, while small mills (up to 5 tonnes/day capacity) are also important players in the market. Government is weary of bread price hikes and regularly intervenes in the market to ensure stable prices for consumers, sometimes at the expense of producers.

Domestic food prices have begun to rise following the drought. The Mission observed in some markets vegetable prices had more than doubled compared with the same time last year, while bread prices had also increased by nearly 40 percent in some areas. The government has recently suspended import duties on cereal imports⁴, and the VAT on essential staples, which will ease somewhat pressure on the prices of bread and maize. Figures 4 also indicates that prices in four major markets in the Centre, North, South and East, respectively as shown in the graphs, move together, suggesting good market integration. Prices of sunflower seeds have slightly increased despite the sharp drop in production, while meat prices have followed an upward trend, especially recently (Moldova is a structurally net importer of live animals and meat products).

Figure 4. Moldova: Food Prices in Four Major Markets, Lei/Kg, March 2006–August 2007

6. Food Supply/Demand Balance, Marketing Year 2007/08

Generally speaking, Moldova is, in the aggregate, a food secure country, a net exporter of cereals in most years (the most recent exception being 2003). With remittances from Moldovans working abroad currently estimated at well over US$1 billion per year (about US$360/person/year), most families can procure for their basic food needs. National food balance sheets show, overall, how a nation deals with inter-annual fluctuations in the domestic supply of basic foods by adjusting commercial food imports to meet average total utilization requirements. The Mission has created a number of related worksheets to estimate total grain utilization from both net domestic and outside sources, given post harvest losses, requirements for seeds and livestock feed, household and (since 2003) emergency public stocks, and human consumption. Reconstructing these worksheets for the 1999-2006 period suggests, that evening out inter-annual supply through adding to or subtracting from grain stocks, long-term average per capita consumption of grain, in milled terms, has been consistent with the 2006 estimate of 143 kg per year⁵.

The rough proportional breakdown of utilization for the total net grain supply, for the period 1999-2006 is as follows:

The summary food balance sheet for 2007 is given below, with estimates for 2007.

National food balance sheets are a synthetic way to gauge the impact of a shortfall in production on commercial import requirements, assuming that the aggregate domestic grain supply is brought back to a level consistent with historical per capita consumption. In this case, the shortfall in domestic production, taking into account the lower requirements for a reduced livestock sector, amounts to about 737 000 tonnes. Although Moldova has, in the aggregate, ample means to meet this need, it is also clear that a number of the poorer families and most vulnerable groups will not be able to have access to this aggregate supply (especially in times of rising basic food prices) unless their purchasing power is increased through social programs, subsidies or other forms of assistance.

The long-term per capita human milled grain consumption trend and the 2006 Household Income and Food Consumption Survey indicate an average per capita consumption of cereal and derived products of 392.5 grams/person/day, equivalent to 143.2 kg/capita/year. It is used to set the target total human utilization level (unmilled) at 787 100 tonnes. To remain at this level of average consumption, Moldova would have to import about 737 000 tonnes of grain in 2007, assuming that household stocks are totally depleted at the end of the marketing year.

Table 4: Summary Balance Sheet for 2007 (‘000 tonnes)

7. Household Food Security and Nutrition

About 60 percent of the population lives in rural areas (NBS 2007). Agriculture is the dominant sector of employment (Table 5). With cereal prices in neighbouring countries considerably less than local prices, imports due to low local production, may actually result in lower cereal prices on the market. This would benefit urban dwellers who rely on market purchases. The drought has far more damaging effect on rural population that relies on their own production for a major portion of their cereal and vegetable production.

Table 5: Employment Categories, 2005

7.1 Income and expenditures

Poverty is widespread (Table 6 below) with last year’s pre-drought national poverty rate at 27 percent and that in rural areas exceeding 42 percent (WB 2006). Whereas urban residents saw their incomes rise and their poverty rates decline, poverty actually increased among farmers and rural pensioners (WB 2006). A major proportion of a poor man’s expense is dedicated to food. The lowest quintile spends about 77 percent of its consumption expenditure on food and non-alcoholic beverages (Statistical Yearbook, 2006).

Table 6: Poverty Rates in Percentage Points