Moldova Agribusiness Sector
Update
October, 2006
Iulian Bogasieru, BISNIS
Representative
NTERNATIONAL
COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
2006. ALL RIGHTS RESERVED FOR USE OUTSIDE OF THE UNITED STATES.
Introduction
Moldova, a small South-East European nation wedged between Romania and Ukraine, has been experiencing steady economic growth for six years in a row after a decade of economic decline.
Overall, the country’s market is open for foreign trade and investment. Moldova is a member of the WTO, has signed free trade agreements with member states of the Stability Pact for South Eastern Europe and CIS, and has been seeking rapprochement with the European Union. The country is also set to accede to the multilateral Central European Free Trade Agreement by the end of 2006. It is harmonizing its legislation to EU trade requirements and product standards through the Moldova-EU Action Plan. The Plan calls for the improvement of investment climate through proper structural reforms, in order to create non-discriminatory, transparent and predictable conditions for business. With the impending accession of Romania and Bulgaria to the EU on January 1, 2007, Moldova will become ever so close to the EU border.
Furthermore, as the country finalizes negotiations on an autonomous free trade regime with the EU to cover the key food products, opportunities in the agribusiness sector will multiply. The Government is hopeful that in a few years Moldova will benefit from a full asymmetric trade regime, which will expand export markets into the EU for Moldovan products.
Being eligible for the Millennium Challenge Account (MCA) Threshold Program, Moldova recently signed a two-year USD 24.7 million agreement with the Millennium Challenge Corporation to support anti-corruption initiatives. The Program will assist Moldova in progressing toward compliance with MCA eligibility criteria for full compact assistance.
Since its independence, Moldova has changed much of its legal framework to support market reforms. Important laws regarding financial relations among enterprises, accounting practices, and the fiscal affairs of state and local governments have been approved. The country has embarked on a business regulatory reform, known as “the guillotine” by eliminating unnecessary regulations and publicizing the regulatory acts. As a second step the government is deepening the business regulation reform by implementing a similar “guillotine” in the legislative area.
Among its priority areas of agribusiness development mentioned in the draft agribusiness development strategy for 2006-2015, the government lists winemaking and viticulture, fruits and berries, vegetables, technical crops, especially sugar beets, milk and meats, poultry farming and canning industry. The government also approved a strategy for promotion of investments and exports.
Even with small-scale investment, but skillful management, Moldovan agribusiness sector offers good rewards for entrepreneurs. This report provides a short description of Moldova’s agribusiness and opportunities for U.S. companies. Unless otherwise mentioned, this report does not cover the breakaway region of Transnistria.
Economic Background
With prevailing jet-black soils of above-average fertility and with bountiful sunshine, Moldova was predestined to develop agriculture and food industry. Because of its plentiful natural resources, during Soviet times Moldova was assigned the role of supplier of foodstuffs, wine and tobacco for the rest of the Union. In fact, fresh fruits and wines were part of Moldova’s image of the “sunny garden.” Approximately 40 percent of the workforce is engaged in horticulture, viticulture, or animal husbandry. The agricultural sector accounts for about 15 percent of the gross domestic product. If agribusiness is included, the degree of dependence on agriculture becomes even greater, as food processing contributes some 50 percent to industrial production. Agribusiness contributes over 30 percent to the GDP and two thirds to the country’s merchandise exports.
Vegetal production dominates agricultural output with roughly 70% in contrast to the remaining 30% of the animal production. Moldova grows a variety of temperate fruits and vegetables, including tomatoes, cucumbers, peppers, peas, cabbage, onions, apples, peaches, apricots, plums and cherries that are either sold fresh or become raw materials for the food processing industry. The country also traditionally grows wheat (1 million tons), yellow corn (1 million tons), sunflower seeds (300,000 tons), sugar beets (1 million tons) and grapes (500,000 tons). The sunflower seeds are the primary source of raw materials for the domestic vegetable oil production. Every year, sugar beets are processed by 5 sugar refineries into approximately 110,000 tons of sugar. About 20 percent of sugar is exported to neighboring countries.
The wine industry remains Moldova’s leading industry with a lot of potential and centuries-old traditions. Moldova is in fact in the top 15 largest wine exporters in the world. Vineyards account for just 7 percent of all agricultural land, but provide a quarter of all agro-industrial production. There are a total of 145 wine companies with total processing capacity of 1 million tons of grapes. The industry has always been export-oriented, with 95 percent of the output being exported. A few leading wine companies have taken steps over the recent years to resolve the quality consistency problem affecting Moldovan wines and have invested in new vineyard plantations for higher quality of grapes.
Moldova remains a net exporter of agribusiness products. CIS remains the main destination for Moldovan food and wine exports, even though the country has made some remarkable progress in exporting juice, mainly apple juice concentrate, to Western European countries. Moldova needs to further diversify its export markets; as recent developments show, heavy reliance on Eastern markets (especially Russia), prone to politically-motivated decisions affecting trade, negatively impacts Moldovan agribusiness.
Land reform efforts started in 1992 and led to the dissolution of state and collective farms as a result of privatization carried out with the support of USAID. Private ownership now dominates in agribusiness; in agriculture, especially, private ownership is as high as 99 percent.
A landlocked country, Moldova is dependent on transportation by railway and road. The railway has been the main mode of transport in shipping merchandise to the vast Eastern market. The country is set to gain access to water transport once the dry cargo and oil terminals of the Giurgiulesti port on the Danube are commissioned by the Dutch-registered EasEur Holding.
Some constraints remain in agriculture:
1) fragmentation of land holding of orchards and vineyards;
2) reduced use of fertilizers and chemicals;
3) decline in the area of perennial plantations (orchards and vineyards);
4) restriction on foreigners to buy or sell agricultural land (foreigners may own land through inheritance; they may lease agricultural land from Moldovan citizens);
5) collapse of the irrigation systems;
6) lower yields;
7) vulnerability to weather conditions resulting in striking variations in yields;
8) decrepit agricultural machinery;
9) antiquated and energy-inefficient food processing equipment;
10) underutilization of food processing capacities;
11) low labor productivity;
12) limited access to commercial loans, especially mid-term and long-term.
Table. Statistics on Moldovan Agriculture and Economy
|
Indicators |
2003 |
2004 |
2005 |
|
GDP, USD billion |
1.981 |
2.598 |
2.917 |
|
GDP per capita, USD |
548.4 |
721.1 |
811.5 |
|
Inflation, % |
15.7 |
12.5 |
10.0 |
|
Agricultural land, thousand ha |
1,951.1 |
1,950.9 |
1,951.8 |
|
Agricultural output, USD million |
742.6 |
958.7 |
947.4 |
|
Vegetal Output, USD million |
508.2 |
640.8 |
581.1 |
|
Animal output, USD million |
210.7 |
285.9 |
334.6 |
|
Winter wheat, thousand tons |
101 |
854 |
1,046 |
|
Yellow corn, thousand tons |
1,414 |
1,794 |
1,486 |
|
Sunflower seeds, thousand tons |
390 |
335 |
336 |
|
Soybeans, thousand tons |
19 |
40 |
65 |
|
Sugar beets, thousand tons |
657 |
911 |
989 |
|
Potatoes, thousand tons |
303 |
318 |
378 |
|
Vegetables, thousand tons |
361 |
315 |
389 |
|
Fruits and berries, thousand tons |
617 |
430 |
384 |
|
Grapes, thousand tons |
677 |
686 |
517 |
Source: National
Statistics Bureau and Ministry of Agriculture and Food
High Value Agriculture
High value agricultural (HVA) products generally produce higher revenues per hectare, higher net income per unit of production when sold in either fresh or processed form, and higher added value when processed as compared to other crops or their processed derivatives. Fruits and vegetables have consistently shown higher revenues and profits per hectare as compared to other crops, such as cereals or sunflower seeds. A USAID commissioned study of high value agriculture in Moldova identifies tomatoes, eggplants, cabbage, potatoes, winter apples, table grapes and onions among the HVA products. As yield levels will increase once producers employ improved farming practices and high yield technologies, the HVA sector will incur less production costs and may generate higher profits. Moldova is a traditional producer, processor and exporter of HVA products.
As the study reveals, a total of USD 2 billion is required to return high value agriculture to optimal production. According to the same report, Moldova has several competitive advantages for developing high value agriculture: favorable climatic conditions, high quality soil, land suitable for irrigation and access to abundant water resources, as well as proximity to major foreign markets whose demand for these products is dramatically growing. In the long run, the success of the HVA business will depend on penetration of EU markets.
To enter the fresh vegetable and fruit markets in Europe, producers have to meet EUREPGAP requirements. GAP stands for ‘Good Agricultural Practice’, a minimum production standard for a good agricultural practice and is based on risk prevention, risk analysis, sustainable agriculture by means of Integrated Pest Management (IPM) and Integrated Crop Management (ICM). To obtain the certificate enterprises have to meet the requirements of the EUREPGAP control points and compliance criteria, and obtain certification from an accredited firm.
Canning Industry
The Moldovan canning industry consists of 17 large and over 50 small canneries. Only 6 large canneries are operational. Remaining 11 large canneries are either in bankruptcy or in restructuring, representing opportunities for investment and further expansion. The six canneries produce over 80% of the entire output of the canning industry. The canning industry produces an average of 300,000 tons of processed/canned vegetables and fruits and a product range of 200 denominations. A half of all exports from canneries are usually juice and juice concentrate, one third vegetable-based products and 5-10% jams.
Russia, which was one of the large destinations for Moldovan juice, lost its precedence by taking currently only 10 percent of the product. Over a third of all juice concentrate is shipped to Germany, followed by Austria, the Baltic States and Canada.
The industry is seasonal with peak production levels during the harvesting period of summer-autumn and peak sales in winter-spring. Canneries purchase fruits and vegetables from a large number of farmers, with quantities and price being influenced by crop level. As result, the total industry output growth rates swing from +40% in good years to -10% in low yield years. To mitigate supply risks, many canneries have started to invest in farming, by either buying or renting land plots in their regions.
German, Italian and Swedish suppliers dominate the market of food processing and packaging equipment. U.S. equipment is virtually unknown to Moldovan producers. Alfa Nistru is among the few Moldovan food processors that has a U.S. production line for sweet corn.
In order to sustain their international competitiveness, successful Moldovan companies have certified quality control or food safety systems, such as HACCP or ISO, and have invested in new equipment and farming.
The leading Moldovan canneries are Natur Bravo, Alfa Nistru, Orhei Vit and Cosnita.
Natur Bravo, the largest juice producer in Moldova, 100% owned by the U.S. Western NIS Enterprise Fund, controls 3 processing facilities in Cupcini, Ungheni and Floresti, which are known as the most horticulture-friendly regions of the country. The company commands a 30%-share of the processing industry and exports 90% of its output. A leading Moldovan exporter, Natur Bravo, produces apple juice concentrate, canned fruits and vegetables, juices and drinks, and frozen fruits and vegetables. Among the company’s plans are investment in flash freezing of fruits and vegetables.
Orhei Vit, which is fully owned by Development Group USA, produces food products that are perhaps the most easily recognizable on the domestic market by its brand Vita. The company has 3 projects underway for which it invites U.S. partners for business cooperation. Orhei Vit plans to extend its orchards and baby food production, develop a greenhouse and start the production of deep frozen fruits and vegetables in its Causeni facility.
There are growth opportunities in the canning industry by penetrating other segments, such as frozen products and baby foods, building sound branding and developing effective distribution strategies.
Business Opportunities For U.S. Companies
Years of economic decline and the dearth of working capital led to little or no use of fertilizers and chemicals in agriculture and hence virtually organic agricultural produce. Low yields in organic farming are well compensated by high profit margins on such produce in Western markets, where changes in dietary habits stem from increased health awareness. If certified, organic farming represents a huge potential for investment.
A traditional and big producer of grapes, including table grapes, Moldova outputs little if any seedless table grapes. With investment in high-yield grape varieties and sufficient patience to grow the new vineyards, this may generate good returns for a skillful businessman. Recommendations for competitive development of table grape plantation can be found here ftp://ftp.moldova.cnfa.org/reports/MEPO%20Table%20Grape%20RT.doc
Moldova has ideal climatic and soil conditions for the production of walnuts. Ignored in the past, the walnut sector has seen recently rapid growth due to low cost labor, comparative advantage in production and preferential trade access to the EU market. There is room for development with the establishment of formal plantations, which could substantially increase yields and quality of the walnut. There is also potential for development of pharmaceutical products derived from shells.
With a high output of sunflower seeds, Moldova has only one major producer of sunflower oil, Floarea Soarelui, and a large number of smaller crushing mills. Trans Oil, a U.S. company, entered the oil-milling sector by buying a plant in Ceadar Lunga and is currently expanding production capacities with the assistance of a USD 10 million OPIC insurance. Trans Oil will be looking for milling equipment to upgrade the plant.
Fresh, dried or frozen fruits and vegetables represent another good opportunity. The key factor is penetration of reliable Western markets with higher payment capacity. Building or renovating existing facilities in accordance with strict EU quality and safety standards is a key success factor in this type of business. The supply of fresh fruits and vegetables to export markets during peak periods leads to seasonal price declines. Producers can reap higher profits for deliveries off season. Greenhouses and various types of cold storage or controlled atmosphere storage facilities provide a good opportunity to sell products off season.
As the trend has been set for successful businesses to move to high value agriculture and use cost and energy-efficient technologies, irrigation systems, especially small scale irrigation, contributing to higher yields will be in demand. As the recent Moldagrotech trade show reveals there is an increased offering of drop irrigation systems from a variety of companies in the market.
Some of the above-mentioned constraints, with proper management and investment, can be turned into good business opportunities.
The country’s parliament is currently seriously considering mandatory use of a percentage of bioethanol in car fuels. The nearby EU countries and members-to-be Romania and Bulgaria provide a big sales outlet for biofuel. There is plenty of corn and feed grade grain cultivated in Moldova. Reportedly, German investors have already launched biofuel production in the North of the country through the use of rapeseed. A few local companies have developed projects of bioethanol production. One such company, Seminte Nord, is looking for a U.S. partner willing to invest and supply equipment for bioethanol production in Moldova http://www.bisnis.doc.gov/bisnis/lead.cfm?1495. The feasibility of ethanol production was recently considered by the USAID-funded Agribusiness Development Project (ADP). The Report Pre-feasibility Assessment of Ethanol Production in Moldova is available here ftp://ftp.moldova.cnfa.org/REPORTS/Ethanol_Production.pdf.
U.S. companies interested in finding leads in the agribusiness sector should address the BISNIS Representative in Moldova:
Iulian Bogasieru
BISNIS Representative
U.S. Embassy Moldova
Str. Alexe Mateevici 103, Chisinau MD 2009, Moldova
Tel. (373 22) 40 89 05
Fax (373 22) 40 89 62
e-mail: iulian.bogasieru@mail.doc.gov
Participation In Trade Shows And Fairs
Moldova hosts a range of trade shows that call for the attention of U.S. companies. Participation in trade shows is a good tool for profile building.
Food & Drinks. Food Technology. Packaging. Depot will be held May 16-20, 2007 at Moldexpo Exhibition Center. The trade show brings together local food manufacturers and companies offering food processing, product handling and packaging equipment. http://www.food-drinks.moldexpo.md/news_e.html
MoldAgroTech. Farmer. Moldeco – October 24-28, 2007 at Moldexpo.
http://www.moldagrotech.moldexpo.md/news_e.html The trade show is among the largest in Moldova and has been attracting every year a growing number of domestic and foreign participants. Among the exhibitors are local farmers, international projects supporting agriculture, manufacturers and dealers of plant seedlings, milling equipment, tractors, harvesters, agricultural machinery, irrigation systems, equipment for poultry farms and cattle farms, etc.
Landscape Design held on March 14-17, 2007 at Moldexpo jointly with the MoldConstruct and MoldEnergy trade shows.
ExpoVin Moldova organized each year by Poliproject Exhibitions is the most popular fair in Moldova, given the significance and traditions of the wine industry. The fair showcases Moldova’s largest wine producers and exporters and also attracts suppliers of bottling and wine production equipment. An international wines contest and international wine scientific and practical conference anticipate the show. In 2007, the fair will be held on February 21-24. www.vinmoldova.md
The Moldova wine festival, an event held yearly since 2002 on the second weekend of October in Chisinau under the patronage of the Moldovan President, celebrates the wine producers and represents a tourist attraction. It is also an opportunity to taste the young wine of the year’s vintage. Before and during the wine festival celebrations, the government of Moldova provides visa fee waivers to foreigners entering the country.
Also, USAID funds two projects on Competitiveness Enhancement and Enterprise Development (CEED) and Agribusiness Development (ADP) that organize trainings, presentations and conferences dealing with the agribusiness sector.
Useful Contacts:
Ministry of Agriculture and Food Industry
Bul. Stefan cel Mare 162, Chisinau MD 2004, Moldova
Tel. (373 22) 23 34 27
Fax (373 22) 210 204
Minister: Mr. Anatol Gorodenco
Moldova Vin Agroindustrial Agency
Bul. Stefan cel Mare 162, Chisinau MD 2004, Moldova
Tel. (373 22) 21 00 73
Fax (373 22) 21 00 73
Director General: Mr. Valeriu Mironescu
Agribusiness Development Project (ADP)
Str. Bulgara 33/1, Accent Tehno Building, Chisinau MD 2001, Moldova
Tel. (373 22) 57 79 30
Fax (373 22) 57 79 31
e-mail: info@moldova.cnfa.org
Chief of Party: Mr. Conrad Fritsch
Competitiveness Enhancement and Enterprise Development (CEED)
Strada Tighina 49/4, Chisinau MD 2001, Moldova
Tel. (373 22) 50 52 32
Fax (373 22) 50 52 30
e-mail: office@ceed.md
Chief of Party: Mr. Douglas Griffith
USAID
Asito Building, Str. Banulescu Bodoni 57/1, Chisinau MD 2005, Moldova
Tel. (373 22) 20 18 33
Fax (373 22) 23 72 77
Country Program Officer: Mr. John Starnes
U.S. Foreign Agriculture Service Sofia (the office covers Moldova)
16 Koziak Str., 1407 Sofia, Bulgaria
Tel. (359 2) 939 5704
Fax (359 2) 939 5744
e-mail: agsofia@usda.gov
Agricultural Attache: Ms. Susan Reid
International Exhibiton Center Moldexpo
Str. Ghioceilor 1, Chisinau, Moldova
Tel. (373 22) 74 74 19
Fax (373 22) 74 74 20
Director General: Ms. Natalia Ciocan
Poliproject Exhibition
Str. Maria Cibotari 19, Chisinau MD 2012, Moldova
Tel. (373 22) 22 20 70
Fax (373 22) 23 27 55
Director General: Mr. Arcadie Andronic
Moldovan-American Chamber of Commerce (AmCham Moldova)
Drumul Viilor 28/2, Chisinau MD 2032, Moldova
Tel.: (373 22) 73 70 56
Fax: (373 22) 73 71 29
President: Mr. John Maxemchuk
Horizon Capital
Str. Sfatul Tarii 27, Chisinau MD 2012, Moldova
Tel. (373 22) 23 71 41
Fax (373 22) 23 71 36
Orhei Vit
Str. Ion Creanga 22/2, Chisinau, Moldova
Tel. (373 22) 23 49 54
Fax (373 22) 74 99 69
Alfa Nistru
Str. Stefan cel Mare 131, Soroca MD 3000, Moldova
Tel. (373 230) 236 47
Fax (373 230) 234 44
President: Mr. Ilarion Ceban
Natur Bravo
Str. V. Alecsandri 103/1, Chisinau MD 2012, Moldova
Tel. (373 22) 21 29 28
Fax (373 22) 21 29 28
Fabrica de Conserve Cosnita
Str. Pacii 1, Dubasari, Cosnita MD 4572, Moldova
Tel. (373 248) 44 715
Fax (373 248) 44 716
For more information on Moldova, visit BISNIS online at http://www.bisnis.doc.gov/bisnis/country/moldova.cfm
BISNIS (www.bisnis.doc.gov)
is part of the U.S. Commercial Service (www.export.gov).